pricewalerhousecoopers rcsponsabilitc limitce · signed with luxembourg, the tie-breaker rule is...
TRANSCRIPT
For the attention of Mr Marius Kohl
PricewalerhouseCoopers Socictc ii rcsponsabilitc limitce Reviseur ll'enlrcpriscs 400, route d'Esch B.P. 1443 L-1014 Luxembourg Telephone +352 494848-1 Facsimile +352 494848-2900
Administration des Contributions Directcs Bureau d'imposition Societes VI r-~~~~~~~~+--
8 URE AU D'IMPOSITION SO' aw vw.pwc.comllu ,.. '' · Vin '[email protected]
ENTRr:E 18, Rue du Fort Wedell L-2982 Luxembourg
- 8 JUIN 2009
June 8, 2009
References: MLGY/JNLE/E I 5609020M-GYSI
Evraz Group S.A. -Tax ID number: 2004 22 28 517 Emmy NA S.a r.l. -Tax ID number: 2007 24 23 055
Debt waiver I liquidation
Dear Mr Kohl,
At the request of the above-mentioned cl ient, we are pleased to submit for your review and approval/comments the Luxembourg tax treatment of the following update of the Igloo transaction realized in 2008.
A. Background
I. We refer to our Letter dated July 16, 2008 (ref.: GDDN/JNLE/ HEBX/ El 5608023M-GYSI), regarding the tax treatment of the lending activity financed by borrowings of Evraz Group S.A. (hereafter "EGSA") and Emmy NA S.a r.1. (hereafter "Emmy") in the framework of the Igloo transaction.
2. EGSA has been incorporated on December 31, 2004, in order to exercise top holding activities and financing activities. Jn this respect, EGSA has notably issued 8.25% Promissory Notes for USO 750,000,000 on November 10, 2005. New Eurobonds were issued in April 2008 for an amount of USD 1,300,000,000 with 8.875% yearly rate and USD 700,000,000 with a 9.5% yearly rate in order to partially finance new acquisitions of companies in the Steel industry'.
3. Emmy has been incorporated on May 9, 2007 under the initial name of LuxCo 32 S.a r.l., in order to acquire and hold participations.
Please refer to Appendix I for any details on the group.
R.C.S. Luxembourg B 65 477 · TVA 1.U17564447
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4. In the course of 2008, EGSA entered in a Share Purchase Agreement (hereafter "SPA") with a Swedish Steel group (Svensk Stal Ab, hereafter "SSB") in order to acquire various US/Canadian companies. In this respect, Emmy acquired 49% of the shares 01ereafter "NSG shares") in NS Group (a Kentucky corporation, hereafter "NSG") and OAO TMK, a Russian company be1onging to a different Russian group, acquired the remaining 51 % NSG shares. Emmy financed the NSG shares by a Profit Participating Loan (hereafter "PPL") for USO 510,625,000 granted by EGSA under which the return depended on the whole profit realized by Emmy on the underlying assets.
5. On June 11 , 2008, EGSA, Emmy and OAO TMK concluded an Option Agreement under which Emmy would assign its acquisition rights over the NSG shares to OAO TMK and its affiliates. The predetermined purchase price was the original purchase price plus an annual interest of I 0% or 12% depending on the length of the period between the purchase date and the option exercise date.
6. This transaction was considered as a temporary financing transaction as, initially, Emmy did not run any risk as it was entitled to receive a fixed interest income due to the Option Agreement. However, due to the current market conditions and notably the difficulty to find any cash available to finance the day-to-day activities of the companies, EGSA agreed with TMK to grant a discount on the Purchase price of the NSG shares as determined in the Option Agreement in exchange for TMK's irrevocable commitment to purchase these shares earlier than initially expected (i .e. in the beginning of 2009).
7. The Option Agreement was therefore amended on January 22, 2009, in order to document the agreed discount provided the Option is exercised before February 15, 2009. The new price was therefore set at USO 507,542,000 and OAO TMK designated its Delaware subsidiary, IPSCO Tubulars Inc., as the purchaser of the NSG shares. Such option was exercised on January 30, 2009, as evidenced by the Transaction documents (Appendices 2 to 6).
8. Given the change in the transaction price and the fact that Emmy was involved in a temporary financing, EGSA agreed on January 22, 2009, to waive part of its receivable toward Emmy under the PPL and agreed to consider the payment received under the PPL as final payment (Appendix 7).
9. Moreover, EGSA is considering to liquidate Emmy by the end of the year 2009 -beginning of 20 I 0.
10. You will find below a simplified structure chart of the initial structure for your convenience.
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LPN Holders
X% USO
Acquisition Co 1 Canada
Target Co 1 Canada
Evraz Group S.A. Luxembourg
Evraz Oregon Steel Mills - USA
Acquisition Co 2 USA
Target Co 2 USA
B. Applicable tax regime
B.1 Tax residency
\ I
Emmy NA Sari Luxembourg
49%
NS Group Inc . USA
OAO TMK Russia
J i 10%/12 % I i
USO / / / . 51% ,,,/ / ,. .· .... .·/
Options to purchase Emmy's 49% participation
in NSG
11. Based on article 159 of the Luxembourg Income Tax Law ("LITL"), a company is treated as a lax resident in Luxembourg provided that either its registered office or its central administration is located in Luxembourg. Under double tax treaties signed with Luxembourg, the tie-breaker rule is the place of effective management.
12. In this respect, Board meetings and Shareholders meetings of EGSA and Emmy are physically held in Luxembourg. The accounting is done and the records are kept in Luxembourg. Furthem1ore, regular meetings take place in Luxembourg through which all the important and strategic decisions are physically taken in Luxembourg.
13. As a result, EGSA and Emmy are effectively managed from Luxembourg and qualify as Luxembourg tax resident companies. Should the need arise, a certificate of a tax residence could be obtained.
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B.2 Transfer pricing
14. The price paid by OAO TMK or lPSCO Tubulars Inc. to Emmy for the NSG shares on January 30, 2009, is considered as complying with the arm's length principle as (i) the reduction of the Purchase Price under the Option Agreement has been agreed between third parties and (ii) this reduction was justified by the current economic conditions.
B.3 Debt waiver
B.3.l Accounting treatment
15. From an accounting point of view, the debt waiver will be booked in EGSA's Profit and Loss account (hereafter "P&L") as a loss and as an extraordinary income in Emmy's P&L.
B.3.2 Tax treatment
Connection behVeen commercial and tax accounts
16. According to the provisions of article 40 LITL, the tax treatment follows in principle the accounting treatment unless otherwise provided for in the tax legislation. Consequently, the debt waiver should be analyzed as a tax deductible loss at EGSA's level and as a taxable profit at Emmy's level. In any case, income/loss realized by EGSA resulting from the amended Option Agreement and the related debt waiver will comply with the arm's length principle as the transaction involves third parties.
17. However, a debt waiver, under certain conditions, can be tax exempt based on article 52 LITL or analyzed as a non taxable hidden contribution at the level of Emmy. Depending on the qualification, this may trigger the non deductibility of the debt waiver at the level of EGSA. Nevertheless, neither the conditions of article 52 LITL nor those relating to the hidden contribution are met in the proposed transaction.
Non application of the provisions of article 52 LITL
18. Article 52 LITL states that the gain arising from a debt waiver granted with the intention of financially re-establishing the company should be deducted from the result of the period for tax purposes, but only to the extent that the result is a profit. Such tax treatment will not apply to the debt waiver between EGSA and Enm1y as Emmy cannot be seen as in a situation needing a financial re-establishment even if the reduction of the Purchase Price automatically leads to the impossibility to fully repay the PPL.
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19.
Non application of the hidden contribution theory
20. A debt waiver can also be considered as a hidden contribution of capital, i.e. an advantage granted by a shareholder to a company in which it holds a participation that it would not have granted in the absence of its shareholding. A debt waiver requalified into a hidden contribution of capital would not be regarded as a tax deductible loss for the parent company and would not impact the profit and loss account of the subsidiary company (article 18 LITL).
21. Based on the Luxembourg doctrine, a hidden contribution of capital is characterized when the debt waiver is only justified by a bond of shareholding ("causa societal is") between the creditor and the debtor. Therefore, if the debt waiver is justified by commercial reasons, it constituted a loss at the level of the parent company and a profit at the level of the subsidiary.
22. In the case at hand, it should be stressed that the temporary financing granted by Emmy to OAO TMK was made only for commercial reasons as EGSA would not have been in a position to acquire various US/Canadian companies from SSB if it had refused to purchase the NSG shares. In this respect, Emmy could be considered as having temporary supplied EGSA in its acquisition process with SSB by granting this temporary financing. In this respect, as Emmy should not be in a shortfall position due to the reduction of the Purchase Price under the Option Agreement, EGSA decided to waive part of its debt towards Emmy for these commercial reasons.
B.4 Emmy's liquidation
B.4.1 Tax treatment at the level of Emmy
23. According to article 169 LITL, Emmy will be taxed in Luxembourg on the net profit made during their liquidation period (unless a specific exemption applies due to the application of the participation exemption regime for instance). The taxable profit corresponds to the difference between the net assets invested at the time of the liquidation and the net amount available for distribution.
24. Moreover, the net amount available for distribution (liquidation profit) will not be subject to any withholding tax according to articles 97, 3, d and 101 LITL.
B.4.2 Tax treatment at the level of EGSA
25. Proceeds (if any) received from the liquidation of the Lux Captives are considered as dividends and will be tax-exempt if the conditions provided for by article 166 LITL are met.
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We respectfully request that you confirm the tax treatment of the situation described above or that you provide us with your remarks, if any.
We remain at your disposal should you need any further information and would like to thank you for the attention that you will give to our request.
Yours sincerely,
~ ( l Michel Guillu~ Partner .y (
Ger ely Szatmari Senior Manager
Appendices:
Appendix 1: Appendix 2:
Appendix 3: Appendix 4:
Appendix 5: Appendix 6: Appendix 7: Appendix 8:
Presentation of EGSA Circular resolution of the sole manager of Emmy NA S.a r.I. dated January 22, 2009 First Amendment to the Option Agreement dated January 22, 2009 Call notice Pursuant to Option Agreement from OAO TMK dated January 30, 2009 Officer's certificate of Emmy NA S.a r.l. dated January 30, 2009 Cross Receipt dated January 30, 2009 Wire instructions from Emmy NA S.a r.l. dated January 30, 2009 Evraz' letter regarding final payment under the PPL dated January 22, 2009
Le prepose c/11 bureau l'impositio11 Societes 6 Maril s Kohl
Luxembourg, le 1 1 2 JUIN 2009
I I I
711i.1· tax agreement is based on the facts as presented to Pnicewaterho11seCoopcrs Siu·/ as at the date the advice was given. 7/1e
agreeme/1/ is dependent on specific facts and circumstances a11J l11ay not be appropriate lo any party other than !he one for which it was
prepared. 7/iis tax agreement was prepared with only the inte~qsts of /;'vra: Group S.A. and Emmy NA Sa r.I. in mind, and was not
planned or carried out in contemplation of any use by any othd-i; party. PricewaterltouseCoopers Si1r/, its parlner.1·. employees and or
agents, neither owe nor accept any duty of care or any responsibi}(IY to any other party, whether in contract or in tort (incb1ding without
/11111tatio11, 11eg//ge11ce or breach of stallltory duty} holl'ever arisini,\ and slia/11101 he liable 111 respect of any loss. damage or expense of
ll'hatcwr 1w111re which Is caused to any other party.
