EXHIBIT 8.2
[LETTERHEAD OF BENNETT JONES]
December 29, 1999
Board of Directors
Carbon Energy Corporation
1700 Broadway, Suite 1150
Denver, CO 80290-1101
Ladies and Gentlemen:
Re: Exchange of CEC Resources Ltd. ("CEC") Shares for
Carbon Energy Corporation ("Carbon") Shares
We have been asked to give an opinion on the material Canadian income tax
consequences for the exchange (the "Exchange") of common stock of CEC for common
stock in Carbon. The Exchange will occur pursuant to the terms of the exchange
offer (the "Exchange Offer") contained in the Form S-4 Registration Statement,
as amended, Registration No. 333-89783 (the "Registration Statement") filed by
Carbon with the United States Securities and Exchange Commission ("SEC").
Opinion
Based upon and subject to the foregoing, the discussions (which are reproduced
below) contained in the Registration Statement under the caption "Canadian
Federal Income Tax Consequences" express our opinion as to the material Canadian
income tax consequences of the Exchange to be effected in accordance with the
terms of the Exchange Offer. Due to the fact that this opinion is being
delivered prior to the Exchange being effectuated, it must be considered
prospective and dependent on future events. There can be no assurance that
changes in the law will not take place which could affect the Canadian income
tax consequences of the Exchange or that contrary positions may not be taken by
Revenue Canada and the applicable Canadian provincial taxing authorities. In
addition, our opinion is subject to the limitations and qualifications expressed
in the following opinion.
December 29, 1999
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CANADIAN FEDERAL INCOME TAX CONSEQUENCES
Subject to the qualifications and assumptions contained herein, in the
opinion of Bennett Jones, Canadian counsel to CEC, the following are the
material Canadian federal income tax consequences generally applicable to
holders of CEC common stock who dispose of CEC common stock pursuant to the
exchange offer. This discussion:
(i) is based on the current provisions of the Income Tax Act (Canada) (the
"Canadian Tax Act"), the regulations thereunder (the "Regulations")
and counsel's understanding of the current administrative practices of
Revenue Canada, Customs, Excise and Taxation. This discussion also
takes into account the amendments to the Canadian Tax Act and
Regulations publicly announced by the Canadian Minister of Finance
prior to the date hereof (the "Proposed Amendments") and assumes that
all such Proposed Amendments will be enacted in their present form.
However, no assurances can be given that the Proposed Amendments will
be enacted in the form proposed, or at all. Except for the foregoing,
this discussion does not take into account or anticipate any changes
in law, whether by legislative, administrative or judicial decision or
action, nor does it take into account provincial, territorial or
foreign income tax legislation or considerations, which may differ
from the Canadian federal income tax consequences described herein;
and
(ii) applies only to persons who, within the meaning of the Canadian Tax
Act, acquire, hold and dispose of CEC common stock and Carbon common
stock as capital property, deal at arm's length with CEC and Carbon
and are not "financial institutions" for the purposes of the mark-to-
market rules. CEC common stock and Carbon common stock will generally
be considered to be capital property to a holder thereof provided that
the holder does not hold any such shares in the course of carrying on
a business of buying and selling shares and has not acquired such
shares in a transaction considered to be an adventure in the nature of
trade. Certain holders who are resident in Canada and who might not
otherwise be considered to hold CEC common stock as capital property
may be entitled to have such shares treated as capital property by
making the election provided by subsection 39(4) of the Canadian Tax
Act.
The following does not address all aspects of Canadian federal income
taxation that may be relevant to you in light of your individual
circumstances and tax situation. Therefore, we urge you to consult your
tax advisor regarding the tax consequences unique to your situation.
December 29, 1999
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Holders Resident in Canada
The following portion of the discussion is applicable only to holders of
CEC common stock who are resident or deemed to be resident in Canada for
the purposes of the Canadian Tax Act (a "Canadian Holder").
