FORWARD-LOOKING
STATEMENTS
This
prospectus and the information incorporated by reference in this prospectus may include
predictions, estimates and other information that are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E
of the Securities Exchange Act of 1934, as amended (the Exchange Act) and
Section 27A of the Securities Act . These forward-looking statements do not directly
or exclusively relate to historical facts, including, without limitation, statements
relating to the completion of the Arrangement. Without limiting the generality of the
foregoing, words such as anticipate, believe, can,
continue, could, estimate, expect, intend,
may, plan, potential, predict, should,
will, would, or the negative or other variations thereof or comparable
terminology are intended to identify forward-looking statements. Stockholders are cautioned
that any forward-looking statements are not guarantees of future performance. These statements
are based on the beliefs of the management of Torchlight, Meta or the Combined Company,
as the case may be, as well as the current expectations and assumptions, which such management
believes to be reasonable, based on available information and involve a number of risks
and uncertainties, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. As such, our actual results may differ significantly
from those expressed in any forward-looking statements.
These
risks and uncertainties include, but are not limited to, factors and matters described or incorporated by reference in this prospectus
and the following factors: (1) the ability of the parties to consummate the Arrangement, (2) risks that the conditions to the
closing of the Arrangement are not satisfied, including the risk that required approvals for the Arrangement from governmental
authorities or the stockholders of Torchlight are not obtained; (3) litigation relating to the Arrangement; (4) unexpected costs,
charges or expenses resulting from the Arrangement; (5) risks that the proposed Arrangement disrupts the current plans and operations
of Torchlight and Meta; (6) the ability to realize anticipated benefits from the Arrangement; (7) competition from larger and
more established companies in the Combined Companys markets; (8) the Combined Companys ability to successfully grow
following the closing of the Arrangement; (9) potential adverse reactions or changes to business relationships resulting from
the completion of the Arrangement; and (10) legislative, regulatory and economic developments, including changing business conditions
in the industries in which Torchlight and Meta operate and the economy in general as well as financial performance and expectations
of Torchlight and Metas existing and prospective customers. Additional factors that may affect the future results of the
Combined Company are set forth in filings that Torchlight makes with the SEC from time to time, including its Annual Report on
Form 10-K for the year ended December 31, 2020, its Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and its
definitive proxy statement on Schedule 14A, filed with the SEC on May 7, 2021 which are available on the SECs website at
www.sec.gov, as well as factors discussed under the Risk Factors section of this
prospectus.
In
light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by us or any other person that such results will be achieved, and
readers are cautioned not to place undue reliance on such forward-looking information, which speak only as of the date hereof.
Except as required by law, we undertake no obligation to revise the forward-looking statements contained herein to reflect events
or circumstances after the date hereof or to reflect the occurrence of unanticipated events. For all of these reasons, Torchlight
(which includes the Combined Company) stockholders should not place undue reliance on forward-looking statements.
OUR
BUSINESS
The
description of our business under the heading Business – Business Overview in our most recent Annual Report
on Form 10-K, which may be amended, supplemented or superseded from time to time by other reports we file with the SEC in the
future, is incorporated by reference into this prospectus.
The
description of the Arrangement with Meta under the heading The Arrangement – Purpose and Description of the Arrangement
in our definitive proxy statement on Schedule 14A, filed with the SEC on May 7, 2021,which may be amended, supplemented or superseded
from time to time by other reports we file with the SEC in the future, is incorporated by reference into this prospectus.
The
description of Metas business under the heading Information About Meta – Business Description in our definitive
proxy statement on Schedule 14A, filed with the SEC on May 7, 2021,which may be amended, supplemented or superseded from time
to time by other reports we file with the SEC in the future, is incorporated by reference into this prospectus.
INCOME
TAX CONSIDERATIONS
Material
Canadian Federal Income Tax Considerations
The
following summary describes the material Canadian federal income tax considerations in respect of an exchange or redemption of
exchangeable shares, and the holding and disposition of shares of Torchlight common stock acquired upon the exchange or redemption
of the exchangeable shares, generally applicable to a holder of exchangeable shares who, at all relevant times and for purposes
of the Income Tax Act (Canada) and the regulations adopted thereunder (the Tax Act) and any applicable
income tax treaty is, or is deemed to be, a resident of Canada at all relevant times (a Resident Holder) and
who, for purposes of the Tax Act: (i) deals at arms length with Torchlight, Exchangeco, and Callco (as defined in the Plan
of Arrangement); (ii) is not affiliated with Torchlight, Exchangeco, or Callco (as defined in the Plan of Arrangement); and (iii)
holds exchangeable shares, and will hold the shares of Torchlight common stock acquired upon the exchange or redemption of such
exchangeable shares, as capital property. Exchangeable shares and shares of Torchlight common stock will generally be considered
to be capital property to a holder unless such exchangeable shares or shares of Torchlight common stock are held by the holder
in the course of carrying on a business of buying and selling securities or were acquired in one or more transactions considered
to be an adventure or concern in the nature of trade.