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Appendix 1
Presentation of Evraz Group S.A.
Evraz Group S.A. is one of the largest vertically-integrated steel, mmmg and vanadium businesses in the world. In 2007, Evraz produced 16.4 million tonnes of crude steel, 12.6 million tonnes of pig iron and 15.2 million tonnes of rolled products. The company's production volumes make it one of the 15 largest steel producers in the world. For the first half 2008, the consolidated revenues were USDI0,726 million and EBITDA- USD3,700 million.
A History
2 Evraz Group was founded in 1992 as a small metal trade company, Evroazmetall. During the first few years, the company's turnover and field of activity steadily expanded. During the mid-1990s, Evroazmetall became involved in settling debts between Russian mining and metallurgy plants. The firm accumulated promissory notes of several steel plants, coal mines and concentrating factories. This led to a decision to acquire equity stakes in mining concerns. In 1995, EAM Group CJSC was founded, uniting several coal, ore and steel companies.
3 In late 1995, EAM Group signed a strategic partnership agreement with Duferco, becoming owner of a controlling stake in Nizhny Tagil Steel Mill (NTMK), which was going through a crisis at that moment. The situation at Nizhny Tagil gradually stabilised and a process of reconstruction and modernisation was put in motion. In 1999, EJ\M Group starts to manage two other large steel plants, West Siberian (ZSMK) and Novokuznetsk (NKMK), while holding a significant part of those companies' debts.
4 Global reinforcement of market competitiveness called for new approaches to corporate organisation. In late 1999, EvrazHolding was founded as the chief executive organ ofNTMK, ZSMK and NKMK, as well as the Vysokogorsky and Kachkanarsky Ore Mining and Processing Plants, Evrazruda and Nakhodka Sea Port.
5 On June 2, 2005, The Company listed global depositary receipts (GDRs), representing approximately 8.3% of its issued share capital, on the Official List of the London Stock Exchange.
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B Activities
6 The Company expanded further its mmmg platform having acquired in 2004-2005 Mine 12, a 50% stake of Y uzhkuzbassugol, an interest in Raspadskaya coal company, which moves Evraz closer to complete self-sufficiency in key raw materials. The acquisitions of rolling mill Palini & Be1toli (August 2005) in Italy and of Vitkovice Steel a.s. (November 2005), the largest platemaker in the Czech Republic, further diversified the Company's product mix into value added areas as well as providing access to customers within the European Union.
7 In 2006, Evraz acquired a 73% in Strategic Minerals Corporation, USA, one of the world's leading producers of vanadium alloys and chemicals for the steel, chemical, and titanium industries, and a 24.9% stake in Highvcld Steel and Vanadium Corporation, South Africa, increasing it to 54.1 % in May 2007.
8 Thanks to the acquisition of Oregon Steel Mills in January 2007, Evraz has secured an important place on the attractive plate market and in the expanding pipe business in North America and became the leading rail producer globally.
9 Evraz Group's principal metallurgical assets include three of Russia' s leading steel plants: Nizhny Tagil (NTMK) in the Urals region and West Siberian (Zapsib) and Novokuznetsk (NKMK) in Siberia. The Company's presence in North America is constituted by its subsidiary Evraz Inc. NA uniting Oregon Steel Mills, Claymont Steel, and lpsco's Canadian plate and pipe business. Evraz also owns the Dnepropetrovsk Iron and Steel Works in Ukraine, Evraz Palini e Bertoli in Italy, Evraz Vitkovice Steel in the Czech Republic, and Ilighveld Steel and Vanadiwn Corporation in South Africa. In Ukraine, Evraz acquired three coking plants -Bagleykoks, Dneprkoks, and Dneprodzerzhinsk Coke Chemical Plant.
10 The Company's mining division includes the iron ore mining complexes Evrazruda, Kachkanarsky (KOOK) and Vysokogorsky (VGOK) in Russia, the Sukha Balka iron ore mmmg and processing complex in Ukraine and Yuzhkuzbassugol coal mining complex. Evraz also holds a 40% equity interest in Raspadskaya coal company. Its mining assets enable Evraz Group to be successful as a vertically-integrated steel producer: by 2009, Evraz's mining operations covered 93% of iron ore and over 100% of coking coal internal conswnption. In 2007, Evraz Group produced approximately 18.9 million tonnes of iron ore products, and mined 21.1 million tonnes of coking coal - including fullyear figures of Yuzhkuzbassugol and Raspadskaya.
11 Evraz is also an important player in the world vanadium market. Its vanadiwn business comprises Strategic Minerals Corporation in the United States, Nikom in the Czech Republic, and Highveld Steel and Vanadium Corporation in South Africa.
12 Evraz also owns and operates the Nakhodka commercial sea port in the Far East of Russia.
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13 Evraz Group S.A. is a public company registered in Luxembourg. Since June 2005, 30.5% of its Issued share capital in the form of GDRs is traded on the London Stock Exchange under the stock symbol EVR.
14 The structure in December 2008 could be depicted as follows:
100%
"' I ldd mdircctly
100%
lVrnz lncNA (foc'h-L>r Evrw.
0.~1M1 Scl'<'I Miis Inc.)
(USA)
hdvidu:lls• Public
~&1% l - 54~ Mastcrtroft
U11l lcd (C\71w)
l!t®an Oln~llni('ll
{IO«.nn)
SlrJll'gic MJ1emls CO'lJOlllCion & Subs
(US.A)
100%
1 ligll\dd Srcd & V1m1tclum
Oirporncion Ltc (S."h'fli1ail
I
100%
Val\'IOl11.Jd (~\7»«)
100%
l\dini c lle11oli Spi\ ll><M
100% I 1cm. 1
Evraz Vilkuvicc EvmzlNCNa SR'<'I Ououla
(C:.YhP,•1•l>lirl (f"'tuVKli/
(9)
1cm.
l".llmrc,... Umircd
I 101~1«)
I
lJ<rainiM Cooµinios
(l.karo)
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Appendix 2
Circular resolution of the sole manager of Emmy NA S.a r.I.
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CIRCULAR RESOLUTION OF TIIE SOLE MANAGER IN LIEU OF A MEETING
OF
EMMY NA s.A.RL.
Socie~ a responsabilite limitee
Registered office: 1, Allee Scheffer
L-2520 Luxembourg
R.C.S. Luxembourg B 128 141
Share capital: EUR 12,500
(the "Corporation'1
The undersigned, being the sole Manager of the Corporation (the "Sole Manager"), pursuant to Article 13 of the Articles of Association of the Corporation. in lieu of acting at a meeting of the Board of Managers, hereby adopts the following resolutions, effective as of 22 January 2009:
WHEREAS, the Corporation is the owner of 49 shares of common stock (the '~} ofNS Group, Inc., a corpo~tion organized under the laws of the State of Kentucky;
WHEREAS, Evraz Group S.A., the sole shareholder of the Corporation ("Evraz") and OAO TMK ("I.MK") are parties to that certain Option Agreement, dated as of June 11, 2008, (such agreement as amended from time to time, the "Option Agreement") pursuant to which Evraz may, under certain circumstances be required to sell, or cause to be sold to TMK or its affiliate, the Shares;
WHERAS, Evraz and TMK are entering into an amendment to the Option Agreement in the fonn attached hereto as Exhibit A (the "Option Amendment'.,2
WHEREAS, TMK has notified Evraz of its intention to exercise its right to require Evraz tO sell or cause to be sold to IPSCO Tubulars Inc. ("ITI"), an affiliate of TMK, on or prior to February 16, 2009;
WHEREAS both the Corporation and Evraz are aware that the exercise of the option within this time frame would result to the Corporation receiving a lesser purchase price
WHEREAS both the Corporation and Evraz have evaluated the above and consider it prudent to accept such lesser purchase price in exchange for the certainty of receiving such prompt payment,
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WHEREAS, on 11 June 2008, the Corporation entered into that certain Profit Participation Loan Agreement (including the exhibits and schedules thereto, the "Loan Agreement'') between the Corporation and Evraz;
WHERAS the receipt of the purchase price by the Corporation would enable it to repay the Loan Agreement and be released from all its obligations thereunder;
WHEREAS, in connection with the transfer of the Shares to ITI, the Corporation is required to deliver an officer's certificate in the fonn attached hereto as f:xhibit B (the "Certificate") and a stock power in the form attached hereto as Exhibit C (the "Stock Power");
WHEREAS, in connection with the transfer of the Shares to ITI, the Corporation and Evraz desire to amend the Loan Agreement in the form attached hereto as Exhibit D (the "LQm Agreement Amendment"); and
WHEREAS, the Sole Manager desires that the Corporation sell, transfer and assign the Shares to an Affiliate of TMK, execute and deliver each of the Certificate and the Loan Agreement Amendment and to take such other actions as are necessary or advisable in order to give effect to these resolutions;
NOW, THEREFORE BE IT RESOLVED, that the Corporation is hereby authorized, empowered and directed to sell, transfer and assign the Shares to TMK or its affiliate as contemplated in the Option Agreement and to perform such other actions contemplated to be performed by an Evraz Shareholder (as defined in the Option Agreement) pursuant to the Option Agreement;
RESOLVED; that the form, terms and provisions of the each of the Certificate, the Option Amendment, the Stock Power and the Loan Agreement Amendment are hereby approved and the Corporation is hereby empowered, authorized and directed to execute the Certificate, Option Amendment, the Stock Power and the Loan Agreement Amendment and that each of (i) any officer of TMF Corporate Services S.A. as Manager of the Corporation, (ii) Pavel Tatyanin or (iii) Timur Yanbukhtin (any of (i), (ii) or (iii), an "Authorized Signatorv'') is hereby empowered, authorized and directed to execute the Certificate, Option Amendment, the Stock Power and Loan Agreement Amendment, each in such form and with such changes therein as such Authorized Signatory executing the same shall approve (which approval and the approval of the Sole Manager shall be conclusively evidenced by such Authorized Signatory's execution and delivery thereof); and that the Corporation is authorized to perform its obligations under, or take such other actions as may be required by the Certificate, Option Amendment, the Stock Power or the Loan Agreement Amendment, each as so executed and delivered;
RESOLVED, that each Authorized Signatory of the Corporation be and hereby is authorized, directed and empowered to take any and all other actions and to execute, deliver, perform or tile all such other agreements, instruments and documents as such Authorized Signatory may deem necessary or appropriate in order to give effect to the intent of the foregoing resolutions and that execution by any such Authorized Signatory of any such agreement, instrument or document or the doing by any such Authorized Signatory of any act in connection with the foregoing matters shall establish conclusively such Authorized Signatory's authority
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therefor from the Corporation and the approval and ratification by the Corporation and this Sole Manager of such agreement, instrument or document or any action so taken; and
RESOLVED, that any and all actions heretofore taken, and any and all things heretofore done, by any Authorized Signatory in connection with, or with respect to, the matters referred to in the foregoing resolutions be and hereby are confirmed as authorized and valid acts taken on behalf of the Corporation.
[REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Wldersigned has executed this consent as of the day and
year first written above.
Sole Manager
[Sl!!!'&ture PllJlC co c;,wzar Ruol<.t!oo o{ Pwdsaut 2 Member rt Proftt P111ioiparion I.om]
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Appendix 3
First amendment to the Option Agreement
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FIRST AMENDMENT TO THE OPTION AGREEMENT
EXECUTION COPY
This FIRST AMENDMENT TO THE OPTION AGREEMENT (this "Amendment"), dated as of January 22, 2009, is entered into by and between Evraz Group, S.A., a societe anonyme organized under the laws of the Grand Duchy of Luxembourg ("Evraz''), OAO Tl'vfK, a company organized under the laws of the Russian Federation ("TMK" and, collectively with Evraz, the "Original Parties") and NS Group, Inc., a Kentucky corporation ("NSG" and together with the Original Parties, the "Parties").
RECITALS
WHEREAS, the Or1ginal Parties have entered into that certain Option Agreement, dated as of June 11, 2008 (the "Option Agreement");
WHEREAS, NSG became paity to the Option Agreement with the same force and effect as if originally named therein as a patty thereto by entering into that certain NSG Joinder dated June 12, 2008;
WHEREAS, on or prior to the Option Closing, NSG will deliver to IPSCO Tubulars Inc. "JTI") a certificate meeting the requirements of Section 1.1445-2(c)(3) of the Treasury Regulations; and
WHEREAS, the Parties desire to amend the Option Agreement as set forth below.
NOW, THEREFORE, in consideration of the foregoing premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Parties, and of the mutual covenants and agreements set fo1th herein and in the Option Agreement, the Parties intending to be legally bound hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition shall have the respective meanings assigned to such terms in the Option Agreement.
2. Amendment.
(a) Clause (i)(A)(x) of the definition of "Per Share Exercise Price" in Section 1.1 of the Option Agreement is hereby amended by deleting the reference to "$510,625,000" and replacing such reference with "$507,542,000".
(b) Section 3.3 of the Option Agreement is hereby amended by adding the following new Section 3.3(c):
100582790_7.DOC
( c) Notwithstanding any provision to the contrary in Section 3.3(b), in the event that TJ\1K elects to exercise its Call Option with respect to all of the then-outstanding Evraz NSG Shares on or prior to February 15, 2009, Evraz shall cause the Evraz Shareholder to sell,
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transfer, assign and deliver to an Affiliate of TMK, IPSCO Tubulars, Inc. ("ITI"), all of the then-outstanding Evraz NSG Shares, free and clear of any Liens created by Evraz or any of its Affiliates, on the date specified in the applicable Call Notice (which date shall be no later than February 15, 2009) and TMK shall cause ITl to purchase and accept such Evraz NSG Shares for the Purchase Price as described in Section 3.4(b) . Such Evraz NSG Shares shall be accompanied by certificates representing such Evraz NSG Shares duly endorsed in blank by the Evraz Shareholder transferring the Evraz NSG Shares, or accompanied by stock powers duly executed in blank by such Evraz Shareholder and a certificate pursuant to which such Evraz Shareholder shall make representations and wa1rnnties set fotth in Article IV as if such Evraz Shareholder were "Evraz".
(c) Section 3.4(b) of the Option Agreement is hereby amended and restated in its entirety to read as follows:
In the event that (i) TMK exercises its rights pursuant to Section 3. l(b) or Section 3.3(c) or (ii) Evraz exercises its rights pursuant to Section 3.2, TMK shall deliver, or shall cause ITI or another Affiliate of TMK to deliver, to the applicable Evraz Shareholder, at the relevant Option Closing, an amount in cash equal to the Purchase Price with respect to the Evraz NSG Shares being transferTed to TMK or its Affiliates at such Option Closing, by wire transfer of immediately available funds to the account designated in writing by the Evraz Shareholder no later than two (2) Business Days prior to such Option Closing.
3. Effect on the Option Agreement.
(a) Subject to Section 4, on and after the date hereof, each reference in the Option Agreement to "this Agreement'', "herein", "hereof", "hereunder" or words of similar import shall mean and be a reference to the Option Agreement as amended hereby.
(b) Except as specifically amended by this Amendment, the Option Agreement shall remain in full force and effect and the Option Agreement, as amended by this Amendment, is hereby ratified and confirmed in all respects.
4. Amendment Conditional. In the event that the Option Closing with respect to all of the outstanding Evraz NSG Shares does not occur on or prior to February 15, 2009, (i) this Amendment (except for this Section 4) shall be deemed to be null and void ab initio and shall be of no force or effect and the Option Agreement, as in effect immediately prior to the date of this Amendment shall be deemed ratified and confirmed by the Parties in all respects, and shall continue in full force and effect without regard to this Amendment; (ii) any Call Notice provided in connection with any Option Closing scheduled to occur on or prior to February 15, 2009 ("Pre-February Notice") shall be null and void ab in.itio and shall be of no force or effect and (iii) notwithstanding any provision to the contrary in the Shareholders Agreement ofNSG Group, Inc. dated as of June 12, 2008 between NSG,
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TMK, Emmy NA S.a.r.I. (the "Shareholders Agreement") or the Option Agreement, failure of TMK to pay or cause to be paid the Purchase Price or the Option Amount (as defined in the Shareholders Agreement) on or prior to February 15, 2009 or for the Option Closing to occur on or prior to the February 15, 2009, shall not be a breach of the Option Agreement or the Shareholders Agreement and no parties thereto shall be entitled to exercise the remedies thereunder or at law or in equity in connection therewith.
5. l nco1:poration by Reference. Sections 9. 1, 9. 6, 9. 7, 9 .13 and 9. 14 are incorporated herein mutatis mutandis, except that all references therein to the "Agreement" shall be deemed to refer to this Amendment.
[Signatures on following page]
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IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be duly executed on its behalf as of the day and year first above written.
Acknowledged and Agreed:
EMMY NA S.A.R.L.
By:·------~----Name: Pavel Tatyanin Title: Authorised signatory
EVRAZ GROUP, S.A.
By: _____ ___;:,...__ _ _ _ Name: Pavel Tatyanin Tit le: Authorised signatory
OAOTMK
By: ____ ________ _
Name: Title:
NS GROUP, INC.
By: _____ _ _ _ _ _ _ _ Name: Title:
[Signature Page to First Amendment to the TMK Option Agreement)
:·
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JN WJTNESS Wl:IEREOF. cm::lt'ofthl! Parties has c~.t1~ ihis Amcnumcnr to be duly exccmed on its behalf as ofthe day i1!td year first above written.
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IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be duly executed on its behalf as of the day and year first above written.
Acknowledged and Agreed:
EMMY NA S.A.R. L.
By: _ _______ _
Name: Title:
EVRAZ GROUP, S.A.
By: ____________ _
Name: Title:
OAOTMK
By:. ________ ____ _
Name: Title:
(Signature Page to First Amendment to the TMK Option Agreement]
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Appendix 4
Call notice pursuant to the Option Agreement from OAO TMK
(25)
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(26)
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OAOTMK 40/2a Pokrovka Street
Moscow, Russia 105062
January 30, 2009
VIA FACSIMILE AND BY COURIER
Evraz Group, S.A. 1 Allee Scheffer L-2520 Luxembourg Attention: Pavel Tatyanin
Timur Y anbukhtin Facsimile No.: +7 495 234 4627
Re: Call Notice Pursuant to Option Agreement, dated as of June 11, 2008, as amended on January 22, 2009 (the "Agreement"}, by and between Evraz Group, S.A. ("Evraz''), OAO TMK ("TMK'') and NS Group, Inc.
Gentlemen:
Reference is made to Sections 3. I(b) and 3.3(c) of the Agreement pursuant to which TMK has the right to require Evraz to sell or cause the applicable Evraz Shareholder to sell to TMK or its Affiliates any or all of the Evraz NSG Shares (each as defined in the Agreement). Capitalized tcnns not defined in this letter shall have the meanings specified in the Agreement.
TMK hereby elects to exercise its Call Option pursuant to Section 3.l(b) and 3.3(c) of the Agreement with respect to all Evraz NSG Shares held by the Evraz Shareholders.
TMK hereby designates IPSCO Tubulars Inc., an Affiliate of TMK, as the purchaser of the above-mentioned Evraz NSG Shares.
The Option Closing shall occur on January 30, 2009.
[Remainder of this page intentionally left blank.}
100585856_2
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cc: William A. Groll Neil Q. Whoriskey
OAOTMK
By: ~ .. l :-N:-a_m_e_: -A,...,!u.-a-n_J,...~-.... s.4L-,(J- "-.... -v-- -Title: G~ner1d? ,(), r~r.l:o.r
[Signature ?age IO Call Notice]
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Appendix 5
Officer's certificate of Emmy NA S.a r.I.
(29)
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(30)
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OFFICER'S CERTIFICATE
OF
Emmy NA S.a.r.I.
January 30, 2009
The undersigned, in his capacity as authorized signa,tory of Emmy NA S.a.r.I. ("Emmy"), and not in his individual capacity, hereby certifies pursuant to Section 3.4(c) of the Option Agreement dated as of June 11, 2008 by and between Evraz Group, S.A and OAO TMK ("!MK") and NS Group, lnc., as amended as of January 22, 2009 (the "Option Agreement") as follows (capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Option Agreement):
I. Emmy is a societe a responsibilite limitc duly incorporated, validly existing and, to the extent such concept is applicable to Emmy, in good standing under its jurisdiction of incorporation or organization (except that Emmy has not as of the date hereof filed its annual accounts as of 31 December 2007), and it has all requisite corporate power and authority to carry on its business as now being conducted. It is nevertheless mentioned that Emmy has not as of the date of this certificate filed its annual accounts.
2. Emmy has the requisite corporate power and authority and has taken (and, to the extent required, its shareholders have taken) all corporate action necessary to sell, transfer and assign forty-nine Evraz NSG Shares to TMK or its Affiliates as contemplated in the Option Agreement and to perform actions contemplated to be performed by an Evraz Shareholder pursuant to the Option Agreement (the "Transactions"). The performance of the Transactions by Emmy have been duly authorized and approved by the board of directors (or equivalent governing body) of Emmy, and no other corporate (or shareholder) action on the part of Emmy is necessary to authorize the performance of the Transactions.
3. The performance of the Transactions does not and will not, (i) conflict with or violate any of the provisions of the certificate of incorporation, by-laws, or other equivalent organizational documents, as applicable, of Emmy; (ii) conflict with, violate, result in a breach of or default under (with or without notice or lapse of time, or both), require any consent, waiver, or approval or give rise to any right of termination, amendment, cancellation or acceleration of any material obligation under any Contract to which Emmy is a party or by which Emmy or any of Emmy's respective assets or properties are bound or affected, in each case that is reasonably likely to have an etTect on the Transactions; or (iii) subject to the receipt or making of the consents, approvals, authorizations and filings referred to in Section 4.3 of the Option Agreement, contravene any Law or Order currently in effect.
