DeeThree/Boulder/Granite Oil

Overview

Under an Alberta Plan of Arrangement, DeeThree will transfer its Brazeau Belly River assets (the "Spin-Off Assets") on a rollover basis to Boulder in connection with a butterfly spin-off of Boulder to its shareholders. DeeThree (renamed Granite Oil) will retain its assets in the Bakken formation. No tax ruling was sought, no indemnities were given respecting post-Arrangement actions that might cause the butterfly to be taxable and no Canadian tax risks were disclosed. The reorganization is expected to be treated as a qualifying Code s. 355 distribution on the basis of the form of the transactions being disregarded.

DeeThree

A TSX-listed Alberta oil and gas company with a market cap of $600M.

Boulder

A newly-incorporated Alberta subsidiary of DeeThree. A TSX listing application has been made.

Plan of Arrangement

1. DeeThree common shares held by validly dissenting shareholders will be transferred to DeeThree.
2. Out-of-the money options will be terminated and in-the-money options will be exchanged for replacement options on (post-spin off) DeeThree and Boulder shares.
3. The articles of DeeThree will be amended to redesignate the DeeThree common shares as Class A common shares and to create DeeThree Special Shares.
4. Each DeeThree shareholder will exchange its Class A common share for 1/3 of a DeeThree common share and 0.5 of a DeeThree special share, with the stated capital being allocated on a proportionate basis.
5. Each DeeThree Special Share will be transferred to Boulder in consideration for one Boulder common share, with the stated capital for the Boulder common shares increasing by the paid-up capital of the transferred DeeThree Special Shares.
6. DeeThree will transfer the Spin-Off Assets to Boulder in consideration for assumption of liabilities and for Boulder Special Shares, with a joint s. 85(1) election being made.
7. Boulder will purchase the Boulder Special Shares for cancellation in consideration for a non-interest-bearing promissory note.
8. DeeThree will purchase the DeeThree Special Shares for cancellation in consideration for a non-interest-bearing promissory note.
9. The promissory notes issued in 7 and 8 will be set off.
10. The full amount of the deemed dividend arising upon the redemptions in 7 and 8 will be deemed to have been designated by Boulder or DeeThree, as the case may be, as an eligible dividend.

Canadian tax consequences

The exchange of Class A common shares for DeeThree common and Special Shares in 4 will occur on a rollover basis. The exchange of DeeThree Special Shares for Boulder common shares in 5 will occur on a rollover basis. (No reference is made to a potential income inclusion at the transferor's option under s. 85.1(1)(a).) Following the Arrangement, DeeThree will advise holders of an appropriate proportionate allocation of the adjusted cost bases between the DeeThree and Boulder common shares.

U.S. tax consequences

DeeThree expects that (i) the mechanics of the Arrangement will be disregarded and treated as if DeeThree had transferred the Spin-Off Assets to Boulder in exchange for Boulder common shares and the assumption of liabilities, and DeeThree had distributed all of the Boulder shares to its shareholders. (ii) DeeThree and Boulder each has been engaged in an "active trade or business' as defined in Code s. 355 for at least five years immediately prior to the Arrangement and such trade has produced income, and (iii) as a result the Arrangement will qualify as a tax-free transaction under Code ss. 355 and 368(a)(1)(D). On this basis, no gain or loss will be recognized upon the receipt by U.S. holders of DeeThree and Boulder common shares under the Arrangement.