Exchange Industrial Income Fund announces proposed conversion to a corporation with a 13 cent per share monthly dividend and private placement of investment units

    WINNIPEG, June 2 /CNW/ - Exchange Industrial Income Fund (the "Fund")
(TSX: EIF.UN) is pleased to announce it has entered into an arrangement
agreement (the "Arrangement Agreement") with HMY Airways Inc. ("HMY"), Ho
International Airways Inc. ("HIA") (the sole shareholder of HMY) and Dr. David
T.K. Ho (the sole shareholder of HIA) pursuant to which the parties agreed to
implement an arrangement (the "Arrangement") which will result in, among other
things, the Fund converting from an income trust to a corporation ("EIG
    The Arrangement will be carried out pursuant to a statutory plan of
arrangement (the "Plan of Arrangement") under Section 192 of the Canada
Business Corporations Act ("CBCA") and is subject to the satisfaction or
waiver of certain conditions. Under the Arrangement, holders ("Unitholders")
of Class A trust units ("Units") of the Fund will receive one common share (an
"EIG Share") of EIG Corp. for each Unit held. It is intended that EIG Corp.
will pay a monthly dividend in the same amount as the current monthly cash
distribution on Units of the Fund, being $0.13 cents per EIG Share per month
($1.56 per EIG Share annualized).
    HMY was a private Vancouver-based commercial airline that, between 2002
and 2007, operated flights from Western Canada to various destinations. HIA
will continue to be involved with EIG Corp. as a shareholder following the
Arrangement and will be represented on EIG Corp's Aviation Sector Board of

    Rationale and Benefits of the Conversion

    On October 31, 2006, the Department of Finance announced the Specified
investment Flow-Through ("SIFT") rules (the "SIFT Rules") which changes the
manner in which publicly traded income trusts and their distributions are
taxed. The SIFT Rules will become applicable to the Fund in 2011 or earlier,
if the Fund exceeds the prescribed "growth guidelines" set forth in the SIFT
Rules. The SIFT Rules were recently amended to include provisions which
facilitate the tax-deferred conversion of income trusts into a corporation,
provided certain conditions are satisfied including that the conversion occur
before 2013. Having regard to these legislative changes, as well as the
opportunities to advance the Fund's long-term strategic plan, the Fund
believes that it is in the best interests to proceed with the Arrangement at
this time.

    In addition:

    -   the Plan of Arrangement provides for an effective and efficient
        method of converting from an income trust to a corporation consistent
        with the recent provisions introduced into the SIFT Rules;

    -   it is intended that EIG Corp. will pay a monthly dividend in the same
        amount as the current monthly cash distribution on Units of the Fund,
        being $0.13 cents per EIG Share per month ($1.56 per EIG Share

    -   the Arrangement is tax deferred for the Fund and Unitholders (other
        than Unitholders who exercise a dissent right) such that no tax will
        be payable by the Fund or the Unitholders as a result of the

    -   the Fund's conversion to a corporation may result in greater access
        to capital and eliminates the restrictions on growth imposed by the
        "growth guidelines" set forth in the SIFT Rules that limit the Fund's
        ability to consider certain strategic acquisitions;

    -   the Arrangement and the related transactions will simplify the
        structure of the Fund and its subsidiaries while maintaining
        separation of businesses for operational and legal purposes;

    -   EIG Corp. will have access to the experience of HMY in the airline
        industry, which is a significant segment of the business operations
        of the subsidiaries of the Fund;

    -   the diminishing significance of the public business income trust
        market may diminish the Fund's ability to raise capital in the

    -   Canadian taxable shareholders of EIG Corp. will receive a dividend
        tax credit or deduction when they receive dividends compared to the
        current Unitholders tax treatment of distributions as other income.
        It is expected that the dividend will be eligible for the enhanced
        dividend tax credit;

    -   the payment of dividends to holders of shares of EIG Corp. is
        anticipated to provide an attractive return while providing EIG Corp.
        with greater flexibility to invest a portion of its cash flow in
        order to pursue acquisition opportunities;

    -   EIG Corp. will be managed by the same experienced management team
        that currently manages the Fund, thereby providing continuity to the
        management of EIG Corp.;

    -   EIG Corp. will have a board of directors comprised of the same
        individuals (at a minimum) who currently serve as directors of the
        EIIF Management GP Inc. ("EMGP"), thereby providing substantial
        continuity to the board of directors and corporate governance of EIG
        Corp. EIG Corp. is expected to have substantially the same committees
        of the board and committee membership within such committees; and

    -   EIG Corp. will have an estimated aggregate tax shield in excess of
        $275 million following the Arrangement.