4. The performance of the Transactions by Emmy do not and will not require any consent, approval, authorization, permit of, action by or in respect of, or filing with or notification
[Now York #20053 70 v I J
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to, any Governmental Entity other than consents, approvals, authorizations, pennits, actions, filings or notifications, the absence of which would not reasonably be expected to prevent or delay the performance by Emmy of its respective obligations thereunder.
5. There is no Action pending, or, to the knowledge of Emmy, threatened, against or affecting Purchasers, Evraz or any of their Affiliates that challenges the validity or enforceability of the Option Agreement or seeks to enjoin or prohibit consummation ot~ or seeks other material equitable relief with respect to, the transactions contemplated by the Option Agreement or that would be reasonably expected to impair or delay Emmy's ability to perform the Transactions.
[remainder of page intentionally left blank/
2 I New York #2005370 vi I
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IN WITNESS WHEREOF, the undersigned has executed this certificate as of the date first above written.
[Now Yock #2005370 vi)
EMMY NA S.A.R.L.
[Signature Page to Emmy Officer's Certificate} 3
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Appendix 6
Cross receipt
(35)
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(36)
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Cross Receipt
January 30, 2009
Reference is made to that certain Option Agreement dated as of June I I, 2008, as amended as of January 22, 2009 (the "Option Agreement"), by and between, Evraz Group, S.A., a Luxembourg company ("Evraz"), OAO TMK, a company organized under the laws of the Russian Federation ("TMK") and NS Group, Inc., a Kentucky corporation.
Evraz hereby acknowledges receipt from IPSCO Tubulars Inc. ("ITI") of $507,542,000, the Purchase Price payable pursuant to Section 3 .4 of the Option Agreement.
TMK, on behalf of ITI, hereby acknowledges receipt from Emmy NA S .a.r.l. of a certificate representing forty-nine (49) Evraz NSG Shares, together with a stock power in respect of such Evraz NSG Shares.
[Remainder of page intentionally left blank.]
100589012_3
1
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IN WITNESS WHEREOF, the undersigned has caused this Cross Receipt to be executed by a duly authorized officer as of the date first written above.
EVRAZ GROUP, S.A.
By: 'a~ Name: Pavel Tatyanin Title: Authorized signatory
OAOTMK
By:~~~~~~~~~~~~~~~~ Name: Title:
Signature Page to Receipt (Option Agreement)
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TN WITNESS WHEREOF, the undersigned has caused this Cross Receipt to be executed by a duly authorized officer as of the date first written above.
EVRAZ GROUP, S.A.
By:~~~~~~~~~~~~~ Name: Title:
OAOTMK
Signature Page to Receipt (Option Agreement)
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Appendix 7
Wire instructions from Emmy NA S.a r.I.
(41)
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(42)
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Emmy NA S.a.r.I. So<:oett a ruponsabthtc hmnt<: I. Allte Scherrer l,..-2SO Luxcn1bo11rg P.O. Rox B L-2010 Luxembourg Luxembourg
January 30, 2008
IPSCO Tubulars Inc. clo TMK IPSCO 2650 Warrenville Road Suite 700 Downers Grove, Illinois 60515
Ladies and Gentlemen:
Tel · (352) 241 4331 1'11>.· (352)241 4333 00
RCS Lwu:mbour11B12&141 Capnal social· Eur 12 .500
Emmy NA S.a.r.L. ("Emmy") hereby instructs IPSCO Tubulars Inc. ("ITI") to deliver the purchase price payable under that certain Option Agreement between Evraz Group S.A. {"Evraz"), OAO TMK and NS Group, Inc. ("NSG") dated as of June 11, 2008, as amended as of June 22, 2009. in respect of1he purchase by ITI of 49% of 1he outstanding shares of NS Group, Inc. held by Emmy to the following account held by Evraz:
Evraz Group S.A., by order of Emmy NA S.a.rJ., in satisfactton of Emmy NA S.a.r.l.'s obligations under the Profit Participatlnc Loan Acrcemcnt between Evr.tX Group, S A. and Emmy NA S.a.r.I., dated as of June 11, 2008
l, Allee Scheffer L-250 Luxembourg
ING Belgium, Brussels, Geneva Branch
Account (USO):
IBAN:
SWIFT:
1280254
CH7008387000001280254
BBRUCHGT
Emmy is instructing the payment to be made to an account of Evraz as repayment by Emmy under that certain Profit Participating Loan Facility Agreement between Emmy and Evraz dated as of June 11, 2008.
Very truly yours,
By: -N,...,-am~e.-·~T-im--ur-Y~an-b-+r-ti-n~~~~--~
Title: Authorised ~ignatory
[NtwYorH200S43S vlJ
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Appendix 8
Evraz' letter regarding final payment under the PPL
(45)
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(46)
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EEVRAZ January 22, 2008
Emmy NA s.A.R.L. l, Allee Scheffer L-2550 Luxembourg Facsimile: +352 241 43 33 00
Ladies and Gentlemen:
Reference is made to (a) that certain Profit Participating Loan Facility Agreement (the "Loan Agreement"), dated 11 June 2008 between Evraz Group S.A. ("Lender") and Emmy NA S.A.R.L. ("Borrower") and (b) to the Option Agreement, dated as of June 11, 2008 between OAO TMK ("TMK"), as amended on January 22, 2009 (the "Option Agreement"). Capitalized terms used, but not otherwise defined herein, shall have the meanings assigned to such tenns in the Loan Agreement.
Notwithstanding anything in the Loan Agreement to the contrary, in the event that the Option Closing (as defined in the Option Agreement) occurs prior to February 20, 2009, Borrower shall deliver the Purchase Price, including any interest component thereof, received by Borrower at such Option Closing to the Lender no later than the Business Day immediately following such Option Closing and the Termination Date will occur on such date. Lender agrees to accept the delivery of such Purchase Price as payment in full of the Loan and that upon receipt of such payment Borrower will have fully satisfied and discharged all of its obligations under the Loan Agreement.
This letter agreement is governed by, and shall be construed in accordance with, Luxembourg law.
The parties to this letter agreement agree that the courts of Luxembourg City have exclusive jurisdiction to settle any dispute in connection with this letter agreement.
[Remainder of page intentionally left blank. Sigriature page follows.]
[New York #2001524 vi]
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If the foregoing is in accordance with your understanding of our agreement, please indicate your acceptance and agreement by executing a counterpart of this letter agreement.
ACKNOWLEDGED AND AGREED:
The Borrower EMMY NA S.A.R.L.
By: TMF Corporation Services SA Title: Manager
[New York #2001524 vl j
Very truly yours,
The Lender EVRAZ GROUP S.A.
By: Pavel Tatyanin Title: Authorized Signatory
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If the foregoing is in accordance with your understanding of our agreement, please indicate your acceptance and agreement by executing a counterpart of this letter agreement.
Very truly yours,
The Lender EVRAZ GROUP S.A.
By: Pavel Tatyanin Title: Authorized Signatory
ACKNOWLEDGED AND AGREED:
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Evraz Group S.A. Economic analysis of the discount granted
I According to the amended Option Agreement I New Option price 507,542,000.00
I According to the initial Option Agreement - ideal situation I Total potential gain comparison Nominal NSG shares 510,625,000.00 Interest from closing to June 1, 2009 (10% p.a.) 51,062,500.00 Interest from June 2, 2009, to October 22, 2009 (12% p.a.) 25,531,250.00 (EGSA can force TMK to exercize its option as from October 22, 2009) TOTAL 587,218,750.00
Discount compared to the New Option price 13.57%
!According to the initial Option Agreement - amendment date I Expected gain comparison Nominal NSG shares 510,625,000.00 Interest from closing to January 22, 2009 (10% p.a.) 29,786,458.33 TOTAL 540,411 ,458.33
Discount compared to the New Option price 6.08%
I Nominal loss I Effective business loss Nominal NSG shares 510,625,000.00
Discount compared to the New Option price 0.60%
I EGSA financing rate I EGSA USO 750,000,000 Notes issued in 2005 8.25% EGSA USD 1,300,000,000 Notes issued in 2008 8.88% EGSA USO 700,000,000 Notes issued in 2008 9.50%
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For the attention of Mr Marius Kohl
Administration des Contributions Dircctt:s Bureau d'imposition Socictcs YI 18, Rue du Fort Wedell L-2982 Luxembourg
July 16, 2008
References: MLGY /G DON/ JN LE/HEBX/E 15608023 M-GYS I
Evraz Group S.A. (Tax ID number: 2004 22 28 517) Emmy NA Sari (Tax ID number: 2007 24 23 055)
Dear Mr Kohl,
Prirewa1erhouscCoopcrs S11d~1c a rcsporuabllltc llmitcc Rhiscur d'cnlrcprises 400, route: <l'Esch BP. 1+13 L-1014 Lwcembourg Telephone + 352 4948-18-1 Fucsrnule + 352 494848-2900 www pwc.conv lu mf<>'ii:;lu pwc com
At the request of the above-mentioned cl ient, we arc pleased to submit for your review and approval/comments the Luxembourg tax treatment of the back-to-back financing transaction of Evraz Group S.A. (hereafter "EGSA") and Emmy NA Sari (hereafter "Emmy") applicable as from the fiscal year 2008.
A Factual background
EGSA has been incorporated on December 31 , 2004, in order to exercise top holding activities and financing activities'. In this respect, EGSA has issued 8.25% Promissory Notes for USO 750,000,000 on November 10, 2005. New Eurobonds were issued in April 2008 amounted to USO 1,300,000,000 with a 8.875% yearly rate and USO 700,000,000 with a 9.5% yearly rate in order to partially finance new acquisitions of companies in the Steel industry
2 Emmy2 has bel!n incorporated on May 9, 2007, in order to acquire and hold participations.
3 EGSA entered into a Share Purchase Agreement ("SPA") with SSAB, a Swedish Steel group, regarding various US I Canadian companies. According to the SPA, Emmy will acquire 49% of the shares in NS Group (a Kentucky corporation, hereafter "NSG") and 0/\0 TMK, a Russian company which belongs to a different Russian group, will acquire the 51 % remaining shares in NSG.
1 PlcJsc refer 10 Appendix I for dc1.11ls on the group. : L'ndcr lhc nJmc of Lu.~Co 32 S~rl which was renamed as Emmy Sjrl on July 6, 2007.
R.C S. I u><mbour~ 0 h$ ~71 · TVA LUl7S6'1~47
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4 According to the Option Agreement (concluded with OAO TMK on June 11, 2008), Emmy will assign its acquisition rights over the SG shares to 0/\0 TMK and its affiliates. 111e predetermined purchase price under the Option Agreement is the original purchase price plus an interest (I 0% and 12% per annum) for the period between the purchase date and the option exercise date.
