Amalgamations

Non-Triangular Amalgamations

Contact/Donnycreek

Amalgamation of Donnycreek and Contact with premium of 56% for Donnycreek shareholders, who also control Amalco
Overview

Under an Alberta Plan of Arrangement, Donnycreek and Contact will amalgamate on the basis of exchange ratios which will reflect a 56% premium for the Donnycreek shares and with Amalco's management comprised of current Contact management. Donnycreek and Contact shareholders initially will hold 56.4% and 43.6% of Amalco, respectively. Dissenters may receive deemed dividend treatment.

Donnycreek

A TSV-listed oil and gas Alberta company.

Contact

A TSV-listed oil and gas Alberta company.

Plan of Arrangement and Amalgamation

Under the Plan of Arrangement, the shares and options of Donnycreek and Contact held by dissenters shall be deemed to be transferred to Donnycreek or Contact, as the case may be, for their fair value. Under an amalgamation of Donnycreek and Contact (also occurring under the Plan of Arrangement) each Donnycreek and Contact share (other than those held by Contact or Donnycreek) will be exchanged for 0.6 and 0.075 of an Amalco share, respectively, and with options on Donnycreek and Contact being exchanged for options on Amalco shares on a basis reflecting these exchange ratios. The stated capital of the Amalco shares will be equal to aggregate paid-up capital of the Donnycreek and Contact shares immediately before the amalgamation minus those of the shares of Donnycreek and Contact held by each other.

Canadian tax consequences

The amalgamation exchange will occur to shareholders on a rollover basis. Resident holders exercising dissent right may be deemed to have realized a dividend to the extent that the proceeds of disposition exceed the paid-up capital of their shares.

Charger/AvenEx/Pace

Amalgamation of Charger, AvenEx and Pace following share exchange
Overview

Under an Alberta Plan of Arrangement, all the non-dissenting shares of Charger and AvenEx will be exchanged for treasury shares of Pace, following which Charger and AvenEx will be amalgamated into Pace to continue as Spyglass (which will have a market cap of $344M). Charger, AvenEx and Pace are Alberta companies listed on the TSXV, TSX and TSX, respectively. The shareholders of Charger, AvenEx and Pace will hold 9%, 43% and 48%, respectively, of the shares of Spyglass.

Plan of Arrangement

Under the Plan of Arrangement:

  • each of the issued and outstanding Pace shares will be subdivided into 1.3 shares
  • AvenEx, Charger and Pace shares of dissenters will be transferred for their fair value to the respective companies
  • the stated capital of the shares of AvenEx and Charger will be reduced to $1.00
  • each Charger share will be transferred to Pace in exchange for 0.18 of a Pace share
  • each AvenEx share will be transferred to Pace in exchange for 1.00 of a Pace share
  • Charger and AvenEx will be amalgamated with Pace to continue as Spyglass (with the Pace shares continuing as Spyglass shares)
  • the stated capital of the Spyglass shares (whose pro forma equity book value is $636.2M) will being reduced to $1.00, with the reduction added to contributed surplus
Options

In-the-money Charger and Pace options will be exercised and out-of-the –money options will be surrendered for $0.001 per option.

Canadian tax consequences

Share exchange occurs under s. 85.1/rollover on amalgamation. No estimate of the quantum of deemed dividends to dissenters.

U.S. tax consequences

Charger, AvenEx and Pace believe they are not and were not PFICs. On this basis and given that the Arrangement should qualify as a tax-deferred exchange under Code s. 368(a), no gain or loss will be recognized by a U.S. holder on the exchange of Charger, AvenEx or Pace shares for Spyglass shares, provided that U.S. holders who own directly or by attribution 10% or more of the Charger, AvenEx or Pace shares or, following the amalgamation, the Spyglass shares, may be required to recognize a proportionate share of the earnings and profits of Charger, AvenEx or Pace as dividends.

