Epsilon is proposing to continue from Alberta to Delaware

Epsilon is an Alberta corporation holding, through US subsidiaries, a profitable U.S. oil and gas business. It is proposing to continue out of Canada and be "domesticated" as a Delaware corporation pursuant to the continuance “export” provisions in the ABCA and the domestication provisions in the Delaware General Corporation Law. Although this will result in a deemed disposition of all its property (s. 128.1(4)(b)) and an exit tax calculated at 5% of NAV minus PUC (s. 219.1), management does not anticipate any material Canadian income tax under these rules based on current values and Canadian tax attributes including significant loss carryforwards and (it would appear) significant paid-up capital for its shares.

U.S. shareholders holding less than 10% of its shares can elect, in lieu of recognizing gain, based on the FMV of their shares, to include in income as a deemed dividend the “all earnings and profits amount” attributable to their shares, which management estimates to be nil.

As discussed in a previous post on another transaction, the continuance of Gastar Exploration (with a U.S. natural gas business) from Alberta to Delaware was regarded from a U.S. tax perspective as entailing a transfer by Gastar of all its assets to the new Delaware corporation (Gastar Delaware), followed by a distribution by Gastar of Gastar Delaware to its shareholders. This distribution step was problematic as Gastar Delaware was a United States real property holding company for FIRPTA purposes. Notwithstanding that essentially the only properties of Epsilon are its U.S. oil and gas interests, its disclosure indicates that the domesticated Epsilon is not anticipated to be a USRPHC.

Neal Armstrong. Summary of Epsilon Energy Proxy Circular under Other - Continuances/Mergers.