Hi William,
I'm surprised the media hasn't picked up on this. It looks like the CDN FM is now proposing making the CRTs adhere to caps on non-resident investors from January 1, 2005. This is accelerated from 2007. Esprit made a NR regarding their conversion on Thursday and I've attached it here.
It looks like the gov't will remove the trust status if at any time from January 1, 2005 the non-resident ownership value exceeds 49%. It looks like Esprit, in addition to creating two share classes, will also reserve the right to convert shares to cash 'unfettered'.
I cannot see that the impact of this will be positive for the CRT market in general, dual listed issues or not. Many of the CRTs were close to 49% as it is (COS) and as we all know, non-resident buying has increased lately. What do you think?
David
CALGARY, Sept. 20 /CNW/ - (TSX - EEE) Esprit Exploration Ltd. ("Esprit")
today announced that, in light of proposed amendments to the Income Tax Act
(Canada) (the "Tax Act") released by the Department of Finance (Canada) on
September 16, 2004 relating to mutual fund trust status set forth in the
Legislation Proposals, Draft Regulations and Explanatory Notes Relating to
Income Tax (the "Proposals"), it has amended the terms of the proposed
arrangement pursuant to which Esprit will be restructured as Esprit Energy
Trust (the "Trust") and ProspEx Resources Ltd. ("ProspEx"). The Proposals, if
passed in their present form, will provide that a trust will lose "mutual fund
trust" status under the Tax Act, after December 31, 2004, if the fair market
value of its issued and outstanding units that are held by non-residents
exceeds 50% of the fair market value of all of its issued and outstanding
units (the "Proposed FMV Test"). Prior to January 1, 2005, a trust will lose
its status as a mutual fund trust if it can reasonably be considered that the
trust is maintained primarily for the benefit of non-residents (the "Current
Purpose Test").
Terms used in this press release with initial capitalized letters are
defined in the section entitled "Glossary of Terms" on pages 4 to 12 of
Esprit's Information Circular and Proxy Statement dated August 16, 2004 (the
"Information Circular") with respect to, among other things, the Arrangement.
The Arrangement, as presently structured, ensures compliance with the
Current Purpose Test, however, does not provide the mechanics to manage
compliance with the Proposed FMV Test. Accordingly, although it is uncertain
that the Proposals will be passed in their present form, the terms of the Plan
of Arrangement and the rights, privileges, restrictions and conditions
attaching to the Class A Trust Units have been amended from what is disclosed
in the Information Circular in order to better position the Trust to
continually maintain its status as a mutual fund trust under both the Current
Purpose Test and Proposed FMV Test.
The capital structure of the Trust consists of Class A Trust Units and
Class B Trust Units. The Class A Trust Units and Class B Trust Units have the
same rights to vote, receive distributions and participate in the assets of
the Trust upon any wind-up or dissolution. The only difference between the
Class A Trust Units and the Class B Trust Units is that the Class A Trust
Units have no residency restrictions whereas the Class B Trust Units may only
be held by Canadian residents. As a result of the restrictions on the
residency of holders of Class B Trust Units, the market price of the Class A
Trust Units and the market price of the Class B Trust Units may differ and
such difference may be significant. Under the Current Purpose Test, any
difference in the market prices of the Class A Trust Units and Class B Trust
Units would not affect the mutual fund trust status of the Trust. However, any
difference in the market prices of the Class A Trust Units and Class B Trust
Units may have an impact on compliance with the Proposed FMV Test and,
accordingly, affect the Trust's status as a mutual fund trust.
Notwithstanding that the Trust satisfies the Current Purpose Test, if the
Trust does not satisfy the Proposed FMV Test at all times after December 31,
2004, a situation that could occur if there is a premium in the market price
of the Class A Trust Units over the Class B Trust Units, the trust will be
deemed, subject to certain limited exceptions, not to be a mutual fund trust.
The loss of mutual fund trust status for the Trust would have significant
adverse consequences to the Trust and all of the holders of the Class A Trust
Units and Class B Trust Units.
The following are the principal amendments to the Arrangement which have
been made to the structure outlined in the Information Circular:
Change in Ownership Threshold from 96% to 80%
The Arrangement has been structured to restrict the number of Class A
Trust Units issued and outstanding at any given time such that they may not
exceed a set number of the number of Class B Trust Units. By restricting the
number of issued and outstanding Class A Trust Units, the Current Purpose Test
would always be satisfied and the Trust would continue to maintain its status
as a mutual fund trust under the Tax Act.
