Caledonian Royalty Corporation and CRC Royalty Corporation to Complete Reorganization

NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE DISTRIBUTION SERVICES

CALGARY, Aug. 26, 2014 /CNW/ - Caledonian Royalty Corporation ("Caledonian") and CRC Royalty Corporation ("CRC") are pleased to announce that they have entered into an agreement providing for a reorganization (the "Reorganization").  The Reorganization provides for, among other matters, the reorganization of Caledonian into a dividend-paying share corporation on a tax deferred basis and the amalgamation of CRC with Caledonian (the "Amalgamation"). The Reorganization is subject to obtaining the requisite approvals from the shareholders of CRC and the holders of royalty units ("Royalty Units") of Caledonian.  Upon completion of the Reorganization, the amalgamated entity ("New Caledonian") intends to implement a monthly dividend to shareholders.  New Caledonian will retain the Caledonian name and will continue to be supported by the current strong team of technical, management and operational personnel. 

The Reorganization will offer a number of advantages to Caledonian and CRC, including, without limitation, the following:

• the combination of the holders of Royalty Units and the holders of common shares of CRC in a single class of shares will result in a broader shareholder base and renewed opportunities to develop liquidity for security holders;
• the creation of a stronger platform to pursue future growth opportunities through acquisitions;
• voting rights in respect of Caledonian, the operating energy royalty company; and
• reduced administrative costs through the elimination of the CRC entity;

The Reorganization is intended to realize value and develop liquidity for the benefit of all security holders of Caledonian and CRC.  Under the Reorganization, each Royalty Unit (except one Royalty Unit to be held by a wholly-owned subsidiary of Caledonian) will be redeemed for one common share in the capital of Caledonian (a "Caledonian Share"), following which CRC will continue as an Alberta corporation and amalgamate with Caledonian.  Pursuant to the Amalgamation, each common share in the capital of CRC (a "CRC Share") will be exchanged for one common share of New Caledonian.  The transactions contemplated by the Reorganization are to be completed pursuant to a tax-free rollover for Canadian tax purposes under section 85 or 85.1 of the Income Tax Act (Canada). Upon completion of the Reorganization, New Caledonian intends to pursue a subsequent liquidity transaction.

Proposed Liquidity Transaction

It is the view of management of Caledonian that to continue to grow the business of Caledonian, greater access to capital is needed. At the same time, Caledonian has been advised that a public distribution of Royalty Units is not desirable. The Reorganization, pursuant to which the Royalty Unit will be redeemed for Common Shares, will position New Caledonian to access additional sources of public and private capital. Following completion of the Reorganization, New Caledonian intends to pursue an initial public offering and a public listing of its shares. 

Benefits for CRC Shareholders

CRC was created in October 2011 for the purpose of completing a restructuring of a number of limited partnerships and related entities whereby the portfolio of gross overriding royalties held by the limited partnerships were transferred to Caledonian in exchange for 2,107,000 Royalty Units. In order to complete the transaction on a tax effective basis, the former limited partners received common shares of CRC, the sole business of which is to hold the Royalty Units issued pursuant to the transaction. The only asset of CRC continues to be the 2,107,000 Royalty Units issued in 2011.

The Restructuring, and in particular the redemption of the Royalty Units for Common Shares, provides the opportunity to combine CRC with Caledonian on a tax deferred basis.  The Reorganization will offer a number of specific advantages to shareholders of CRC, including, without limitation, the following:

• a broader shareholder base and renewed opportunities to develop liquidity for security holders;
• voting rights in respect of Caledonian, the operating energy royalty company;
• the opportunity to exchange the shares of CRC for Common Shares of Caledonian on a tax deferred basis; and
• reduced administrative costs through the elimination of the CRC entity and the associated legal, accounting and other expenses.

The Amalgamation was included as part of the Reorganization as a mechanism to permit the shareholders of CRC to receive their shares of Caledonian on a tax deferred basis.  The Amalgamation will require the approval of the shareholders of CRC.  If that shareholder approval is not received, the Reorganization will go forward, with the result that CRC will hold shares of Caledonian rather than Royalty Units, but the shareholders of CRC will continue to hold CRC shares without any mechanism to exchange them for the shares of Caledonian on a tax deferred basis.