5 EGSA will finance Emmy exclusively by debt using a Profit Participating Loan (hereafter "PPL") for USO 510,625,000 with a return depending on the whole profit3 realized by Emmy on the underlying assets, i.e. the NSG shares. The final structure (simplified chart) could be depicted as follows:
LPN Holders
X% USO
AcQuisilion Co 1 Canada
Tergct Co 1 Canada
Evraz. Group S.A. · Lux11m!Jourg '
Evraz Oregon Steel Miiis ·USA
AcQuls11ion Co 2 USA
Target Co 2 USA
Emmy NA S•rl Luxemb9urg
49%
NS Group Inc. USA
OAO TMK Russia
: ! 10~112%/ I
us~,' / 51 % .6',. .'
_, .; ' ,. , ·
Options 10 purcha~e Emmy's 49% participation
In NSG
1 Capital gains rcalizct.I on disposal, any potential dis1ribu1ions and/or liquidation profits for in,.tancc.
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B Applicable tax treatment"
13.1 .\t the level of Emmy
Fe<1t11res vf tire PPL
Amount
Currency
Rcmunerotion
Maturity date
Interest payment date
Voting rights
Liquidation proceeds
Risk's level
Acco11mi11g
PPL
Global amount: USO 510,625,000
USO
Fixed interest rate p.a. on the outstanding balance of all advances detem1ined as follow:
- I 0 % from the closing date to J unc I, 2009;
- 12% from June 2, 2009 to November I, 2009;
- I 0% after November I, 2009, as fixed interest
+ variable interest equal to I 00% of the adjusted Positive lncome5 of Emmy
Earlier of (i) 49 years, and (ii) the date on which TMK or Volzhsky has acquired all of the NSG shares from Emmy or EGSA and (iii) any other date according to prepayment provision or Event of Default.
I Business day after the Option Closing or after the date on which the Positive Income is received
The knder is not entitled to any voting 1ights based in the PPL
The lender is not entitled to participate in any surplus profits upon liquidation
Limited recourse provision
6 The SG shares will be recorded as participation in Emmy's books.
1 l'fca,c n.:ti:r hJ 1\ppcml1' 1111 1hi · r..:'f>\.'\:I 1 ,\J1u,1..:J Pmit1v.: Income m..:ans Jll di\ i<l.:nds, li4uid.11ion gnins, capitol g.1in, r.:.1li1cJ or unrc.1li1.:d cx.:h.angc gJins ,111d
other 1n1·0111c r\.'\:C1vcd by Emmy in connection wi1h 1hc NSG ~hur.:s for any Annual Interest l'crioJ minus dirct:t ,111J
i11dirc1.:t 1.:0,t:. rcl:m:d IU the NSG shurc~ :iccou111cd for by Emmy in 1hc relevant Anmrnl ln1crcs1 Period.
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Income deriving.from the NSG shares
7 As the SSAB group (Lhe seller) wanted to sell the shares Canadian Targets as well as in NSG as a whole, Emmy was chosen to acquire the NSG shares in order to sell them back to the TMK group in a short period of time. Thus, given the economic rational behind the transaction, and on the basis of Lhc provisions of the Shareholders' Agreement and the Option Agreement, Emmy should be considered as providing temporary financing to Volzshky or TMK. According to the Option Agreement, Emmy has the right to sell the NSG shares to TMK (including its affiliates) after a certain period of time (put option) and TMK (including its affiliates) has the right to purchase the NSG shares after a certain period of time (call option) in both cases fo r a predetennined purchase price. Furthl.!r, under the Shareholders' Agreement, Emmy is not allowed to sell the NSG shares to third parties other than TMK (including its affiliates). Finally, no dividend distribution is expected by NSG to Emmy, as such dividends would represent a Joss for TMK. According to the Option Agreements and the PPL, Emmy will not either be exposed to any risks nor be entitled to any rewards related to the shares apart from the predetennincd option price. As the option p1icc is higher than the acquisition price of the NSG shares, and is foreseen from the beginning of the transaction, in any case it leads to a prcdetennined income for Emmy.
8 As Emmy will finance the NSG shares with a PPL for a corresponding amount, Emmy should be considered as being in a back-to-back financing situation. I Iowevcr, no minimum taxable margin would be realized at the level of Emmy as an anns' length margjn will be realized at the level of EGSA (see below).
9 No withholding tax would be levied on the payments made under the PPL as it will be qualified as debt6 for both income tax and net wealth tax purposes. Therefore, any payment made under the PPL will qualify as interest and will not be considered as dividends according to Article 97 of the Luxembourg Income Tax Law (bereailer "LITL") nor re-characterized into non-deductible payments under Article 164 UTL.
I 0 In the present case, debts will be structured as profit-participating loans and not as profit participating bonds. Hence, no withholding tax in the meaning of article 146 (I) 3 LITL will apply. Furthermore, articles 97 (2) and 146 (2) LITL provide for a withholding tax when there is a silent partnership paying out profit participating return. In this case, as there is no intention to create such a partnership, no withholding tax in the meaning of articles 97 (2) and 146 (2) LlTL will apply.
11 In view of the economic rationale of the transaction, Emmy will not need to comply with any debt-to-equity ratio and, as a result, will not be considered thinly capitalized. All the interests paid by Emmy under the PPL will be considered as tax deductible expenses.
6 Plcao;e refer to Appendix 3 in this respect
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,V<!r IVcalrli Tax
12 The NSG shares will he caxablt! assets wholly offs~t by the corresponding debt, i.~. th1.: PPL.
U.2 Al the level of EGSA
13 EGSA will borrow money on the market through the issuance of Eurobonds and will use the proceeds to grant a PPL to Emmy in order to finance the NSG shares. Consequently, EGSA should be considered as being in a back-to-back financing situation.
14 As the PPL will qualify as debt for both income tax and Net Wealth Tax purposes, any interest received (either fixed or variable) on the PPL will be fully taxable at the level of EGSA. In the meantime, any offsetting interest paid under the Eurobonds wi ll be full y deductible. With respect to the remuneration on its financing activities, EGSA will realize an arm's length margin due to the fact that EGSA is financed by third parties.
15 finally, any exp<.mses suffered by EGSA into the scope of the financing, i.e. the initial expenses incurred by EGSA in connection with the preparation and the execution of all documents related to the Eurobonds and the ongoing expenses (except if the tax deductibility of such income is expressly denied by the Luxembourg Income Tax Law, e.g. Income taxes) incurred by EGSA will be tax deductible from its taxable basis.
16 The debt and receivables, which arc denominated in USO will be translated into EUR according to the accounting principles in force in the commercial balance sheet. As both items are denominated in USO, there may be no forex issue. However, should it be the case due to a difference in the maturity for instance and based on the accounting, any forex loss linked to the financing activity should considered as tax deductible according to the principles set out in our letter dated December 5, 20077, as any forex gain on the same activity will be taxable.
17 As thin capitalization rules apply only to the acquisition of participations, no debt/equity ratio will apply in this financing transaction.
18 Finally, EGSA may grant a guarantee to its subsidiaries in order for them to obtain debt financing for the pllrposes of the Igloo transaction. Any potential payment realized by EGSA as part of its guarantee (should its subsidiaries be not in a position to realize it by themselves) will not be subject to any withholding tax in Luxembourg.
, Rd' ~LGY!Jt\l.8HEBX1Q2 30704JM-GDDN
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\Ve respectfully request that you confirm the tax treatment of the si tuation described above or that you provide us with your remarks, if any.
We remain at your disposal should you need any f\Jrther infomrntinn and would like to
thank you for the attention that you wi ll give to our request.
Yours sincerely,
M[l'G~ Partner
Appendices:
Appendix I: Appendix 2: Appendix 3: Appendix 4:
Presentation of EGSA General tax treatment applicable to EGSA and Emmy PPL tax analysis PPL Agreement
Le prepose du bureau r. 'imposition Socibes 6 Mariu Kohl
Luxembourg, le 1 6 JUIL. 2008
Tim tax 11g1ecmc11t 1s ha.red nn the fucts <lS prl!Unted to Prict .. atcrhouuCooperr Sari Of at the du11· rlrc ud1·1<·e 1rn.1 c111•11 711e
u~rt1emen1 is rlepentle11t on specific facr1 and circumstwrces and ;\ay not be appmpri.tll! to <11101/it>r party than 1/i,• 0111! for 11·'11</r II wa.i prepared 111is rox agreement 1<ns prepared 1wth n11ly 1/re 1111eri•sls of E1•ra~ Group S.A. ond l:.'mmy NA S.ti r I In mmrl. atld 11·111· 11111
plmmtd nr can 1ed out m ron:empluuon of any use by anv 01/icr p<Jr(J• Prrre1wtt>rl1uwt>Conprrs Suri. //.\ parmrrs. <'mplm ,.,,s and u,. Ul(l'nlf. nr1ther "" e nor accept any Ju1y of care or anv r~.<pon.ubi/11.v~o uny otl1rr p111ty. 1<·/tcrhcr ''' co111roc1 or rn 11111 1111d11rl111~ 1111hr•111
li1mtt11io11. m·g/1gence or hreach of rta1111nry durr) ho" r1•er aru11111. a11d .<h<Jll 1101 ht' lioblf '" rc.1p<:C'I of <lllY lvJ.f. t/,111111>:<' m r11•1•1f,I(' n( ul11J11•1Pnru1ure ,./uch i.s car.ud to wry other party
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Appendix I
Presentation of Evraz Group S.A.
Evraz is onl! of the world's largest vertically integrated steel and mining businesses with operations in Russia, Italy, United States, South Africa and the Czech Republic. Evraz has cxt<.:nsivc experience and technical expertis<.: in th<.: production of steel and, in 2006, produced 16.1 million tones of crude steel. Evraz is listed on the London Stock Exchange with a market capitalisation close to USO 25,873 million (on December 3, 2007).
2 Evraz group has elected Luxembourg for exercising the top holding activities and some of its financing activities. Evraz group holding activities are still growing and during the last year, EGSA has realized the following acquisitions:
In August 2006, EGSA has purchased 73% stake in Strategic Minerals Corporation ("Stratcor")8 for a total amount of USO I 00,000,000, and; fn January 2007 EGSA has acquired Oregon Steel Mills lnc.9 for a total amount of about USO 2,300,000,000 in cash.
3 The structure in November 2007 could be depicted as follows:
lndhldu.ls• Publk
- 1
100'1\ . ' ()()% 72.114% 541N I 100'\ 100% I f'• rat Orrgon Strei ,\11uttrcrofl
Strarrglc Minerals lll~hvrld Stt'd &
Vltko,.kc Stcl'I ,\lllls In<. l.lmllcd V~nadlum Vun~on Ltd.
11JSAJ ,,.,,,,..,, Corporation & Sub• Corporation 1(ypn.nJ t(:KJ. ~rt)JtlblrfJ
/USA J Limited
.,
100%1
100'!:
Palinl c lkrroll
Rut<l1n SpA
Companies ;\lfL flraf>/1
!RMlt/a/ /()/)'W/
Str;iteor 1s one tlf the \\llrld '~ lc:Jdmg pro..lucers 111 vanadium alloy> and chcm1cJI for the 'tc.:d. chlmicnl and 111.rn111m 111Ju,tr1C>
Or..:go11 S1ccl ,\ I ills Inc. 1s uric of the mu~t diwrsi lkd ,1ccl manufocturcrs in S orth Amcri..:a. produdng owr I .ll million t1111' of 'pceil1lty .111<.l commodity srcd products Jnnuully.
