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Corporate Conversion

Corporate Conversion Resources

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Press Release: Intention to Convert to Corporation 98 KB
Article of Arrangement 1.69 MB
Press Release: Vote Results & Receipt of Court Approval 85 KB
Certificate of Incorporation 679 KB
Press Release: Conversion Complete 83 KB
Material Change Report 61 KB
Management Information Circular 857 KB
Letter of Transmittal 109 KB

NAL Corporate Conversion Frequently Asked Questions

1. When did NAL’s conversion take place?
2. Will the company name change?
3. Will the dividend amount change from the current distribution level? What will the new dividend be?
4. What will the Toronto Stock Exchange common share trading symbol be?
5. What action do I have to take as an individual investor? Does everything happen automatically?
6. What is the procedure for the exchange of trust units?
7. What can I expect to see in my brokerage account statement or update?
8. What are the tax implications to existing investors?
9. Is it possible for U.S. shareholders holding common shares in tax-exempt accounts to pay no Canadian withholding tax on their cash dividends?
10. Is it possible for U.S. shareholders holding common shares in a tax-exempt account to get a refund of Canadian withholding tax previously paid?
11. How will the tax pools be used for the benefit of investors after conversion to a corporation?
12. How does the conversion impact the management of the company and compensation?
13. Will NAL have a Dividend Reinvestment Plan (DRIP)? How will it work?
14. How has NAL positioned itself for conversion to a corporation?
15. Why is NAL converting from a trust to a corporation?

1. When did NAL’s conversion take place?

At a special meeting of unitholders on December 16, 2010 unitholders voted to support an arrangement pursuant to the Business Corporations Act (Alberta) (the "Arrangement") involving the corporation, NAL and a number of NAL's subsidiaries, pursuant to which NAL will be reorganized into a dividend paying corporation.

The Arrangement is expected to be completed on or about December 31, 2010 and will be subject to the satisfaction of a number of conditions including, among other things, the approval of unitholders and the Court of Queen’s Bench of Alberta. A management information circular and proxy statement outlining the details of the matters to be dealt with at the special meeting was mailed to unitholders and is available on SEDAR (www.sedar.com ) and NAL's website.

One of the reasons NAL decided to convert at the end of 2010 is because it allows us to preserve the maximum amount of tax pools.

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2. Will the company name change?

Upon conversion, NAL Oil & Gas Trust will become an exploration and production (“E&P”) corporation named NAL Energy Corporation.

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3. Will the dividend amount change from the current distribution level? What will the new dividend be?

NAL’s corporate strategy is expected to deliver total return by focusing on income with modest growth. Effective with the proposed conversion to a corporation and commencing with the January 2011 dividend payable in February 2011, NAL anticipates paying a monthly dividend of $0.07 per share, a reduction from the current monthly cash distribution of $0.09 per unit.

From a Canadian taxable shareholder perspective, the new dividend level will be approximately equivalent, on an after tax basis, to our current distribution and implies a current yield of approximately 6.8% based upon the Trust’s November 26, 2010 closing unit price of $12.28.

The Board will continue to assess dividend levels taking into consideration commodity prices, internal capital investment opportunities, forecast cash flow of the corporation, financial market conditions, availability of financing and taxability.

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4. What will the Toronto Stock Exchange common share trading symbol be?

NAL expects the common shares trade on the Toronto Stock Exchange following the completion of the corporate conversion with the “NAE” ticker symbol. The trust units of NAL will be delisted following completion of the conversion.

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5. What action do I have to take as an individual investor? Does everything happen automatically?

Under the planned conversion, NAL unitholders will receive one common share of the corporation in exchange for each NAL trust unit they hold. Also under the conversion, NAL's issued and outstanding convertible unsecured subordinated debentures will be assumed by the corporation.

Unitholders hold their trust units as either registered unitholders or as beneficial unitholders through an account with their broker.

