Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
1.Is a Change of Control Triggering Event an acceptable event of default ?
2.Does a failure to make an offer if there is " Excess proceeds" from an Asset Sale an acceptable event of default?
Position TAKEN:
1.A Change of Control coupled with Rating Decline is acceptable
2.A failure to make an offer to purchase notes out of Excess Proceeds in the event of an asset sale acceptable
Reasons FOR POSITION TAKEN:
1.Given before see XXXXXXXXXX
2.Not contrived - commercial reality - beyond control of lender.
XXXXXXXXXX 962578
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling
This is in reply to your letter of XXXXXXXXXX, and further to information sent to us on XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers.
FACTS
1.XXXXXXXXXX was incorporated under the XXXXXXXXXX Business Corporations Act in XXXXXXXXXX business number is XXXXXXXXXX and it files its tax returns with the XXXXXXXXXX Tax Services Office.
2.XXXXXXXXXX is a "taxable Canadian corporation" and a "public corporation" within the meaning of subsection 89(1) of the Income Tax Act (the "Act") and is resident in Canada for purposes of the Act.
3.XXXXXXXXXX is a corporation incorporated under the laws of XXXXXXXXXX and is resident in the United States and not in Canada for purposes of the Act. XXXXXXXXXX is a wholly-owned direct subsidiary of XXXXXXXXXX
4.As of XXXXXXXXXX owned approximately XXXXXXXXXX% of the outstanding common shares of XXXXXXXXXX is a public corporation and XXXXXXXXXX collectively directly or indirectly exercise control over approximately XXXXXXXXXX% of the votes attaching to shares entitled to vote for directors of XXXXXXXXXX The XXXXXXXXXX are individuals resident in Canada for purposes of the Act. The rest of the common shares of XXXXXXXXXX are widely held.
5.XXXXXXXXXX has operations in Canada and carries on business in XXXXXXXXXX through direct or indirect wholly-owned subsidiaries.
6.To the best of your knowledge and that of XXXXXXXXXX management, none of the issues involved in this ruling are being considered by a District Taxation Office or a Taxation Centre in connection with a tax return already filed, and none of the issues are under appeal or objection.
PROPOSED TRANSACTIONS
7.XXXXXXXXXX (collectively, the "Issuers") propose to issue approximately XXXXXXXXXX principal amount of Senior Notes due in the year XXXXXXXXXX (the "Notes").
8.The Notes will be issued pursuant to a trust indenture (the "Indenture") to be entered into between the Issuers and a trust company. The Notes will be joint and several obligations of the Issuers and will be guaranteed on a joint and several basis by certain subsidiaries of XXXXXXXXXX.
9.Interest on the Notes will be payable XXXXXXXXXX The interest rate will be XXXXXXXXXX The principal market for the Notes will be in the United States.
10.The Notes will not be redeemable by the Issuers prior to a date in the year XXXXXXXXXX that is at least 5 years from the date of issue of the Notes. Thereafter, the Notes will be subject to redemption at the option of the Issuers, in whole or in part, at the stated redemption price (expressed as a percentage of the principal amount) plus accrued and unpaid interest to the date of redemption.
11.Notwithstanding the foregoing, at any time on, or before, a date in XXXXXXXXXX, the Issuers may also redeem up to a certain percentage (to be specified) of the aggregate principal amount of Notes originally issued under the Indenture with the net proceeds of a public offering of common shares of XXXXXXXXXX at a redemption price equal to a percentage (to be specified) on the principal amount of such Notes, plus accrued and unpaid interest to the redemption date.
12.In the event that the Issuers or other payor(s) are required to withhold or deduct any amount for or on account of taxes from any payment made under the Notes, the Issuers or other payor(s) will pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each holder after such withholding or deduction will not be less than the amount the holder would have received if such taxes had not been withheld or deducted; provided that no Additional Amounts will be payable with respect to a payment made to a holder (i) with which any Issuer does not deal at arm's length (within the meaning of the Act at the time of making such payment) or (ii) which is subject to such taxes by reason of its being connected with Canada or any province or territory thereof otherwise than by the mere holding of the Notes or the receipt of payments thereunder.
13.The Issuers also may, at their option, redeem the Notes, as a whole but not in part, at a redemption price equal to XXXXXXXXXX% of the principal amount of the Notes, together with accrued and unpaid interest to the redemption date, if XXXXXXXXXX has become or would become obligated to pay, on the next date on which any amount would be payable under or with respect to the Notes, any Additional Amounts as a result of any change in or amendment to the laws (or any regulations promulgated thereunder) of Canada (or any political subdivision or taxing authority thereof or therein), or any change in or amendment to any official position regarding the application or interpretation of such laws or regulations, which change or amendment is announced or becomes effective on or after the date of the final prospectus.
14.Upon the occurrence of a Change of Control Triggering Event (as defined in paragraph 16), the Issuers will be required to make a Change of Control Offer wherein the Issuers will mail a notice to each holder offering to repurchase the Notes. Pursuant to the Change of Control Offer, each holder of the Notes will have the right to require the Issuers to repurchase all or any part of such holder's Notes in cash at a price equal to XXXXXXXXXX% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the date of purchase. Failure to comply with the provisions of the Change of Control Offer will be considered an event of default under the said terms of the Indenture.
15.The Issuers will not be required to make a Change of Control Offer upon a Change of Control if there is no Rating Decline.
16."Change of Control Triggering Event" means the occurrence of a "Change of Control" and a "Rating Decline".
"Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger, amalgamation or consolidation), in one or a series of related transactions, of all or substantially all of the assets of XXXXXXXXXX and certain subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Securities Exchange Act), other than certain principals or related parties, (ii) the adoption of a plan relating to the liquidation or dissolution of XXXXXXXXXX (iii) the consummation of any transaction (including, without limitation, any merger, amalgamation, or consolidation) the result of which is that any "person" becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act), directly or indirectly, of more than 50% of the total voting power in the aggregate, on a fully diluted basis, of all classes of capital stock of XXXXXXXXXX then outstanding normally entitled to vote in the election of directors or (iv) the first day on which a majority of the members of the Board of Directors of XXXXXXXXXX are not continuing directors. For the purposes of this definition, any transfer of an equity interest of an entity that was formed for the purpose of acquiring voting stock of either XXXXXXXXXX or its subsidiary, XXXXXXXXXX, will be deemed to be a transfer of such portion of such voting stock as corresponds to the portion of the equity of such entity that has been so transferred.
"Rating Decline" means at any time within 90 days (which period shall be extended so long as the rating of the Notes is under publicly announced consideration for a possible downgrade by any rating agency) after the date of public notice of a Change of Control, or the intention of XXXXXXXXXX or any person to effect a Change of Control, (i) the rating of the Notes is decreased by any rating agency by one or more gradations and the rating by such rating agency on the Notes following such downgrade is below investment grade, or (ii) a withdrawal of the rating of the Notes by any rating agency.
17.Within XXXXXXXXXX days of the receipt of proceeds from an Asset Sale (as defined in paragraph 21) of an Issuer or certain specified subsidiaries, the Issuers may at their option reduce Senior Debt or acquire a controlling interest in another business, make a capital expenditure or acquire other long-term assets in the same line of business as the Issuers or certain specified subsidiaries were engaged in on the date of the Indenture, or make reasonable business extensions or expansions with the net proceeds from such sale. To the extent the net proceeds are not so applied or invested, they are defined as " Excess Proceeds".
18.When the aggregate amount of Excess Proceeds exceeds XXXXXXXXXX, the Issuers will be required to make an offer to all holders of Notes to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, in cash at a price equal to XXXXXXXXXX% of the principal amount plus accrued and unpaid interest to date of purchase (hereinafter "Asset Sale Offer").
19.To the extent the amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Issuers may use any remaining Excess Proceeds for general corporate purposes. If the tendered Notes exceed the Excess Proceeds, they are to be purchased pro rata.
20.Upon completion of an Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
21."Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets (including, without limitation, by way of a sale and leaseback) other than sales of inventory or other current assets in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of any Issuer and certain subsidiaries taken as a whole will be governed by the provisions of the Indenture under the caption "Change of Control" and/or the provisions described under the caption "Merger, Consolidation or Sale of Assets" (which describes permitted transactions) and not by the provisions of the Asset Sale covenant), and (ii) the issue or sale by either of the Issuers or certain subsidiaries of equity interests of any of their subsidiaries, in case of either clause (i) or (ii), either in a single transaction or a series of related transactions that have a fair market value in excess of XXXXXXXXXX or for net proceeds in excess of XXXXXXXXXX
Notwithstanding the foregoing, certain transfers of assets by an Issuer to certain subsidiaries, permitted payments under the terms of the Indenture, sales of property or equipment that have become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Issuers, transactions involving the lease or sublease of any real or personal property in the ordinary course of business, the contribution to the capital of certain subsidiaries or the sale of shares or sale of assets of certain subsidiaries, will be deemed not to be Asset Sales.
22.The Notes will rank pari passu in right of payment with all other existing senior indebtedness of the Issuers. The Notes will rank senior to all future subordinated indebtedness of the Issuers.
23.The Notes will provide for certain defined "Events of Default" such as nonpayment of amounts payable under the Notes as they fall due. Although neither a Change of Control Triggering Event nor an Asset Sale resulting in Excess Proceeds of at least XXXXXXXXXX per se will be a defined "Event of Default", failure by either of the Issuers to comply with the Change of Control Offer provision or to make an offer to purchase Notes out of Excess Proceeds in accordance with the Asset Sale Offer provision, as the case may be, will each be a defined Event of Default.
PURPOSE OF PROPOSED TRANSACTION
24.XXXXXXXXXX intend to use the proceeds from the issuance of the Notes to repay certain of their respective indebtedness and to facilitate loans to certain of their subsidiaries to be used to repay indebtedness of such subsidiaries.
RULINGS GIVEN
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purposes of the proposed transactions, we confirm the following:
A.The inclusion of the Change in Control Triggering Event covenant in the terms of the Notes, as described in paragraph 14, will not, in and by itself, preclude the application of the exemption from Canadian withholding tax, in subparagraph 212(1)(b)(vii) of the Act, to interest paid by XXXXXXXXXX to holders of the Notes, who for the purposes of the Act, are non-residents of Canada and deal at arm's length with XXXXXXXXXX
B.The obligation of XXXXXXXXXX to make an offer to purchase Notes out of Excess Proceeds in the event of an Asset Sale, as described above in paragraph 17 to 19, will not disqualify the holders of the Notes from the Canadian withholding tax exemption provided for in subparagraph 212(1)(b)(vii) of the Act to the interest paid or payable by XXXXXXXXXX to the holders of the Notes, who, for purposes of the Act, are non-residents of Canada and deal at arm's length with XXXXXXXXXX
These ruling are given subject to the general limitations and qualifications set forth in Information Circular 70-R2 issued by Revenue Canada, Taxation on September 28, 1990 and are binding provided the Notes are issued before XXXXXXXXXX The ruling is based on the Act in its present form and does not take into account the effect of any proposed amendments. Except as expressly stated, our ruling does not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch
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