Certain
Resident Holders whose exchangeable shares might not otherwise qualify as capital property may be entitled to make an irrevocable
election in accordance with subsection 39(4) of the Tax Act to have their exchangeable shares, and every other Canadian
security (as defined in the Tax Act) owned by such Resident Holder in the taxation year of the election and in all subsequent
taxation years, deemed to be capital property. Where a Resident Holder has made an election with Exchangeco under section 85 of
the Tax Act in respect of their shares exchanged for exchangeable shares, any exchangeable share received under the Arrangement
will not be a Canadian security to such Resident Holder for this purpose. Resident Holders should consult their own tax advisors
for advice as to whether the election is available or advisable in their own particular circumstances.
This
summary does not apply to a Resident Holder: (i) with respect to whom Torchlight is or will be a foreign affiliate
within the meaning of the Tax Act; (ii) that is a specified financial institution for the purposes of the Tax Act;
(iii) that is a financial institution for the purposes of the mark-to-market rules in the Tax Act; (iv) an interest
in which is a tax shelter investment for the purposes of the Tax Act; (v) that reports its Canadian tax results
(as defined in the Tax Act) in a currency other than Canadian currency; or (vi) that has entered into or will enter into a derivative
forward agreement, as defined in the Tax Act, in respect of exchangeable shares. Such holders should consult their own tax
advisors.
This
summary is based on the current provisions of the Tax Act and the regulations thereunder, and an understanding of the current
administrative policies and assessing practices of the Canada Revenue Agency (the CRA) published in writing
prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act and the regulations thereunder
publicly announced in writing by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the Proposed
Tax Amendments) and assumes that all Proposed Tax Amendments will be enacted in the form proposed. However, no assurances
can be given that the Proposed Tax Amendments will be enacted as proposed, or at all. This summary does not otherwise take into
account or anticipate any changes in law whether by legislative, regulatory, administrative or judicial action or administrative
policy or assessing practice nor does it take into account tax legislation or considerations of any province, territory or foreign
jurisdiction, which may differ from those discussed herein.
This
summary is of a general nature only and is not, and is not intended to be, and should not be construed to be, legal, business,
or tax advice to any particular holder. This summary is not exhaustive of all Canadian federal income tax considerations. Consequently,
holders are urged to consult their own tax advisors to determine the particular tax effects to them under Canadian federal, provincial,
territorial or local tax laws and under foreign tax laws, having regard to their own particular circumstances.
For
purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of securities (including dividends, adjusted
cost base and proceeds of disposition) must be expressed in Canadian dollars. Amounts denominated in U.S. dollars must be converted
into Canadian dollars, generally based on the Bank of Canada exchange rate on the date such amounts arise.
Redemption,
Exchange and Disposition of Exchangeable Shares
A
Resident Holder will be considered to have disposed of exchangeable shares:
|
(i)
|
on
a redemption (including pursuant to a retraction request) of such exchangeable shares
by Exchangeco; and
|
|
(ii)
|
on
an acquisition of such exchangeable shares by Torchlight or Callco pursuant to a call
right (acquired by Torchlight and Callco under Arrangement).
|
However,
as discussed below, the Canadian federal income tax consequences of the disposition for the Resident Holder will be different
depending on whether the event giving rise to the disposition is a redemption or retraction by Exchangeco or an acquisition by
Torchlight or Callco.
A
Resident Holder who exercises the right to require the redemption of an exchangeable share by giving a retraction request cannot
control whether the exchangeable share will be acquired by Torchlight or Callco under a call right (acquired by Torchlight or
Callco under the Arrangement) or redeemed by Exchangeco.
Redemption
or Retraction of Exchangeable Shares
On
a redemption (including a retraction) of an exchangeable share by Exchangeco, the Resident Holder of that exchangeable share will
be deemed to have received a dividend equal to the amount, if any, by which the redemption proceeds exceed the paid-up
capital (for purposes of the Tax Act) of the exchangeable share at the time of redemption. See Dividends on Exchangeable
Shares below. On the redemption, the Resident Holder of an exchangeable share will also be considered to have disposed of
the exchangeable share for proceeds of disposition equal to the redemption proceeds less the amount of such deemed
dividend. The Resident Holder will, in general, realize a capital gain (or a capital loss) equal to the amount by which such proceeds
of disposition, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base to the Resident Holder
of the exchangeable shares. For this purpose, the redemption proceeds of an exchangeable share will be equal to the
sum of (i) the fair market value at the time of the redemption of the shares of Torchlight common stock received by the Resident
Holder, (ii) the amount, if any, of all declared, payable and unpaid cash dividends on the exchangeable share received by the
Resident Holder, (iii) the amount, if any, of all dividends declared and payable or paid in respect of each share of Torchlight
common stock which have not, at such time, been declared or paid on the exchangeable share and are received by the holder on the
redemption, and (iv) the fair market value at the time of the redemption of any stock or other property constituting any declared,
payable and unpaid non-cash dividends on the exchangeable share received by the Resident Holder. For a description of the tax
treatment of capital gains and capital losses, see Taxation of Capital Gains and Capital Losses below.
