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Corporate Conversion

Investor Information Relating to Keyera's Conversion to a Corporation 

Effective January 1, 2011, Keyera Facilities Income Fund converted to a corporation called Keyera Corp.  The Plan of Arrangement for the conversion was approved by unitholders at Keyera's Annual and Special Meeting of Unitholders on May 11, 2010. 

Background to the Conversion

On October 31, 2006, the Minister of Finance announced that it would be making changes to the Income Tax Act (Canada) which would (i) make distributions of certain income by specified flow through trusts and partnerships  ("SIFTS") taxable at the trust or partnership level and (ii) treat such distributions as taxable dividends to unitholders.  These changes, which became known as the SIFT Rules, were enacted into legislation by the Government of Canada in June 2007.  However, existing publicly traded SIFTS were entitled to a four year transition period provided they met certain conditions.  During the transition period, in March 2009, the Government of Canada passed additional amendments to the Income Tax Act (Canada) intended to facilitate the ability of SIFTS to reorganize into corporations without any undue tax consequences.    

The SIFT Rules, fundamentally altered the advantages of maintaining the income fund structure for organizations such as Keyera.  If we maintained our income fund structure after December 31, 2010, we would be required to pay income tax on distributions of certain income at rates of tax comparable to the combined federal and provincial corporate tax rate.  Therefore, after carefully evaluating our options, Keyera determined that it would be in our best interests, and the best interests of our unitholders to convert to a corporation effective January 1, 2011.

Overview of the Conversion

Effective January 1, 2011, the Fund converted to a corporation known as Keyera Corp. pursuant to a plan of arrangement.  With the completion of the conversion and related transactions:

 

  • Keyera Corp. became publicly traded, dividend-paying corporation.
  • All of the outstanding units of the Fund were exchanged for common shares of Keyera Corp. on a one-for-one basis and as a result the unitholders of the Fund immediately prior to the conversion became the shareholders of Keyera Corp.
  • Keyera Corp. assumed all the obligations of the Fund with respect to the first and second series of convertible debentures issued by the Fund and both series of debentures are now convertible into Keyera Corp. common shares.
  • The Keyera Corp. common shares trade on the Toronto Stock Exchange (TSX) under the symbol KEY. The first series of convertible debentures trade on the TSX under the symbol KEY.DB and the second series of convertible debentures trade on the TSX under the symbol KEY.DB.A.
  • Keyera Corp. assumed all of the assets and liabilities of the Fund and continues to have the same interests in the same assets and liabilities as the Fund had immediately prior to the conversion.
  • The directors and management KEML (former Administrator of the Fund) immediately prior to the conversion became the directors and management of Keyera Corp.
  • The business of the Fund and its subsidiaries immediately prior to the conversion became the business of Keyera Corp. and its subsidiaries. The primary Canadian operating entity in the new structure is Keyera Partnership which is, directly or indirectly, 100% owned by Keyera Corp.

Transitional Information for Unitholders and Debenture Holders. 

Unitholders of the Fund were not required to take any steps in order for their units to be converted into Keyera Corp. common shares.  Similarly, debenture holders were not required to take any steps as Keyera Corp has assumed the obligations of the Fund for the Debentures, and in accordance with the Supplemental Trust Indenture, when the debentures are converted, they will automatically be converted into Keyera Corp. common shares. 

Because the units and debentures of the Fund were traded in "book entry" system, no certificates were issued to the beneficial unitholders of debenture holder and no new certificates for Keyera Corp. common shares or the debentures will be issued.  Keyera Corp. has elected to maintain a book based system to the extent permitted for corporations in accordance with Business Corporations Act (Alberta).   

Keyera Corp. assumed the obligation to deliver the payment for the final distribution declared by the Fund in December.  Payment of that final distribution will be delivered on January 17, 2011 to unitholders of record as of December 22, 2010.

 

Dividend Policy of Keyera Corp.

Effective January 1, 2011, Keyera Corp. became a dividend-paying corporation.  Based on the Fund's historic distribution levels relative to cash flow and Keyera's current expectations for the continued sustainable results of its business segments, favourable growth parameters, access to capital, availability of tax pools, anticipated cash flow and current and future tax laws and policies, we expect to pay dividends of $0.15 per common share per month.  This is the same level of distributions previously paid by the Fund.    

We believe that this level of dividends is a sustainable level that will support our objectives of delivering stable dividends, maintaining a strong balance sheet, and reinvesting capital to maximize value.  However, dividends are not guaranteed and may fluctuate depending on factors like operational performance. 

Unless otherwise indicated, all dividends paid or to be paid by Keyera Corp. are designated as eligible dividends, pursuant to the Income Tax Act (Canada).

Premium DividendTM and Dividend Reinvestment Plan

Keyera Corp. has also adopted a Premium DividendTM and Dividend Reinvestment Plan (the "DRIP") which contains substantially similar terms as the Premium DistributionTM and Distribution Reinvestment Plan of the Fund.   The DRIP allows eligible shareholders to direct that their cash dividends be reinvested in additional shares of Keyera Corp. issued from treasury at a discount to the Average Market Price (as defined in the DRIP) on the applicable dividend payment date.  Under the regular dividend reinvestment component of the DRIP, the additional shares will be issued from treasury at a 3% discount to the Average Market Price (as defined in the DRIP) on the applicable dividend payment date.  In keeping with the decision of the Fund to suspend the Premium DistributionTM component of the Fund DRIP in April 2010, the Premium DividendTM component of the Keyera Corp. DRIP remains suspended.  In accordance with the plan of arrangement, all unitholders of the Fund who were enrolled in the Fund's DRIP, should have been automatically enrolled in the Keyera Corp. DRIP.  However we encourage all DRIP participants to confirm their enrollment with their broker to confirm their enrollment.  Shareholders wishing to enroll in the DRIP should also consult their broker with respect to the enrollment process.