Management of New Caledonian

New Caledonian will be led by the existing Caledonian and CRC management team under the leadership of James S. Kinnear (Chief Executive Officer) and Charles Selby (President). 

Mr. Kinnear graduated from the University of Toronto in 1969 with a Bachelor of Science degree and received a CFA designation in 1979.  In 1988, he founded Pengrowth Energy Trust and Pengrowth Corporation and was the Chairman and Chief Executive Officer until September 2009. 

Mr. Selby holds a Bachelor of Science (Hons.) degree in Chemical Engineering from Queen's University and a Juris Doctor degree from the University of Calgary.  Mr. Selby is a professional engineer in Alberta, practiced law with a major Canadian law firm and has been engaged in the growth and development of a number of companies in the energy business.  Mr. Selby is the Executive Chairman of Montana Exploration Corp., a public company which focuses on a resource project Shaunavon/ Sawtooth formation in the U.S.  Mr. Selby sits on the boards of a number of public and private corporations. 

Approvals

The Reorganization is subject to the approval of 66⅔% of both the holders of Royalty Units of Caledonian and the holders of common shares of CRC.  If the Reorganization is not approved by holders of CRC Shares, and subject to obtaining the requisite approval of the holders of Royalty Units, Caledonian will nonetheless proceed with the redemption of the Royalty Units for common shares; this will result in the holders of common shares of CRC continuing to hold those shares and CRC will become a holder of Caledonian Shares. As a result, the holders of common shares of CRC will not have the ability to exchange such shares for common shares of Caledonian on a tax deferred basis.  Further information regarding the Reorganization will be contained in a joint information circular to be prepared by CRC and Caledonian, which the parties will prepare, file and mail in due course to their respective security holders. It is expected that the meetings of the holders of CRC Shares and the holders of Royalty Units, respectively, will take place in September, with closing of the Reorganization expected to occur shortly thereafter.  Further details regarding the respective meetings will be provided in the joint information circular. All securityholders are urged to read the joint information circular once it becomes available as it will contain additional information concerning the Reorganization.

Board Recommendations

The board of directors of CRC has unanimously approved the Reorganization and has determined that the Reorganization is in the best interests of CRC. 

The board of directors of Caledonian has approved the Reorganization and determined that the Reorganization is in the best interests of Caledonian.  The directors of Caledonian that hold Royalty Units, which represent in aggregate approximately 23% of the issued and outstanding Royalty Units, have agreed to vote their Royalty Units in favor of the resolutions to be considered by Royalty Unitholders.

About Caledonian

Caledonian is a private Calgary-based oil and gas company focusing on the strategic acquisition of oil and gas royalties and non-operating working interests.  It was created under the laws of the Province of Alberta in September 2009. Caledonian acquires oil and gas royalties and non-operating working interests in order to generate distributions for holders of Royalty Units.  Substantially all of the economic benefit of those properties, after debt service charges and other deductions, is paid out in distributions to holders of Royalty Units. All of Caledonian's current investments are located in Western Canada. Caledonian is not a reporting issuer under the securities laws of any jurisdiction and none of its securities are presently listed or posted for trading on a stock exchange or quotation system.

About CRC

CRC is a Calgary-based company organized under the laws of British Columbia that was created in October 2011 for the purpose of completing a restructuring of a number of limited partnerships and related entities.  CRC is a reporting issuer in certain Canadian jurisdictions. CRC does not have any securities listed on a stock exchange.  CRC's sole assets are Royalty Units.