Triangular Amalgamations

Metro/PJC

triangular amalgamation for issuance of redeemable prefs or Metro shares and with safe income dividends to electing PJC shareholders

Overview

Under the proposed acquisition of PJC by Metro Inc. under a triangular amalgamation involving a subsidiary of Metro, PJC shareholders will be given a choice of cash or Metro shares (at an Exchange Ratio resulting in the receipt of 0.61006 Metro Shares per PJC share), subject to proration to accommodate the intended global allocation of cash of approximately $3.377 billion and Metro shares valued at approximately $1.126 billion. Cash (of $24.50 per PJC "Share") will be paid through the issuance of redeemable prefs of Amalco (having a paid-up capital of $24.50 per share, some of which might be derived from Metro Subco shares) which will be immediately and automatically redeemed. As an exception to this basic mechanic, a resident taxable PJC shareholder is given the option of rolling its PJC shares into a new single-purpose Quebec holding company, with that Holdco then being included in the amalgamation and with its shares effectively converted into Metro shares or cash in the same way. The extensive stated limitations on what a “Qualifying Holdco” is permitted to do permit various types of safe income dividends to be paid by the Qualifying Holdco. Similar planning occurred in the AIP acquisition of Canam. Stock options with in-the-money value are cashed out by PJC immediately before the amalgamation.

PJC

The Corporation is listed on the TSX and governed by the Business Corporations Act (Québec) (“QBCA”). It specializes in the distribution and retailing of pharmaceutical, healthcare, hygiene, beauty and other products. As at October 24, 2017, 80,292,561 Class A Shares and 103,500,000 Class B Shares were issued and outstanding. Class A Shares represented 7.20% and Class B Shares represented 7.20% and 92.80% of the total voting rights, respectively. Mr. Jean Coutu, controlled (alone or together with family member) 4,025,960 Class A Shares, representing 5.01% of the issued and outstanding Class A Shares, and 103,500,000 Class B Shares, representing 100% of the issued and outstanding Class B Shares, and together, representing 58.50% of the issued and outstanding Shares and 93.16% of the total voting rights.

Metro

Metro is a QBCA corporation listed on the TSX that is a leading Canadian food and pharmaceutical retailer and distributor with operations concentrated in Québec and Ontario.

Proration of cash and share consideration

Proration will be effected such that Shareholders will receive, in the aggregate, cash in respect of 75% of the issued and outstanding Shares (or approximately $3.377 billion) and Metro Shares in respect of 25% of the issued and outstanding Shares (or a value of approximately $1.126 billion).

Options, deferred share units and performance-based shares

Immediately prior to the Amalgamation, each Option, whether or not vested, if it has an exercise price less than $24.50, will be surrendered to PJC for a cash payment by PJC equalling the difference, and otherwise will be cancelled. Each DSU and PBS, whether or not vested, will be surrendered to PJC for cancellation in exchange for a cash payment by PJC.

Amalgamation

At the Effective Time on the Effective Date, PJC, Metro Subco and each Qualifying Holdco (described below) will be amalgamated under the QBCA to continue as Amalco, whose authorized share capital will consist of an unlimited number of Amalco Common Shares and Amalco Redeemable Shares. Upon the Amalgamation becoming effective the Shares (other than Shares held by Dissenting Shareholders and Shares held by Qualifying Holdcos) and the Qualifying Holdco Shares whose Qualifying Holdco Shareholder has elected the Holdco Alternative will either be:

  • converted into the same number of Amalco Redeemable Shares, to be redeemed by Amalco in accordance with their share terms for $24.50 per share in cash; or
  • cancelled, with the holder receiving in exchange such number of Metro Shares determined in accordance with the (0.61006) Exchange Ratio.

The shares of Metro in Metro Subco are converted on the amalgamation on a one-for-one basis into common shares of Amalco. The aggregate paid-up capital of the shares in the amalgamating corporations (other than shares of dissenters) will be allocated first to give full PUC to the Amalco Redeemable Shares, with the balance being allocated to the Amalco common shares.

Qualifying Holdco Alternative

Metro will permit each registered owner (a "Qualifying Holdco Shareholder") that is resident in Canada, is not exempt under Part I of the Tax Act (including a partnership if all of the members of the partnership are resident in Canada), transfers all of its Shares to the Qualifying Holdco and elects in respect of such Shares to include in the Amalgamation a corporation (a "Qualifying Holdco") that meets conditions including those described below (the "Holdco Alternative"):