Disposition of CEC Common Stock
On the exchange of CEC common stock for Carbon common stock, a Canadian
Holder will be considered to have disposed of the CEC common stock for
proceeds of disposition equal to the fair market value at the time of the
exchange of the Carbon common stock received by the holder. A Canadian
Holder will realize a capital gain or capital loss, as appropriate, equal
to the amount by which such proceeds of disposition, net of any reasonable
costs associated with the disposition, exceed or are less than, as
appropriate, the holder's adjusted cost base of the CEC common stock. The
cost to the Canadian Holder of the Carbon common stock received by such
holder will be equal to the fair market value of such shares at the time of
the exchange. The computation of the adjusted cost base of Carbon common
stock is discussed below in this section under the heading "Disposition of
Carbon Common Stock." The general tax treatment of capital gains and
losses is discussed in this section under the heading "Capital Gains and
Losses."
Disposition of Carbon Common Stock
A disposition or deemed disposition by a Canadian Holder of Carbon common
stock will generally give rise to a capital gain or capital loss, as
appropriate, equal to the amount by which the proceeds of disposition of
the Carbon common stock, net of any reasonable costs associated with the
disposition, exceed or are less than, as appropriate, the holder's adjusted
cost base of the Carbon common stock. In that regard, the cost to the
holder of the Carbon common stock acquired on the exchange will be averaged
with the adjusted cost base of any other Carbon common stock then owned by
such holder as capital property for the purposes of determining the
adjusted cost base of such Carbon common stock. The general tax treatment
of capital gains and losses is discussed below in this section under the
heading "Capital Gains and Losses".
Capital Gains and Losses
A Canadian Holder's taxable capital gain or allowable capital loss from the
disposition of CEC common stock or Carbon common stock will be equal to
three-quarters of the amount of the holder's capital gain or capital loss,
as appropriate, in respect of such disposition. A Canadian Holder must
include any such taxable capital gain in income for the taxation year of
disposition, and may, subject to the detailed provisions of the
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Canadian Tax Act, deduct any such allowable capital loss from taxable
capital gains in the year in which such allowable capital loss is realized.
Subject to the detailed rules contained in the Canadian Tax Act, any
remaining allowable capital loss may generally be applied to reduce net
taxable gains realized by the holder in the three preceding and in all
subsequent taxation years.
If a Canadian Holder is a corporation, the amount of any capital loss
arising from a disposition or deemed disposition of CEC common stock or
Carbon common stock may be reduced by the amount of dividends received or
deemed to have been received by it on such shares to the extent and under
circumstances prescribed by the Canadian Tax Act. Similar rules may apply
where a corporation is a member of a partnership or a beneficiary of a
trust that owns CEC common stock or Carbon common stock.
Capital gains realized by a Canadian Holder who is an individual may be
subject to alternative minimum tax under the Canadian Tax Act, depending on
the individual's circumstances.
A Canadian Holder that is a "Canadian-controlled private corporation," as
defined in the Canadian Tax Act, may be liable to pay an additional
refundable tax of 6 2/3 percent on certain investment income, including
amounts in respect of taxable ca pital gains.
Eligibility for Investment
The Carbon common stock issued pursuant to the offer, when listed on a
prescribed stock exchange, which includes the American Stock Exchange, will
be qualified investments under the Canadian Tax Act for trusts governed by
registered retirement savings plans, registered retirement income funds and
deferred profit sharing plans. However, such shares will constitute
"foreign property," as defined in the Canadian Tax Act, for the purposes of
such plans.
Subsequent Transactions
As described in "The Exchange Offer - Second Step Merger", Carbon may, in
certain circumstances, merge CEC with a wholly-owned Canadian subsidiary of
Carbon (the "Second Step Merger"). The consequences under the Canadian Tax
Act to a holder whose CEC common stock is not exchanged under the exchange
offer and is disposed of in connection with the Second Step Merger will
depend upon the circumstances of the merger including, without limitation,
the consideration received by the holder and the person from whom such
consideration is received.
If a holder receives Carbon common stock or cash in consideration for the
disposition of CEC common stock to Carbon, the holder will realize a
capital gain (or a capital loss) to the extent that the proceeds received
for such common stock, net of any
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reasonable costs associated with the disposition, exceed (or are less than)
the adjusted cost base of the CEC common stock disposed of.
