Filed
pursuant to
General Instruction IIL
of
Form F-10;
File no:
333-156844
February 9, 2009
Prospectus Supplement to the Short Form Base Shelf
Prospectus Dated February 5, 2009
US$172,500,000
46,000,000
Trust Units
US$3.75 per
Trust Unit
Precision Drilling Trust (the
Trust
) is
hereby qualifying for distribution 46,000,000 trust units
(
Trust Units
) of the Trust at a price of
U.S.$3.75 per Trust Unit (the
Offering
).
The issued and outstanding Trust Units of the Trust are
listed on the Toronto Stock Exchange
(the
TSX
) under the symbol
PD.UN and on the New York Stock Exchange (the
NYSE
) under the symbol PDS. On
February 6, 2009, the last trading day prior to the public
announcement of the Offering, the closing price of the
Trust Units on the TSX was $4.95 and the closing price of
the Trust Units on the NYSE was U.S.$3.98. The Trust has
applied to list the Trust Units offered by this Prospectus
Supplement on each of the TSX and the NYSE. Listing will be
subject to the Trust fulfilling all of the listing requirements
of each of the TSX and the NYSE.
The Trust is permitted, under a multi-jurisdictional
disclosure system adopted by the United States and Canada, to
prepare this Prospectus Supplement and the Prospectus in
accordance with Canadian disclosure requirements. Prospective
investors should be aware that such requirements are different
from those of the United States. The Trust has prepared its
financial statements in accordance with Canadian GAAP (as
defined herein) and is subject, in respect of its audited
consolidated financial statements for the year ended
December 31, 2005, to Canadian auditing and auditor
independence standards and, in respect of its audited
consolidated financial statements for the years ended
December 31, 2006 and 2007, to the auditing and auditor
independence standards of the Public Company Accounting
Oversight Board. Therefore, the Trusts financial
statements may not be comparable to the financial statements of
United States companies in certain respects
.
It is important for an investor to consider the particular
risk factors that may affect the industry in which the investor
is investing. See Risk Factors.
Prospective investors should be aware that the purchase of
Trust Units may have tax consequences both in the United
States and Canada. This Prospectus Supplement and the Prospectus
do not describe these tax consequences fully. Prospective
investors should read the tax discussion in this Prospectus
Supplement and consult with a tax advisor. See Canadian
Federal Income Tax Considerations and United States
Federal Income Tax Considerations.
The enforcement by investors of civil liabilities under
United States federal securities laws may be affected adversely
by the fact that the Trust has been settled under the laws of
Canada, that some or all of the trustees of the Trust and the
directors and officers of Precision Drilling Corporation
(Precision), the administrator of the Trust, are
residents of Canada, that some or all of the underwriters or
experts named in the Prospectus, this Prospectus Supplement or
the documents incorporated by reference therein or herein, as
applicable, are Canadian residents, and that all or a
significant portion of the assets of the Trust and said persons
may be located outside of the United States.
Neither the United States Securities and Exchange Commission
(the SEC) nor any state or provincial securities
commission or similar regulatory authority has approved or
disapproved of these securities, or passed upon the adequacy or
accuracy of this Prospectus Supplement or the Prospectus. Any
representation to the contrary is a criminal offence.
The offering price of the Trust Units offered under this
Prospectus Supplement was determined by negotiation among the
Trust and RBC Dominion Securities Inc. and Deutsche Bank
Securities Inc. (the
Co-lead Underwriters
),
on their own behalf and on behalf of TD Securities
Inc., HSBC Securities (Canada) Inc., Cormark Securities Inc.,
FirstEnergy Capital Corp. and Tristone Capital Inc.
(collectively, the
Underwriters
).
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Price to
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Underwriters
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Net Proceeds to
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the Public
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Fee
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the
Trust
(1)
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Per Trust Unit
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U.S.$3.75
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U.S.$0.15
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U.S.$3.60
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Total
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U.S.$172,500,000
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U.S.$6,900,000
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U.S.$165,600,000
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Notes:
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(1)
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Before deducting expenses of the Offering, estimated to be
U.S.$1,000,000.
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(2)
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The Trust has granted to the Underwriters an option (the
Over-Allotment Option
) to purchase up to an
additional 6,900,000 Trust Units, representing up to 15% of
the offering of Trust Units, at a price of U.S.$3.75 per
Trust Unit on the same terms and conditions as the
Offering, exercisable in whole or in part, from time to time,
not later than the 30th day following the closing of the
Offering to cover over-allotments, if any, and for market
stabilization purposes. If the Over-Allotment Option is
exercised in full, the total price to the public,
Underwriters fee and net proceeds to the Trust (before
deducting expenses of the Offering) will be
U.S.$198,375,000, U.S.$7,935,000 and U.S.$190,440,000
respectively. A purchaser who acquires Trust Units forming
part of the Underwriters
over-allotment
position acquires those Trust Units under this Prospectus
Supplement regardless of whether the over-allotment position is
filled through exercise of the Over-Allotment Option or
secondary market purchases. This Prospectus Supplement also
qualifies for distribution the issuance of the additional
Trust Units pursuant to the exercise of the Over-Allotment
Option. See Plan of Distribution.
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RBC Capital Markets
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Deutsche Bank Securities
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TD Securities
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HSBC
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Cormark Securities Inc.
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FirstEnergy Capital Corp.
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Tristone Capital Inc.
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Maximum size or
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Underwriters Position
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number of securities held
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Exercise period
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Exercise price
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Over-Allotment Option
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6,900,000 Trust Units
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Within 30 days following
closing of the Offering
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U.S.$3.75 per Trust Unit
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The Underwriters, as principals, conditionally offer the
Trust Units, subject to prior sale, if, as and when issued
by the Trust and accepted by the Underwriters in accordance with
the conditions contained in the Underwriting Agreement referred
to under Plan of Distribution and subject to
approval of certain legal matters relating to the Offering on
behalf of the Trust by Bennett Jones LLP, with respect to
matters of Canadian law, Felesky Flynn LLP, with respect to
matters of Canadian federal income tax law, and by Mayer Brown
LLP, with respect to matters of United States law, and on behalf
of the Underwriters by Blake, Cassels & Graydon LLP,
with respect to matters of Canadian law, and by
Shearman & Sterling LLP, with respect to matters
of United States law.
The Trust has been advised by the Underwriters that, subject to
applicable laws, in connection with the Offering, the
Underwriters may effect transactions that stabilize or maintain
the market price of the Trust Units at levels other than
those that might otherwise prevail in the open market. Such
transactions, if commenced, may be discontinued at any time. See
Plan of Distribution.
The head office and principal place of business of the Trust and
the head and registered office of Precision is located at 4200,
150
6
th
Avenue S.W., Calgary, Alberta, T2P 3Y7.
Each of RBC Dominion Securities Inc., Deutsche Bank
Securities Inc., TD Securities Inc. and
HSBC Securities (Canada) Inc. is, directly or
indirectly, an affiliate of a bank or other financial
institution which is a lender to Precision and to which
Precision is presently indebted. Consequently, the Trust may be
considered to be a connected issuer of each of these
Underwriters under applicable Canadian securities legislation.
See Relationship among the Trust and Certain
Underwriters.
A return on an investment in Trust Units is not comparable
to the return on an investment in a fixed-income security. The
recovery of an initial investment in Trust Units is at
risk, and the anticipated return on such investment is based on
many performance assumptions.
Although the Trust may make
distributions of available cash flow to holders of
Trust Units (Unitholders), cash distributions
are not guaranteed and may be reduced, suspended or
eliminated.
On February 9, 2009, the Trust announced
that it had suspended cash distributions for an indefinite
period commencing February, 2009. See Recent
Developments Suspension of Monthly
Distributions. Any amounts that may be distributed by the
Trust in the future will depend on numerous factors including,
among other things: the financial performance of the
Trusts operating subsidiaries, debt obligations, working
capital requirements, future capital requirements and the
ability of the Trust to meet certain of the covenants set forth
under the terms of the Credit Facilities (as defined in the
Prospectus). See Material Debt in the Prospectus. In
addition, the market value of the Trust Units may
deteriorate if the Trust does not reinstate its cash
distributions or otherwise meet cash distribution expectations
in the future, and that deterioration may be material. See
Risk Factors Distributions on the Trust Units
have been suspended and may not be reinstated.
The after tax return from an investment in Trust Units to
Unitholders subject to Canadian income tax can be made up of
both a return on capital and a return of capital. That
composition may change over time, thus affecting an
investors after tax return. Subject to certain amendments
to the
Income Tax Act
(Canada) (the
Tax
Act
) made effective on October 31, 2006 (the
SIFT Rules
)
, returns on capital
generally are taxed as ordinary income in the hands of a
Unitholder who is resident in Canada for purposes of the Tax
Act. Pursuant to the SIFT Rules, commencing January 1, 2011
(provided the Trust only experiences normal growth
before then) certain distributions from the Trust which
otherwise would have been taxed as ordinary income generally
will be characterized as dividends and the Trust will be subject
to tax at corporate rates on the amount of those distributions.
Returns of capital generally are not required to be (and under
the SIFT Rules will continue to not be required to be) included
in income for Unitholders who are resident in Canada for
purposes of the Tax Act, but rather reduce the adjusted cost
base of such Unitholders Trust Unit(s) for purposes
of the Tax Act. Distributions of income to a Unitholder who is
not resident in Canada for purposes of the Tax Act, or that is a
partnership that is not a Canadian partnership for
purposes of the Tax Act, generally will be subject to Canadian
withholding tax. Prospective investors should consult their own
tax advisors with respect to the Canadian income tax
considerations applicable in their own circumstances. See the
discussion under the headings Recent
Developments Suspension of Monthly
Distributions, Risk Factors and Canadian
Federal Income Tax Considerations.
Subscriptions for Trust Units offered under this Prospectus
Supplement will be received subject to rejection or allotment in
whole or in part and the right is reserved to close the
subscription books at any time without notice. It is expected
that closing will occur on or about February 18, 2009 or
such other date not later than February 27, 2009 as
Precision, the Trust and the
Co-lead
Underwriters may agree.
The Underwriters propose to offer the Trust Units initially at
the offering price specified above. After a reasonable effort
has been made to sell all of the Trust Units at the price
specified, the Underwriters may subsequently reduce the selling
price to investors from time to time in order to sell any of the
Trust Units remaining unsold. Any such reduction will not
affect the proceeds received by the Trust.