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Appendix 2
Luxembourg tax treatment of EGSA and Emmy
A Tax residency of EGSA and Emmy
Based on article 159 of the Luxembourg Income Tax Law ('·LfTL"), a company is treated as a tax resident in Luxembourg provided that either its registered oflice or its principal cstablisluncnt is located in Luxembourg. Under double tax treaties signed with Luxembourg, the tie-breaker rules of the tax treaties generally provide that the power to tax such company is allocated to the State where the company has its place of effective management.
2 All board meetings and most of the shareholders' meetings of EGSJ\ and Emmy are physically held in Luxembourg. All corporate secretarial records arc kept in Luxembourg. Regular meetings in Luxembourg through which all the important and strategic decisions are taken are physically made in Luxembourg.
3 Based on the above, EGSA and Emmy are effectively managed from Luxembourg and qualify as Luxembourg tax resident companies. Should the need arise, a tax residence certi ficatc could be obtained from your administration upon request.
B Corporate Income Tax I Municipal Business Tax
4 As Luxembourg tax resident, EGSJ\ and Emmy will be liable to Corporate Income Tax ("CIT") and Municipal Business Tax ("MBT") in Luxembourg at a cumulative rate of 29.63%. Pursuant to article 40 LJTL, the accounts should serve as the basis for computing taxable profits, except for certain items to which specific rules apply.
5 Any qualifying <liviucnds received will be tax exempt, provided that the requirements of the participation exemption on dividends (article 166 LITL) are met. Capital gains realized by on the disposal of qualifying shares will be tax exempt, provided that the requirements of the participation exemption on capital gains (Grand-ducal decree dated December 21, 200 I) arc met.
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C Net \Vealth Tax
6 As Luxembourg tax rcsitlents, EGSA and Emmy will also be subject each year to net wealth tax at the rate of 0.5%, assessed on I ~1 January of each y1:ar on the basis of the net operating assets, determined in accordance with the Property and Securities Valuation Act.
D \Vithholding tax
7 Divi<lcnc.ls distributed by Emmy to EGSA should in principle be subject to a 15% wi thholding tax. However, such dividend will be exempt from withholding tax, provided that the requirements of article l 47 LITL arc met.
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Appendix J
Analysis of the tax regime applicable to the PPL
A Tax qualification of the profit participating loans
According to the commentaries to the income tax law (commentaries included in "Project de Loi No 571" ( 1955) on the fom1er article 114 LITL (now article 97 LITL) on income from participation, where a profit participating loan bears a minimum fixed interest rate, payable even when the company is in a loss position, and provided the principal amount of the loan is repayable before the reimbursement of the company's share capital, the profit pa11icipating loan should continue to be treated as a debt fo r Luxembourg tax purposes.
2 Consequently, the PPL at stake will be qualified as debt for both net wealth tax purposes and corporate income tax purposes, and interest thl..!rcon will be deductible under the same conditions as apply to fixed interest debt.
B Qualification as interest rather than dividend
3 Authors have examined the question whether the definition of "dividend" given by the Luxembourg income tax law could include payments accounted for as interest10
. The key criteria for characterizing a payment as dividend rather than interest are:
entitlement to the ongoing profit (including the profit reserves); and entitlement to the liquidation proceeds.
4 Under this interpretation, the payment of an amount neither directly relating to the entire profit of the borrower, nor to the liquidation proceeds, need not be considered as a dividend.
5 In the case at hand and since the participating loan interest will be dependent on the income realized before Luxembourg tax and variable interest, and not profit after tax, the loan interest will be qualified as interest rather than dividend.
10 A. Steichen, "Precis de dmit liscJI de l'cntrl.-pri~c'', Editions Sa1111 Paul.* 70 I l!I .1L·q . , p. J~J < I seq
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C T ax regime of the profit participating interest
C. I Payment of inte rest free of withholding tax on investment income
6 t\rtidc 146 (I) 3 LITL provides for the application of a withholding tax upon payment of inter...:st arising from participating bonds or other similar securities. Interest payment may be subject to a 15% withholding tax on this ground if the follcm,ing conditions apply:
The loan is structured in the fon11 of a bond or other similar security; and
Aside from the fixed interest, a supplementary interest varying according to the amount of distributed profits is paid, unless the supplementary interest is linked to a corresponding decrease in the fixed interest.
7 On the contrary, interest payments related to participating loans arc not subject to a specific withholding tax.
8 In the present case, the debt instrument is structured as a prolit participating loan (and not as a profit participating bond), and the participating interest does not depend on distributed profits.
9 furthcnnore, interest payment under the PPL wi ll not be subject to withholding tax by virtue of articles 97 (2) and 146 (2) LITL (i.e. ''Stille Gesellschaft", ''bailleur de fonds" or "silent partnership"). Indeed, there is no intention to create such partnership in the case at hand as there is no "affcctio socictatis" by the PPL holder and no intention to establish a company in the sense of article 1832 of the civil Law Code.
I 0 Based on the above, no withholding tax on investment income will be due on interest paid under the PPL (be it either on the ground of article 146 ( !) 3 LITL or of article I 46 (I) 2 LITL).
C .2 Deductibili ty of the remuneration paid to PPL holders
11 I 00% of all interest paid on the PPL will in principle be tax deductible in accordance with article 45 (I) LITL, unless article 45 (2) LITL is applicable.
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Appendix 4
PPL agreement
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1lJUNE2008
EVRAZ GROUP S.A.
as Lender
and
EMl\tfY NA S.A R.L.
as Borrower
PROFIT l'ARTIClPATING LOAN FACILITY AGREEMENT
(New York #1002255 v2(
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TIDS AGREEMENT (as amended, restated, supplemented or modified frorn Lime to ti:nc, the "Agreement") is dated 11 June 2008.
DETIVEEN:
1) EVRAZ GROUP S.A., a public limited liability company (socictc anonyme), having its registered office at 1, Allee Scheffer, L-2520 Luxembourg, registered with the Luxembourg Trade and Company Register under R.C.S. B 105 615 (the "Lender"); and
2) EMMY NA s.A R.L., n private limited liability company (societe a responsabilicrJ limitee) having its registered oflice al I, Allee Scheffer, L-2520 Luxembourg, registered with the Luxembourg Trade and Company Register under R.C.S. D 128 141 {the "Borrower").
Both the Lender and the Borrower will be referred to hereinafter collectively as the " Parties" or individually as a "Party".
WilEREAS:
(A) The Borrower has requested that the Lender makes available a revolving credit facility;
(B) The Borrower has entered into a stock purchase agreement with 693 8621 Canada Inc., Eslcimo Acquisition Subsidiary, Inc., Lender, for certain sections enumerated therein, OAO TMK ("TMK") and SSAB Svenskt Stal AB, IPSCO Enterprises (US), LLC and IPSCO AFC Inc., effective as of March 14, 2008 (as amended from time to time, the "SPA"), pursuant to which, among other things, Borrower will acquire '19% of the issued and outstanding capital stock of NS Group Inc. (such shares, the "NSG Shares") on the Closing Date (as defined in the SPA);
(C) The Lender has entered into an option agreement (the "Option Agreement"), dated as of June 11, 2008, with TMK, pursuant to which, under cenain circumstances (i) the Lender has the right to require TivCK to purchase the NSG Shares and (ii) TMK has the right to require the Lender to cause the NSG Shares to be sold to TMK;
(D) The Lender and the Borrower wish to evidence the terms and conditions of the agreement between them whereby the Lender will lend to the Borrower and the Borrower will borrow from the Lender from time to time a maximum amount of the "Commitment".
(l\ew York .r1904622 .,31
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(E) The Dorrower has the right to draw down the credit facility in one (I) or several drawdowns by means of notices given to Lender at least three (3) calendar days in advance, or such other prior notice period which the Parties may agree upon on a case-by-case basis. The date of each such draw down is herein referred to as the ·• Drawdown l>nte" and upon each such draw down, Exhibit A herero shall be amended to include the Drawdown Date and the total amount of the draw down.
(F) It has been agreed between the Parties that the first draw down will take place at the Effective Date and will amount to the Commitment.
Accordingly, in consideration of the covenants contained in this Agreement, the Parlies agree as fol lows·
1. LNTERPRETATION
1.1 . Definitions
Terms used but not defined herein shall have the meaning ascribed to them in the Option Agreement. As used in this Agreement, the following terms shall have the meaning specified below:
Advances mean the advances in the Local Currency made by the Lender to the Borrower pursuant to this Agreement.
Average Amount means the average of the aggregate outstanding principal amount owed by the Borrower under the Agreement during the relevant Annual Interest Period.
Borrower Account means the account opened in the name and on behalf of the Borrower, as notified from time to time by the Borrower to the Lender.
Uusiness Duy means any day except a Saturday, a Sunday or any other day on which commercial banks are required or authorized to close in Luxembourg.
Commitment means an aggregate principal amount of FfVE HUNDRED TEN MTLLION SIX HUNDRED TWENTY FTVE TIIOUSAND UNITED STATES DOLLARS (USS510,625,000).
l~ffcctive Date means t11e Closing Date
Event of Default means one of the events mentioned in clause 7.1 below.
Fixed Interest means the interest calculated as set out in clause 4.2 below.
(New Yor1< #1902255 121 2
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r nterest means the Fixed Interest and the Variable Interest payable under this Agreement and calculated in accordance with clause 4 below ..
Cnterest Payment Date means the Business Day following the date on which an Option Closing occurs or on which :iny Positive tncome is received.
Interest Period means the period from the Effective Date up Lo and including the first Interest Payment Date and for any subsequent period, the period beginning on first day following the expiration of the immediately preceding Interest Period and ending on the next Interest Payment Date. The last interest period will end at the Tcnnination Date.
lnvcstment means any investment in the NSG Shares by the Borrower that is financed by the Loan.
Lender Account means the account opened in the name and on behalf of the Lender, as notified from time to time by the Lender to the Borrower.
Lonn means the aggregate principal amount owed hereunder by the Borrower to the Lender together with all accrued and unpaid Interest thereon.
Local Currency means United States Dollars.
Positive Income means all dividends, liquidation gains, capitaJ gain, realized or unrealized exchange gains and other income received by the Borrower in connection with its Investment for any Annual interest Period.
Request has the meaning as set out in clause 2.4.
Termination Date means the earlier of (i) 49 years from the Effective Date, (ii) the date on which TMK has acquired all of the NSG Shares from the Borrower or its Affiliate and (iii) such other date on which the Loans are declared due and payable following a prepayment in accordance with clause 5 or the occurrence of an Event of Default in accordance with clause 7 or the date on which the Borrower disposes entirely of its Investment.
Variable Interest means the interest calculated as set out in clause 4 3 below.
1.2. Interpretation
Words imponing the singular shall include the plural and vice versa.
(l\o.v York 111002255 v2J 3
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Clause headings are inserted for convenience of reference only and shall be ignored in construing this Agreement.
