30 November 1996 Ruling 9719963 - WITHHOLDING

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:

whether withholding on committment fee

Position:no

Reasons:

not under 212(1)(b)

XXXXXXXXXX                                      971996
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you requested various advance income tax rulings on behalf of the above referenced taxpayer in respect of the proposed transactions described herein. We also acknowledge your letter dated XXXXXXXXXX and our several telephone conversations.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

To the best of your knowledge and that of XXXXXXXXXX, none of the issues in respect of which rulings are herein requested is currently under consideration by a district office or taxation centre in connection with a tax return or notice of objection already filed.

Except as otherwise noted, all statutory references in this ruling application are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th Supplement) C.1, as amended (the "Act").

Facts

1. XXXXXXXXXX was amalgamated under the laws of Canada on XXXXXXXXXX and is a public corporation as defined in subsection 89(1).

2. XXXXXXXXXX.

3. Some classes of XXXXXXXXXX shares are listed on XXXXXXXXXX.

4. XXXXXXXXXX of the equity of XXXXXXXXXX is owned by XXXXXXXXXX, a U.S. public company, or its affiliates.

5. XXXXXXXXXX previously received an Advance Income Tax Ruling #942666 dated XXXXXXXXXX, 1994 regarding the applicability of the withholding tax exemption set out in subparagraph 212(1)(b)(vii) in respect of the Notes described therein (the "1994 Notes") issued by XXXXXXXXXX to holders which included non-residents (the current holders of the 1994 Notes are referred to herein as the "1994 Noteholders").

Proposed Transactions

6. XXXXXXXXXX proposes to make a consent solicitation to the 1994 Noteholders (the "Consent Solicitation"). This will be soliciting their support to amend the terms of the indenture in respect of the 1994 Notes to remove certain financial covenants which XXXXXXXXXX feels are overly restrictive of its ability to obtain additional financing and are no longer warranted. The amendments will also conform certain of the covenants in the 1994 indenture with those of the new proposed offering of additional notes described herein. The proposed amendments would remove certain restrictions upon the amount of debt that may be incurred in connection with financing all or any part of the purchase price or the cost of construction or improvement of equipment and remove restrictions on the granting of liens to secure such debt. In addition, they would provide XXXXXXXXXX with the ability to incur additional debt as a result of the issuance of new capital stock, provided that the debt is not greater than twice the amount of proceeds received from the sale of the capital stock. The amendments would expand XXXXXXXXXX right to incur additional debt in defined circumstances. A 1994 Noteholder who responds favourably to the Consent Solicitation will be paid an amount by XXXXXXXXXX (the "Consent Fee") of XXXXXXXXXX of 1994 Notes.

7. XXXXXXXXXX proposes to issue Senior Notes and Senior Discount Notes (collectively the "1997 Notes") in XXXXXXXXXX which will mature in XXXXXXXXXX (the "Maturity Date"). The 1997 Notes will be offered pursuant to a Prospectus and will be issued under an indenture (the "1997 Indenture") between XXXXXXXXXX and a Canadian trustee and a U.S. trustee (collectively referred to as the "Trustees").

8. The aggregate initial offering price of the 1997 Notes and the interest rate thereon have not yet been finally determined. It is expected that upon issuance, the aggregate initial offering price and the gross proceeds to XXXXXXXXXX of the Senior Notes will be approximately XXXXXXXXXX. The aggregate stated principal amount at maturity of the Senior Discount Notes is expected to be approximately XXXXXXXXXX.

9. The Senior Notes will bear interest at their stated rate (appoximately XXXXXXXXXX) from their date of issuance payable semi-annually in arrears twice each year and on the Maturity Date or earlier redemption date.

10. The Senior Discount Notes, which will be denominated in U.S. dollars, will be offered at a significant discount from their stated principal amount and no cash interest will be payable thereon prior to a date in XXXXXXXXXX. The Senior Discount Notes will fully accrete to their stated principal amount (at an interest rate of between XXXXXXXXXX) as at the fifth anniversary of their date of issuance (the "Fifth Anniversary"). Cash interest will be payable semi-annually on the Senior Discount Notes from the Fifth Anniversary on the stated principal amount at the same XXXXXXXXXX rate.

11. The 1997 Notes will not be repaid to the holders thereof prior to the Maturity Date unless:

(i) XXXXXXXXXX elects to make an early repayment; or

(ii) the 1997 Notes become due and payable under the terms of the 1997 Indenture as described below.

12. The 1997 Notes will not have the benefit of any sinking fund and will be senior unsecured obligations of XXXXXXXXXX. The 1997 Notes will be transferable.

13. It is expected that a number of the holders of the 1997 Notes will be non-residents of Canada that do not use or hold the 1997 Notes in carrying on business in Canada for purposes of the Act (the "Non-Resident Noteholders").