  • the Qualifying Holdco was incorporated under the QBCA not earlier than January 15, 2018, unless written consent is obtained from Metro;
  • such Qualifying Holdco will not be comprised of more than three classes of shares, two classes of common shares and one class of preferred shares, the terms and conditions of which will be determined in consultation with Metro;
  • such Qualifying Holdco is a single purpose corporation that has not carried on any business, has no employees, never holds any assets other than Shares and nominal cash, has never entered into any transaction other than under the Holdco Alternative except as consented to by Metro;
  • such Qualifying Holdco has no liabilities;
  • such Qualifying Holdco will not have unpaid declared dividends and will not have paid any dividends or other distributions, other than an increase in stated capital, a stock dividend, a cash dividend financed with a daylight loan or a dividend paid through the issuance of a promissory note with a determined principal amount and any such promissory note issued in relation to the payment of any such dividend will have been capitalized into such Qualifying Holdco and no longer be outstanding as of the Effective Time;
  • without written Metro consent, such Qualifying Holdco will not have made any election or designation under the Tax Act other than eligible dividend designations and any s. 85 election;
  • such Qualifying Holdco will have no shares outstanding other than shares held by such Qualifying Holdco Shareholder or its Qualifying Holdco Shareholder Subsidiary;
  • such Qualifying Holdco will have not more than three directors and three officers;
  • such Qualifying Holdco Shareholder will at its cost and in a timely manner prepare and file all income tax returns of such Qualifying Holdco in respect of the taxation year of such Qualifying Holdco ending immediately prior to the Amalgamation, subject to Metro's right to approve all such returns as to form and substance;
  • such Qualifying Holdco Shareholder will indemnify PJC and Metro, and any successor thereof, for any and all liabilities of such Qualifying Holdco in a form satisfactory to Metro acting reasonably;
  • access to the books and records of such Qualifying Holdco will have been provided;
  • the terms and conditions of such Holdco Alternative must be satisfactory to Metro and PJC; and
  • such Qualifying Holdco Shareholder will be required to pay all reasonable out-of-pocket expenses incurred by Metro or PJC in connection with the Holdco Alternative
Canadian tax consequences

A Resident Holder whose Shares are converted into Amalco Redeemable Shares and/or Metro Shares on the Amalgamation will not realize any capital gain or capital loss as a result of the conversion. The Amalgamation Agreement provides that the paid-up capital of an Amalco Redeemable Share will be equal to the Cash Consideration and, as a result, a deemed dividend will not arise from the redemption by Amalco of the Amalco Redeemable Shares owned by a Resident Holder. As a result, a Resident Holder will generally realize a capital gain (or a capital loss) to the extent such proceeds of disposition exceed (or are exceeded by) the aggregate of the adjusted cost base of the Amalco Redeemable Shares to such Resident Holder and any reasonable costs of disposition.

U.S. tax consequences

The exchange of Shares for the Cash Consideration, the Share Consideration, or a combination thereof pursuant to the Amalgamation will be a taxable transaction for U.S. federal income tax purposes. Accordingly, a U.S. Holder of Shares will recognize gain or loss on the exchange of its Shares for cash, Metro Shares or a combination thereof equal to the difference between the sum of the amount of the U.S. dollar value of any cash and the fair market value of any Metro Shares received and the U.S. Holder's adjusted basis in the Shares surrendered.

Newmarket/Kirkland Lake

triangular amalgamation of Kirkland Lake with Newmarket Gold sub

Overview

Kirkland is to be amalgamated with Subco on a triangular amalgamation occurring as part of a CBCA Plan of Arrangement, so that the Kirkland shareholders will have their shares cancelled on the amalgamation in consideration for receiving shares of Newmarket (to be renamed Kirkland Lake Gold Ltd.) Existing Kirkland Shareholders and Newmarket Shareholders will own approximately 57% and 43% of the post-Arrangement Newmarket (having a market cap of $2.4B), on a fully-diluted in-the-money basis. The Kirkland option holders will have their options exchanged on a s. 7(1.4) non-disposition basis for replacement options on Newmarket shares.

Kirkland

A TSX-listed CBCA corporation holding the Macassa Mine Complex in the Kirkland Lake gold camp, as well as the Holt Mine Complex situated along the Porcupine-Destor Fault Zone (held through its wholly-owned subsidiary, St. Andrew Goldfields Ltd.), both located in northeastern Ontario. Kirkland Shareholders holding 6.77% of the outstanding Kirkland Shares on a non-diluted basis have entered into a lock-up agreement.

Newmarket

An Ontario corporation whose shares trade on the TSX and the OTCZX. Through indirect Australian subsidiaries, it holds the Fosterville Gold Mine located in the state of Victoria, Australia and its other gold producing Cosmo and Stawell mines. Eric Sprott, Chairman of the Kirkland Board, owns 23,941,896 Newmarket Shares representing approximately 13.45% of the issued and outstanding Newmarket Shares.

Subco

A wholly-owned newly-incorporated CBCA subsidiary of Newmarket.

