TORC/Vero -- summary under Triangular Amalgamations

Summary Under
Tax Topics - Public Transactions - Mergers & Acquisitions - Amalgamations - Triangular Amalgamations
Triangular amalgamation of TORC (a private company) with a wholly-owned subsidiary of Vero
Overview

The arrangement effectively represents an acquisition of TSX-listed Vero, seen as a high netback, light oil focused Cardium resource play, by TORC (an unlisted Alberta company), which is focused on the southern Alberta Bakken petroleum system. The implied value of the arrangement to Vero shareholders of $3.00 per share (based on the pricing of the private placement described below) represents a premium of 48% to the 10-day pre-announcement VWAP of their shares on the TSX.

Break fees

There are potential reciprocal break fees of $6.5M.

Private placement of subscription receipts

There first is a private placement by TORC of up to 35.42M subscription receipts and 12.91M subscription receipts to acquire TORC shares on a flow-through basis, for total proceeds of approximately $132M. The proceeds will be released to New TORC (described below) if the arrangement is implemented by December 21, 2012, and the cash proceeds returned if it is not.

Plan of Arrangement

Under an Alberta Plan of Arrangement:

  • TORC shares of dissenters are cancelled, with an entitlement to be paid their fair value by New TORC (or by Vero per the tax disclosure)
  • TORC (non-flow through) subscription receipts are converted into TORC shares on a 1-for-1 basis
  • AcquisitionCo (a wholly-owned Alberta subsidiary of Vero) and TORC amalgamate to continue under the TORC name ("AmalCo 1"). On the amalgamation:
    • each issued and outstanding TORC share (other than TORC shares held by Vero and AcquisitionCo) is exchanged for 0.87 of a Vero share
    • Vero's shares of AcquisitionCo and of TORC become shares of AmalCo 1 on a 1-for-1 basis
  • the stated capital of the AmalCo 1 shares is reduced to $1, and Vero and AmalCo 1 amalgamate in a short-form style amalgamation to continue under the TORC name ("AmalCo" or "New TORC")
  • each TORC flow-through subscription receipt is "converted and exchanged" for 0.87 of an AmalCo share

There will be approximately 225M New TORC shares outstanding.

Options

Options to acquire Vero shares will become fully vested immediately prior to the effective date of the arrangement. Vero has agreed to use its reasonable commercial efforts to cause all outstanding Vero options to be exercised or surrendered prior to the effective date. All of the outstanding options and warrants to acquire TORC shares will roll over in accordance with their terms and become obligations of New TORC.

Canadian tax consequences

Conversion/exercise of subscription receipts. No capital gain or loss will be realized on the issuance of a TORC share pursuant to a TORC subscription receipt, or of a New TORC share pursuant to a TORC flow through subscription receipt, based on counsel's understanding that each such subscription receipt "evidences a right to acquire a TORC Share." The cost of the TORC or New TORC shares thereby acquired will equal to the amount paid for the subscription receipts.

Amalgamations

TORC shareholders will receive Vero shares on a rollover basis under ss. 87(9)(a) and 87(4), and Vero shareholders will receive New TORC shares on a rollover basis under s. 87(4).

Dissenters

Will realize a capital gain or loss.

Non-residents

Vero shares received by TORC shareholders on the first amalgamation, and New TORC shares received in exchange therefor on the second amalgamation, will be deemed under s. 87(4) to be taxable Canadian property for the following 60 months.

US tax consequences

The Arrangement Agreement contemplates that the arrangement will qualify as a tax-deferred reorganization under Code s. 368(a).