14. The terms and conditions of the 1997 Notes, including the rate of interest, the initial offering price and the provisions of the 1997 Indenture, will be determined by negotiation between XXXXXXXXXX and the underwriters who deal with each other at arm's length.

15. The 1997 Notes will be subject to redemption, at the option of XXXXXXXXXX, in whole or in part, at any time on or after the fifth anniversary of their date of issuance and prior to the Maturity Date. The redemption price of the 1997 Notes, if redeemed by XXXXXXXXXX before XXXXXXXXXX may include a premium.

16. The 1997 Indenture will contain covenants which are included to protect the holders of the 1997 Notes in respect of their financial risk. These are described in detail in the Prospectus under the heading "Description of the Notes Covenants" and include:

(a) a limitation on the consolidated debt of XXXXXXXXXX and certain of its subsidiaries generally setting a "debt to cash-flow available for fixed charges ratio" in a minimum of XXXXXXXXXX;

(b) a limitation on the amount of debt which can be incurred by certain XXXXXXXXXX subsidiaries and the amount of preferred stock which can be issued by certain XXXXXXXXXX subsidiaries;

(c) a limitation on certain payments by XXXXXXXXXX and certain of its subsidiaries, including the payment of certain dividends and the purchase, redemption or other retirement of capital stock. In addition, the 1997 Indenture will provide limitations relating to the rights of XXXXXXXXXX and certain of its subsidiaries to enter into agreements which encumber or restrict the ability of such subsidiaries to pay dividends or to make loans or advances or transfers of assets to XXXXXXXXXX or other subsidiaries, as well as restrictions on the creation of certain liens on assets by XXXXXXXXXX and certain subsidiaries if such liens result in another debtholder having a priority to the holders of the 1997 Notes. In addition, certain sale and leaseback transactions by XXXXXXXXXX and by certain subsidiaries will be treated as, and must meet the requirements in respect of, a disposition of assets described in paragraph 17 below.

17. There will be a specific covenant that XXXXXXXXXX may not, and may not permit certain subsidiaries to, dispose of certain assets in one or more related transactions in which the aggregate consideration exceeds XXXXXXXXXX, unless XXXXXXXXXX or such subsidiaries, as the case may be:

(a) receive consideration for such disposition at least equal to fair market value as determined by the board of directors in good faith;

(b) at least XXXXXXXXXX of the consideration for such disposition consists of cash or cash equivalents or the assumption of certain debt relating to such assets; and

(c) all net available proceeds in excess of XXXXXXXXXX, less any amounts invested within twelve months in assets related to XXXXXXXXXX business, are applied within such twelve months:

(i) first to the repayment or reduction of certain debt;

(ii) to the extent of the remaining net available proceeds, to make an Offer to Purchase outstanding 1997 Notes at a purchase price equal to the stated principal amount of the 1997 Notes plus any accrued interest to the date of purchase, provided that, in respect of the Senior Discount Notes, if the date of purchase is before the Fifth Anniversary, the purchase price shall be equal to the Accreted Value (as defined below) of the Senior Discount Notes;

(iii) to the extent of any remaining net available proceeds following the completion of the Offer to Purchase, to the repayment of other debt of XXXXXXXXXX or its subsidiaries; and

(iv) to the extent of any remaining net available proceeds to any other uses as determined by XXXXXXXXXX which is not otherwise prohibited by the 1997 Indenture.

However, notwithstanding the foregoing, not more than XXXXXXXXXX% of the principal amount of the Senior Notes, or more than XXXXXXXXXX% of the Accreted Value as defined below of the Senior Discount Notes may be repurchased in the aggregate prior to the fifth anniversary of the date of issuance of the 1997 Notes.

18. Accreted Value of a Senior Discount Note means, as of any date of determination prior to the Fifth Anniversary, the sum of the initial offering price of such Senior Discount Note and the portion of the excess of the stated principal amount of such Senior Discount Note over such initial offering price, which shall have been accreted thereon through such date, such amount to be so accreted on a daily basis at the specified rate per annum on the initial offering price of the Senior Discount Notes, compounded semi-annually from their date of issuance through the date of determination. The Accreted Value as of any date of determination on or after the Fifth Anniversary shall be XXXXXXXXXX of the stated principal amount of such Senior Discount Note.

19. The 1997 Indenture will also provide certain limitations on sales, dispositions and issuances of shares of certain XXXXXXXXXX subsidiaries. As well, under the provisions of the 1997 Indenture, XXXXXXXXXX and its subsidiaries may not enter into any transaction with an affiliate or related person unless the transaction is on terms which are as favourable as comparable arm's length transactions. In addition, XXXXXXXXXX will be required to provide holders of the 1997 Notes with certain financial information so long as the 1997 Notes are outstanding.

