Anderson/Freehold

Documents
(SEDAR filing: 23 December 2014) Circular of Anderson Energy Ltd. ("Anderson") for distribution of its core assets to 1862894 Alberta Inc. ("New Anderson") followed by its sale by New Anderson to Freehold Royalties Ltd. ("Freehold") (1659 K). Bennett Jones.
Summaries
Summary Under
Tax Topics - Public Transactions - Other - Loss Utilizations/TRAs
Distribution of Anderson Energy core assets to New Anderson and sale of Anderson Energy to Freehold

The Anderson shareholders will transfer all their common shares of Anderson under an Alberta Plan of Arrangement to a new Alberta company (New Anderson) in exchange for an equal number of New Anderson common shares. Anderson then will transfer most of its assets to New Anderson, other than shallow gas assets (which are considered to be non-core assets) in consideration for assumption of liabilities and the issuance of New Anderson common shares – which will then be distributed to New Anderson for cancellation as a stated capital distribution. New Anderson will then sell Anderson to Freehold for $35 million. It is anticipated that by virtue of a ITA s. 66.7(7)(e) successor election, New Anderson will acquire resource pools of Anderson, whereas Anderson will retain non-capital losses and undepreciated capital cost of $222 million (with the $35 million purchase price subject ot adjustment if such tax attributes are less than $222 million).

See full summary under Spin-Offs & Distributions – Taxable Spin-offs.

Summary Under
Tax Topics - Public Transactions - Spin-Offs & Distributions - Taxable spin-offs
Distribution of Anderson Energy core assets to New Anderson and sale of Anderson Energy to Freehold
Overview

The Anderson shareholders will transfer all their common shares of Anderson under an Alberta Plan of Arrangement to a new Alberta company (New Anderson) in exchange for an equal number of New Anderson common shares. Anderson then will transfer most of its assets to New Anderson, other than shallow gas assets (which are considered to be non-core assets) in consideration for assumption of liabilities and the issuance of New Anderson common shares – which will then be distributed to New Anderson for cancellation as a stated capital distribution. New Anderson will then sell Anderson to Freehold for $35 million. It is anticipated that by virtue of a ITA s. 66.7(7)(e) successor election, New Anderson will acquire resource pools of Anderson, whereas Anderson will retain non-capital losses and undepreciated capital cost of $222 million (with the $35 million purchase price subject ot adjustment if such tax attributes are less than $222 million).

Anderson

TSX-listed Alberta company producing light sweet crude from the Cardium formation northwest of Calgary. Two series of debentures also are listed.

New Anderson

Incorporated under the ABCA on 26 November 2014, with the same authorized capital as Anderson and with Anderson as its sole shareholder, for the purpose of participating in the Plan of Arrangement. Following the Arrangement, it will use the assets acquired from Anderson and the net sale proceeds of $33 million to carry on the same business.

Accounting

As New Anderson will be considered to be under common control, IFRS 3 will not apply. Management has determined that the financial statements of New Anderson will use predecessor carrying values without any step up to fair value.

Plan of Arrangement
  1. Each Anderson common share will be transferred to New Anderson in exchange for one New Anderson common share.
  2. The New Anderson common share held by Anderson will be repurchased by New Anderson for its fair market value.
  3. Anderson will be deemed to have filed an election under ITA – s. 89(1) – (c) to not be a public corporation.
  4. Each Anderson option will be cancelled in consideration for one New Anderson option.
  5. Anderson will be deemed to have transferred its assets (other than certain non-core assets being predominantly shallow gas assets) to New Anderson for fair market value consideration consisting of the assumption of liabilities (including Anderson debentures) and the issuance of New Anderson common shares. In this connection Anderson and New Anderson will jointly elect under ITA s. 85(1) with an agreed amount as designated by New Anderson subject to Anderson comments, and will also jointly elect to have ITA s. 66.7(7)(e) apply, and the stated capital of the New Anderson common shares so issued will be equal to the s. 85(2.1) limit.
  6. Anderson will reduce the stated capital of the Anderson common shares by an amount equal to the fair market value of the New Anderson common shares issued in 5 above, and satisfy the resulting payment obligation by distributing such New Anderson common shares to New Anderson for cancellation.
  7. New Anderson shall transfer its Anderson common shares to Freehold in consideration for cash consideration (subject to an escrow amount) of $35 million.
Canadian tax consequences

Share exchange. S. 85.1 applies to exchange of Anderson for New Anderson common shares.

Resource pools and NCLs

The asset conveyance agreement between Anderson and New Anderson provides that they shall file certain tax elections including a successor tax election pursuant to ITA s. 66.7(7)(e). "By virtue of New Anderson having acquired approximately 92% of Anderson's Canadian resource property…it is anticipated that the successor tax election will allow New Anderson to also acquire the undeducted resource tax pools of Anderson, on a ‘successored' basis… ." Accordingly, it is anticipated that New Anderson will have Canadian tax pools which may be applied by it to shelter future income, including successor resource pools. At 30 September 2014, Anderson's total Canadian federal income tax pools were estimated to be $371 million. The "Tax Attributes" (being unexpired non-capital losses and undepreciated capital cost) that will remain with Anderson following completion of the Arrangement are estimated to be approximately $222 million.