If in the course of the Second Step Merger, CEC common stock is acquired by
CEC from an individual holder (including upon the exercise by an individual
holder of certain dissent rights), the individual holder will be deemed to
have received a taxable dividend in the amount by which the amount received
(other than in respect of interest awarded by a Court) exceeds the paid-up
capital of such CEC common stock. This amount will be excluded from the
former individual holder's proceeds of disposition for the purposes of
computing any taxable gain on the disposition. If the former individual
holder is a resident of Canada, the deemed dividend will be treated in the
same manner as a regular taxable dividend received from CEC. Corporations
or trusts or partnerships which have corporations as beneficiaries or
partners should consult their own tax advisors with respect to the income
tax consequences where CEC common stock is acquired by CEC.
Upon the merger of CEC and a wholly-owned Canadian affiliate of Carbon, the
Canadian Tax Act deems the CEC common stock to be disposed of and the
shares of the amalgamated corporation to be acquired for an amount equal to
the adjusted cost base to the former holders of the CEC common stock.
Consequently, no capital gain or capital loss would be realized by the
former holders upon such amalgamation. A subsequent disposition of the
shares of the amalgamated corporation acquired on the amalgamation may give
rise to a capital gain, a capital loss, or if such shares are repurchased
by the amalgamated corporation, a deemed dividend. If on such amalgamation
the former holder receives property other than shares of the amalgamated
corporation (such as Carbon shares or cash) or exercises a dissent right
pursuant to the Alberta Business Corporations Act and receives cash in
consideration for his CEC common stock, such former holder will have a
capital gain (or a capital loss) to the extent that the proceeds received
for such CEC common stock (other than in respect of interest awarded by a
Court), net of any reasonable costs associated with the disposition, exceed
(or are less than) the adjusted cost base of the CEC common stock disposed
of by the former holder.
Holders Not Resident in Canada
The following portion of the discussion is applicable only to holders of
CEC common stock who are not and will not be resident nor deemed to be
resident in Canada for the purposes of the Canadian Tax Act and any
applicable tax treaty at any time they hold such shares, who do not use or
hold and are not deemed to use or hold their CEC common stock in carrying
on a business in Canada, and in the case of a holder who carries on an
insurance business in Canada and elsewhere, whose shares are not
"designated insurance property" and are not effectively connected with an
insurance business carried on in Canada at any time (a "Non-Resident
Holder").
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A Non-Resident Holder will not be subject to tax in respect of capital
gains realized on the disposition of CEC common stock provided that the CEC
common stock is not "taxable Canadian property" of the Non-Resident Holder
immediately before the exchange. The CEC common stock will not constitute
"taxable Canadian property" of a Non-Resident Holder provided that such
shares are listed on a prescribed stock exchange (which currently includes
the American Stock Exchange), and the holder, persons with whom such holder
does not deal at arm's length, or the holder together with all such
persons, has not owned (or had under option) 25 percent or more of the
issued shares of any class or series of the capital stock of CEC at any
time within five years preceding the date of the exchange, and the shares
were not acquired in a transaction which deemed them to be "taxable
Canadian property."
The Canadian federal income tax consequences to a Non-Resident Holder who
does not tender to the offer of the transactions described in this
discussion under "Subsequent Transaction" may be substantially different
than those described above and may include, without limitation, the
recognition of a gain which is subject to tax in Canada and/or the receipt
of deemed dividends and/or interest which would be subject to Canadian
withholding tax. If CEC common stock ceases at any time to be listed on a
prescribed exchange, the stock will at that time be considered "taxable
Canadian property" to the Non-Resident Holder. Non-Resident Holders who
are considering not tendering to the exchange offer are urged to consult
their tax advisors as to the potential consequences to them of such
transactions.
This opinion is effective as at the date hereof and is based upon laws in effect
and facts in existence as of such date. We undertake no duty to modify this
opinion to reflect subsequent facts or developments in the law occurring after
the date hereof.
The opinion has been delivered to you for the purposes of being included in
documents to be filed with the SEC. We hereby consent to the filing of this
opinion as such an exhibit. We also consent to the reference to our firm name
wherever appearing in the Registration Statement with respect to the discussion
of the material Canadian income tax consequences in connection with the Exchange
Offer. In giving this consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the SEC thereunder, nor
do we thereby admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the SEC
thereunder.
Yours truly,
Bennett Jones