See Plan of
Distribution
.
The Trust Units are not deposits within the
meaning of the
Canada Deposit Insurance Corporation Act
(Canada) and are not insured under the provisions of that
Act or any other legislation. Furthermore, the Trust is not a
trust company and, accordingly, it is not registered under any
trust and loan company legislation as it does not carry on or
intend to carry on the business of a trust company.
S-1
IMPORTANT
NOTICE ABOUT INFORMATION IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
This document is in two parts. The first part is this Prospectus
Supplement, which describes the specific terms of the
Trust Units that are being offered and also adds to and
updates certain information contained in the Prospectus and the
documents incorporated by reference into this Prospectus
Supplement or the Prospectus. The second part, the Prospectus,
gives more general information.
You should rely only on the information contained in or
incorporated by reference into this Prospectus Supplement and
the Prospectus. The Trust has not, and the Underwriters have
not, authorized any other person to provide prospective
investors with different information and any such information
should not be relied upon. The Trust is not, and the
Underwriters are not, making an offer to sell the
Trust Units in any jurisdiction where the offer or sale is
not permitted. Readers should assume that the information
appearing in this Prospectus Supplement and the Prospectus, as
well as information the Trust has previously filed with the
securities regulatory authority in each of the provinces of
Canada and with the SEC that is incorporated by reference into
this Prospectus Supplement or the Prospectus, is accurate as of
their respective dates only. The business, financial condition,
results of operations and prospects of the Trust may have
changed since those dates.
Unless the context otherwise requires, all references in this
Prospectus Supplement to the Trust means Precision
Drilling Trust and, where the context requires, includes the
Trust and all of its consolidated subsidiaries and any
partnership of which the Trust and its subsidiaries are the
partners.
Unless otherwise specifically stated, all financial information
included and incorporated by reference in the Prospectus and
this Prospectus Supplement is determined using Canadian
generally accepted accounting principles, referred to as
Canadian GAAP
.
U.S. GAAP
means generally accepted accounting principles in the United
States. The Trust prepares its financial statements in
accordance with Canadian GAAP, which differs from U.S. GAAP.
Therefore, the Trusts financial statements included and
incorporated by reference in this Prospectus Supplement and the
Prospectus may not be comparable to financial statements
prepared in accordance with U.S. GAAP. Prospective investors
should refer to note 16 of the Trusts consolidated
financial statements as at and for the year-ended
December 31, 2007 and the Interim GAAP Reconciliation
(as defined herein) for a discussion of the principal
differences between the Trusts financial results and
financial condition determined under Canadian GAAP and under
U.S. GAAP.
EXCHANGE
RATE INFORMATION
In this Prospectus Supplement, references to
dollars
,
$
, and
Cdn.$
are to Canadian dollars, and references
to
U.S.$
and
U.S. dollars
are to United States dollars. The exchange rate between the
Canadian dollar and the United States dollar used in this
Prospectus Supplement and the Prospectus varies depending on the
date of the information contained in this Prospectus Supplement
and the Prospectus, respectively.
The following table sets forth: (i) the rates of exchange
for the Canadian dollar, expressed in U.S. dollars in effect at
the end of each of the periods indicated; (ii) the average
of the exchange rates in effect on the last day of each month
during such periods; and (iii) the high and low exchange
rates during each period, in each case based on the inverse of
the noon buying rate in New York City for cable transfers
payable in Canadian dollars as certified for customs purposes by
the Federal Reserve Bank of New York.
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Nine Months
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Ended
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Year Ended December 31
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September 30
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2004
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2005
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2006
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2007
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2008
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2007
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2008
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Rate at end of period
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0.831
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0.858
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0.858
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1.012
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0.817
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1.004
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0.944
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Average rate for period
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0.768
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0.825
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0.882
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0.927
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0.934
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0.900
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0.982
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High for period
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0.849
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0.869
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0.910
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1.091
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1.029
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1.004
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1.029
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Low for period
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0.716
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0.787
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0.853
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0.844
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0.771
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0.844
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0.926
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On February 9, 2009, the inverse of the noon buying rate in
New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of
New York was Cdn.$1.2190 = U.S.$1.00.
S-2
WHERE YOU
CAN FIND MORE INFORMATION
This Prospectus Supplement and the Prospectus form part of a
registration statement on
Form F-10
relating to the Trust Units that the Trust has filed with
the SEC (the
Registration Statement
). This
Prospectus Supplement and the Prospectus do not contain all of
the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and
regulations of the SEC. United States investors should refer to
the Registration Statement and the exhibits to the Registration
Statement for further information with respect to the Trust and
the Trust Units.
The Trust files annual and quarterly reports, material change
reports and other information with the securities commissions or
similar regulatory authorities in each of the provinces of
Canada and with the SEC. Under a multi-jurisdictional disclosure
system adopted by the United States and Canada, these reports
and other information (including financial information) may be
prepared in accordance with the disclosure requirements in
Canada, which differ from those in the United States.
Prospective investors may read and download any public document
that the Trust has filed with securities commissions or similar
regulatory authorities in each of the provinces of Canada on the
System for Electronic Document Analysis and Retrieval, which is
commonly known by the acronym SEDAR, and which may be accessed
at
www.sedar.com
. Prospective investors may read any
document that the Trust files with or furnishes to the SEC at
the SECs public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Prospective investors may also obtain
copies of the same documents from the public reference room of
the SEC at 100 F Street, N.E., Washington, D.C. 20549 by paying
a fee. Please call the SEC at
1-800-SEC-0330
or contact it at
www.sec.gov
for further information on
the public reference room. The Trusts filings are also
electronically available from the SECs Electronic Document
Gathering and Retrieval System, which is commonly known by the
acronym EDGAR, and which may be accessed at
www.sec.gov
,
as well as from commercial document retrieval sources.
DOCUMENTS
FILED AS PART OF THE REGISTRATION STATEMENT
The following documents are being or will be filed with the SEC
as part of the Registration Statement: the documents referred to
under the heading Documents Incorporated by
Reference; the consents of KPMG LLP; the consent of
Bennett Jones LLP; the consent of Felesky Flynn LLP; the consent
of Mayer Brown LLP; the consent of Blake, Cassels &
Graydon LLP; and the powers of attorney from the Trusts
trustees and Precisions officers.
FORWARD-LOOKING
STATEMENTS
Certain statements contained in this Prospectus Supplement and
the Prospectus, and in certain documents incorporated by
reference into this Prospectus Supplement and the Prospectus,
including statements that contain words such as
could, should, can,
anticipate, estimate,
propose, plan, expect,
believe, will, may and
similar expressions and statements relating to matters that are
not historical facts constitute forward-looking
information within the meaning of applicable Canadian
securities legislation and forward-looking
statements within the meaning of the safe
harbor provisions of the United States Private Securities
Litigation Reform Act of 1995 (collectively,
forward-looking information and statements
).
In particular, forward-looking information and statements
include, but are not limited to: the timing and amount of
future cash distributions, the impact of reductions in commodity
prices; the potential impact and benefits of the Acquisition (as
defined herein); the opportunities stemming from a focus on
global contract drilling through United States expansion,
international diversification opportunities and complementary
product line expansion; that new drilling rigs are expected to
be contracted with customers before completion; the number of
rigs under daywork term contracts in Canada, the United States
and Mexico; the global economic crisis and its impact on
operations; the decline rate on newly drilled wells; the
potential rebound in land drilling activity; the integration of
Precision and Grey Wolf (as defined herein); commodity prices;
the timing of completion of rigs in Precisions rig build
program; the impact of shale gas drilling in Canada and the
United States; that unconventional drilling applications will
require high performance drilling rigs; that continental natural
gas will continue to be part of the long-term energy solution
for North America; that wells have a steep rate of production
decline in the first year necessitating additional drilling to
replace rapidly depleting wells; the timing and results of
international diversification opportunities; that planned asset
growth will generally be financed through existing debt
facilities or cash retained from continuing operations;
potential downgrades to credit ratings; and statements
as to seasonal and weather conditions affecting the
Canadian oil and natural gas industry and the demand for
Precisions services.
S-3
The forward-looking information and statements contained in this
Prospectus Supplement and the Prospectus and in certain
documents incorporated by reference in this Prospectus
Supplement and the Prospectus are based on certain assumptions
and analysis made by the Trust in light of its experience and
its perception of historical trends, current conditions and
expected future developments as well as other factors it
believes are appropriate in the circumstances. However, whether
actual results, performance or achievements will conform to the
Trusts expectations and predictions is subject to a number
of known and unknown risks and uncertainties which could cause
actual results to differ materially from the Trusts
expectations. Such risks and uncertainties include, but are not
limited to: fluctuations in the price and demand for and supply
of oil and natural gas; the current global financial crisis and
the dislocation in the credit markets; fluctuations in the level
of oil and natural gas exploration and development activities;
fluctuations in the demand for well servicing, contract drilling
and ancillary oilfield services; the effects of seasonal and
weather conditions on operations and facilities; the existence
of competitive operating risks inherent in well servicing,
contract drilling and ancillary oilfield services; general
economic, market or business conditions; changes in laws or
regulations, including taxation, environmental and currency
regulations; the lack of availability of qualified personnel or
management; future capital expenditures and refurbishment,
repair and upgrade costs; expected completion times for
refurbishment and upgrade projects; sufficiency of funds for
required capital expenditures, working capital and debt service;
liabilities under laws and regulations protecting the
environment; the impact of purchase accounting; expected
outcomes of litigation, claims and disputes and their expected
effects on the Trusts financial condition and results of
operations; difficulties and delays in achieving synergies and
cost savings; the failure to realize anticipated synergies in
the Acquisition; the Trusts ability to enter into and the
terms of future contracts; the adequacy of sources of liquidity;
the inability to carry out plans and strategies as expected;
loss of mutual fund trust status; the effect of
Canadian federal government proposals regarding non-resident
ownership; the conversion of the Trust into a corporate
structure and other unforeseen conditions which could impact the
use of services supplied by Precision.
Consequently, all of the forward-looking information and
statements made in this Prospectus Supplement and the Prospectus
and in certain documents incorporated by reference in this
Prospectus Supplement and the Prospectus are qualified by these
cautionary statements and there can be no assurance that the
actual results or developments anticipated by the Trust will be
realized or, even if substantially realized, that they will have
the expected consequences to or effects on the Trust or its
business or operations. Readers are therefore cautioned not to
place undue reliance on such forward-looking information and
statements. Neither the Trust nor Precision are under any
obligation to publicly update or revise any forward-looking
information or statements except as expressly required by
applicable securities laws.