Dividends
on Exchangeable Shares
In
the case of a Resident Holder who is an individual (other than certain trusts), dividends received or deemed to be received on
the exchangeable shares will be included in computing the Resident Holders income and will be subject to the gross-up and
dividend tax credit rules that apply to taxable dividends received from taxable Canadian corporations. Provided that appropriate
designations are made by Exchangeco at the time the dividend or deemed dividend is paid, such dividend will be treated as an eligible
dividend for the purposes of the Tax Act and a Resident Holder who is an individual resident in Canada will be entitled
to an enhanced dividend tax credit in respect of such dividend. There are limitations on the ability of a corporation to designate
dividends and deemed dividends as eligible dividends.
In
the case of a Resident Holder that is a corporation, dividends received or deemed to be received on the exchangeable shares will
be required to be included in computing the corporations income for the taxation year in which such dividends are received,
and such dividends will generally be deductible in computing the corporations taxable income. In certain circumstances,
subsection 55(2) of the Tax Act will treat a taxable dividend received by a Resident Holder that is a corporation as proceeds
of disposition or a capital gain. Resident Holders that are corporations should consult their own tax advisors having regard to
their own circumstances.
A
Resident Holder that is a private corporation (as defined in the Tax Act) or any other corporation resident in Canada
and controlled or deemed to be controlled by or for the benefit of an individual or a related group of individuals may be liable
under Part IV of the Tax Act to pay a refundable tax of 38 1⁄3% on dividends received or deemed to be received on the exchangeable
shares to the extent that such dividends are deductible in computing the Resident Holders taxable income.
A
Resident Holder that, throughout the relevant taxation year, is a Canadian-controlled private corporation (as defined
in the Tax Act) may be liable to pay a refundable tax of 10 2⁄3% on its aggregate investment income (as defined
in the Tax Act), including any dividends that are not deductible in computing taxable income.
The
exchangeable shares will be taxable preferred shares and short-term preferred shares for the purpose of the Tax Act. However,
a Resident Holder of exchangeable shares who receives or is deemed to receive dividends on such shares will not be subject to
the 10% tax under Part IV.1 of the Tax Act.
Torchlight
intends to take the position that the exchangeable shares are properly characterized as stock of Torchlight for U.S. federal income
tax purposes. If the exchangeable shares are treated as stock of Torchlight for U.S. federal income tax purposes, any dividends
paid by Exchangeco with respect to the exchangeable shares would generally be subject to U.S. non-resident withholding tax. Exchangeco
currently intends to withhold U.S. non-resident withholding tax from such dividends paid to a Resident Holder. Any U.S. non-resident
withholding tax on such dividends may be eligible to be credited against the Resident Holders income tax (where such Resident
Holder is entitled to benefits under the Canada – United States Tax Convention (1980)) or deducted from income subject to
certain limitations under the Tax Act. Such Resident Holders are urged to consult their own tax advisors having regard to their
own particular circumstances.
Exchange
of Exchangeable Shares with Torchlight or Callco
On
the exchange of an exchangeable share by the Resident Holder with Torchlight or Callco for shares of the Torchlight common stock,
the Resident Holder will generally realize a capital gain (or a capital loss) to the extent the proceeds of disposition of the
exchangeable share, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base to the Resident
Holder of the exchangeable share. For these purposes, the proceeds of disposition will be the fair market value of the shares
of Torchlight common stock received upon exchange plus an amount equal to declared and unpaid dividends on the exchangeable share.
For a description of the tax treatment of capital gains and capital losses, see Taxation of Capital Gains and Capital Losses
below. The acquisition by Torchlight or Callco of an exchangeable share from the Resident Holder thereof will not generally result
in a deemed dividend to the Resident Holder.
Disposition
of Exchangeable Shares other than on Redemption, Retraction or Exchange
A
disposition or deemed disposition of exchangeable shares by a Resident Holder, other than on the redemption, retraction or exchange
of the shares, will generally result in a capital gain (or a capital loss) to the extent that the proceeds of disposition, net
of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base to the Resident Holder of those exchangeable
shares immediately before the disposition. For a description of the tax treatment of capital gains and capital losses, see Taxation
of Capital Gains and Capital Losses below.
Dividends
on Shares of Torchlight Common Stock
In
the case of a Resident Holder who is an individual, dividends received or deemed to be received by the individual on the shares
of Torchlight common stock will be required to be included in computing the individuals income for the taxation year in
which such dividends are received and will not be subject to the gross-up and dividend tax credit rules in the Tax Act.
In
the case of a Resident Holder that is a corporation, dividends received or deemed to be received by the corporation on the shares
of Torchlight common stock will be required to be included in computing the corporations income for the taxation year in
which such dividends are received and generally will not be deductible in computing the corporations taxable income.
Any
U.S. non-resident withholding tax on such dividends generally should be eligible, subject to certain limitations under the Tax
Act, to be credited against the Resident Holders income tax or deducted from income.