Caution Regarding Forward-Looking Information

This press release contains statements that constitute "forward-looking information" or "forward-looking statements" (collectively, "forward-looking information") within the meaning of applicable securities legislation. Forward-looking information is often, but not always, identified by the use of words such as "anticipate", believe", "expect", "plan", "intend", "forecast", "target", "project", "guidance", "may", "will", "should" "could", "estimate", "predict" or similar words or phrases suggesting future outcomes or language suggesting an outlook.  This forward-looking information includes, among others, statements regarding: the Reorganization (including the Redemption, the Continuance and the Amalgamation), the anticipated benefits of the Reorganization to CRC and Caledonian and their respective securityholders; the completion of the Reorganization and the outcome of the Reorganization; the composition of management of New Caledonian; the potential liquidity transaction, including an initial public offering; the potential listing of New Caledonian's securities; synergies; business strategies and strengths; capital expenditures; development plans and programs; tax effect and treatment; the timing and anticipated receipt of required securityholder approvals for the Reorganization; and other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance.

Forward-looking statements and information are not based on historic facts, but rather on current expectations, estimates and projections about future events that involve a number of risks.  They are based on information available to management and/or assumptions management believes are reasonable.  Many factors could cause actual results to vary and in some instances to differ materially from the results described in the forward-looking information contained in this press release. Although the forward-looking information contained in this press release is based on what management believes to be reasonable assumptions, CRC cannot assure investors that actual results will be consistent with this forward-looking information.

Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking information contained in this press release, including assumptions concerning anticipated financial performance, business prospects, strategies and regulatory developments. In respect of the forward-looking statements and information concerning the anticipated completion of the Reorganization and the anticipated timing thereof, CRC and Caledonian have provided such in reliance on certain assumptions that they believe are reasonable at this time, including assumptions as to the time required to prepare and mail the CRC and Caledonian securityholder meeting materials; the ability of the parties to receive, in a timely manner, the necessary regulatory and securityholder approvals; and the ability of the parties to satisfy, in a timely manner, the other conditions to the closing of the Reorganization.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions expressed in such forward-looking statements. The material risk factors include, but are not limited to: failure of CRC or Caledonian to obtain necessary securityholder approvals; failure to realize anticipated synergies; the ability of the parties to satisfy, in a timely manner, the other conditions to the closing of the Reorganization; failure to obtain a public listing for New Caledonian's securities on an exchange; failure to complete a subsequent liquidity transaction for New Caledonian; New Caledonian's ability to access external sources of debt and equity capital; the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; changes in tax laws; changes in royalty rates; and the parties' ability to implement their respective business strategies.  It is not a condition precedent to the completion of the Reorganization that a public listing for New Caledonian's securities on an exchange be obtained and securityholders of Caledonian and CRC are cautioned that there can be no assurance that New Caledonian's efforts in this regard will be successful, or that there will ever be a public market for the securities of New Caledonian.  Even if a public listing is achieved, there can be no assurance that there will be an active trading market for the shares of New Caledonian.  Readers are cautioned that the foregoing list of risk factors is not exhaustive. Failure to obtain the necessary approvals, or the failure of CRC or Caledonian to otherwise satisfy the conditions to the Reorganization, may result in the Reorganization not being completed on the proposed terms, or at all.

The forward-looking statements and information contained in this press release are also affected by the risk factors, forward-looking statements and assumptions and uncertainties described in CRC's reports on file with applicable securities regulatory authorities and which may be accessed on CRC's SEDAR profile at www.sedar.com.

Readers are cautioned that the foregoing list of factors that may affect future results is not exhaustive. When relying on our forward-looking statements to make decisions with respect to CRC, Caledonian and the Reorganization, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Furthermore, the forward-looking statements contained in this press release are made as of the date of this press release and CRC and Caledonian do not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The forward-looking statements contained in this joint press release are expressly qualified by this cautionary statement.

Disclaimer

This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.  The securities offered have not been and will not be registered under the U.S. Securities Act of 1933, as amended, or any state securities law and may not be offered or sold in the United States absent registration or applicable exemptions from those registration requirements.

SOURCE: Caledonian Royalty Corporation

James S. Kinnear, Chairman and Chief Executive Officer of CRC and Caledonian, Telephone: [phone]; Charles Selby, President of CRC and Caledonian, Telephone: [phone], Email: [email protected]