DOCUMENTS
INCORPORATED BY REFERENCE
Information has been incorporated by reference in this
Prospectus Supplement and the Prospectus from documents filed
with securities commissions and similar regulatory authorities
in Canada and with the SEC.
This Prospectus Supplement is incorporated by reference into the
Prospectus as of the date hereof and only for the purposes of
the distribution of the Trust Units offered hereby,
including Trust Units offered pursuant to the
Over-Allotment Option granted to the Underwriters. Other
documents are also incorporated or deemed to be incorporated by
reference into the Prospectus and reference should be made to
the Prospectus for full details.
Under applicable securities laws in Canada and the United
States, the Canadian securities commissions or similar
regulatory authorities and the SEC allow the Trust to
incorporate by reference certain information that it files with
the Canadian securities commissions, the SEC or similar
authorities, which means that the Trust can disclose important
information to prospective investors by reference to those
documents. Information that is incorporated by reference is an
important part of the Prospectus and this Prospectus Supplement.
The following documents of the Trust have been filed with the
various securities commissions or similar regulatory authorities
in the provinces of Canada and with the SEC and are specifically
incorporated by reference into and form an integral part of the
Prospectus and this Prospectus Supplement:
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1.
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the annual information form of the Trust dated March 25,
2008 for the year ended December 31, 2007 (the
AIF
);
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2.
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the audited comparative consolidated financial statements of the
Trust as at and for the years ended December 31, 2007 and
2006, together with the notes thereto, the auditors report
thereon and the auditors report on internal control over
financial reporting as of December 31, 2007;
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S-4
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3.
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managements discussion and analysis of the financial
condition and results of operations of the Trust for the year
ended December 31, 2007;
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4.
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the unaudited interim consolidated financial statements of the
Trust for the three and nine month periods ended
September 30, 2008;
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5.
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managements discussion and analysis of the financial
condition and results of operations of the Trust for the nine
month period ended September 30, 2008;
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6.
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the supplemental note entitled Reconciliation of Financial
Statements to United States Generally Accepted Accounting
Principles for the nine month period ended
September 30, 2008 and 2007 (the
Interim
GAAP Reconciliation
);
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7.
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the information circular of the Trust dated March 28, 2008
relating to the annual meeting of Unitholders held on
May 7, 2008;
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8.
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the material change report of the Trust dated August 28,
2008 in respect of the agreement and plan of merger dated
August 24, 2008 among the Trust, Grey Wolf, Inc.
(
Grey Wolf
), Precision and Precision Lobos
Corporation (
Lobos
) pursuant to which the
Trust agreed to indirectly acquire Grey Wolf (the
Acquisition
);
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9.
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the material change report of the Trust dated December 19,
2008 in respect of the announcement of the expected principal
terms of the credit facilities with the Trusts banking
syndicate, consisting of Royal Bank of Canada, RBC Capital
Markets, Deutsche Bank AG Cayman Islands Branch, Deutsche Bank
Securities Inc., HSBC Bank Canada, HSBC Bank USA, National
Association and The Toronto-Dominion Bank (collectively, the
Commitment Banks
), in conjunction with the
Acquisition;
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10.
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the material change report of the Trust dated December 23,
2008 in respect of the completion of the Acquisition pursuant to
the agreement and plan of merger among the Trust, Grey Wolf,
Precision and Lobos dated August 24, 2008, as amended
December 2, 2008;
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|
11.
|
the amended business acquisition report of the Trust dated
February 9, 2009 in respect of the Acquisition; and
|
|
12.
|
the press release of the Trust dated February 9, 2009 in respect
of, among other things, the financial results of the Trust for
the three months and year ended December 31, 2008 and the
suspension of monthly distributions of the Trust.
|
Any documents of the type required by National Instrument
44-101
Short Form Prospectus Distributions
to be
incorporated by reference in a short form prospectus including
any material change reports (excluding confidential material
change reports), comparative interim financial statements,
comparative annual financial statements and the auditors
report thereon, managements discussion and analysis of
financial condition and results of operations, information
circulars, annual information forms and business acquisition
reports filed by the Trust with the securities commissions or
similar regulatory authorities in the provinces of Canada
subsequent to the date of this Prospectus Supplement and prior
to the termination of this distribution are deemed to be
incorporated by reference in this Prospectus Supplement. To the
extent that any document or information incorporated by
reference into this Prospectus Supplement is included in a
report that is filed with or furnished to the SEC, such document
or information shall be deemed to be incorporated by reference
as an exhibit to the registration statement of which this
Prospectus Supplement forms a part.
Any statement contained in the Prospectus or this Prospectus
Supplement or in a document incorporated or deemed to be
incorporated by reference in the Prospectus or this Prospectus
Supplement shall be deemed to be modified or superseded for the
purposes of the Prospectus and this Prospectus Supplement to the
extent that a statement contained herein or in any other
subsequently filed document which also is, or is deemed to be,
incorporated by reference in the Prospectus or this Prospectus
Supplement modifies or supersedes such statement. The modifying
or superseding statement need not state that it has modified or
superseded a prior statement or include any other information
set forth in the document that it modifies or supersedes. The
making of a modifying or superseding statement shall not be
deemed an admission for any purposes that the modified or
superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that was required to be stated
or that was necessary to make a statement not misleading in
light of the circumstances in which it was made. Any statement
so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus
Supplement or the Prospectus.
S-5
Upon a new annual information form and corresponding annual
financial statements and related managements discussion
and analysis being filed by the Trust with, and where required,
accepted by, the applicable securities regulatory authorities
during the currency of the Prospectus or this Prospectus
Supplement, as applicable, the previous annual information form
and all annual financial statements, interim financial
statements and the related managements discussion and
analysis, material change reports, business acquisition reports
and information circulars filed prior to the commencement of the
Trusts financial year in respect of which the new annual
information form is filed shall be deemed no longer to be
incorporated by reference into the Prospectus or this Prospectus
Supplement for purposes of future offers and sales of securities
of the Trust under the Prospectus. Upon interim consolidated
financial statements and the related managements
discussion and analysis being filed by the Trust with the
applicable securities regulatory authorities during the currency
of the Prospectus and this Prospectus Supplement, as applicable,
all interim consolidated financial statements and the related
managements discussion and analysis filed prior to the new
interim consolidated financial statements shall be deemed no
longer to be incorporated in the Prospectus or this Prospectus
Supplement for purposes of future offers and sales of securities
of the Trust under the Prospectus. Upon a new management
information circular and proxy statement relating to an annual
meeting of Unitholders being filed by the Trust with the
applicable securities regulatory authorities during the currency
of the Prospectus and this Prospectus Supplement, as applicable,
the management information circular and proxy statement for the
preceding annual meeting of Unitholders shall be deemed no
longer to be incorporated into the Prospectus or this Prospectus
Supplement for purposes of future offers and sales of securities
of the Trust under the Prospectus.
PRECISION
DRILLING TRUST
The Trust is an unincorporated open-ended investment trust
established under the laws of the Province of Alberta pursuant
to a declaration of trust dated September 22, 2005 (the
Declaration of Trust
). The beneficiaries of
the Trust are the Unitholders. The Trusts principal
undertaking is to issue Trust Units and to carry on the
business of the provision of land-based contract drilling
services to oil and gas exploration and production companies
through its direct and indirect subsidiaries. This business is
carried out in two segments consisting of contract drilling
services and completion and production services. Contract
drilling services include land drilling services, camp and
catering services, procurement and distribution of oilfield
supplies and the manufacture and refurbishment of drilling and
service rig equipment. Completion and production services
include service rig well completion and workover services,
snubbing services, wastewater treatment services and the rental
of oilfield surface equipment, tubulars and well control
equipment and wellsite accommodations.
As of the date of this Prospectus Supplement, management
believes that the Trust is the second largest land driller in
North America, based on the number of rigs in its drilling rig
fleet. The Trust presently operates in most conventional and
unconventional oil and natural gas basins in Canada and the
United States and has an emerging presence in Mexico. Management
believes that the Trusts high performance drilling rigs,
supply chain management systems and technology, together with
its United States customer base, deep drilling capabilities and
positions in United States basins, provides it with a
substantial foundation for expansion, both in North America and
internationally. After giving effect to the Acquisition, as of
the date of this Prospectus Supplement, the Trust has a high
quality fleet consisting of 371 drilling rigs and 229 service
rigs and 28 snubbing units. In addition, Precision presently
offers its customers a complementary suite of wellsite products
and services including camp and catering, wastewater treatment,
snubbing and rental equipment. Most of these operations and the
service rig business are located in Canada. Costs of
approximately U.S.$207.7 million (after accounting for
applicable discounts), including a U.S.$25 million break-up fee
payable by Grey Wolf to a third party, debt issuance costs,
professional services fees, severance costs and other costs were
incurred in respect of the Acquisition.
RECENT
DEVELOPMENTS
Suspension
of Monthly Distributions
On February 9, 2009, the Trust announced that it had
suspended cash distributions for an indefinite period. This
measure was taken in response to lower financial operating
performance at the start of 2009. Accordingly, Precision will
not pay a distribution in March 2009 to Unitholders or holders
of Exchangeable Units (as defined herein) of record on
February 27, 2009, or for an indefinite period thereafter.
The previously announced distribution of $0.04 per unit payable
on February 17, 2009 to Trust and Precision Drilling Limited
Partnership (PDLP) unitholders of record on January
30, 2009 is unaffected by the suspension. The Trust will
continue to monitor its financial situation and evaluate the
possibility of the reinstatement of monthly cash distributions
based
S-6
on the relevant factors in effect from time to time. See
Risk Factors Distributions on the Trust Units
have been suspended and may not be reinstated.
Proposed
Financing Arrangements
In addition to the Offering by the Trust, Precision is
investigating alternative new debt financing arrangements, which
may include the issuance of an aggregate principal amount of
approximately U.S.$250 million of senior unsecured debt
(the
Debt
). Such new debt arrangements would
be structured to further enhance overall corporate liquidity and
better align Precisions overall capitalization to meet its
operating requirements and are expected to be used to repay all
or a portion of any remaining outstanding indebtedness under,
and replace, Precisions U.S.$400 million unsecured
bridge credit facility (the
Bridge Facility
)
that was established in order to facilitate the completion of
the Acquisition.
The terms and conditions of the proposed debt financing
arrangements have yet to be finalized.
In the event
Precision is able to successfully complete an offering of Debt,
Precision anticipates that the Debt would have a six year term
and pay interest in cash semi-annually in arrears at a rate to
be determined by Precision and its financial advisors. The Debt
would constitute general unsecured obligations of Precision and
rank senior in right of payment to all future obligations of
Precision that are, by their terms, expressly subordinated in
right of payment to the Debt and
pari passu
in right of
payment with all existing and future obligations of Precision
that are not so subordinated. Precision also anticipates that
the Debt would be unconditionally, jointly and severally
guaranteed, on a senior unsecured basis, by the Trust and
substantially all of the Canadian and United States subsidiary
entities of the Trust. The Debt would be able to be redeemed, in
whole or in part, in certain circumstances by Precision,
including upon the payment of certain premiums, upon the
completion of future equity offerings and upon the occurrence of
a change in control. Finally, Precision expects that the terms
of the Debt would include limitations on, among other things,
additional indebtedness, restricted payments (including
distributions by the Trust), transactions with affiliates, the
creation of liens, dispositions of assets and mergers.
There can be no assurance that Precision will be able to
complete the proposed debt financing arrangements on the general
terms and conditions described above, or on terms and conditions
acceptable to Precision or at all. See Risk
Factors Proposed Financing Arrangements.
This Prospectus Supplement is not an offer to sell or the
solicitation of an offer to buy any Debt. No prospectus
qualifying the distribution of the Debt has been filed with any
securities regulatory authority in Canada. The distribution of
any Debt in Canada will be made in reliance on prospectus
exemptions under applicable Canadian securities legislation. The
Debt has not been registered under the United States
Securities Act of 1933
, as amended, and may not be
offered or sold in the United States absent registration or an
applicable exemption from registration thereunder.
S-7
PRICE
RANGE AND TRADING VOLUME OF THE TRUST UNITS
The Trust Units trade on the TSX under the trading symbol
PD.UN and on the NYSE under the trading symbol
PDS. The following table sets forth the price range
and trading volumes for the Trust Units on each of the TSX
and NYSE as reported by each of the TSX and NYSE for the periods
indicated:
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|
|
|
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|
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TSX
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NYSE
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|
Period
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High
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|
|
Low
|
|
|
Volume
|
|
|
High
|
|
|
Low
|
|
|
Volume
|
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($)
|
|
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($)
|
|
|
|
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|
(U.S.$)
|
|
|
(U.S.$)
|
|
|
|
|
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2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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January
|
|
|
18.01
|
|
|
|
15.13
|
|
|
|
11,590,400
|
|
|
|
17.70
|
|
|
|
15.15
|
|
|
|
11,207,500
|
|
February
|
|
|
22.53
|
|
|
|
17.15
|
|
|
|
15,376,500
|
|
|
|
22.91
|
|
|
|
17.10
|
|
|
|
12,324,600
|
|
March
|
|
|
24.00
|
|
|
|
19.61
|
|
|
|
9,854,400
|
|
|
|
23.53
|
|
|
|
19.46
|
|
|
|
15,555,500
|
|
April
|
|
|
27.46
|
|
|
|
22.55
|
|
|
|
15,213,000
|
|
|
|
27.25
|
|
|
|
21.89
|
|
|
|
17,651,700
|
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May
|
|
|
28.39
|
|
|
|
24.50
|
|
|
|
10,294,240
|
|
|
|
28.38
|
|
|
|
24.03
|
|
|
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12,247,600
|
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June
|
|
|
28.93
|
|
|
|
26.05
|
|
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13,593,300
|
|
|
|
28.59
|
|
|
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25.76
|
|
|
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17,062,200
|
|
July
|
|
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28.09
|
|
|
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21.30
|
|
|
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15,021,570
|
|
|
|
28.15
|
|
|
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21.01
|
|
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18,696,400
|
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August
|
|
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23.45
|
|
|
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20.53
|
|
|
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19,240,300
|
|
|
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22.89
|
|
|
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19.30
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25,310,400
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September
|
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22.32
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|
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16.00
|
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20,875,900
|
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21.05
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15.42
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31,877,200
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October
|
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17.84
|
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9.99
|
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22,500,900
|
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16.82
|
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8.41
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42,644,400
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November
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13.90
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8.10
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14,142,500
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12.06
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6.36
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34,437,300
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December
|
|
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11.77
|
|
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7.07
|
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14,587,520
|
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9.65
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5.57
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44,393,400
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2009
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January
|
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10.44
|
|
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6.02
|
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14,505,500
|
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8.54
|
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4.92
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37,646,500
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February (1-9)
|
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6.18
|
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4.32
|
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11,843,897
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4.98
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3.53
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20,414,288
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On February 6, 2009, the last trading day prior to the
public announcement of the Offering, the closing price of the
Trust Units on the TSX was $4.95 and the closing price of
the Trust Units on the NYSE was U.S.$3.98.
USE OF
PROCEEDS
The estimated net proceeds from the Offering will be
approximately U.S.$164,600,000 (U.S.$189,440,000 if the
Over-Allotment Option is exercised in full) after deducting the
fees payable to the Underwriters and expenses of the Offering,
estimated to be U.S.$1,000,000. See Plan of
Distribution.
Pursuant to the terms of the convertible notes, of Grey Wolf
which were assumed by Lobos (which has been subsequently renamed
as
Precision Drilling Oilfield Services
Corporation (
PDOS
)) pursuant to the
Acquisition, on January 22, 2009, PDOS, as successor to
Grey Wolf, made a change of control offer to the
holders of the convertible notes to repurchase any or all of the
outstanding convertible notes at 100% of the principal amount
thereof, plus accrued but unpaid interest, if any, to the date
of the repurchase, payable in cash. The Trust anticipates that
holders of convertible notes will tender their notes to the
offer and the tendered notes will be repurchased on March 23,
2009. The net proceeds from the Offering and, to the extent
necessary after the use of the net proceeds of the Offering,
borrowings under the Bridge Facility will be used to pay for the
convertible notes tendered to the offer. To the extent that the
net proceeds of the Offering exceed the amount payable for the
convertible notes tendered to the offer, such proceeds will be
used to fund capital expenditures and for general corporate
purposes of Precision. See Recent Developments
Acquisition of Grey Wolf, Inc., Consolidated
Capitalization of the Trust and Material Debt
in the Prospectus and Relationship Among the Trust and
Certain Underwriters in this Prospectus Supplement.
PLAN OF
DISTRIBUTION
Pursuant to an underwriting agreement (the
Underwriting
Agreement
) dated as of February 9, 2009 among the
Trust, Precision and the Underwriters, the Trust has agreed to
issue and sell an aggregate of 46,000,000 Trust Units to
the Underwriters, and the Underwriters have severally agreed to
purchase such Trust Units at a price of U.S.$3.75 per
Trust Unit on February 18, 2009 or such other date not
later than February 27, 2009 as the Trust and the
Co-lead
S-8
Underwriters may agree, payable in cash to the Trust against
delivery of the Trust Units. The terms of the Offering were
determined by negotiation among the Trust and the Co-lead
Underwriters, on behalf of the Underwriters.
The obligations of the Underwriters under the Underwriting
Agreement are several and not joint, and may be terminated at
their discretion upon the occurrence of certain stated events.
If an Underwriter fails to purchase the Trust Units that it
has agreed to purchase, the other Underwriters may, but are not
obligated to, purchase the Trust Units. The Underwriters
are, however, obligated to take up and pay for all
Trust Units if they are purchased under the Underwriting
Agreement. The Underwriting Agreement also provides that the
Trust will indemnify the Underwriters and their directors,
officers, agents, shareholders and employees against certain
liabilities and expenses.
It is expected that closing will occur on or about
February 18, 2009, or such other date not later than
February 27, 2009 as the Trust and the
Co-lead
Underwriters may agree.
In addition, the Trust has granted to the Underwriters the
Over-Allotment Option to purchase up to an additional 6,900,000
Trust Units, representing up to 15% of the Offering of
Trust Units, at a price of U.S.$3.75 per Trust Unit on
the same terms and conditions as the Offering of the
Trust Units, exercisable in whole or in part from time to
time, not later than the 30th day following the closing of the
Offering to cover over-allotments, if any, and for market
stabilization purposes. If the Over-Allotment Option is
exercised in full, the total offering price, Underwriters
fee and net proceeds to the Trust (before deducting expenses of
the Offering) will be U.S.$198,375,000, U.S.$7,935,000 and
U.S.$190,440,000 respectively. This Prospectus Supplement also
qualifies for distribution the issuance of the additional
Trust Units pursuant to the exercise of the Over-Allotment
Option.
Pursuant to rules and policy statements of certain securities
regulators, the Underwriters may not, at any time during the
period ending on the date the selling process for the
Trust Units offered under this Prospectus Supplement ends
and all stabilization arrangements relating to the
Trust Units are terminated, bid for or purchase
Trust Units. The foregoing restrictions are subject to
certain exceptions including: (a) a bid for or purchase of
Trust Units if the bid or purchase is made through the
facilities of the TSX in accordance with the Universal Market
Integrity Rules of Market Regulation Services Inc.;
(b) a bid or purchase on behalf of a client, other than
certain prescribed clients, provided that the clients
order was not solicited by the Underwriter, or if the
clients order was solicited, the solicitation occurred
before the period of distribution as prescribed by the rules;
and (c) a bid or purchase to cover a short position entered
into prior to the period of distribution as prescribed by the
rules. The Underwriters may engage in market stabilization or
market balancing activities on the TSX where the bid for or
purchase of the Trust Units is for the purpose of
maintaining a fair and orderly market in the Trust Units,
subject to price limitations applicable to such bids or
purchases. Such transactions, if commenced, may be discontinued
at any time.
The Trust has agreed that, subject to certain exceptions, it
will not offer or issue, or enter into an agreement to offer or
issue, Trust Units or any securities convertible or
exchangeable into Trust Units for a period of 90 days
subsequent to the closing date of the Offering without the
consent of the
Co-lead
Underwriters, which consent may not be unreasonably withheld.
The Underwriters propose to offer the Trust Units initially at
the offering price specified above. After a reasonable effort
has been made to sell all of the Trust Units at the price
specified, the Underwriters may subsequently reduce the selling
price to investors from time to time in order to sell any of the
Trust Units remaining unsold. In the event the offering price
of the Trust Units is reduced, the compensation received by the
Underwriters will be decreased by the amount that the aggregate
price paid by the purchasers for the Trust Units is less than
the gross proceeds paid by the Underwriters to the Trust for the
Trust Units. Any such reduction will not affect the proceeds
received by the Trust.
The Trust has been advised by the Underwriters that, subject to
applicable laws, in connection with the Offering, the
Underwriters may effect transactions that stabilize or maintain
the market price of the Trust Units at levels other than
those that might otherwise prevail in the open market. Such
transactions, if commenced, may be discontinued at any time.
The Trust has applied to list the Trust Units distributed
under this Prospectus Supplement on each of the TSX and the
NYSE. Listing will be subject to the Trust fulfilling all of the
listing requirements of each of the TSX and the NYSE.
Because more than 10% of the proceeds of the Offering, not
including underwriting compensation, may be received by
affiliates of the Underwriters, the Offering is being conducted
in compliance with the Financial Industry Regulatory Authority
(formerly the National Association of Securities Dealers
(
NASD
)) Conduct Rule 5110(h). Pursuant
to that rule, the appointment of a qualified independent
Underwriter is not necessary in connection with the Offering, as
the Offering is of a class of equity securities for which a
bona fide independent market, as defined by the NASD
rules, exists as of the date of the filing of the Trusts
registration statement and as of the effective date thereof.
S-9
Notice to
Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a
relevant member state
), an offer to the
public of any Trust Units which are the subject of the
offering contemplated by this Prospectus Supplement may not be
made in that relevant member state prior to the publication of a
prospectus in relation to such Trust Units that has been
approved by the competent authority in that relevant member
state or, where appropriate, approved in another relevant member
state and notified to the competent authority in that relevant
member state, all in accordance with the Prospectus Directive,
except that an offer to the public in that relevant member state
of Trust Units may be made at any time under the following
exemptions under the Prospectus Directive, if they have been
implemented in that relevant member state:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
|
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|
to any legal entity which has two or more of: (1) an
average of at least 250 employees during the last financial
year; (2) a total balance sheet of more than
43,000,000; and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts; and
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in any other circumstances falling within Article 3(2) of
the Prospectus Directive,
|
provided that no such offer of Trust Units shall result in
a requirement for the publication by the Trust or any
underwriter of a prospectus pursuant to Article 3 of the
Prospectus Directive.
For purposes of this notice, the expression an offer to
the public in relation to any Trust Units in any
relevant member state means the communication in any form and by
any means of sufficient information on the terms of the offer
and any Trust Units to be offered so as to enable an
investor to decide to purchase or subscribe for any
Trust Units, as the expression may be varied in that member
state by any measure implementing the Prospectus Directive in
that member state, and the expression Prospectus
Directive means Directive 2003/71/EC and includes any
relevant implementing measure in each relevant member state.
Each purchaser of Trust Units described in this Prospectus
Supplement located within a relevant member state will be deemed
to have represented, acknowledged and agreed that it is a
qualified investor within the meaning of
Article 2(1)(e) of the Prospectus Directive.
The sellers of the Trust Units have not authorized and do
not authorize the making of any offer of the Trust Units
through any financial intermediary on their behalf, other than
offers made by the Underwriters and their respective affiliates
with a view to the final placement of the Trust Units as
contemplated in this Prospectus Supplement. Accordingly, no
purchaser of the Trust Units, other than the Underwriters
and their respective affiliates, is authorized to make any
further offer of the Trust Units on behalf of the sellers
or the Underwriters.
Notice to
Prospective Investors in the United Kingdom
This Prospectus Supplement and the Prospectus are only being
distributed to, and is only directed at persons who:
(i) have professional experience in matters relating to
investments falling within Article 19(5) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005
(as amended, the
financial promotion order
);
(ii) are persons falling within Article 49(2)(a) to
(d) of the financial promotion order; (iii) are
outside the United Kingdom; or (iv) are persons to whom an
invitation or inducement to engage in investment activity
(within the meaning of section 21 of the Financial Services
and Markets Act 2000, as amended) in connection with the issue
or sale of any securities may otherwise lawfully be communicated
or caused to be communicated (all such persons together being
referred to as
relevant persons
); this
document is directed only at relevant persons and must not be
acted on or relied on by persons who are not relevant persons;
and any investment or investment activity to which this document
relates is available only to relevant persons and will be
engaged in only with relevant persons.
RELATIONSHIP
AMONG THE TRUST AND CERTAIN UNDERWRITERS
Each of RBC Dominion Securities Inc., Deutsche Bank Securities
Inc., TD Securities Inc. and HSBC Securities (Canada) Inc.
is, directly or indirectly, an affiliate of a bank or other
financial institution that is a lender to Precision and to which
Precision is presently indebted. Consequently, the Trust may be
considered to be a connected issuer of each of these
Underwriters under applicable Canadian securities legislation.
S-10
As at December 31, 2008, an aggregate of approximately
$1,576.6 million was outstanding under the Bridge Facility and
the U.S.$1.2 billion senior secured credit facility with
the Commitment Banks and certain other lenders (the
Secured Facility
and, together with the
Bridge Facility, the
Credit Facilities
). The
Trust has complied with the terms of the agreements governing
the Credit Facilities and none of the lenders thereunder have
waived any breach by the Trust of such agreements since their
execution. Neither the financial position of the Trust nor the
value of the security under the Credit Facilities has changed
substantially since the indebtedness thereunder was incurred.
The decision to distribute the Trust Units offered
hereunder and the determination of the terms of the Offering
were made through negotiations among the Trust and the Co-lead
Underwriters, on behalf of the Underwriters. The lenders to the
Trust did not have any involvement in such decision or
determination, but have been advised of the issuance and the
terms thereof. As a consequence of the Offering, each of RBC
Dominion Securities Inc., Deutsche Bank Securities Inc.,
TD Securities Inc. and HSBC Securities (Canada) Inc.
will receive their respective share of the Underwriters
fee.
INTEREST
OF EXPERTS
Certain legal matters relating to the Offering will be passed
upon on behalf of the Trust by Bennett Jones LLP, with respect
to matters of Canadian law, Felesky Flynn LLP, with respect to
matters of Canadian federal income tax law, and by Mayer Brown
LLP, with respect to matters of United States law, and on behalf
of the Underwriters by Blake, Cassels & Graydon LLP,
with respect to matters of Canadian law, and by
Shearman & Sterling LLP, with respect to matters of
United States law. As at the date hereof, the partners and
associates of each of Bennett Jones LLP, Felesky Flynn LLP,
Mayer Brown LLP and Blake, Cassels & Graydon LLP, as a
group, each owned, directly or indirectly, less than 1% of the
outstanding Trust Units.
EXPERTS
The audited comparative consolidated financial statements of the
Trust as at December 31, 2007 and for each of the years in
the three year-period ended December 31, 2007, together
with the notes thereto, the auditors report thereon and
the auditors report on internal control over financial
reporting as of December 31, 2007, have been incorporated
by reference in the short form base shelf prospectus and in the
registration statement and listed in the short form prospectus
supplement in reliance upon the reports of KPMG LLP, Chartered
Accountants and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements and related financial
statement schedule of Grey Wolf, Inc. as of December 31, 2007
and 2006, and for each of the years in the three-year period
ended December 31, 2007, have been incorporated by reference
herein in reliance upon the report of KPMG LLP, independent
registered public accounting firm, incorporated by reference
herein, and upon the authority of said firm as experts in
accounting and auditing. The audit report covering the December
31, 2007 consolidated financial statements refers to a change in
the method of accounting for income taxes as of January 1, 2007,
accounting for stock-based compensation plans as of January 1,
2006 and differences in accounting principles generally accepted
in Canada and the United States.
CANADIAN
FEDERAL INCOME TAX CONSIDERATIONS
In the opinions of Felesky Flynn LLP, Canadian federal income
tax counsel to the Trust, and Blake, Cassels & Graydon
LLP, Canadian federal income tax counsel to the Underwriters
(collectively,
Canadian Tax Counsel
) the
following summary fairly describes the material Canadian federal
income tax considerations under the Tax Act to subscribers who
acquire Trust Units pursuant to the Offering and who hold
such Trust Units as capital property, deal with the Trust
at arms length and are not affiliated with the Trust, all
for purposes of the Tax Act. The considerations under the Tax
Act will be different for Unitholders who are resident in Canada
(
Canadian Holders
) and those who are not
resident in Canada (
Non-Canadian Holders
) for
purposes of the Tax Act.
Generally, Trust Units should be considered capital
property to a Unitholder provided the Unitholder does not use or
hold such Trust Units in the course of carrying on a
business of buying or selling securities and provided the holder
does not acquire them in one or more transactions considered to
be an adventure or concern in the nature of trade. A Canadian
Holder who might not otherwise be considered to hold
Trust Units as capital property may, in certain
circumstances, be entitled to have those units and all other
Canadian securities owned by the holder, as that
expression is defined in the Tax Act, treated as capital
property by making an irrevocable election under subsection
39(4) of the Tax Act. Subscribers considering making the
election under subsection 39(4) of the Tax Act should consult
their tax advisors.
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This summary is not applicable to a financial
institution a specified financial institution
nor is it applicable to a subscriber an interest in which would
be a tax shelter investment all as defined in the
Tax Act, or a subscriber to which the functional currency
reporting rules in subsection 261(4) of the Tax Act apply.
Subscribers should consult their own tax advisors with respect
to an investment in Trust Units.
This summary is based upon the facts set out in this Prospectus
Supplement and the Prospectus, a certificate as to certain
factual matters provided to Canadian Tax Counsel by the Trust,
the provisions of the Tax Act and accompanying regulations in
force as of the date of this Prospectus Supplement, relevant
specific proposals to amend the Tax Act that have been publicly
announced by the Minister of Finance (Canada) prior to the date
of this Prospectus Supplement (
Proposed
Amendments
) and Canadian Tax Counsels
understanding of the current published administrative and
assessing practices and policies of the Canada Revenue Agency
(
CRA
). This summary is not exhaustive of all
possible Canadian federal income tax consequences and, except
for the Proposed Amendments, does not take into account or
anticipate any changes in the law, whether by legislative,
governmental or judicial actions, or changes in the
administrative or assessing practice or policies of the CRA.
This summary does not take into account provincial, territorial
or foreign tax considerations, which may differ significantly
from those discussed herein. No assurances can be given that
Proposed Amendments will be enacted as currently proposed or at
all.