  • Registered unitholders (unitholders that directly hold certificates for their trust units) will be required to obtain and complete a letter of transmittal that will be mailed to them. Upon receipt, they will need to carefully follow the instructions set forth in the letter of transmittal and return a signed letter of transmittal together with the certificates representing trust units to our transfer agent, Computershare Trust Company of Canada, at the address set forth in the letter of transmittal. A certificate representing your post-conversion NAL Energy Corporation common shares will be issued and returned to you by mail. If you are a registered unitholder and you have not received a letter of transmittal in the mail, one can be obtained on www.sedar.com under NAL Oil & Gas Trust’s profile.

  • No action is required by beneficial unitholders that hold their trust units in a brokerage account. It is expected that the change should automatically be reflected in your brokerage account.

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6. What is the procedure for the exchange of trust units?

In order to receive NAL Energy Corporation common shares following the conversion, securityholders whose trust units are registered in the name of a broker, dealer, bank, trust company or other nominee, must contact their nominee to arrange for the exchange of their trust units.
Securityholders whose trust units are NOT registered with a broker, dealer, bank, trust company or other nominee must deposit the following documents with the Depositary, Computershare Investor Services Inc. in order to receive their New NAL shares:
  1. a completed and duly executed Letter of Transmittal; and
  2. the certificate(s) representing their trust units.
The addresses of the Depositary are set out on the back page of the Letter of Transmittal.

The use of the mail to transmit certificates representing trust units and the Letter of Transmittal is at each holder's risk. NAL Energy Corporation recommends that such certificates and documents be delivered by hand to the Depositary (and a receipt therefor be obtained) or that registered mail be used.

Please Note: Holders of trust units will not receive common shares of NAL Energy Corporation or any dividends which may be declared thereon until they submit the certificates representing their trust units to the Depositary along with a validly completed and duly executed Letter of Transmittal. Securityholders who fail to deposit the necessary forms before dividends are paid on the common shares, will have their dividends held in escrow until the procedure for exchange is completed. Furthermore, securityholders that have not deposited their certificates representing trust units with the Depositary by the last business day prior to December 31, 2013 will no longer have valid claim for common shares of NAL Energy Corporation or any dividends that are declared thereon.

For detailed information please see the Management Information Circular

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7. What can I expect to see in my brokerage account statement or update?

In connection with the conversion, unitholders will receive one (1) NAL Energy Corporation common share for each trust unit. Unitholders can expect to see the same number of NAL Energy Corporation common shares after conversion to a corporation as the number of trust units they held prior to the conversion.

The trading symbol will change on brokerage account statements to "NAE" from "NAE.UN". There may be a delay of a number of days after closing for this change to be reflected in your brokerage account statement.

Questions about individual account statements should be directed to the financial institution where your trust units, and subsequently common shares, are held.

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8. What are the tax implications to existing investors?

The information contained is of a general nature only and is not exhaustive of all possible Canadian federal income tax considerations. This summary is not intended to be, and should not be construed as, legal, business or tax advice, or representations to any particular unitholder or shareholder. Accordingly, unitholders and shareholders should consult with their own tax advisors for advice with respect to the tax consequences to them in their particular circumstances.

Exchange of Trust Units for Common Shares
A unitholder who disposes of a trust unit in exchange for a common share will be deemed to have disposed of each such trust unit for proceeds of disposition equal to the "adjusted cost base" (as defined in the Tax Act) of such trust unit to the unitholder immediately before the exchange, and therefore such exchange generally should not result in a capital gain or capital loss to the unitholder. The aggregate of the initial cost of the common shares received by a unitholder in exchange for trust units should be equal to the aggregate adjusted cost base to such unitholder of his trust units immediately before the exchange. The adjusted cost base of a common share at a particular time should be determined in accordance with certain rules in the Tax Act by averaging the cost to the shareholder of the common share with the adjusted cost base of all other common shares held by the shareholder at that time.