Initially, the Arrangement was structured such that the maximum number of
Class A Trust Units (excluding the number of Class A Trust Units which may be
issued on the extinguishment of outstanding Post-Arrangement Entitlements)
that could be issued pursuant to the Plan of Arrangement would not exceed 96%
of the number of Class B Trust Units issued and outstanding at such time
(excluding the number of Class B Trust Units which may be issued on the
exchange of outstanding Exchangeable Shares and the extinguishment of
outstanding Post-Arrangement Entitlements).
In order to provide the Trust with greater security of compliance with
the Proposed FMV Test, the Ownership Threshold has been reduced from 96% to
80%. Accordingly, the definition of Ownership Threshold in the Information
Circular for the purposes of the Arrangement has been amended to mean a number
of Class A Trust Units issued and outstanding at any point in time (excluding
the number of Class A Trust Units which may be issued on the extinguishment of
outstanding Post-Arrangement Entitlements) equaling 80% of the number of
Class B Trust Units issued and outstanding at such time (excluding the number
of Class B Trust Units which may be issued on the exchange of outstanding
Exchangeable Shares and the extinguishment of outstanding Post-Arrangement
Entitlements).
Class B Trust Units not Convertible into Class A Trust Units
Initially the Arrangement was structured to permit, subject to the
Ownership Threshold, the conversion of Class B Trust Units into Class A Trust
Units. In order for the Trust to calculate the market value of its issued and
outstanding units that are held by non-residents at any given time, the
Arrangement has been amended from what is presented in the Information
Circular to eliminate the ability of holders of Class B Trust Units to convert
into Class A Trust Units. Accordingly, the number of issued and outstanding
Class A Trust Units issued by the Trust on the Effective Date will not
increase (subject to subdivision or other reclassification of trust units
which would affect all outstanding class trust units) unless the Trust issues
additional Class A Trust Units from treasury on a date subsequent to the
Effective Date.
Redemption of Class A Trust Units at the Option of the Trust
The Class A Trust Units and Class B Trust Units have the same rights to
vote, receive distributions and participate in the assets of the Trust upon
any wind-up or dissolution. The only difference between the Class A Trust
Units and the Class B Trust Units under the Arrangement as disclosed in the
Information Circular is that the Class A Trust Units have no residency
restrictions whereas the Class B Trust Units may only be held by Canadian
residents.
In response to the Proposed FMV Test and in order to reduce any
difference between the market price of the Class A Trust Units and the market
price of the Class B Trust Units, the terms of the Class A Trust Units will
include provisions which, at the sole unfettered discretion of the Trust,
provide for the redemption of some or all of the Class A Trust Units for, at
the option of the Trust, either (i) cash in an amount equal to the Market
Redemption Price or (ii) unsecured, subordinated promissory notes of the Trust
("Trust Notes") in a principal amount equal to the Market Redemption Price.
The Market Redemption Price for the Class A Trust Units and Class B Trust
Units means the price per Class B Trust Unit equal to the lesser of (i) 95% of
the "market price", as calculated under the Trust Indenture, of the Class B
Trust Units on the principal market on which the Class B Trust Units are
quoted for trading during the 10 trading day period commencing immediately
after the date on which Class B Trust Units are surrendered to the Trust for
redemption and (ii) the "closing market price", as calculated under the Trust
Indenture, on the principal market on which the Class B Trust Units are quoted
for trading on the date that the Class B Trust Units are so surrendered for
redemption.
It is anticipated that the only time that the Trust will redeem Class A
Trust Units is if it determines that the Proposed FMV Test may not be
satisfied. The other structural changes to the Arrangement in response to the
Proposed FMV Test of reducing the Ownership Threshold to 80% and prohibiting
the conversion of Class B Trust Units into Class A Trust Units are expected to
provide enough control over the maintenance of the mutual fund trust status of
the Trust so that redemption by the Trust of Class A Trust Units will be an
action of last resort.
The Trust Notes, if issued, will be issued by the Trust pursuant to a
Trust Note Indenture and will not be listed for trading on the Toronto Stock
Exchange. The Trust Notes will be unsecured and will bear interest from the
date of issue at a rate equal to the then prevailing rate of interest.
Interest will be due and payable for each month during the term, on the last
business day of the month, subject to any withholding tax required by law. The
Trust Notes will rank subordinate to all senior indebtedness including
subordinate to the unsecured, subordinated promissory notes issuable by
AcquisitionCo to the Trust under the Arrangement.