20. In the event of a "Change of Control" as defined below, XXXXXXXXXX will be required to make an Offer to Purchase the 1997 Notes. Such Offer to Purchase must be made at a purchase price equal to XXXXXXXXXX of the stated principal amount of the 1997 Notes plus accrued cash interest to the date of purchase; provided that, in respect of the Senior Discount Notes, if the Offer to Purchase is before the Fifth Anniversary, the purchase price will be equal to XXXXXXXXXX of the Accreted Value of the Senior Discount Notes to the date of purchase.

21. A "Change of Control" will be deemed to have occurred in the event that after the date of the 1997 Indenture, either:

(a) any person or any persons acting together that would constitute a group (for purposes of section 13(d) of the Securities Exchange Act of 1934 or any successor provision thereto) (a "Group"), together with any affiliates or related persons thereof, other than XXXXXXXXXX and its subsidiaries, shall beneficially own (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, or any successor provision thereto) more than 50% of the aggregate voting power of all classes of capital stock of XXXXXXXXXX entitled to vote generally in the election of directors; or

(b) any person or Group, together with any affiliates or related persons thereof, other than XXXXXXXXXX and its subsidiaries, shall succeed in having a sufficient number of its nominees elected to the board of directors of XXXXXXXXXX such that such nominees, when added to any existing director remaining on the board of directors of XXXXXXXXXX after such election who is an affiliate or a related person of such Group, will constitute a majority of XXXXXXXXXX board of directors.

22. The 1997 Indenture will also provide restrictions related to mergers, consolidations and certain sales of assets involving XXXXXXXXXX so that after such transactions the creditworthiness, including the consolidated net worth of XXXXXXXXXX, is not jeopardized and all of XXXXXXXXXX obligations under the 1997 Indenture are assumed by the successor entity to XXXXXXXXXX.

23. The 1997 Indenture will provide that all payments made by XXXXXXXXXX under or with respect to the 1997 Notes will be made free and clear of and without withholding or deduction of or for on account of any present or future tax, duty, levy, impost, assessment or other governmental charge imposed or levied by or on behalf of the government of Canada or of any province or territory thereof or by any authority or agency therein or thereof having power to tax (hereinafter "Taxes"), unless XXXXXXXXXX is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If XXXXXXXXXX is required to withhold or deduct any amount for or on account of Taxes, XXXXXXXXXX is required to pay such additional amounts (the "Additional Amounts") as may be necessary so that the net amount received by each Non-Resident Noteholder, including Additional Amounts after such withholding or deduction, will not be less than the amount the holder would have received if such Tax had not been withheld or deducted. This provision relating to the payment of Additional Amounts does not apply to a holder with which XXXXXXXXXX does not deal at arm's length at the time of making such payment, or to a holder which is subject to such Taxes by reason of it being connected with Canada or any province or territory thereof otherwise than by the mere holding of the 1997 Notes or the receipt of payments thereunder.

24. If XXXXXXXXXX is obligated to pay Additional Amounts with respect to the 1997 Notes as a result of a change in the laws or regulations of Canada or any political subdivision thereof, the application or interpretation of such laws or regulations, which change is announced or becomes effective on or after the date of the 1997 Indenture, the 1997 Notes may be redeemed in whole, but not in part, at the option of XXXXXXXXXX at the stated principal amount, together with accrued interest thereon to the redemption date; provided that, with respect to the Senior Discount Notes, if the redemption date is before the Fifth Anniversary, the redemption amount will be the Accreted Value of the Senior Discount Notes at the redemption date.

25. Under the 1997 Indenture, the following will be Events of Default:

(a) the failure to pay principal (including any Additional Amounts) or premium on any 1997 Note when due;

(b) failure to pay interest (including any Additional Amounts) on any 1997 Note when due continued for thirty days;

(c) default in the payment of principal and interest (including any Additional Amounts) on 1997 Notes required to be purchased pursuant to an Offer to Purchase in respect of a Change of Control as described in paragraphs 20 and 21 above, or in respect of the limitation on certain asset dispositions described in paragraph 17 above, when due and payable, or failure to make an Offer to Purchase as required;

(d) failure to comply with the 1997 Indenture provisions relating to mergers, consolidations, asset sales described in paragraph 22 above;

(e) failure to perform any other covenant or agreement of XXXXXXXXXX under the 1997 Indenture or the 1997 Notes continued for 60 days after written notice to XXXXXXXXXX by the Trustees or holders of at least XXXXXXXXXX% in aggregate stated principal amount of outstanding 1997 Notes;

(f) default under the terms of any instrument evidencing or securing debt by XXXXXXXXXX or any of its subsidiaries having an outstanding principal amount of XXXXXXXXXX individually or in the aggregate, which default results in the acceleration of the payment of such indebtedness or constitutes the failure to pay such indebtedness when due;

(g) the rendering of a final judgment or judgments (not subject to appeal) against XXXXXXXXXX or certain of its subsidiaries in an amount in excess of XXXXXXXXXX which remains undischarged or unstayed for a period of 60 days after the date on which the right to appeal has expired; and

(h) certain events of bankruptcy, insolvency or reorganization affecting XXXXXXXXXX or certain of its subsidiaries.