Acquisition
and Disposition of Shares of Torchlight Common Stock
The
cost of shares of Torchlight common stock received on the retraction, redemption or exchange of an exchangeable share will be
equal to the fair market value of such shares of Torchlight common stock at the time of such event and will generally be averaged
with the adjusted cost base of any other shares of Torchlight common stock held at that time by the Resident Holder as capital
property for the purpose of determining the Resident Holders adjusted cost base of such shares of Torchlight common stock.
Generally,
on a disposition or deemed disposition of shares of Torchlight common stock, a Resident Holder will realize a capital gain (or
a capital loss) equal to the amount, if any, by which the proceeds of disposition exceed (or are less than) the aggregate of the
adjusted cost base to the Resident Holder of the shares of Torchlight common stock immediately before the disposition or deemed
disposition and any reasonable costs of disposition. For a description of the tax treatment of capital gains and capital losses,
see Taxation of Capital Gains and Capital Losses below.
Taxation
of Capital Gains and Capital Losses
Generally,
one-half of any capital gain (a taxable capital gain) realized by a Resident Holder in a taxation year must be included
in the Resident Holders income for the year, and one-half of any capital loss (an allowable capital loss) realized
by a Resident Holder in a taxation year must be deducted from taxable capital gains realized by the holder in that year (subject
to and in accordance with rules contained in the Tax Act). Allowable capital losses for a taxation year in excess of taxable capital
gains realized in a taxation year generally may be carried back and deducted in any of the three preceding taxation years or carried
forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years, to the extent and
under the circumstances described in the Tax Act.
A
Resident Holder that throughout the relevant taxation year, is a Canadian-controlled private corporation (as defined
in the Tax Act) may be liable to pay a refundable tax on its aggregate investment income (as defined in the Tax Act),
including amounts in respect of net taxable capital gains.
The
amount of any capital loss realized by a Resident Holder that is a corporation on the disposition of a share may be reduced by
the amount of certain dividends previously received (or deemed to be received) by the Resident Holder on such share (or another
share where the share has been acquired in exchange for such other share) to the extent and under circumstances prescribed by
the Tax Act. Similar rules may apply where a share is owned by a partnership or trust of which a corporation, trust or partnership
is a member or beneficiary. Holders to whom these rules may be relevant should consult their own tax advisors.
Foreign
Property Information Reporting
In
general, a specified Canadian entity for a taxation year or fiscal period whose total cost amount of specified
foreign property (both as defined in the Tax Act) at any time in the year or fiscal period exceeds $100,000, is required
to file an information return for the year or period disclosing prescribed information, including the cost amount, any dividends
received in the year, and any gains or losses realized in the year in respect of such property.
Exchangeable
shares and shares of Torchlight Common Stock will constitute specified foreign property to a holder. Accordingly, holders of exchangeable
shares and shares of Torchlight common stock should consult their own tax advisors regarding compliance with these rules.
Offshore
Investment Fund Property
The
Tax Act contains rules which may require a taxpayer to include in income in each taxation year an amount in respect of the holding
of an offshore investment fund property. These rules could apply to a Resident Holder in respect of a share of Torchlight
common stock or an exchangeable share if two conditions are both satisfied.
The
first condition for such rules to apply is that the value of the share of Torchlight common stock may reasonably be considered
to be derived, directly or indirectly, primarily from portfolio investments in: (i) shares of one or more corporations, (ii) indebtedness
or annuities, (iii) interests in one or more corporations, trusts, partnerships, organizations, funds or entities, (iv) commodities,
(v) real estate, (vi) Canadian or foreign resource properties, (vii) currency of a country other than Canada, (viii) rights or
options to acquire or dispose of any of the foregoing, or (ix) any combination of the foregoing (Investment Assets).
The
second condition for such rules to apply to a Resident Holder is that it must be reasonable to conclude that one of the main reasons
for the Resident Holder acquiring or holding a share of Torchlight common stock or an exchangeable share was to derive a benefit
from portfolio investments in Investment Assets in such a manner that the taxes, if any, on the income, profits and gains from
such Investment Assets for any particular year are significantly less than the tax that would have been applicable under Part
I of the Tax Act had the income, profits and gains been earned directly by the Resident Holder.
If
applicable, these rules would generally require a Resident Holder to include in income for each taxation year in which the Resident
Holder owns a share of Torchlight common stock or an exchangeable share (i) an imputed return for the taxation year computed on
a monthly basis and determined by multiplying the Resident Holders designated cost (as defined in the Tax Act)
of such share at the end of the month by 1/12th of the aggregate of the applicable prescribed rate of interest for the period
that includes such month and two percent, less the amount of (ii) the Resident Holders income for the year (other than a
capital gain) from such share determined without reference to these rules. Any amount required to be included in computing a Resident
Holders income under these provisions will be added to the adjusted cost base to the Resident Holder of its share of Torchlight
common stock or its exchangeable share, as the case may be.
The
application of these rules depends, in part, on the reasons for a Resident Holder acquiring or holding shares of Torchlight common
stock or exchangeable shares. Resident Holders are urged to consult their own tax advisors regarding the application and consequences
of these rules, in their own particular circumstances.