This summary is of a general nature and is not intended to
be, nor should it be construed to be, legal or tax advice or
representations to any particular subscriber of
Trust Units. Prospective subscribers of Trust Units
should consult their own tax advisors in respect of the
consequences to them of their acquisition, holding and
disposition of Trust Units, having regard to their
particular circumstances.
Canadian
Holders
This portion of the summary is applicable to holders of
Trust Units who, for purposes of the Tax Act, at all
relevant times are resident in or deemed to be resident in
Canada.
Taxation
of Trust Unit Distributions to Canadian
Holders
Distributions
on Trust Units Prior to Application of SIFT Rules
This portion of the summary describes the taxation of
distributions on Trust Units prior to the application of
the SIFT Rules. For a discussion of how distributions should be
taxed after the SIFT Rules commence to apply to the Trust, see
below under the heading Distributions on Trust Units
After Application of SIFT Rules.
A Canadian Holder generally will be required to include in
computing income for a particular taxation year the portion of
the net income of the Trust for a taxation year, including
taxable dividends and net realized taxable capital gains, that
is paid or payable to the Canadian Holder in that particular
taxation year, whether such amount is payable in cash or in
kind, including Trust Units. Income of a Canadian Holder from
Trust Units should be considered to be income from property
for the purposes of the Tax Act. Any loss of the Trust for the
purposes of the Tax Act cannot be treated as a loss of a
Canadian Holder.
Provided that appropriate designations are made by the Trust,
such portions of its net taxable capital gains and taxable
dividends as are paid or payable to a Canadian Holder will
effectively retain their character and be treated as such in the
hands of the Canadian Holder for purposes of the Tax Act. The
non-taxable portion of such net realized capital gains of the
Trust that is paid or payable to a Canadian Holder in a year
will not be included in computing the holders income for
the year and will not reduce the adjusted cost base of the
holders Trust Units. Any other amount in excess of
the net income of the Trust that is paid or payable by the Trust
to a Canadian Holder in a year generally will not be included in
the Canadian Holders income for the year. However, such
amounts, other than proceeds of disposition of a
Trust Unit, generally will reduce the adjusted cost base of
Trust Units held by such Canadian Holder. If such adjusted
cost base becomes a negative amount at any time, that holder
will be deemed at that time to have realized a capital gain from
the disposition of Trust Units equal to such negative
amount, and such adjusted cost base shall immediately thereafter
be nil.
Trust Units issued to a Canadian Holder in lieu of a cash
distribution will have a cost equal to the fair market value of
such units and will be averaged with the adjusted cost base of
all other Trust Units held by the Canadian Holder at that time
as capital property in order to determine the adjusted cost base
of each Trust Unit.
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A Canadian Holder that throughout the relevant taxation year is
a Canadian-controlled private corporation, as
defined in the Tax Act, may be liable to pay an additional
refundable tax of
6
2
/
3
%
on certain investment income, including taxable capital gains
and certain income of the Trust that is required to be included
in the holders income.
Distributions
on Trust Units After Application of SIFT Rules
Under the SIFT Rules (which are not expected to apply to the
Trust until January 1, 2011 provided the Trust does not
exceed normal growth before then), distributions to
Canadian Holders by the Trust of non-portfolio
income for purposes of the Tax Act (which is expected to
comprise all or substantially all of the income of the Trust)
would be treated as taxable dividends from a taxable Canadian
corporation. In the case of a Canadian Holder who is an
individual, such distributions should qualify for the enhanced
gross-up
and
dividend tax credit applicable to eligible dividends received
from taxable Canadian corporations. In the case of a Canadian
Holder that is a corporation, such distributions generally
should be treated as eligible dividends and be eligible for the
inter-corporate dividend deduction in computing taxable income.
A Canadian Holder that is a private corporation or a
subject corporation (as defined in the Tax Act)
generally should be required to pay a
33
1
/
3
%
refundable tax on such distributions under Part IV of the
Tax Act to the extent such distributions were deductible in
computing its taxable income.
Amounts distributed in excess of the income of the Trust are not
affected by the SIFT Rules. See the above discussion under the
heading Distributions on Trust Units Prior to
Application of SIFT Rules.
Disposition
of Trust Units held by Canadian Holders
Where a Canadian Holder disposes of a Trust Unit, or is
deemed to dispose of a Trust Unit, the holder will realize
a capital gain (or sustain a capital loss) to the extent the
proceeds of disposition for the Trust Unit exceed (or are
less than) the aggregate of the adjusted cost base to the holder
of the Trust Unit and reasonable disposition costs. The
initial cost to a Canadian Holder of a Trust Unit issued
hereunder will be equal to the subscription price paid for such
Trust Unit. This initial cost will be averaged with the
adjusted cost base of all other Trust Units held by that
Unitholder as capital property to determine the respective
adjusted cost base of each such Trust Unit.
Taxation
of Capital Gains and Capital Losses of Canadian
Holders
Under the Tax Act, one half of any capital gain realized by a
Canadian Holder and the amount of any taxable capital gains
designated by the Trust in respect of a Canadian Holder will be
included in such holders income as a taxable capital gain.
Subject to certain specific rules in the Tax Act, one half of
any capital loss realized by a Canadian Holder generally is
deducted from any taxable capital gains realized by such holder
in the year of disposition and any excess may be deducted from
taxable capital gains realized in the three preceding taxation
years or in any subsequent taxation year.
A Canadian Holder that throughout the relevant taxation year is
a Canadian-controlled private corporation, as
defined in the Tax Act, may be liable to pay an additional
refundable tax of
6
2
/
3
%
on certain investment income, including taxable capital gains.
A capital loss realized on the disposition of a Trust Unit
by a Canadian Holder that is a corporation or a trust (other
than a mutual fund trust), whether directly or
indirectly or as a member of a partnership, may be reduced in
respect of certain distributions to the Canadian Holder out of
dividends received by the Trust directly or through a
partnership of which it is a member and designated by the Trust
in respect of the Canadian Holder to the extent and under the
circumstances described in the Tax Act. Canadian Holders to
which these rules may apply should consult their own tax
advisors.
Minimum
Tax
Capital gains realized on the disposition of capital property
such as a Trust Unit may increase a Canadian Holders
liability for minimum tax if such holder is an individual.
Non-Canadian
Holders
This portion of the summary is applicable to holders of
Trust Units who, for purposes of the Tax Act, at all
relevant times are not resident in nor deemed to be resident in
Canada.
S-13
Taxation
of Trust Unit Distributions to Non-Canadian
Holders
Until the SIFT Rules begin to apply to the Trust, all income of
the Trust determined in accordance with the Tax Act (except
taxable capital gains) paid or credited by the Trust in a
taxation year to a Non-Canadian Holder generally will be subject
to Canadian withholding tax at a rate of 25%, subject to a
reduction in such rate under an applicable tax treaty or
convention, whether such income is paid or credited in cash or
in Trust Units. The rate of Canadian withholding tax
generally is reduced to 15% in respect of amounts that are paid
or credited by the Trust to a Non-Canadian Holder that is a
resident of the United States for the purposes of the
Canada-United
States Income Tax Convention
(1980), as amended
(the
Canada-United
States Tax Convention
). Under the SIFT Rules,
commencing January 1, 2011 (provided the Trust does not
exceed normal growth before then), such
distributions should be characterized as taxable dividends and
similarly should be subject to Canadian withholding tax at a
rate of 25%, unless such rate is reduced under the provisions of
an applicable treaty or convention. A Non-Canadian Holder that
is a resident of the United States who is entitled to claim the
benefit of the
Canada-United
States Tax Convention generally will be entitled to have the
rate of withholding tax reduced to 15% or nil for certain tax
exempt holders.
The Trust is required to maintain a notional TCP gains
balance (as defined in the Tax Act) to which it must add
its capital gains from dispositions after March 22, 2004 of
taxable Canadian property (as defined in the Tax
Act), and from which it must deduct its capital losses from
dispositions of such property and the amount of all TCP
gains distributions (as defined in the Tax Act) made by it
in previous taxation years. If the Trust pays an amount to a
Non-Canadian Holder, makes a designation to treat that amount as
a taxable capital gain of the Non-Canadian Holder, and the total
of all such amounts designated by the Trust in a taxation year
to Non-Canadian Holders and any partnerships which are not
Canadian partnerships for the purposes of the Tax
Act exceeds 5% of all such designated amounts, such portion of
that amount as does not exceed the Non-Canadian Holders
pro rata portion of the Trusts TCP gains
balance (as defined in the Tax Act) for the taxation year
effectively will be subject to the same Canadian withholding tax
as described above for distributions of income (other than
taxable capital gains).
Based in part on representations of the Trust as to certain
factual matters, a Trust Unit should not be a
Canadian property mutual fund investment as defined
in the Tax Act.
Disposition
of Trust Units held by Non-Canadian Holders
A Non-Canadian Holder will be subject to taxation in Canada in
respect of a capital gain realized on the disposition of
Trust Units only if such units constitute taxable
Canadian property as defined in the Tax Act, and the
Non-Canadian Holder is not afforded relief under an applicable
income tax treaty or convention. Trust Units normally
should not be taxable Canadian property at the time
of the disposition provided that: (i) the Non-Canadian
Holder, persons with whom the Non-Canadian Holder does not deal
at arms length (within the meaning of the Tax Act), or the
Non-Canadian Holder together with such persons, did not own 25%
or more of the issued Trust Units at any time during the
60-month
period preceding the time of the disposition; (ii) the
Trust is a mutual fund trust at the time of the
disposition; and (iii) Trust Units are not otherwise
deemed to be taxable Canadian property.
A Non-Canadian Holder whose Trust Units constitute
taxable Canadian property generally will realize a
capital gain (or capital loss) on the redemption or disposition
of such units equal to the amount by which the proceeds of
disposition exceed (or are less than) the aggregate of:
(i) such Non-Canadian Holders adjusted cost base of
its Trust Units so disposed of, determined immediately
before the redemption or disposition; and (ii) any
reasonable costs of disposition, and generally will be subject
to tax under the Tax Act in respect of any such capital gain in
the same manner as a Canadian Holder (see above under
Taxation of Capital Gains and Capital Losses of
Canadian Holders
).