26. If an Event of Default shall occur and certain other conditions are met as set out in the 1997 Indenture, the outstanding 1997 Notes will become immediately due and payable. However, notwithstanding the foregoing, upon an acceleration of the Senior Discount Notes or an Event of Default described in paragraph (h) above, prior to the Fifth Anniversary, the holders of the Senior Discount Notes will only be entitled to receive the Accreted Value of the Senior Discount Notes, which until the Fifth Anniversary will be less than the stated principal amount of such notes.

27. The 1997 Indenture will also provide that, at the option of XXXXXXXXXX will be discharged from any and all obligations in respect of the 1997 Notes or, if applicable, XXXXXXXXXX may omit to comply with certain restrictive covenants under the 1997 Notes and the 1997 Indenture so that there will not be an Event of Default, upon the irrevocable deposit with the U.S. trustee of a sufficient amount in the opinion of a nationally recognized firm of independent certified public accountants to pay the stated principal amount, interest and premiums, if any, payable on the outstanding 1997 Notes, and satisfying certain other stated requirements.

28. When the 1997 Notes are issued, XXXXXXXXXX will not be in default under the provisions of the 1997 Indenture and XXXXXXXXXX does not expect that an Event of Default will occur prior to the Maturity Date.

Purpose of Proposed Transactions

The purpose of the Consent Solicitation to the 1994 Noteholders is to facilitate the further borrowing of money by XXXXXXXXXX and its subsidiaries to fund XXXXXXXXXX.

The purpose of issuing the 1997 Notes is to provide additional money to XXXXXXXXXX and its subsidiaries to fund their general business activities, including:

(i) to fund XXXXXXXXXX;

(ii) to fund XXXXXXXXXX;

(iii) to fund the
XXXXXXXXXX

(iv) to fund working capital growth and other general corporate purposes.

A portion of the 1997 Notes may be used to fund

XXXXXXXXXX.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions and the purposes of the proposed transactions, we confirm the following:

A. The difference between the Accreted Value and the initial offering price of the Notes will qualify for purposes of subparagraph 212(1)(b)(vii) as being an amount that a person resident in Canada pays or credits to a non-resident person on account or in lieu of, or in satisfaction of, interest.

B. For purposes of subsection 214(7) and subparagraph 212(1)(b)(vii), the inclusion of the Change of Control provisions described in paragraphs 20 and 21 above will not, in of themselves, preclude the Notes from being excluded obligations, as that term is defined in subsection 214(8).

C. The exemption from non-resident withholding tax under paragraph 212(1)(b) which is provided for in subparagraph 212(1)(b)(vii) and paragraph 214(7)(b) will apply to any amount paid on account or in lieu of, or in satisfaction of, interest in respect of the redemption of the Notes, at the option of the Company as described in paragraphs 15 or upon the occurence of an Event of Default as described in paragraph 25 above, to a holder of Notes which is not resident in Canada and which is dealing at arm's length with the Company within the meaning of the Act.

D. That the requirement to pay Additional Amounts, in respect of payments under the Notes as described in paragraphs 23 and 24 above, will not, in and of itself disqualify payments under the Notes from the exemption from Canadian withholding tax, in subparagraph 212(1)(b)(vii).

E. Payments to 1994 Noteholders of the Consent Fee will not be subject to non-resident withholding tax under paragraph 212(1)(b) of the Act.

F. In the event of a successful Consent Solicitation, as described in paragraph 6 above, the interest paid or credited to a non-resident person in respect of the 1994 Notes, that qualified for the exemption from tax payable pursuant to subparagraph 212(1)(b)(vii) of the Act prior to the proposed amendments to the terms of the 1994 Indenture, will not cease to be subject to subparagraph 212(1)(b)(vii) by reason only of the proposed amendments to the terms and conditions of the 1994 Notes, and for purposes of subsection 214(7) of the Act the 1994 Notes will continue to be an excluded obligation, as that term is defined in subsection 214(8).

These rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 and are binding on Revenue Canada, Taxation provided that the proposed transactions described herein are completed by XXXXXXXXXX.

However, nothing in this ruling should be construed as implying that the difference between the initial offering price and the Accreted Value of the Notes is interest for purposes of paragraph 20(1)(c).

Our rulings are based on the Act in its present form and do not take into consideration any proposed amendments to the Act.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch