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EnerCare and EnerCare Solutions (collectively, "EnerCare") is one of Canada’s largest home and commercial services companies with more than 900 employees. EnerCare provides water heaters, furnaces, air conditioners and other HVAC rental products, protection plans and related services to approximately 1.1 million customers. EnerCare also owns EnerCare Connections Inc., a leading sub-meter provider, with metering contracts for condominiums and apartment suites in Ontario, Alberta and elsewhere in Canada.

THE CONVERSION FAQ

1. When did The Consumers' Waterheater Income Fund convert to a corporation?

The conversion was completed on January 1, 2011. Please see the January 4, 2011 news release for more information.

2. Why did the Fund convert to a traditional corporate structure?

Beginning January 1, 2011, income trusts became subject to taxation as if they were corporations, thereby effectively removing the tax advantages of an income trust structure. As a result, there were no advantages in remaining an income trust. Conversion to a corporation:
  • Enables access to larger pools of capital;
  • Attracts new investors, including non-residents;
  • Provides, in the aggregate, a more active and attractive market for corporate shares than existed for income trust units; and
  • Eliminates many of the risks and uncertainties faced by the Fund as a result of it no longer being subject to Specified Investment Flow-Through (SIFT) rules.

3. Why did the name of the Fund change?

The transition to a corporation was an opportunity to align the different operating companies under one primary brand. It also supports EnerCare's growing lines of business and direct interaction with customers. The name of the successor corporations are as follows:
  • The Consumers' Waterheater Income Fund became EnerCare Inc.
  • The Consumers' Waterheater Operating Trust became EnerCare Solutions Inc., with EnerCare Solutions and EnerCare Connections being the brands used for the water heater and HVAC rentals and sub-metering businesses, respectively.

4. How much did the conversion cost?

It is expected that the final cost will be approximately $1.1 million. The benefits of conversion outlined above are expected to more than offset these expenses.

5. What happened to my Fund units?

On January 1, 2011, each Fund unit was exchanged for a common share of EnerCare (an "EnerCare Share") on a tax-deferred "rollover" basis for Canadian federal income tax purposes. The EnerCare Shares were listed on the TSX under the symbol "ECI" and began trading on the TSX on January 5, 2011. Beneficial holders of units did not need to take any action.

6. What is the effect of the conversion on holders of the Fund's Convertible Debentures?

Under the conversion, EnerCare assumed all of the covenants and obligations of the Fund under the convertible debentures and convertible debenture indenture. On the effective date of the conversion, holders of the convertible debentures became holders of EnerCare convertible debentures. Upon the conversion of the EnerCare convertible debentures, holders are entitled to receive EnerCare Shares, rather than units, at the same conversion price as units were previously issuable upon conversion of the convertible debentures (being $6.48 per EnerCare Share, representing a conversion ratio of approximately 154.3210 EnerCare Shares for each $1,000 principal amount of EnerCare convertible debentures converted), subject to adjustment in accordance with the convertible debenture indenture. The EnerCare convertible debentures are listed on the TSX under the symbol "ECI.DB". The transactions contemplated by the conversion did not result in a "change of control" as defined in the convertible debenture indenture.

7. What is the effect of the conversion on holders of senior notes of the Trust?

As a step in the conversion, the Trust was wound up and EnerCare Solutions Inc. became a wholly owned subsidiary of the Fund (and, ultimately, EnerCare Inc.). EnerCare Solutions Inc. assumed all of the covenants and obligations of the Trust under the senior notes and senior unsecured indenture. The transactions contemplated by the conversion did not result in a "change of control" as defined in the senior unsecured indenture.

8. What is the effect of the conversion on the Trust's revolver credit facility?

The bank has consented to the conversion such that EnerCare Solutions Inc. became the borrower under the revolver credit facility upon completion of the conversion.

9. What is the difference between how the Fund's distributions were taxed under the income trust structure and how dividends are taxed under a corporate structure?

Generally, for taxable individual investors who are residents of Canada, the taxes on dividends from the new corporation are lower than the taxes previously incurred on distributions. For taxable individual investors who are resident in Canada, the Fund's distributions were largely treated as "other income" for tax purposes and were taxed at an individual's marginal tax rate on ordinary income.

Under a corporate structure, dividends are eligible for the enhanced dividend tax credit, which results in the effective tax rate on the dividend being significantly less than the tax rate paid on distributions. As an example, for a Canadian individual taxpayer who is subject to income tax at the highest marginal rate in Ontario, the effective tax rate on eligible dividends is approximately 20 per cent less than the tax rate on ordinary income.

10. What are the tax implications for non-resident investors?

The tax implications for investors who are not residents of Canada depend on the shareholder's country of residence and various other factors. Such shareholders are encouraged to consult a tax advisor.
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