Plan of Arrangement

Under a CBCA Plan of Arrangement (the “Arrangement”), the following events will occur sequentially commencing at 12:01 am (Toronto time) (the Effective Time”) on the date shown on the Arrangement certificate (the "Effective Date"):

  1. The Kirkland Shares held by dissenting Kirkland Shareholders will be transferred to Newmarket;
  2. Subco and Kirkland will be amalgamated under the CBCA. Pursuant to the Amalgamation: (i) each Kirkland Share (other than Kirkland Shares held by Newmarket) will be cancelled in exchange for the “Consideration” of 2.1053 Newmarket Shares; (ii) each Kirkland Share held by Newmarket and each Subco Share will be converted into one share of the amalgamated corporation (“Amalco”); (iii) as consideration for the issuance of the Consideration by Newmarket in connection with the Amalgamation, Amalco will issue to Newmarket one Amalco Share for each Newmarket Share issued pursuant to (i) above; and (iv) there will be added to the stated capital of the Newmarket Shares an amount equal to the paid-up capital of the Kirkland Shares described in (i).
  3. Each option to acquire Kirkland shares that was outstanding before the Effective Time (a “Kirkland Option”) will be exchanged for an option (a “Replacement Option”) to acquire from Newmarket the number of Newmarket Shares equal to the product of (A) the number of Kirkland Shares subject to the Kirkland Option immediately before the Effective Time, and (B) 2.1053 (subject to adjustments for fractional shares.) The exercise price per Newmarket Share will equal the quotient of (A) the exercise price per Kirkland Share under the exchanged Kirkland Option immediately prior to the Effective Time divided by (B) 2.1053. It is intended that ITA s. 7(1.4) will apply to any such exchange and that such exchange will be effected consistently with Code s. 409A. Therefore, in the event that the Replacement Option “In-The-Money Amount” would otherwise exceed the Kirkland Option In-The-Money Amount, the number of Newmarket Shares which may be acquired on exercise of the Newmarket Replacement Option at and after the Effective Time will be adjusted accordingly with effect at and from the Effective Time.;
  4. Each “SAS Option” (issued under the St. Andrew Goldfield stock option plan) will be exchanged on a similar basis.
  5. Newmarket will file Articles of Amendment to change its name to Kirkland Lake Gold Ltd. and to effect a 0.475 to 1 share consolidation.
  6. The size of the Newmarket Board will be increased from six to nine directors and a new board will be elected which will be comprised of two current directors of Newmarket and seven nominees of Kirkland.
  7. All unvested Newmarket Options and PSUs will automatically vest on the Effective Date
Kirkland Debentures

The 6% and 7.5% convertible debentures of Kirkland maturing in 2017 will continue to be listed on the TSX. Newmarket will issue Newmarket Shares to a holder of Kirkland Debentures upon the conversion of any Kirkland Debentures. Additionally, following the Effective Time, a change of control offer will be made for the Kirkland Debentures in accordance with the Kirkland Indenture.

Canadian tax consequences
Shares

A Resident Holder or Non-Resident Holder who receives Newmarket Shares in exchange for Kirkland Shares on the Amalgamation will not realize any capital gain (or capital loss) as a result of the exchange.

Options

A Resident Holder who exchanges Kirkland Options and SAS Options for Replacement Securities will be deemed not to dispose of their Kirkland Options and SAS Options and not to have acquired the Replacement Securities received on the exchange. A Non-Resident Holder who exchanges Kirkland Options and SAS Options for Replacement Securities should consult its own tax advisor.

U.S. tax consequences
Reorganization

The Arrangement should qualify as a tax-deferred reorganization under Code s. 368(a).

PFIC Status of Kirkland

Kirkland believes that it should not constitute a PFIC for its current taxable year. Kirkland also believes that it was not a PFIC for its taxable years ended April 30, 2010 to 2015 and for its short taxable year ended December 31, 2015. Kirkland has not determined whether it was a PFIC during its taxable years beginning prior to May 1, 2009.

Suncor/COS

Triangular amalgamation squeeze-out of minority shareholders of Canadian Oil Sands in exchange for Suncor shares

Overview. Suncor, a CBCA corporaton which acquired 73% of the common shares of Canadian Oil Sands on the basis of 0.28 of a Suncor common share for each COS common share, also holds one common share of Holdco, whose only asset is one common share of Newco (which has nominal assets). Newco will amalgamate with Canadian Oil Sands under the ABCA. On the amalgamation, the minority COS shareholders will receive 0.28 of a Suncor share for each COS share, and the 1 common share of Newco will be converted into the same number of common shares of Amalco as the number of COS shares formerly held by the minority shareholders. Holdco will likely then amalgamate under the ABCA with Newco.