Dividends on Common Shares
A shareholder is required to include in computing its income for a taxation year any taxable dividends received or deemed to be received on such shareholder's common shares. In the case of a shareholder that is an individual (other than certain trusts), such taxable dividends should be subject to the gross-up and dividend tax credit rules applicable to taxable dividends received from taxable Canadian corporations. Taxable dividends received from a taxable Canadian corporation which are designated by such corporation as "eligible dividends" in accordance with the Tax Act should be subject to an enhanced gross-up and dividend tax credit in accordance with the rules in the Tax Act. No assurance can be given that any dividends will be designated as "eligible dividends".

Taxable dividends received by a shareholder that is an individual (other than certain trusts) may result in such shareholder being liable for minimum tax under the Tax Act. Shareholders that are individuals should consult their own tax advisors in this regard.

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9. Is it possible for U.S. shareholders holding common shares in tax-exempt accounts to pay no Canadian withholding tax on their cash dividends?

US shareholders that hold their common shares in certain tax-exempt accounts may be eligible for zero percent withholding tax on dividends paid on their common shares. Dividends received by a trust, company, organization or other arrangement that is a resident of the US, generally exempt from income taxation in a taxation year in the US and operated exclusively to administer or provide pension, retirement or employee benefits, are exempt from Canadian withholding tax at source in that taxation year. The process for obtaining the zero percent withholding tax treatment is dependent on whether the US shareholder is a registered shareholder or a beneficial shareholder. A discussion pertaining to both types of shareholders follows.

The information contained herein is intended to be a general guideline only and not an exhaustive discussion of all possible income tax consequences. It is not intended to constitute legal or tax advice to any holder or potential holder of common shares. Holders or potential holders of common shares should consult their own legal or tax advisors as to their particular tax consequences of holding common shares.

BENEFICIAL SHAREHOLDERS
A shareholder who holds their common shares through a broker, investment dealer, financial institution or other nominee is not a registered shareholder (such a shareholder is often referred to as a "beneficial shareholder"). NAL does not directly withhold taxes on dividends ultimately paid to such shareholders. Most brokers, investment dealers, and financial institutions deposit their clients' securities (including common shares) with the Depository Trust Company ("DTC"). The DTC solicits these brokers, investment dealers, and financial institutions for withholding instructions in respect of the deposited securities. The Canadian Depository for Securities Limited ("CDS"), DTC's withholding agent, then uses these instructions to withhold Canadian tax from payments (including dividends) made in respect of the deposited securities.

The administrator (e.g., brokers, investment dealers and financial institutions) of a tax-exempt account that has common shares deposited with the DTC is required to provide the DTC with proper withholding instructions to take advantage of the reduced withholding tax rate as may be applicable. Information on the provision of the required instructions in Canadian tax withholdings is available on the DTC website at:

http://www.dtcc.com/downloads/products/asset/global_tax/Canada.pdf

Such information should also be provided to NAL at Suite 1000, 550 - 6th Avenue S.W., Calgary, Alberta T2P 0S2, Attention: Manager, Tax Planning and Compliance.

REGISTERED SHAREHOLDERS
A shareholder who holds a physical share certificate to evidence their ownership of common shares is a registered shareholder. A registered shareholder receives dividends on their common shares from NAL's transfer agent, Computershare Trust Company of Canada.

To qualify for a zero percent Canadian withholding rate, a tax-exempt account must have a valid, unexpired letter of exemption from the Canada Revenue Agency. Otherwise, Computershare will continue to withhold Canadian tax from dividend payments. For information on how to obtain such a letter, please contact the International Tax Services Office at Canada Revenue Agency by telephone at 1-800-267-3395, by fax at 613-941-6905 or by clicking the following link to their website:

http://www.cra-arc.gc.ca/cntct/international-eng.html

Once obtained, a copy of the exemption letter should be delivered to NAL's transfer agent at the following address:

Computershare Trust Company of Canada
100 University Avenue
9th Floor, North Tower
Toronto, Ontario M5J 2Y1
Attention: Tax Department

Should the registered shareholder have their exemption letter withdrawn by the Canada Revenue Agency, they are required to immediately advise NAL's transfer agent, Computershare Trust Company of Canada.