The outstanding principal amount of the Trust Notes will be due and
payable ten years after the Effective Date of the Arrangement. All or any part
of the Trust Notes may be prepaid or purchased at any time without bonus.
Reconfirmation of Fairness Opinion of CIBC World Markets Inc.
Upon receiving and reviewing the amendments to the Arrangement Agreement
and Plan of Arrangement, CIBC World Markets Inc. has confirmed its opinion
that, as of August 16, 2004, had the amendments described herein been included
in the Arrangement, the consideration to be received by Esprit Shareholders
pursuant to the Arrangement (as amended) is fair, from a financial point of
view, to Esprit Shareholders as of August 16, 2004.
Approval from the Court of Queen's Bench of Alberta
The amendments to the Arrangement Agreement and the Plan of Arrangement
in response to the Proposed FMV Test have been brought to the attention of the
Court of Queen's Bench of Alberta which has ordered that, if Esprit issues
this press release and files a material change report setting forth the
amendments to the Arrangement Agreement and the Plan of Arrangement on the
System for Electronic Document Analysis and Retrieval, such actions would
constitute sufficient communication and notice to the Shareholders and
Optionholders entitled to vote at the Meeting of the amendments.
In addition, the Court of Queen's Bench of Alberta has ordered that the
date for filing a Notice of Intent to Appear on the Application for final
approval of the Plan of Arrangement as set forth in paragraph 9 of the Interim
Order be moved from September 20, 2004 to September 24, 2004.
No Change in Meeting Date and Place of Meeting
Esprit Securityholders are reminded that the Meeting will be held in the
Belaire Room of the Westin Hotel at 320-4th Avenue S.W., Calgary, Alberta on
Monday, September 27, 2004 at 10:00 a.m. (Calgary time) to consider approval,
among other things, of the proposed Arrangement as amended.
Securityholders are encouraged to read the full contents of the
Information Circular, as amended by the material change report filed by Esprit
today and to consult their own legal and financial advisors in respect of the
alternatives in their circumstances and the consequences to them of the
arrangement.
Deposit of Proxies and Letters of Transmittal
A Securityholder who has provided a duly completed form of proxy may
revoke it either by (a) depositing an instrument in writing executed by the
Securityholder or by the Securityholder's attorney authorized in writing
(i) at the registered office of Esprit at any time up to and including the
last business day preceding the day of the Meeting, or any adjournment
thereof, at which the proxy is to be used or (ii) with the chairman of the
Meeting on the day of the Meeting or an adjournment thereof, or (b) attending
the Meeting in person and registering with the scrutineers as a Securityholder
personally present. A form of proxy for registered Shareholders can be
obtained from the SEDAR website at www.sedar.com and on Esprit's website at
www.eee.ca. Beneficial Shareholders who have already provided instructions to
their broker in connection with the matters to be brought before the Meeting
and who wish to change their voting instructions must contact their broker.
Esprit Shareholders whose common shares are registered in the name of a
broker who have not already provided instructions to their broker, must
contact their broker in order to provide instructions for the handling of
their common shares and the voting on matters to be brought before the
Meeting. The matters to be voted on at the meeting are more fully described in
the information circular, as amended by the material change report filed by
Esprit today, dated August 16, 2004.
Material Change Report Available on SEDAR
A copy of the Material Change Report describing these amendments will be
available on the SEDAR website at www.sedar.com and on Esprit's website at
www.eee.ca on Tuesday, September 21, 2004.
Forward-Looking Statements
The corporate information contained in these pages contains forward-
looking information. The reader is cautioned that assumptions used in the
preparation of such information, although considered reasonable by Esprit at
the time of preparation, may prove to be incorrect. The actual results
achieved may vary from the information provided herein and the variations may
be material. Consequently, there is no representation by Esprit that actual
results achieved during the forecast period will be the same in whole or in
part as those forecast.
Esprit Exploration Ltd. is a crude oil and natural gas exploration and
production company headquartered in Calgary, Alberta, Canada. Its common
shares trade on the TSX under the symbol "EEE".
%SEDAR: 00002994E
For further information: Marian Kanik, Manager, Planning and Investor
Relations, Phone (403) 213-3798, Fax (403) 213-3735; Steve Soules, Senior Vice
President and Chief Financial Officer, Phone (403) 213-3761, Fax
(403) 213-3735; Steve Savidant, President and Chief Executive Officer, Phone
(403) 213-3729, Fax (403) 213-3735
cnw.ca
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