Status of
the Trust
To qualify as a mutual fund trust for purposes of
the Tax Act the Trust must continuously satisfy certain
requirements as to the nature of its undertakings (primarily
that it must restrict its activities to the investment of
funds), its ability to distribute Trust Units to the
public, the dispersal of ownership of its Trust Units and
the requirement that, unless it meets certain exceptions, it
must not be reasonable to consider that it was established or is
maintained primarily for the benefit of Non-Canadian Holders.
As noted above, the Tax Act provides that a trust will not be
considered to be a mutual fund trust for purposes of
the Tax Act if it is established or is maintained primarily for
the benefit of non-residents of Canada. However, this
disqualification
S-14
rule does not apply if all or substantially all of the
trusts property is property other than taxable
Canadian property as defined in the Tax Act. Although no
assurances can be provided, all or substantially all of the
assets of the Trust should be property other than taxable
Canadian property as defined in the Tax Act.
Proposed Amendments provide that a trust will lose its status as
a mutual fund trust if the aggregate fair market
value of all trust units issued by the Trust and held by one or
more non-residents of Canada or partnerships that are not
Canadian partnerships (as defined in the Tax Act) is
more than 50% of the aggregate fair market value of all of the
Trust Units issued by the Trust and if more than 10% (based
on fair market value) of the Trusts property consists of
certain types of taxable Canadian property,
Canadian resource property or timber resource
property, all as defined in the Tax Act. Since no more
than 10% of the Trusts property should be taxable
Canadian property, Canadian resource property
or timber resource property these Proposed
Amendments should not adversely affect the Trusts status
as a mutual fund trust. However, no assurances can
be provided that no more than 10% of the Trusts property
will be taxable Canadian property, Canadian
resource property or timber resource property
and, therefore, that, if enacted, these Proposed Amendments
would not adversely affect the Trusts status as a
mutual fund trust under the Tax Act.
Provided the Trust satisfies the foregoing requirements it
should be a mutual fund trust for purposes of the
Act. If the Trust ceased to qualify as a mutual fund
trust under Tax Act, certain Canadian federal income tax
considerations would be materially and adversely different in
certain respects than those described herein.
Taxation
of the Trust
Taxation
of the Trust Prior to Application of SIFT
Rules
This portion of the summary describes the taxation of the Trust
prior to the time it becomes subject to the SIFT Rules.
The Trust is required to include in its income for each taxation
year all net realized taxable capital gains, dividends, accrued
interest and amounts of income allocated to it by partnerships
of which it is a partner. The Trust generally may deduct in
respect of each taxation year an amount not exceeding 20% of the
total issue expenses of the Offering and other offerings of its
Trust Units or debt obligations (subject to proration for a
short taxation year) to the extent that those expenses were not
otherwise deductible in a preceding year, and also generally may
deduct reasonable management and administration fees incurred by
it in the year.
To the extent that the Trust has any income for a taxation year
after the inclusions and deductions outlined above, the Trust
will be permitted to deduct all amounts of income which are paid
or become payable by it to Unitholders in the year. An amount
will be considered payable to a Unitholder in a taxation year
only if it is paid in the year by the Trust, or the Unitholder
is entitled in the year to enforce payment of the amount.
Canadian Tax Counsel is advised that the Trust intends to
deduct, in computing its income, the full amount available for
deduction in each year to the extent of its taxable income for
the year otherwise determined. As a result of such deductions
from income, it is expected that the Trust will not be liable
for any material amount of tax under the Tax Act; however no
assurances can be given in this regard.
Taxation
of the Trust under the SIFT Rules
The SIFT Rules apply to trusts that are resident in Canada for
purposes of the Tax Act, that hold one or more
non-portfolio properties, and the trust units of
which are listed on a stock exchange or other public market (a
SIFT Trust
). A SIFT Trust effectively is
subject to tax on its income from non-portfolio properties and
taxable capital gains from dispositions of non-portfolio
properties paid, or made payable, to unitholders at a rate
comparable to the combined federal and provincial corporate
income tax rate.
In general terms, a trust that existed on October 31, 2006
and to which the SIFT Rules otherwise would apply (i.e., the
Trust), should not become a SIFT Trust until the earlier of
January 1, 2011 or the first day after December 15,
2006 that the trust exceeds normal growth determined
by reference to guidelines first issued on December 15,
2006 by the Minister of Finance (Canada) and amended on
December 4, 2008 (the
Guidelines
). The
Guidelines provide that a trust should not be considered to
exceed normal growth if the trust does not issue new
equity (including convertible debentures or other equity
substitutes) that exceeds the greater of $50 million per
year or certain specified safe harbour amounts based
on the market capitalization of the trust on October 31,
2006.
Provided that the Trust does not issue new equity (including
debt that is convertible into equity) in an amount greater than
the safe-harbour determined by reference to the
market capitalization of the Trust on October 31, 2006,
(understood by
S-15
Canadian Tax Counsel to be approximately $4 billion) the
Trust should not be considered to exceed normal
growth as set forth in the Guidelines. The Trust has
advised Canadian Tax Counsel that it has not exceeded the
safe-harbour amounts and that the offering and
issuance of Trust Units under this Prospectus Supplement
should not result in the Trust exceeding the
safe-harbour amounts. No assurances can be provided
that the Trust will not otherwise become a SIFT Trust prior to
January 1, 2011.
As part of its ongoing strategic planning, the Trust will
continue to examine and evaluate its various strategic
alternatives, including its ability to reorganize its legal and
tax structure to mitigate the expected impact of the SIFT Rules.
While no assurances can be provided regarding the strategic
alternatives, if any, that may be available, the strategic
alternatives considered will recognize that the federal
government first released Proposed Amendments to facilitate the
conversion of a SIFT Trust to a taxable Canadian corporation
without undue tax consequences on July 14, 2008 and were
reintroduced with some modifications on February 6, 2009 in Bill
C-10 which included certain provisions of the budget tabled in
the House of Commons on January 27, 2009 and related fiscal
measures.
UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States
federal income tax considerations relevant to a U.S. Holder (as
defined below) who acquires Trust Units pursuant to the
Offering. This discussion is based on the provisions of the
United States Internal Revenue Code of 1986, as amended,
Treasury regulations, judicial authorities, published positions
of the United States Internal Revenue Service
(
IRS
), and other applicable authorities, all
as currently in effect and all of which are subject to change or
differing interpretations (possibly with retroactive effect).
This discussion is limited to U.S. Holders that hold the
Trust Units as capital assets for United States federal
income tax purposes (generally, assets held for investment).
This discussion does not address all of the tax consequences
that may be relevant to a particular U.S. Holder or to U.S.
Holders that are subject to special treatment under United
States federal income tax laws, such as:
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financial institutions;
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insurance companies;
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tax-exempt organizations;
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dealers in securities or currencies;
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persons whose functional currency is not the U.S. dollar;
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traders in securities that elect to use a mark to market method
of accounting;
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United States expatriates;
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persons that hold Trust Units as part of a straddle, hedge,
constructive sale or conversion transaction; and
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United States persons who actually or constructively own
10 percent or more of the total combined voting power of
the Trust.
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If a partnership or other entity treated as a partnership for
United States federal income tax purposes holds
Trust Units, the tax treatment of a partner in the
partnership generally will depend upon the status of the partner
and the activities of the partnership. Partnerships and partners
in such a partnership should consult their tax advisers about
the tax consequences of owning Trust Units.
This discussion does not address the tax consequences of owning
Trust Units under state, local or foreign tax laws. No
assurance can be given that the IRS would not assert, or that a
court would not sustain, a position contrary to any of the tax
consequences set forth below.
Holders of Trust Units should consult with their own tax
advisors as to the tax consequences of owning Trust Units
in their particular circumstances, including the applicability
and effect of the alternative minimum tax and any state, local
or foreign and other tax laws and of changes in those laws.
For purposes of this section, the term U.S. Holder
means a beneficial owner of Trust Units that for United
States federal income tax purposes is:
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an individual citizen or resident of the United States;
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S-16
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a corporation or other entity treated as a corporation for
United States federal income tax purposes, created or organized
in or under the laws of the United States or any State or the
District of Columbia;
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an estate that is subject to United States federal income tax on
its income regardless of is source; or
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a trust, the substantial decisions of which are controlled by
one or more United States persons and which is subject to the
primary supervision of a United States court, or a trust that
validly has elected under applicable Treasury regulations to be
treated as a United States person for United States federal
income tax purposes.
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Treatment
of the Trust and the Trust Units
The Trust has elected to be classified as a corporation for
United States federal income tax purposes. For United States
federal income tax purposes, the Trust Units will represent
equity interests in a corporation.
Distributions
with Respect to Trust Units
Subject to the passive foreign investment company rules
discussed below, U.S. Holders will include in gross income the
gross amount of any distributions paid, before reduction for
Canadian withholding taxes, by the Trust out of its current or
accumulated earnings and profits, as determined for United
States federal income tax purposes, as dividend income when the
dividend is actually or constructively received by the U.S.
Holder. Distributions in excess of current and accumulated
earnings and profits, as determined for United States federal
income tax purposes, will be treated as a return of capital to
the extent of the U.S. Holders basis in its
Trust Units and thereafter as capital gain.
Currently, dividends paid by a qualified foreign
corporation to non-corporate U.S. Holders (including
individual U.S. Holders) who also meet certain holding
period requirements will be taxable at a maximum tax rate of 15%
(5% for non-corporate U.S. Holders in lower tax brackets). The
Trust expects that it will constitute a qualified foreign
corporation for United States federal income tax purposes and
that distributions it makes to non-corporate U.S. Holders that
are treated as dividends for United States federal income tax
purposes will be treated as qualified dividend income eligible
for such reduced maximum rates, provided the applicable holding
period requirements are met. If dividend distributions by the
Trust do not qualify for this reduced maximum rate, U.S. Holders
will be subject to tax on such dividends at ordinary income
rates (currently at a maximum rate of 35%). In addition, under
current law, the preferential tax rate for qualified dividend
income will not be available for taxable years beginning after
December 31, 2010.
Distributions by the Trust that are treated as dividends for
United States federal income tax purposes generally will not be
eligible for the dividends-received deduction generally allowed
to United States corporations in respect of dividends received
from certain other United States corporations. The amount of
such distributions included in income of a U.S. Holder will
be the U.S. dollar value of the Canadian dollar payments made,
determined at the spot Canadian dollar/U.S. dollar exchange rate
on the date such dividend distribution is included in the income
of the U.S. Holder, regardless of whether the payment is in fact
converted into U.S. dollars on such date. Generally, any gain or
loss resulting from currency exchange fluctuations during the
period from the date the dividend distribution is included in
income to the date such dividend distribution is converted into
U.S. dollars will be treated as ordinary income or loss and will
not be eligible for the special tax rate applicable to qualified
dividend income. Such gain or loss will generally be income from
sources within the United States for foreign tax credit
limitation purposes.