See summary under M&A - Subsequent Acquisition Transactions - Amalgamations - Shares.

Locations of other summaries Wordcount
Tax Topics - Public Transactions - Mergers & Acquisitions - Subsequent Acquisition Transactions - Amalgamations - Shares Triangular amalgamation squeeze-out of minority shareholders of Canadian Oil Sands in exchange for Suncor shares 604

Delavaco/Sereno

Reverse takeover of Delavaco by Sereno under triangular amalgamation
Overview

There will be a triangular amalgamation of Delavaco (a privately-held Ontario corporation holding US single-family homes, and which will be acquiring US multi-family properties, through Delaware limited partnerships) with a subsidiary of Sereno ("Subco") so that Delavaco shareholders receive approximately 99% of the shares of Sereno (whose name will be changed to Delavaco Residential Properties Inc. – referred to as the "Resulting Issuer.") Sereno is TSXV listed and was a CPC (capital pool company) issuer which migrated to the NEX due to failure to complete a Qualifying Transaction on a timely basis. The proposed transactions will satisfy the requirement for Sereno to engage in a qualifying transaction under the CPC programme of the TSXV (see TSX-V Policy 2.4 - Capital Pool Companies), thereby permitting it to graduate from a capital pool company to a Tier 2 Real Estate or Investment Issuer.

Background

Delavaco was incorporated on January 27, 2011, and financed its US acquisitions through various private placements of equity and debt. Its homes are mostly rented to working class families in the southeastern U.S., and it already has disposed of a number of homes. It will now be focusing on acquiring multi-family properties. On May 24, 2013, Sereno and Delavaco entered into a letter of intent which contemplated the acquisition by Sereno of all the issued and outstanding Delavaco shares pursuant to a court-approved plan of arrangement, and Sereno's subsequent conversion into a REIT. An agreement for the revised business combination was entered into on September 18, 2013.

Reverse takeover/triangular amalgamation

Subco and Delavaco will amalgamate under the OBCA. On the effective date of the amalgamation:

  1. The Delavaco shares will be cancelled and their holders (other than dissenting shareholders) will receive common shares of Sereno in accordance with the Exchange Ratio of 7.36.
  2. The common shares of Subco will be cancelled and replaced with one common share of the amalgamated corporation ("Amalco" – named "Delavaco Properties Inc.").
  3. The terms of Delavaco warrants will be adjusted, also based on the Exchange Ratio.
  4. As consideration for the issuance of common shares by Sereno in 1, Amalco will issue to Sereno one common share of Amalco for each such Sereno share.
  5. Sereno will consolidate all of the outstanding Sereno common shares on a 7.36 to one basis (with comparable consolidations of the Delavaco warrants and options).

These transactions will pursuant to the terms of notes of Delevaco cause the conversion of those notes into common shares of the Resulting Issuer.

As a result, former shareholders of Sereno will hold approximately 1% of the common shares of the Resulting Issuer and the former shareholders of Delavaco holding approximately 99%.

Finco Financing

Concurrently with the completion of the above business combination, a special purpose entity ("Sereno Finco") will complete an offering to raise between $43,700 and $250,000 through issuing non-voting non-participating special shares of Sereno Finco. Under a share exchange agreement to be entered into by these subscribers, the holder of the sole common share of Sereno Finco, and Sereno,these special shares will be exchanged with Sereno (who also wll acquire such common share) for post-consolidation (see 5) common shares of the Resulting Issuer (representing under 0.01% of the total). The purpose of this transaction is to meet the minimum public board lot requirements for a Tier 2 Real Estate or Investment Issuer.

Canadian tax disclosure

A Delavaco shareholder holding Delavaco shares as capital property will receive rollover treatment under s. 87. Under the CRA administrative practices, a dissenting shareholder should be considered to have disposed of its Delavaco shares for proceeds of disposition equal to the amount paid by Amalco (excluding any interest). i.e., no deemed dividend treatment.