Eligibility
for Investment
Provided
that the shares of Torchlight common stock are listed on a designated stock exchange within the meaning of the Tax
Act (which includes the NASDAQ) at a particular time, the shares of Torchlight common stock will be qualified investments under
the Tax Act for trusts governed by a registered retirement savings plan (RRSP), a registered retirement income fund
(RRIF), a registered education savings plan, a deferred profit sharing plan, a registered disability savings plan
and a tax-free savings account (TFSA), all as defined in the Tax Act.
Notwithstanding
that the shares of the Torchlight common stock may be qualified investments for trusts governed by a TFSA, an RRSP or a RRIF,
the holder of a TFSA or the annuitant of an RRSP or RRIF, as the case may be, may be subject to a penalty tax under the Tax Act
if such shares are a prohibited investment within the meaning of the Tax Act for the particular TFSA, RRSP or RRIF.
The shares of Torchlight common stock will generally not be a prohibited investment for a TFSA, an RRSP or RRIF provided that
the holder of the TFSA, or the annuitant of the RRSP or RRIF, as applicable, deals at arms length with Torchlight within
the meaning of the Tax Act and does not have a significant interest within the meaning of the Tax Act in Torchlight.
Resident Holders should consult their own tax advisors to ensure that the shares of Torchlight common stock will not be a prohibited
investment for a trust governed by a TFSA, RRSP or RRIF in their particular circumstances.
Material
U.S. Federal Income Tax Consequences
The
following is a summary of certain material U.S. federal income tax considerations generally applicable to Non-U.S. Holders (as
defined below) who receive solely shares of Torchlight common stock in exchange for exchangeable shares (the Exchange
for purposes of this summary).
The
following summary is based on the U.S. Internal Revenue Code of 1986, as amended (the Code), U.S. Treasury Regulations
thereunder, published rulings of the U.S. Internal Revenue Service (IRS) and judicial and administrative interpretations
thereof, in each case as in effect and available on the date of this prospectus. Any of the authorities on which this summary
is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive
basis. Except as explicitly set forth herein, this summary does not discuss the potential effects, whether adverse or beneficial,
of any proposed legislation or regulations. No legal opinion from U.S. legal counsel or ruling from the IRS has been requested,
or will be obtained, regarding the U.S. federal income tax consequences of the Plan of Arrangement, including the exchange of
exchangeable shares for Torchlight common stock. This summary is not binding on the IRS, and the IRS is not precluded from taking
a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities
on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or
more of the positions taken in this summary.
This
summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S.
federal income tax consequences that may apply to a Non-U.S. Holders as a result of the Exchange. In addition, this summary does
not address U.S. Holders (as defined below) and does not take into account the individual facts and circumstances of any particular
Non-U.S. Holder that may affect the U.S. federal income tax consequences applicable to such Non-U.S. Holder, nor does this summary
address the U.S. federal income tax considerations of the Exchange to holders that are subject to special provisions under the
Code, including the following holders: (a) holders that are tax-exempt organizations, qualified retirement plans, individual retirement
accounts, or other tax-deferred accounts; (b) holders that are financial institutions, insurance companies, real estate investment
trusts, or regulated investment companies; (c) holders that are dealers in securities or currencies or holders that are traders
in securities that elect to apply a mark-to-market accounting method; (d) holders subject to the alternative minimum tax provisions
of the Code; (e) holders that own exchangeable shares as part of a straddle, hedging transaction, conversion transaction, constructive
sale, or other arrangement involving more than one position; (f) holders that hold exchangeable shares other than as a capital
asset within the meaning of Section 1221 of the Code; (g) holders that own or have owned directly, indirectly or constructively,
10% or more of Exchangecos voting securities; (h) holders that are controlled foreign corporations, passive foreign investment
companies and corporations that accumulate earnings to avoid U.S. federal income tax; (i) holders that are U.S. expatriates or
former long-term residents of the United States; (j) holders that hold, have held, or will hold, directly, indirectly or constructively,
more than 5% of the shares of Torchlight common stock; (k) certain former citizens or long-term residents of the United States;
and (l) holders that are classified for U.S. federal income tax purposes as partnerships and other pass-through entities and investors
therein. Exchangeable share holders that are subject to special provisions under the Code, including holders described above,
should consult their own tax advisor regarding the U.S. federal, U.S. state and local, and foreign tax consequences relating to
the Exchange.
If
an entity or arrangement classified as a partnership for U.S. federal income tax purposes owns exchangeable shares, the U.S. federal
income tax consequences of the Exchange to such partnership and the partners of such partnership generally will depend upon the
activities of the partnership and status of such partners. Holders that are classified as partnerships for U.S. federal income
tax purposes, and the partners of such entities, should consult their own tax advisors regarding the U.S. federal income tax consequences
of the Exchange.
This
summary does not address any U.S. estate, state, local or foreign tax consequences relating to the Exchange or any consequences
under the alternative minimum tax provisions of the Code or the tax on net investment income imposed by Section 1411 of the Code.
Each Non-U.S. Holder should consult its own tax advisor regarding the U.S. estate, state, local and foreign tax consequences arising
from and relating to the Exchange.