This Agreement may be executed in any number of counterparts and by way of facsimile exchange of executed signature pages, all of which together shall constitute one and the same agreement.
2. THE FACILITY
2.1. As of the Effective Date and subject to the terms and conditions set forth herein, the Lender agrees to make Advances in Local Currency to the Oorrower on any Business Day during the period from the Effective Date to the Tennination Date so long as the aggregate outstanding principal amount of such Advances does nm exceed the amount of the Commitment.
2.2. The Advances shall be applied in or towards the making by the Borrower of the rnvestment and providing financing to the Borrower to meet all fees and expenses incurred in relation to the fnvestment.
2.3. The Loan made under this Agreement shall rank at least pari passu with all other present and future unsecured obligations of the Dorrowcr, except for those obligations which are mandatorily preferred by law applying to companies generally (as applicable) and not by reason of contract.
2.4. To request an Advance, the Borrower shall notify the Lender of such request (the "Request") by facsimile not later than 12:00 noon, Luxembourg time, 3 (three) Business Days (save, in the case of the first Advance, which shall be made automatically on the Effective Date) before the date of the proposed Advance (and in the case of a Request received at a time which is later than 12:00 noon, Luxembourg time, on such day, the Request shall be deemed to be notified on the following Business Day). Each such facsimile Request shall be revocable within 24 hours following its delivery and, thereafter, shall be irrevocable provided the Lender has confirmed in writing within the 24 hours that sufficient funds were at its disposal to make the Advance. Each Request shall specify the aggregate amount oftl1e requested Advance and the proposed date of the Advance.
2.5 Subject Lo clause 7.2. below, the Lender shall make each Advance to be made hereunder on the proposed date thereof by wire transfer of immediately available funds to che Borrower Account.
3. EVIDENCE OF DEBT
(Now York #1902255 v2) 4
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The Loan shall be evidenced by a loan account maintained by the Lender which shall be pmna facie evidence of the amount of the outstanding Loan. Upon request, the Lender wil I deliver to the Borrower, by letter or facsimile, a statement indicating the balance of the loan account. The Borrower will inform the Lender of any error or omission within 5 (five) Business Days following receipt of such statement.
4. INTEREST
4.1. The Borrower shall pay lnterest on each Interest Payment Date.
4.2. During each Annual Interest Period, Fixed Interest shall accrue as follows·
During the period from the date hereof through and including June I, 2009, a rate of I 0% per annum,
During the period from June 2, 2009 through Novemb1er I, 2009, a rate of 12% per annum;
At all times after November l, 2009, a rate of 10% per annum.
4.3. During each Annual Interest Period, Variable Interest shall accrue in the amount equal to the Positive Income after payment of the Fixed Jnterest minus the direct and indirect costs related to the Investment accounted for by the Borrower in the relevant /\nnual Interest Period.
4.4. All interest calculations hereunder shall be made on an actual number of days elapsed in a year of 360 days.
5. REPAYMENT - PREPAYMENT
5.1 . Subject to clause 7.2 below, the Borrower shall repay, on each Interest Payment Date, chat portion of the Loan that is equal to the Purchase Price (as defined in the Option Agreement) received by the Borrower on such Interest Payment Date; provided, that the Dorrower shall repay the Loan in full on the Termination Date.
(New Yor~ 111902255 v2} 5
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5.2. Notwithstanding th~ foregoing the Borrower shall be entitled, without bonus or penalty, to prepay the Loan in full or in part at any time, subject to giving the Lender at least five (5) Business Days prior wrinen notice.
5.3. All payments by the Borrower under this Agreement, other than pursuant to clause 8, shall be made in same day funds in Local Currency to the Lender Account on the due date
5.4. The l3orrowcr shall make all payments hereunder without set-off or counterclaim and net of any taxes or any deduction for or on account of any present of future income or other truces, levies, imposts, duties or other charges whatsoever, all such deductions to be met in full by the Lender. If the Borrower is required by law to withhold or deduct any amount or amounts on account of tax then Borrower will give prior notice of such requirement to the Lender.
6. COVENANTS
The Borrower covenants so long as any sum remains payable under this Agreement that the llorrowcr:
(A) will promptly advise the Lender in writing upon becoming aware of:
(i) any Event of Default or any event or circumstance which may become an Event of Default; and
(ii) any material adverse factor which may inhibit the Borrower in the performance of its obligations under this Agreement; and
(8) will supply, upon written request of the Lender, information about such matters in claus 6.(A).(ii). forthwith with such financial documentation as the Lender may request from time to time
7. EVENTS OF DEFAULT
7. 1. Each of the events set out in paragraphs 7.(A) to and including 7.(E) is an Event of Default:
(A) the Borrower fails to pay Interest when the same becomes due and payable under this Agreement and provided that any such failure to pay Interest continues for n period of five (5) Business Days; or
(IJ) any corporate action is, or any legal proceedings or other steps are, taken or engaged in against the Borrower for the commencement of any
;New Ycrk R19C2255 12] 6
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proceedings of bankruptcy (faitlite), insolvency, liquidation, moratoiium or extension of time of for payment (sursis de paiement), controlled management (gestion controlee), fraudulent conveyance (actio pauliana), general settlement or composition with creditors, reorganisation or any similar proceedings against the Borrower under Luxembourg or foreign law affecting the rights of creditors of the Borrower generally, or
(C) if any distress, execution, diligence or other process is levied, endorsed upon, sued out, or done against any of the property assels of the Borrower and is not paid out, withdrawn or discharged within twenty (20) Business Days; or
(D) an event occurs or circumstances arise, which could cause the Borrower not to perform or not to comply with (or being unable to perform or comply with) any of its obligations or covenants under this Agreement; or
(E) the introduction of, or a change in, any applicable law or regulation or any other event, which makes it unlawful for the Lender or the Borrower to give effect to or maintain its respective obligations und1;r this Agreement.
7 .2. Notwithstanding anything to tho contrary in this Agreement, if an Event of Default has occurred (and irrespective of whether the Event of Default is continuing), the Lender may by written notice to the Borrower:
(A) cancel lhe Commitment; and/or
(B) declare that all or part of any amounts outstanding under this Agreement are:
(i) immediately due and payable; and/or
(ii) payable on demand by the Lender.
Any notice gjven under this clause will take effect in accordance with its terms.
a. INDEMNITY - COSTS
8.1. The Borrower shall indemnify the Lender on demand against all losses, liabilities, damages and expenses which the Lender may sustain or incur as a consequence of any default by the Borrower in the performance of its obligations under this Agreement.
(NGW Ycrk #1002255 v2J 7
. .
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8.2 All :-egistration costs, stamp duties or similar payments, if any, arising under thi!i Agreement shall be payable by the Borrower in rhe currency in which they are due.
9. ASSIGNMENT
9.1 . The Borrower may not assign, transfer or otherwise dispose of all or part of its rights or obligations under this Agreement unless approved in writing by the Lender in its sole discretion.
9.2. The Lender may assign all its rights under this Agreement but shall notify the Borrower in writing of any such assignment.
10. REMEDfES, WAIVERS, AMENDMENTS AND CONSENTS
10.1. No fai lure on the part of the Lender to exercise, and no delay on its part in exercising, any right or remedy under this Agreement will operate as a waiver thereof, nor will any single or partial exercise of any right or remedy preclude any other or future exercise thereof or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law or otherwise.
10.2. Any provision of this Agreement may be amended but no amendment shall be binding on the parties unless and until it shall have been recorded in writing signed by both parties.
11. NOTlCES
11 .1. Any notice or other communication required or permitted to be given hereunder, other than a request by the Borrower for an Advance, which request shall be made pursuant to clause 2.4., shall be in writing and shall be delivered in person, transmitted by facsimile or similar means of recorded electronic communication or sent by registered mail, charges prepaid, addressed as follows:
(A) in the case of the Lender:
Address: Facsimile: Attention:
EVRAZ GROUP S.A. I, Alice Scheffer, L-2520 Luxembourg + 352 241 43 33 00 Manager
(B) in the case of the Borrower:
Address: Facsimile.
[New York 111902255 v2)
EMMY NA S.A R.L l, Allee Scheffer, L-2520 Luxembourg t- 352 2414333 00
8
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Exhibit A
Uraw down notice
To: EVRAZ GROUPS.A. (the "Lender")
From: .14.:MMY NA S.A R.L. (the "Borrower")
Dote: [•)
Dear Sirs,
We refer to lhe profit participating loan facility agreement of [ ·] June 2008 (the "Agreement"). Terms defined in the Agreement have the same meaning in this notice. We wish to borrow on lhc following terms:
I . Amount: 2. Drawdown Date·
3 Payment instructions:-------(if applicable)
For and on behalf of EMMY NA S.A RL.
Name: TMF Corporate Services S.A. Title: Manager
(~ew York 111 !102255 v2) 11
....
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For the attention of :\Ir :\larius Kohl
Administration lks Contnbutions Directcs Bureau oc1ctc · VI I , rue du fort Wedd! L - 29 2 Luxembourg
30 November 2006
Refon:nces: MLGY' ECC l/JNLE 'Q2306037M-GDDN
EvraLSccuritics S.A. Tax ID number: Bureau VI I 2003 2218 S..i8
Dear tr Kohl,
Price" .uerhouirCoopH, ' ociclt a rc\pomo1 h1hlc limiH't> R1hiwur J'cn1r~priw1
-lfltl, n•u11.· J r ,, h lJ p l-1-13 I -101-1 I u<\·m1'<•urg I dcphonc: -152 -l'l-l\-1\ I FJ"11111k • 3~~ -!•l.l \-IX-2'~Hl
We refer to our previous letter of May 7, 2003 (rcfercm:e: BNTB/LSM/Q2303005MV3-EBD), in which we obtained your U6'Tecmcnt on certain developments in the scope of the financing of Evraz international group through Luxembourg. Considering this context, we now would like to submit the following transaction to your analysis and obtain your agreement and/ or your comments on the situations described hereunder.
Facts
Evral is one of the world's largest vertically integrated steel and mining businesses with operations in Russia, Italy and the Czech Republic. Evraz has extensive experience and tcchni1.:ul expertise in the prodm:tion of steel and, in :mos, produced 13.9 million tonnes of crude steel. EHaz is listed on the London Stock Exd1Unge with a market capitali ·ution close to l.JSD 9 bil lion.
E\ rn.1 sought obtaining additional linan1.:ing means from the capital market and elected Luxembourg fonn th is purpo cs.
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.,
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, -~ ""~· "'
1 c f . --·:~ ". \ ('.J I - l (._); '
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•\ .... t(Ji-"~1 o~ .. e:i/ ~'- Q(lr;.~<.,·
- ~
iv) Fourrlr isrne of Bonds
On JO Septemb<.:r 2004, the Issuer is ·uc<l a fourth scrics of 13onus \\ ith nominal value of U D 150 million, which are eonsoli<lated, and fonn a ·111glt: sl.!rics with the Bonds is ·t11.:d on 3 August 2004. rh<.: actual gro ·-up procce<ls of the I · ·uc (le<; 0. 7° u join lead manager· fee) constitutes U D 154,532.812.5. With the proceeds of the ·e tlH.lrlh series of Bonds, the Is ·uer on-lent the money accordingly (the "Fourth Loan"):
(I) Short tcnn loan having USO 2.5 million in principal and bearing I 0.875°~ interest, starting from 30 September 2004 and maturing on 3 February 2005. The loun represents accrued interest to be paid together with the lirst coupon of these new bonus.