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10. Is it possible for U.S. shareholders holding common shares in a tax-exempt account to get a refund of Canadian withholding tax previously paid?

For those US shareholders holding common shares in a tax-exempt account that believe withholding tax has been improperly applied to their particular situation, the following discussion describes the process for claiming a refund of Canadian withholding tax.

Beneficial Shareholders
To obtain a refund of any Canadian withholding tax (i.e., Part XIII tax) incorrectly paid in respect of common shares held on deposit with DTC, the US holder of an eligible tax-exempt account has 2 options:
  1. Quick refund through DTC; or
  2. File Form NR7-R "Application for Refund of Part XIII Tax Withheld" with Copy 3 of the NR4 supplementary (provided by your broker or other
    intermediary) with the Canada Revenue Agency for each relevant taxation
    year. Click the following link to access the Form NR7-R: http://www.cra-
    arc.gc.ca/E/pbg/tf/nr7-r/README.html

Form NR7-R has to be filed with the Canada Revenue Agency no later than two years from the end of the calendar year in which the withholding tax was remitted.

DTC Important Notice #4664-09 which provides more details on how to obtain a refund of Canadian withholding tax is available on the DTC website at:

http://www.dtcc.com/downloads/legal/imp_notices/2009/dtc/div/4664-09.pdf

Registered Shareholders
To obtain a refund of any Canadian withholding tax (i.e., Part XIII tax) incorrectly paid, the US holder of an eligible tax-exempt account should complete Form NR7-R "Application for Refund of Part XIII Tax Withheld" and file the form with Copy 3 of the NR4 supplementary (to be provided by Computershare Trust Company of Canada) with the Canada Revenue Agency for each relevant taxation year. Click the following link to access the Form NR7-R: http://www.cra-arc.gc.ca/E/pbg/tf/nr7-r/README.html

The Form NR7-R must be filed with the Canada Revenue Agency no later than two years from the end of the calendar year in which the withholding tax was remitted.

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11. How will the tax pools be used for the benefit of investors after conversion to a corporation?

As an income trust, NAL Oil & Gas Trust was able to deduct distributions paid to its unitholders from NAL Oil & Gas Trust’s taxable income allowing NAL Oil & Gas Trust to build a large balance of high quality tax pools currently (as of Q3 2010) standing at over $1 billion. These tax pools provide a significant advantage for NAL Oil & Gas Trust following the conversion. The tax pools are expected to shelter future earnings and reduce the cash tax payable by the corporation.

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12. How does the conversion impact the management of the company and compensation?

NAL's senior management team and directors will continue to serve in their current roles with the corporation. The conversion will not trigger or accelerate any payments under compensation plans or employment agreements for employees of the manager of the Trust or the officers or directors of NAL.

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13. Will NAL have a Dividend Reinvestment Plan (DRIP)? How will it work?

Current plans call for NAL’s current DRIP program to remain in effect and will be assed by the corporation going forward.

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14. How has NAL positioned itself for conversion to a corporation?

NAL management has undertaken significant changes that have positioned the Trust for long-term sustainability and success by:
  • Enhancing its technical capability through an increase in geological and geophysical staff
  • Building significant acreage positions in existing core areas with a focus on high quality light oil and liquids rich natural gas resources with significant drilling inventory upside
  • Encouraging a culture of innovation and the generation of opportunities in-house
  • Maintaining financial flexibility to manage commodity price volatility
  • Adding significant tax pools to shelter future earnings

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15. Why is NAL converting from a trust to a corporation?

Since late 2006, NAL has accomplished fundamental changes in its business in response to the announced “Tax Fairness Plan” in respect of certain specified investment flow-through ("SIFT") trusts and partnerships by the Department of Finance (Canada) on October 31, 2006 and enacted into legislation by the Government of Canada in June 2007 (the "SIFT Rules").

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