EXHIBIT 8.1
[Letterhead of Holland & Hart LLP]
December 30, 1999
Board of Directors
Carbon Energy Corporation
1700 Broadway, Suite 1150
Denver, CO 80290
Re: Carbon Energy Corporation's Acquisition of Common Stock of CEC
Resources Ltd. in Exchange for Carbon Energy Corporation Voting Stock
Gentlemen:
This letter is in response to your request for our opinion concerning the
U.S. federal income tax consequences of Carbon Energy Corporation's ("Carbon")
acquisition of common stock of CEC Resources Ltd. ("CEC") in exchange for Carbon
voting stock. As described below, Carbon will effectuate such exchange by
offering to exchange one share of Carbon common stock for each share of CEC
stock. This exchange offer will be open to all holders of CEC common stock.
The factual context of the Exchange Offer is generally described below and
in more detail in the draft Form S-4 Registration Statement to be filed by
Carbon with the Securities and Exchange Commission ("SEC") on or about October
22, 1999 (the "Registration Statement") and representation letters from CEC and
Carbon to us dated October 20, 1999 (the "Representation Letters").
General Factual Context
-----------------------
CEC is a publicly traded Canadian corporation organized under the laws of
Alberta. Yorktown Energy Partners III, L.P. ("Yorktown") is a limited
partnership organized under the laws of Delaware. Carbon is a U.S. corporation
organized under the laws of Colorado. Yorktown formed Carbon for the purposes of
facilitating the following transactions.
On August 11, 1999, CEC entered into a Stock Purchase Agreement with
Bonneville Pacific Corporation, under which CEC agreed to purchase all
outstanding shares of Bonneville Fuels Corporation ("BFC") for $23,857,951 in
Carbon Energy Corporation
Board of Directors
December 30, 1999
Page 2
cash, subject to certain adjustments, with debt, less working capital, of
approximately $6,500,000 remaining at BFC. The Stock Purchase Agreement
provided for the assignment of CEC's rights and obligations thereunder to Carbon
as an affiliate of Yorktown.
On October 14, 1999, Carbon, CEC and Yorktown entered into an Exchange and
Financing Agreement. Under the Exchange and Financing Agreement, each of
Carbon, CEC and Yorktown agreed that, as part of an overall plan to contribute
cash, securities and other property to Carbon by CEC, Yorktown and CEC
shareholders: (1) CEC would assign its rights under the BFC Stock Purchase
Agreement to Carbon; (2) Yorktown would purchase 4,500,000 shares of Carbon
common stock for $24,750,000 (in order, in large part, to provide equity
financing for the total purchase price of the BFC shares under the Stock
Purchase Agreement); and (3) Carbon would make an offer to all shareholders of
CEC to exchange one share of Carbon common stock for each outstanding share of
CEC common stock (hereinafter referred to as the "Exchange Offer").
You have requested our opinion as to whether the Exchange Offer described
above is a taxable transaction for U.S. federal income tax purposes.
Assumptions, Qualifications and Conditions
------------------------------------------
Our opinion as set forth below is based upon a number of assumptions,
qualifications and conditions. If any of these assumptions, qualifications or
conditions is not accurate or satisfied, the opinion set forth below could
change or be withdrawn. These assumptions, qualifications and conditions are as
follows:
1. The Exchange Offer will be effectuated in accordance with the executed
Exchange and Financing Agreement, as amended, between Carbon, CEC and Yorktown
dated October 14, 1999 pertaining to the Exchange Offer, and all other documents
entered into in connection with the Exchange and Financing Agreement (the
"Transaction Documents");
2. All Transaction Documents have been or will be properly executed and are
valid, binding and enforceable in accordance with their terms, and all copies of
such documents provided to us are accurate reproductions of the originals;
Carbon Energy Corporation
Board of Directors
December 30, 1999
Page 3
3. The Exchange Offer and related transactions will take place as described
in the Transaction Documents and in the Registration Statement, and the facts
described in those documents are accurate, complete and will not materially
change, and the conduct of the parties is and will be materially consistent with
those facts; and
4. The representations as to factual matters made to us in the
Representation Letters, which we have not independently verified, and the
factual matters described in the Registration Statement, which have not been
independently verified, are true, complete and accurate in all material
respects.
Our opinion is based on the existing Sections of the Code,/1/ applicable
Treasury Regulations issued thereunder, the official published interpretations
of those provisions by the Internal Revenue Service and the courts, and other
administrative pronouncements of the Internal Revenue Service, all of which are
subject to change, which changes could be applied retroactively. If the
applicable law changes, our opinion may be different. Moreover, the IRS or a
court may disagree with the conclusions expressed herein.
Opinion Not a Guarantee of Favorable Results
--------------------------------------------
Any tax planning of consequence involves inherent risk. Our opinion set
forth below merely constitutes our best legal judgment based upon the facts, the
assumptions, and qualifications and the conditions set forth above. Our opinion
is not binding on the Service or the courts, and our opinion does not constitute
"insurance" or a guarantee that our conclusion is correct. Rather, the Service
may challenge the positions set forth below and the courts may uphold that
position.
Opinion
-------
Subject to the assumptions, conditions and qualifications described above,
and based on existing federal income tax law, it is our opinion that, for U.S.
federal income tax purposes, assuming that Carbon acquires 80% of the
outstanding CEC stock pursuant to the Exchange Offer, the Exchange Offer should
be treated as a tax-free reorganization under Section 368(a)(1)(B) of the
____________________
/1/ All Section references are to the Internal Revenue Code of 1986, as amended,
unless otherwise specified.
Carbon Energy Corporation
Board of Directors
December 30, 1999
Page 4
Code. Furthermore, the Exchange Offer likely constitutes a tax-free transfer of
property to Carbon by the holders of CEC common stock governed by Section 351 of
the Code.
The undersigned hereby consents to: (i) filing this opinion as Exhibit 8.1
to the Registration Statement; and (ii) using its name in the Registration
Statement under the caption "LEGAL MATTERS."
Very truly yours,
Holland & Hart LLP