Revett -- summary under Outbound continuances
Overview
Shareholders of Revett Minerals are being asked to approve an application under s. 188 of the Canada Business Corporations Act (the "CBCA") to change the jurisdiction of incorporation of Revett Minerals from the federal jurisdiction of Canada to the State of Delaware by way of continuance, and to approve the certificate of incorporation of Revett Minerals, to be effective as of the date of its domestication under s. 388 of the Delaware General Corporation Law ("DGCL"). The domesticated corporation (Revett Mining Company, Inc.) will be deemed for purposes of the DGCL to have commenced its existence in Delaware on the date of original incorporation under the CBCA. Upon domestication, the CBCA director will be asked to issue a certificate of discontinuance bearing the same date as the date of effectiveness of the certificate of corporate domestication. Eventually, Revett Silver Company will be merged with and into Revett Mining Company, Inc.
Revett Minerals
Revett Minerals is a CBCA corporation which is headquartered in Washington state, which holds shares of a Montana corporation ("Revett Silver Company") as essentially its sole asset. Revett Silver Company through subsidiaries holds a Montana copper and silver mine (whose operations were suspended at the end of 2012 and will not resume until construction of a deeper decline is finished on or after November 2014), and a development-stage silver and copper deposit, also in Montana. It is listed on the NYSE Markets Division and the Frankfurt exchange (as well as on the TSX).
Canadian tax consequences
Continuance. Upon the continuance, Revett Minerals will be deemed (by s. 128.1(4)(b)) to have disposed of each of its properties for their fair market value, which could cause Revett Minerals to incur a Canadian income tax liability. Furthermore, an emigration tax will be imposed (under s. 219.1) on the amount by which the fair market value of all of the properties of Revett Minerals exceeds the aggregate of the paid-up capital of its shares and its liabilities. Tax will be so imposed at a 5% rate "unless it can reasonably be concluded that one of the main reasons for the Corporation becoming resident in the United States was to reduce the amount of such additional tax or Canadian withholding tax," in which case the rate will be 25% (s. 219.3). Management is of the view that there should be no material Canadian taxable income or liability arising as a consequence of the domestication. In particular, "if the market price of our common shares does not exceed $2.25 per share and the exchange rate….remains relatively constant…then we should not incur Canadian income taxation arising on the domestication" (p. 7). In 2013, the TSX trading price ranged from $1.44 to $2.72, and ranged as high as $5.10 in 2012.
Shareholders
A Canadian resident holder (as well as a non-resident shareholder) should not be deemed to have disposed of its Revett Minerals shares as consequence only of the domestication. Standard disclosure re dissenters.
U.S. tax consequences
For Revett Minerals. The change in its jurisdiction of incorporation is expected to be a tax-free reorganization under Code. S. 368(a)(F) or (D) (based on substantial corporate assets not being distributed to any shareholders who dissent). "However, to the extent the Corporation owns any United States real property interests…the Corporation will recognize gain to the extent consideration received by the Corporation for such interest exceeds the Corporation's adjusted tax basis in such interest, regardless of whether the transaction qualifies as an F Reorganization or a D Reorganization."
U.S. Holders – s. 367
U.S. holders of Revett Minerals shares generally will not recognize any gain or loss for Code purposes upon the exchange of their Revett Minerals shares for shares of New Revett Minerals pursuant to the continuance unless the Code s. 367 rules or PFIC rules apply. A U.S. holder that owns, directly or indirectly (under constructive ownership rules) less than 10% of the combined voting power of all classes of stock of Revett Minerals and owns shares of Revett Minerals with a fair market value of less than $50,000 is not subject to the s. 367 rules. A 10% Shareholder will be required to recognize as dividend income its proportionate share of Revett Minerals's "all earnings and profits amount", with a corresponding increase in its tax basis. A U.S. holder that is not a 10% Shareholder but whose shares have a fair market value of at least $50,000 generally will recognize gain (but not loss) upon the domestication equal to the difference between the fair market value of the Revett Mining Company, Inc. common stock received at the time of the domestication over the shareholder's tax basis in the shares of Revett Minerals. However, it will not be required to recognize any gain if it instead elects to include as a deemed dividend the "all earnings and profits amount" with respect to its Revett Minerals stock. Revett Minerals believes that no U.S. shareholder of Revett Minerals should have a positive "all earnings and profits amount" attributable to its shares (and that it is not a PFIC), so that no US shareholder should be subject to tax on the domestication.
U.S. Holders – PFIC
Revett Minerals believes that it is not and never has been a PFIC. Accordingly, the continuance should not be a taxable event for any U.S. holder under the PFIC rules.
Non- U.S. Holders
The exchange of shares of Revett Minerals for shares of Revett Mining Company, Inc. by a non-U.S. holder generally will not be a taxable transaction. Revett Minerals does not anticipate that Revett Mining Company, Inc. will become a USRPHC.