For
purposes of this summary, a U.S. Holder means for U.S. federal income tax purposes, (a) an individual who is a citizen
or resident of the U.S., (b) a corporation, or other entity classified as a corporation for U.S. federal income tax purposes,
that is created or organized in or under the laws of the U.S., any state in the U.S. or the District of Columbia, (c) an estate
if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or (d) a trust if
(i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is
able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to
control all substantial decisions of such trust. This summary does not address the tax consequences of the Exchange to any U.S.
Holder.
For
purposes of this summary, a Non-U.S. Holder is a beneficial owner (for U.S. federal income tax purposes) of exchangeable
shares other than a U.S. Holder. The U.S. federal income tax consequences to Non-U.S. Holders depend in significant part on the
provisions of the specific treaty, if any, in place from time to time between the United States and the Non-U.S. Holders
jurisdiction. Non-U.S. Holders are urged to consult a tax advisor who has knowledge of the particular treaty provisions applicable
to the Non-U.S. Holder in order to accurately determine the specific tax treatment applicable to them. The following is therefore
a very general discussion of such treatment without specific reference to any particular treaty.
U.S.
Federal Income Tax Characterization of the Exchangeable Shares
There
is no direct authority addressing the characterization and treatment for U.S. federal income tax purposes of instruments with
the terms of the exchangeable shares under the facts of the Scheme of Arrangement. Because the exchangeable shares are exchangeable
into Torchlight common stock, have dividend rights based on the dividends paid with respect to Torchlight common stock, and have
the benefit of voting rights similar to the voting rights attributable to Torchlight common stock, Torchlight and Exchangeco intend
to take the position that the exchangeable shares constitute voting common stock of Torchlight for U.S. federal income tax purposes.
However,
this characterization is not binding on the IRS, and the IRS or the courts could treat the exchangeable shares as stock of Exchangeco
for U.S. federal income tax purposes. Neither Torchlight nor Exchangeco has requested, nor do they intend to request, an opinion
from United States legal counsel or a ruling from the IRS regarding the U.S. federal income tax classification of the exchangeable
shares.
Tax
Consequences to Non-U.S. Holders Arising from the Exchange
Consequences
if the Exchangeable Shares Are Treated as Stock of Torchlight
If
the exchangeable shares are treated as stock of Torchlight for U.S. federal income tax purposes, as discussed above in the discussion
titled U.S. Federal Income Tax Characterization of the Exchangeable Shares, Non-U.S. Holders will generally not
be subject to U.S. federal income tax on the gain (if any) realized in the Exchange.
However,
if Torchlight is or has been a U.S. real property holding corporation, or USRPHC, for U.S. federal
income tax purposes during the shorter of the five-year period preceding the Exchange, or the Non-U.S. Holders holding
period for the exchangeable shares, a Non-U.S. Holder in the Exchange nonetheless would generally be subject to U.S. federal income
tax as described below in Dispositions of Shares of Torchlight Common Stock as a result of Torchlight constituting
a USRPHC, unless the common stock of Torchlight is regularly traded on an established securities market, under applicable Treasury
Regulations, and: (i) the exchangeable shares are regularly traded on an established securities market and such Non-U.S. Holder
has never beneficially owned, directly, indirectly, or constructively, more than 5% of the exchangeable shares, (ii) the exchangeable
shares are not regularly traded on an established securities market and on the date such Non-U.S. Holder acquired the exchangeable
shares such exchangeable shares had a fair market value no greater than 5% of the fair market value of the then outstanding shares
of Torchlight common stock, or (iii) such non-U.S. Holder files a United States federal income tax return that contains a statement
meeting the requirements of Temporary Treasury Regulations Section 1.897-5T(d)(1)(iii), in each case determined under applicable
Treasury Regulations.
Torchlight
does not believe it is a USRPHC or that it will become one in the future. The provisions of the Code and Treasury Regulations
regarding these determinations are complex and subject to differing interpretations. Non-U.S. Holders should consult their tax
advisors regarding the application of these rules.
Consequences
if the Exchangeable Shares Are Not Treated as Stock of Torchlight
If
the exchangeable shares are not treated as stock of Torchlight for U.S. federal income tax purposes, as discussed above in the
discussion titled U.S. Federal Income Tax Characterization of the Exchangeable Shares, the tax consequences of the
Exchange to a Non-U.S. Holder generally will be subject to the rules discussed below in the discussion titled Dispositions
of Shares of Torchlight Common Stock. In general, a Non-U.S. Holder will not be subject to U.S. federal income tax on the
gain (if any) realized in the Exchange unless (i) the gain is effectively connected with the conduct by the Non-U.S. Holder of
a trade or business, or, if required by an applicable treaty, attributable to a permanent establishment maintained by the Non-U.S.
Holder, in the United States or (ii) the Non-U.S. Holder is an individual who is present in the United States for 183 days or
more in the taxable year of disposition and certain other conditions are met, unless an applicable income tax treaty provides
otherwise. Non-U.S. Holders described in (i) and (ii) above should consult the corresponding descriptions contained in the discussion
entitled Dispositions of Shares of Torchlight Common Stock for a description of the applicable tax consequences
of the Exchange.
In
addition, if Torchlight is or has been a USRPHC, the description under Consequences if the Exchangeable Shares Are Treated
as Stock of Torchlight relating to the consequences of USRPHC status would generally apply, except that (iii) in such discussion
would not apply.
Tax
Consequences to Non-U.S. Holders Arising from the Ownership or Disposition of Shares of Torchlight Common Stock
Receipt
of Distributions on Shares of Torchlight Common Stock
Distributions,
if any, received with respect to the shares of Torchlight common stock out of Torchlights current or accumulated earnings
and profits, as determined for U.S. federal income tax purposes, will be subject to U.S. withholding tax at a rate of 30% (or
lower applicable treaty rate) unless the Non-U.S. Holder establishes that such dividends are effectively connected with such holders
U.S. trade or business. A Non-U.S. Holder may be able to claim benefits (if any) under an applicable treaty with respect to such
withholding taxes. However, there can be no assurance that treaty benefits will be available and Non-U.S. Holders should consult
their tax advisors as to the applicability of treaty benefits in such circumstances. In addition, a Non-U.S. Holder will be taxed
in the same manner as a U.S. Holder on dividends received that are effectively connected with the Non-U.S. Holders conduct
of a trade or business or, if required by an applicable treaty attributable to a permanent establishment by the Non-U.S. Holder,
in the United States. A Non-U.S. Holder that is classified as a corporation for U.S. federal income tax purposes may also be subject
to an additional branch profits tax at a 30% rate (or lower applicable treaty rate) on dividend income that is effectively connected
with a U.S. trade or business. To the extent a distribution exceeds Torchlights current or accumulated earnings and profits,
it will first constitute a tax-free return of capital that is applied against and reduces, but not below zero, the adjusted tax
basis of a Non-U.S. Holders shares of Torchlight common stock. Any remainder will constitute capital gain from the disposition
of Torchlight common stock, the treatment of which is described below.
Dispositions
of Shares of Torchlight Common Stock
Except
as otherwise described below in the discussions of backup withholding and FATCA, a Non-U.S. Holder generally will not be subject
to U.S. federal income tax on any gain realized upon the sale or other disposition of Torchlight common stock unless:
|
●
|
the
gain is effectively connected with the Non-U.S. Holders conduct of a U.S. trade or business (and, if required by an applicable
income tax treaty, the gain is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States);
|
|
●
|
the
Non-U.S. Holder is a non-resident alien individual who is present in the United States for a period or periods aggregating 183
days or more during the calendar year in which the sale or disposition occurs, and other conditions are met; or
|
|
●
|
the
Torchlight common stock constitutes a United States real property interest by reason of Torchlights status as a USRPHC
for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the Non-U.S. Holders
disposition of, or the Non-U.S. Holders holding period for, the Torchlight common stock, and, in the case where shares
of our common stock are regularly traded on an established securities market, the Non-U.S. Holder owns, or are treated as owning,
more than 5% of our common stock at any time during the foregoing period.
|
Generally,
a corporation is a United States real property holding corporation if the fair market value of its United States real
property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its
other assets used or held for use in a trade or business (all as determined for United States federal income tax purposes). Torchlight
does not believe that it is a USRPHC, or that it will become a USRPHC in the future, and this discussion assumes this is the case.
However, because the determination of whether Torchlight is a USRPHC depends on the fair market value of Torchlights U.S.
real property relative to the fair market value of Torchlights other business assets, there can be no assurance that Torchlight
will not become a USRPHC in the future. Even if Torchlight becomes a USRPHC, however, as long as Torchlights common stock
is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests only
if a Non-U.S. Holder actually or constructively hold more than 5% of such regularly traded common stock at any time during the
shorter of the five-year period preceding the Non-U.S. Holders disposition of, or the Non-U.S. Holders holding period
for, the Torchlight common stock. No assurance can be provided that Torchlights common stock will be regularly traded on
an established securities market at all times for purposes of the rules described above.
A
Non-U.S. Holder described in the first bullet above will generally be required to pay tax on the net gain derived from the sale
under regular graduated U.S. federal income tax rates (and a corporate Non-U.S. Holder described in the first bullet above also
may be subject to the branch profits tax at a 30% rate), unless otherwise provided by an applicable income tax treaty. A Non-U.S.
Holder described in the second bullet above will generally be required to pay a flat 30% tax (or such lower rate specified by
an applicable income tax treaty) on the gain derived from the sale, which gain may be offset by U.S. source capital losses for
the year (provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses). Non-U.S.
Holders should consult your tax advisor with respect to whether any applicable income tax or other treaties may provide for different
rules.
Backup
Withholding and Information Reporting
Information
returns may be filed with the IRS in connection with payments on the shares of Torchlight common stock or exchangeable shares
and the proceeds from a sale or other disposition of such shares. Holders of shares of Torchlight common stock or exchangeable
shares may be subject to U.S. backup withholding tax on these payments if they fail to provide their taxpayer identification numbers
to the paying agent and comply with certification procedures or otherwise establish an exemption from backup withholding. The
amount of any backup withholding from a payment will be allowed as a credit against the holders U.S. federal income tax
liability and may entitle the holder to a refund, provided that the required information is timely furnished to the IRS.