(II) Long tcnn loan having USO 151.S million in principal and bearing I 0.875% interest, starting from 30 September 2004 and maturing on 3 August 2009.
So actually the total sum of loans from the issue of the new bonds to Mastercroft amount to USO 154 million. Both Notes, i.e. the bonds issued on 3 August 2004 and those issued on 30 St:ptcmber 2004 present similarities. lnd<.:cd:
The Notes between the Issuer and the foreign investors bear the same interest rate, i.e.10.875%;
The Notes arc guaranteed, under the same limits, by the ·ame parties of the group, i.e. ZapSib, NTMK (up to a limit of USO 300 million), NKMK, Mastercrofi Limited and Fcrrotrade Limited (without any limits);
The maturity <late is in both cases established in 2009;
All Events of Default (as defined in the corresponding Offering Circulars) arc governc<l by both the Deeds of Guarantee and by the Trust Dee<l, as amended.
The money is on lent to Mastcrcroft Limited.
The following diagram depicts, in a simplified fonn, the structure of the transaction:
("UC I o tn uf
Pn"'"''h ,
The Issuer ~ ...
' . PJ>mcnl> uf Pnn, 1p.1I .ind lnh.:r.-.t
Xl.\S 11 RUWI l B I ([)
l~~uc Pmcc~-Js
Gu.1r.1ntors 1 i
I
! 1\P"ilB I D I I J \I \fK ,znd / y 1S1!> ,,,,Ii 11111u ·r1111,, t 11p w a !111111 ol l St> 1111/ """'"" I !J ~ <l1111rnfl/m f
~
Bondholders -
• ,
I fRRO rRADF
ll~llll·D
(3)
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Loss muki11g position
Yl·ar .\i.:i.:ountini.t los'i inc.:um:J inn ~car Total of the ai.:i.:ountint! l\>Sscs to he i.:arric<l forward
2003 316,241 J 16,241 }004 I J-W,276 1,656.51 7 ·-2005 3,3-l I, 1-lS 4,997,662 -2006 506,103 5,503,765
The.: loss-making position from the Issuer mainly arises from cxpcnscs in respect uf the past issues of Notes:
In order to re-establish the linuncial position of the lssucr, an entity of the E\nz_group, i.e. Fcrrotradc Limited, will compensate such loss and will then waive the.: dL'bt rc.:sulting form such compensation.
2 Tax treatment
2.1 Tcu: residency
Based on article 159 of the Luxembourg Income Tax Law (hereatkr LITL), the Issuer is a Luxembourg tax resident as the company has its registered office and/or its place of effcctive management in Luxembourg.
A tax rcsi<lence certificate can be obtained from your administration upon request.
2.2 Taxable ,,preml
The financing activity is conducted through the issuance by the Issuer of Bonds ;rnd through Loans granted by the Issuer to Evrnz usi ng the proceeds from the £3onds.
For the purpose of the detennination of the taxablc spread, the total amount of Louns granted by the Issuer must be considered, and not each Loan tukt:n individually. In this respect, the global umount of the financing currently amounts to USO 469 millions.
From an accounting point of view, no margin will be rdkcted in the commercial accounts of the Issuer, as it is l)rganiLcd as an orphan entity.
For tax purposes, however, the remuneration earned hy the Issuer wi 11 be considl.!n:d as being at am1 's length pro vi Jed that. as from I '1 Januury 2007, the margin real11ed anl\lunts to at least I 32 °11 based on the total amount of the principal. As from "O September 2004 to 31 December 2006, a taxable margin of 2/32% was applicable. As from I '1 January 2004 to 30 cptcmhcr 200-l, the taxable margin of 3132°0 \\US applicable as the principal of the.: loans was higher than USO 150 iVlio.
(4)
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... ,_
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I
This minimum taxable spn:a<l i · to be understood as a nd remuneration. Hence, the expenses rnnnot redtH.:e this minimum taxable basis.
This till holds trul.! for ongoing expenses (i.e. indirect ex pen ·cs, overhead cxpl.!nscs or operating expense of the company as J \\hole such J ·upen i ·ory, general and admini ·trntive expenses, laxl! ·),as long as the company docs not run anothl.!r iH.:tivity.
In order to re-c ·tablish the tinancial po ·it ion of EvrazSecurities SA, an entity of the EvraL group (i.e. Ferrotradc Limited) eommitw.l itsdf on 25 October 2006 to compen ·ate the accounting lo c· for an amount of EUR 5,503,765. rhen Fcrrotradt.: Limited will wai,·e the <lcbt resulting form such compensation. A copy of this commitment has been endo ·cd in Appen<lix.
By application of article 52 LITL, the gain :.irising from the debt waiver will not constitute a taxublc basis (i.e. will be exempt) for the period (i.e. 2006), but will offset any tax loss only to the extent that it docs not create any tax loss. Consequently, Evnv.Securitics SA will only be taxe<l in 2006 based on its arm's length tux able margin.
2.3 Wirlilroltli11g tfL-r
Interest rate on the Bonds and the four Loan arc determined at arm's length. No interest wi ll be therefore re-qualified as hidden dividend distribution (as defined by article 164 LITL) and, under the current tax law, no Luxembourg withholding tax would be levied for interest paid by the Issuer to the Bondholders.
2..1 Net wealth rax
The Issuer will be subject to a yearly net wealth tax at a rate of 0.5%. The basis for this tax is the net operating assets on the I )t January of a given year. which will be reflected by the unitary value of the company as determined in accordance with the Property and Securities Act.
The Issuer will then pay 0.5% net wealth tax on the amounts of retained earnings represented by the interest margin if they are left in the company as at l ' 1 January each year.
l.5 Forex
Up to the total amount of the Loan both debt and receivable will match in value, in currency and maturity. In this respect, the Issuer will not bear any foreign exchange risk on the payables and recci\.ablcs.
llowevcr, !he <liffcrcnce bctw~en the Bond· and 1he Loan '"ill bear a foreign cxch1111gc risk.
(5)
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1. 6 Dt'bt/eq11ity ratio
Thin capitali'\ation rules apply only to the acqu1s1t10n of pi.111icipation-;. fhcn:forc. no Jcbt equity ratio wi ll apply for the bJck-to-back bonds tran ·actJons.
Taking into account the importance of the above for our client, wc would be pleased ·hould you, dear ~Ir. Kohl, communicate us your \Hittcn .1ppro\al of the abo\C tJx treatment arnJ, or your n.:murks on the contemplated ·tructurc.
We remain at your entire disposal should you require any further information.
\Ve thank you in ad ,. nee for the attention you wi II pay to our rcqw.:st.
Appendix {
For app,val
Le pri!pose Ju bureau d 'imposition ~m:it.!tes VI
.\fari11.Y K11h/
L 11 .. i:embo11rg, ~
1 2 DEC. 2006
f htr /<Lt m:rt'•'lllt'llt 1rn\ prt parl'd for E 1 re1::\.l!c.11rtttes l. I ( "011r dil'nt") am/ t 1· cunjicll!nllcil 111 11alt11"1! /ht 1
tctt 11greement 11 ha.wd on the Jae.tr a5 pre1t•111ecl tom::'\ 1111lt11 elate of 1h1.1 feller ll11s tcu agrl!t>mc111 1Jw11lcl 11111 ht• cli.11rth1111•cl or 01henri1e made 111·wlcthll', or relied 11pon hy ctlll' otltt>r parrv for any 01lt11r p11tp<Jl'e 1111lt11111 !hi! •'\f'l'l''·~ 11 ritten c1111/wri::e111<111 of Pric c'l1'<1/erho11wCovpcn Sari IJ11s feller 11·m preparccl 1111/t 1111/1 011r d1t'lll'\ illlt'l'•'fl.1 tn 111111cl e111d 011r 11ork \\CIS 1101 plc11111e•cl or carnnl 0111 tn co111,·111plctt11111 of c1111 1111!
11 he11wen•r h1 ctll) vtlter pe1111 Pnn•watt•1 hm111!Cuopa1 Sari, 111 part11en. r111plv.1 l'<'' e1111/ or ctgc'11l1 111 alter m1 I! nor ctCC'l'f'I u11_1 cl111_1 of< ct re vr rl!spo11.11h1!11y w any oth1 r pw n. 11 lte1/r1•r 111 t'Olllrnc t or 111 lort (im l11cl111i: 1111lto111 /11111tcttto11, negligem e a11cl brl.!e1cl1 of .1tat11tory c/11()') or /tolll'l'L'I° cm.1·ing. uncl 1he1/l 1101 be /111hfr 111
11 1pect oj 11111 l"H. c/1111rcH~t' or 1'\f1l'll.\t' of 11hc11e1·er11e1lttrt' 11 /11c It n u111 It cl 111 am or her pct/'/.
(6)
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For the attention of l\lr Marius Kohl
Administration des Contributions Dircctcs Bureau d'imposition Societes VI 18, Rue du Fort Wedell L-2982 Luxembourg
16 January 2008
Reference: M LGY I JN LE/HEBX/Q2308002M-GDDN
Evraz Securities S.A. (Tax 10 number: 2003 2218 548)
Dear Mr Kohl,
Prite" aterhouseCoopers odete :i responsabilite limit t l"
Re' iseur d'entreprises 400, mute d'8ch B.P 1443 L-10 14 um'lnbourg T clcphonc '"352 494848-1 Facs111111c + 352 494848-2900 www pwc com/tu info@:lu pwc com
BUREAU O'IMPOSli\ON SOC. 6
EIJTP~F
\ 6 JAN. 2008
We refer to our letter dated 30 November 2006 (ref.: MLGY/ECCl/JNLE/Q2306037MGDDN) regarding the tax treatment applicable to Evraz Securities S.A. On behalf of our cl ient, we arc pleased to provide you with the fo llowing additional information.
According to our previous letter (above mentioned), on 29 December 2006, Ferrotrade Limited committed to cover the losses of Evraz Securities S.A. (the "Company") for the period 2003-2006 amounted to EUR 5,503,765 (amount based on estimation).
However, the signed 2006 financial statements of the Company show additional losses for EUR 1,270,827 in relation with the back-to-back financing activity. In this respect, Ferrotrade Limited, as per its commitment, will also compensate such losses in order to reestablish the financial position of the Company1
• The tax treatment described in our letter dated 30 November 2006 will also apply.
Therefore, by application of article 52 of the Luxembourg Income Tax Law, the gain arising from the debt waiver will be deducted (i.e. tax exempt) from the result for the period (i.e. 2006) but only to the degree that the result is a profit. In the case at hand, the gain will offset a tax loss. Consequently, the Company wi ll only be taxed in 2006 based on its arm's length taxable margin.
1 Please refer to Appendix I.
Page I of 2 R C . I u\ombour11B6S ~77 · I VA LUI 7Sb-M47
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