Trident/Andor

Reverse takeover of Andor (a CPC) by Trident (a private company) without Plan of Arrangement
Overview

After the preliminary transactions described below, there will be a triangular amalgamation of Trident (a privately-held exploration and development company) with a subsidiary of Andor ("Subco") so that Trident shareholders receive approximately 96.2% of the shares of Andor (whose name will be changed to Trident Gold Corp.) Andor is TSX-V listed and a CPC (capital pool company) issuer, e.g., it has filed a preliminary CPC prospectus. Trident is not listed. This transaction will satisfy the requirement on Andor to engage in a qualifying transaction under the CPC programme of the TSX-V (see TSX-V Policy 2.4 - Capital Pool Companies).

Preliminary transactions

After spinning-off some of its assets into a separate corporate structure, Trident, which holds a 49% interest in the Marquesa Gold Project, will acquire the remaining interest mostly by issuing shares and warrants to the owner, so as to result in that owner now owning 49% of the outstanding Trident shares and warrants before a financing. Under the financing, Trident will issue subscription receipts to raise between $4.8M and $7M.

Reverse takeover/triangular amalgamation

After the completion of the preliminary transactions:

  • Andor will be continued under the BCBCA and its shares will be consolidated on the basis of 0.176 new common shares for each old share
  • Dissenters' shares will be deemed to be transferred to Andor with a right to be paid their fair value
  • Subco and Trident will amalgamate under the CBCA
  • On the amalgamation, each Trident share will be cancelled and its holder will receive that number of shares of Andor (now called Trident Gold Corp.) based on the exchange ratio (1 Andor share for 10.75 Trident shares)
  • A similar exchange of options and warrants will occur
  • Each common share of Subco outstanding before the amalgamation will become a common share of Amalco; and as consideration for the issuance of Andor shares to the former Trident shareholders, Subco shall issue to Andor one Amalco share for each such share so issued to such shareholders
Canadian tax disclosure

None.

Gallic/Petromanas

Triangular amalgamation of Gallic with subsidiary of Petromanas, with option of Gallic shareholders to effect a pre-amalgamation transfer of their shares under s. 85(1) or 85.1
General

Proposal for all the shareholders of Gallic to become shareholders of Petromas and for Gallic to be amalgamated with AcquisitionCo. The Petromanas shares to be received are estimated to represent a value of $0.07 per Gallic share, representing an 11% premium based on the 10-day pre-announcement VWAP of Petromas shares on the TSXV.

Plan of Arrangement

Under an Alberta Plan of Arrangement:

  • Gallic shares of dissenters are deemed to have been transferred to Petromanas, with a right to be paid their fair value by Petromanas
  • Gallic shares held by those shareholders who have so elected by 2:00 pm Calagary time two days before the proposed November 30 effective date ("Exchanging Gallic Shareholders") are transferred to Petromanas on the basis of 0.3736 of a Petromanas share for each Gallic share (the "Exchange Ratio")
  • AcquisitionCo and TORC amalgamate to continue under the Petromanas AcquisitionCo name ("AmalCo"). On the amalgamation:
    • each issued and outstanding Gallic share (other than Gallic shares held by Petromanas) is exchanged for 03736 of a Petromanas share
    • Petromanas's shares of AcquisitionCo and of Petromanas become shares of AmalCo on a 1-for-1 basis
    • warrants entitling the holders to acquire Gallic shares ("Gallic Warrants") are exchanged for warrants to acquire Petromanas shares equal in number to that number of Gallic shares otherwise issuable on the exercise of the Gallic Warrants multiplied by 0.3736, with the exercise price adjusted accordingly
S. 85 elections

Exchanging Gallic Shareholders who wish to make an s. 85(1) or (2) election must provide a completed election package within 90 days of the effective date of the arrangement, subject to Petromanas extending this deadline.

Canadian tax consequences

The transfer of Gallic shares held as capital property by Exchanging Gallic Shareholders will occur on a rollover basis under s. 85.1 unless they include any portion of the capital gain or loss otherwise to be recognized in the computation of their income for the year, or they make a valid election under s. 85(1) or (2). There will be a rollover under s. 87(9)(a) and 87(4) for Petromanas shares received on the triangular amalgamation if the Gallic shares were capital property. The exchange of Gallic Warrants will occur on a rollover basis under ss. 87(4.3) and 87(9)(a.2).

Dissenters will realize a capital gain or loss based on the cash amount received (excluding interest).

Standard non-resident disclosure.

TORC/Vero

Triangular amalgamation of TORC (a private company) with a wholly-owned subsidiary of Vero
(SEDAR filing: 23 October 2012) Joint Information Circular of TORC Oil & Gas Ltd. ("TORC") and Vero Energy Inc. ("Vero") (1609 K). Burnet Duckworth/Heenan Blaikie
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).