Distributions by the Trust that are treated as dividends for
United States federal income tax purposes will be income from
sources outside the United States for foreign tax credit
limitation purposes. Depending on the U.S. Holders
circumstances, such dividends may be passive
category or general category income for
foreign tax credit limitation purposes. Subject to certain
limitations, Canadian tax withheld with respect to distributions
by the Trust to a U.S. Holder and paid over to Canada will
generally be creditable against the U.S. Holders United
States federal income tax liability. As discussed above in
Canadian Federal Income Tax Considerations
Non-Canadian Holders Taxation of Trust Unit
Distributions to Non-Canadian Holders, withholding of
Canadian tax is imposed at a 25% rate (reduced to 15% for
recipients that are residents of the United States eligible for
benefits under the
Canada-United
States Tax Convention) both on cash and non-cash distributions
by the Trust to persons that are not Canadian residents.
However, as certain non-cash distributions by the Trust
generally will not be included in income for United States
federal income tax purposes, such Canadian withholding tax may
exceed a U.S. Holders allowable foreign tax credit for the
taxable year of the distribution. To the extent a refund of the
tax withheld is available to a U.S. Holder under the laws of
Canada or under the
Canada-United
States Tax Convention, the amount of tax withheld that is
refundable will not be eligible for credit
S-17
against the U.S. Holders United States federal income tax
liability, whether or not the refund is actually obtained. The
foreign tax credit limitation rules are complex and dependent on
the specific factual circumstances particular to each
U.S. Holder. Consequently, each U.S. Holder should consult
its tax advisor as to the United States federal income tax
consequences relevant to such U.S. Holder.
Sale or
Exchange of Trust Units
Subject to the passive foreign investment company rules
discussed below, a U.S. Holder that sells, exchanges or
otherwise disposes of Trust Units generally will recognize
capital gain or loss for United States federal income tax
purposes equal to the difference between the U.S. dollar value
of the amount realized and the U.S. Holders tax basis,
determined in U.S. dollars, in the Trust Units. Any
capital gain or loss generally will be long-term capital gain or
loss if the U.S. Holder had a holding period for the
Trust Units of more than one year at the time of the sale
or other disposition. Long-term capital gain recognized by a
non-corporate U.S. Holder (including an individual
U.S. Holder) generally is subject to a maximum United
States federal income tax rate of 15%. Other capital gains
generally are currently subject to a maximum United States
federal income tax rate of 35%. The deductibility of capital
losses is subject to limitations. Gain realized by a U.S. Holder
from a sale or other disposition of Trust Units will
generally be treated as income from United States sources for
foreign tax credit limitation purposes.
Passive
Foreign Investment Company Rules
The Trust believes that it is not currently, and does not expect
to be, treated as a passive foreign investment company for
United States federal income tax purposes, but this conclusion
is a factual determination made annually and thus may be subject
to change. In general, the Trust would be a passive foreign
investment company with respect to a U.S. Holder if, for any
taxable year in which the U.S. Holder held Trust Units, at
least 75% of the gross income of the Trust for the taxable year
is passive income or at least 50% of the value, determined on
the basis of a quarterly average, of the Trusts assets is
attributable to assets that produce or are held for the
production of passive income. If the Trust were to be treated as
a passive foreign investment company, then unless a U.S. Holder
makes a
mark-to-market
election, gain realized on the sale or other disposition of
Trust Units would in general not be treated as capital
gain. Instead, a U.S. Holder would be treated as if the holder
had realized such gain and certain excess
distributions ratably over the holders holding
period for the Trust Units and would be taxed at the
highest tax rate in effect for each such year to which the gain
was allocated, together with an interest charge in respect of
the tax attributable to each such year.
United
States Backup Withholding and Information Reporting
United States backup withholding and information reporting
requirements apply to certain payments to certain non-corporate
U.S. Holders. Information reporting generally will apply to
payments of distributions on, and proceeds from the sale or
redemption of, Trust Units made within the United States to
a U.S. Holder (other than an exempt recipient such
as a corporation). The payor will be required to withhold on any
payments within the United States on a Trust Unit to a
U.S. Holder, other than an exempt recipient, such as a
corporation, if the U.S. Holder fails to furnish its
correct taxpayer identification number or otherwise fails to
comply with, or establish an exemption from, the backup
withholding requirements. The backup withholding rate is
currently 28%. Any amount withheld from payments to a
U.S. Holder under the backup withholding rules is not an
additional tax and will be allowed as a refund or
credit against the U.S. Holders United States
federal income tax liability, provided the required information
is timely furnished to the IRS.
RISK
FACTORS
An investment in the Trust Units is subject to certain
risks. Investors should carefully review and consider all of the
information contained and incorporated by reference in this
Prospectus Supplement and the Prospectus, including without
limitation, the risks described under the heading Risk
Factors in the Prospectus and the risks set out below
before making an investment decision and consult their own
experts where necessary.
Proposed
Financing Arrangements
In addition to the Offering by the Trust, Precision is
investigating alternative new debt financing arrangements, which
may include the issuance of an aggregate principal amount of
approximately U.S.$250 million of Debt. The proposed debt
arrangements are only at the preliminary stage and are subject
to normal commercial risks that the financing arrangements
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may not be completed on the terms currently contemplated and
described herein or at all. These risks include, but are not
limited to, risks relating to market conditions, pricing and
receipt of all necessary corporate approvals. These risks may,
individually or in the aggregate, cause Precision to have to
modify, defer or abandon its current plans with respect to
the debt financing arrangements. If any of these events
occur, it may have a material adverse effect on the business,
financial condition and results of operations of Precision
and the Trust and the value of the Trust Units. See
Recent Developments Proposed Financing
Arrangements.
Distributions
on the Trust Units have been suspended and may not be
reinstated.
On February 9, 2009, the Trust announced that it had
suspended cash distributions for an indefinite period. The
Trusts ability to resume making cash distributions in the
future and the actual cash flow available for distribution to
Unitholders, if any, is a function of numerous factors
including, among other things, the Trusts,
Precisions and PDLPs financial performance; debt
covenants and obligations; working capital requirements; future
upgrade capital expenditures and future expansion capital
expenditure requirements for the purchase of property, plant and
equipment; tax obligations; the impact of interest rates
and/or
foreign exchange rates; the growth of the general economy; the
price of crude oil and natural gas; weather; and number of Trust
Units and Class B limited partnership units of PDLP
(
Exchangeable Units
) issued and outstanding.
Cash distributions may or may not be reinstated, may be
reinstated at amounts different than historical or recent
amounts (and subsequently increased or reduced) or may be
eliminated entirely depending on the Trusts operations and
the performance of its assets. The market value of the Trust
Units may deteriorate if the Trust is unable to reinstate its
cash distributions or otherwise meet cash distribution
expectations in the future, and that deterioration may be
material.
There can
be no assurance that any credit rating assigned to the Trust
will not be lowered or withdrawn.
On February 9, 2009, Standard & Poors Ratings
Services advised the Trust that it has revised its outlook for
the Trust to negative from stable,
affirmed the Trusts BB long-term corporate
credit rating and the BBB− senior secured
credit rating on Precisions U.S.$1.2 billion senior
secured credit facility and assigned a BB rating
(with a recovery rating of 4) to the proposed Debt.
Furthermore, Precision has been informed by Moodys
Investors Service that it is considering a downgrade of the
outlook for the oilfield services sector. There can be no
assurance that any credit rating assigned to the Trust,
Precision or the oilfield services sector will not be lowered or
withdrawn entirely. In such event, the Trusts and/or
Precisions cost of capital may be adversely affected,
which may adversely affect the trading price or value of the
Trust Units.
ENFORCEABILITY
OF CIVIL LIABILITIES
The Trust is an unincorporated open-ended investment trust
established under the laws of the Province of Alberta pursuant
to the Declaration of Trust. Some of the Trusts trustees
and its subsidiaries directors and officers and some of
the Underwriters and experts named in the Prospectus and this
Prospectus Supplement, as applicable, are residents of Canada or
otherwise reside outside the United States, and a substantial
portion of their assets, and a substantial portion of the
Trusts assets, are located outside the United States. The
Trust has appointed an agent for service of process in the
United States, but it may be difficult for holders of
Trust Units who reside in the United States to effect
service within the United States upon those trustees, directors,
officers, Underwriters and experts who are not residents of the
United States. It may also be difficult for holders of
Trust Units who reside in the United States to realize in
the United States upon judgments of courts of the United States
predicated upon the civil liability of the Trust and the civil
liability of the trustees, directors, officers and experts under
the United States federal securities laws. The Trust has filed
with the SEC, concurrently with the Registration Statement, an
appointment of agent for service of process on
Form F-X.
Under the
Form F-X,
the Trust appointed Precision Lobos Corporation, which has
changed its name to PDOS, as its agent for service of process in
the United States in connection with any investigation or
administrative proceeding conducted by the SEC, and any
civil suit or action brought against or involving the Trust
in a United States court arising out of or related to or
concerning the Offering.
S-19
ELIGIBILITY
FOR INVESTMENT
In the opinion of counsel to the Trust and counsel to the
Underwriters, provided the Trust qualifies as a mutual
fund trust under the Tax Act, the Trust Units will,
at the date of issue, be qualified investments for trusts
governed by registered retirement savings plans,
registered retirement income funds, registered
education savings plans, tax-free savings
accounts and deferred profit sharing plans
under the Tax Act and the regulations thereunder.
Notwithstanding the foregoing, if the Trust Units being
offered pursuant to this Prospectus Supplement are
prohibited investments for the purposes of a
tax-free savings account, a holder of the
tax-free savings account will be subject to a
penalty tax as set out in the Tax Act. A prohibited
investment includes an interest in a trust which does not
deal at arms length with the holder, or an interest in a
trust (or a corporation, partnership or trust with which the
trust does not deal at arms length) in which the holder,
either alone or together with persons with whom the holder does
not deal at arms length, has a significant interest
(within the meaning of the Tax Act). Subscribers are advised to
consult their own tax advisors in this regard.
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