Foreign
Account Tax Compliance Act Withholding
The
Foreign Account Tax Compliance Act and the rules and regulations promulgated thereunder, collectively, FATCA, generally imposes
withholding tax at a rate of 30% on dividends on and gross proceeds from the sale or other disposition of Torchlight common stock
paid to foreign financial institutions (as specially defined under these rules), unless such institution enters
into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities
substantial information regarding the U.S. account holders of such institution (which includes certain equity and debt holders
of such institution, as well as certain account holders that are foreign entities with U.S. owners) or otherwise establishes an
exemption. FATCA also generally imposes a U.S. federal withholding tax of 30% on dividends on and gross proceeds from the sale
or other disposition of Torchlight common stock paid to a non-financial foreign entities (as specially defined under
these rules) unless such entity provides the withholding agent with a certification identifying certain substantial direct and
indirect U.S. owners of the entity and provides certain information with respect to such U.S. owners, certifies that there are
none or otherwise establishes and certifies to an exemption. The withholding provisions under FATCA generally apply to dividends
on Torchlight common stock. The Treasury Secretary has issued proposed regulations providing that the withholding provisions under
FATCA do not apply with respect to the gross proceeds from the sale or other disposition of Torchlight common stock, which may
be relied upon by taxpayers until final regulations are issued. An intergovernmental agreement between the United States and your
country of tax residence may modify the requirements described in this paragraph. If a dividend payment is both subject to withholding
under FATCA and subject to the withholding tax discussed above under Receipt of Distributions on Shares of Torchlight Common
Stock, the withholding under FATCA may be credited against, and therefore reduce, such other withholding tax. Non-U.S.
holders should consult their own tax advisors regarding the possible implications of FATCA on their investment in our common stock.
THE
PRECEDING DISCUSSION OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT LEGAL OR TAX ADVICE.
EACH HOLDER IS ENCOURAGED TO CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES RELATING TO THE ARRANGEMENT, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY U.S. FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS.
WHERE
YOU CAN FIND MORE INFORMATION
We
are subject to the informational reporting requirements of the Securities Exchange Act of 1934, or Exchange Act. We file reports,
proxy statements and other information with the SEC. Our SEC filings are available over the Internet at the SECs web site
at http://www.sec.gov. You may also inspect our SEC reports, statements and other information at our web site at http://www.torchlightenergy.com.
We do not intend for information contained in our web site to be part of this prospectus, other than documents that we file with
the SEC that are incorporated by reference in this prospectus.
INFORMATION
WE INCORPORATE BY REFERENCE
The
SEC allows us to incorporate by reference the documents we file with the SEC, which means that we can disclose important
information to you by referring you to those documents. The information incorporated by reference is considered to be part of
this prospectus, and information in documents that we file later with the SEC will automatically update and supersede information
in this prospectus. We incorporate by reference the documents listed below and any future filings we will make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, other than any portions of the respective filings that were furnished,
rather than filed, pursuant to Item 2.02 or Item 7.01 of Current Reports on Form 8-K (including exhibits related thereto) or other
applicable SEC rules, until the offering of our securities under this registration statement is completed or withdrawn:
1.
our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed on March 18, 2021;
2.
our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2021, filed on May 14, 2021;
3.
our Proxy Statement for the 2021 special meeting of stockholders on Schedule 14A, filed on May 7, 2021;
4.
our Current Reports on Form 8-K as filed on January 6, 2021, January 13, 2021, January 14, 2021, January 22, 2021, January 25,
2021, January 28, 2021, January 29, 2021, February 1, 2021, February 4, 2021, February 8, 2021, February 10, 2021, February 16,
2021, February 22, 2021, March 11, 2021, March 15, 2021, April 1, 2021 April 15, 2021, May 4, 2021, May 7, 2021 and May 25, 2021;
and
5. the description
of our common stock, par value $0.001 per share, contained in our registration statement on Form 8-A (Registration Statement No.
001-36247) filed with the SEC on December 13, 2013, including any amendment or report filed for the purpose of updating such description.
We also incorporate by reference
each of the documents that we file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until the offering of the
common stock covered by this prospectus terminates, including all such documents we may file with the SEC after the date of the initial
registration statement and prior to the effectiveness of the registration statement. We will not, however, incorporate by reference in
this prospectus any documents or portions thereof that are not deemed “filed” with the SEC, including any information furnished
pursuant to Item 2.02 or Item 7.01 of our Current Reports on Form 8-K after the date of this prospectus unless, and except to the extent,
specified in such Current Reports.
We
will provide you with a copy of any of these filings (other than an exhibit to these filings, unless the exhibit is specifically
incorporated by reference into the filing requested) at no cost, if you submit a request to us by writing or telephoning us at
the following address and telephone number:
Torchlight
Energy Resources, Inc.
5700
W. Plano Parkway, Suite 3600
Plano,
Texas 75093
Telephone
Number: (214) 432-8002