    Details of the Conversion

    The purpose of the Arrangement is to convert the Fund into a corporation,
with a dividend policy similar to the current distribution policy of the Fund.
Following the Arrangement, EIG Corp. will own all of the voting and equity
securities of the subsidiaries of the Fund which will continue to carry on the
businesses carried on by the subsidiaries of the Fund prior to the
Arrangement. The board of directors and management of EIG Corp. are expected
to be comprised of the same individuals who serve on the board of directors of
EMGP and as management of EMGP prior to the completion of the Arrangement.
    Pursuant to the Arrangement, HMY will acquire all of the issued and
outstanding Units and Unitholders will receive one EIG Share for each Unit
    In connection with the Arrangement, EIG Corp. will assume all of the
covenants and obligations of the Fund in respect of the debentures and
warrants of the Fund outstanding at the time of the Arrangement in accordance
with the applicable trust indentures and warrant indenture(s). Provided that
the Arrangement is completed, holders of debentures and warrants of the Fund
will thereafter be entitled to receive that number of common shares of EIG
Corp. equal to the number of Units that the holder would have been entitled to
receive upon the due conversion or exercise of the debentures or warrants. In
addition, following the Arrangement, holders of deferred units of the Fund
will be entitled to receive, upon redemption, that number of EIG Shares equal
to the number of Units that the holder would have been entitled to receive
upon the redemption of deferred units prior to the Arrangement.
    The Arrangement is subject to various customary commercial conditions,
including the receipt of regulatory approvals which include the approval of
the Toronto Stock Exchange. The Arrangement is also subject to the approval of
the court (pursuant to the CBCA) and of not less than 66 2/3% of the votes
cast at the meeting (the "Meeting") of the Unitholders to be held to consider
the Arrangement. The mailing to the Unitholders of an information circular in
respect of the Meeting is expected to occur in June, 2009 and, subject to
receipt of all necessary approvals, the Arrangement is expected to occur prior
to the end of July, 2009.

    Fairness Opinion

    The board of trustees of the Fund has received a fairness opinion (the
"Fairness Opinion") that the Arrangement is fair, from a financial point of
view, to Unitholders and is on terms that are in no way prejudicial to the
interests of the holders of its outstanding convertible debentures and Unit
purchase warrants. The Fairness Opinion is subject to the assumptions and
limitations contained therein and should be read in its entirety. The full
text of the Fairness Opinion will be appended to the management information
circular to be provided to Unitholders in connection with the proposed

    Private Placement

    The Fund also announced that Wellington West Capital Inc. has been
retained as agent of the Fund with respect to a private placement of
investment units comprised of one Unit and one Unit purchase warrant (a "New
Warrant") at a price of $9.50 per investment unit, for gross proceeds to the
Fund of up to $5 million. Each New Warrant will entitled the holder thereof to
acquire one Unit at a price of $10.00 per Unit at any time for a period of two
years following the date of issue. The Fund expects to close the private
placement within the next few weeks. Upon the completion of the Arrangement,
each New Warrant will entitle the holder to receive one EIG Share on the same
terms and conditions.

    About The Fund

    The Fund is a diversified, acquisition-oriented income trust, focused on
opportunities in the industrial products and transportation sectors which are
ideally suited for public markets except for their size. The strategy of the
Fund is to invest in profitable, well-established companies with strong cash
flows operating in niche markets in Canada and/or the United States. The Fund
is currently operating in two niche business segments: aviation and specialty
manufacturing. The aviation segment consists of Perimeter Aviation Ltd., Calm
Air International Ltd. and Keewatin Air Limited and the specialty
manufacturing segment consists of Jasper Tank Ltd., Overlanders Manufacturing
LP, Water Blast Manufacturing LP, Water Blast Manufacturing BC Ltd., Water
Blast Manufacturing Ltd. and Stainless Fabrication, Inc.

    Caution Concerning Forward-Looking Statements

    The statements contained in this news release that are forward-looking
are based on current expectations and are subject to a number of uncertainties
and risks, and actual results may differ materially. These uncertainties and
risks include, but are not limited to, the dependence of the Fund on the
operations and assets currently owned by it, the degree to which its
subsidiaries are leveraged, the fact that cash distributions are not
guaranteed and will fluctuate with the Fund's financial performance, dilution,
restrictions on potential future growth, the risk of Unitholder liability,
competitive pressures (including price competition), changes in market
activity, the cyclicality of the industries, seasonality of the businesses,
poor weather conditions, and foreign currency fluctuations, legal proceedings,
commodity prices and raw material exposure, dependence on key personnel, and
environmental, health and safety and other regulatory requirements. Further
information about these and other risks and uncertainties can be found in the
disclosure documents filed by the Fund with the securities regulatory
authorities, available at

    The Toronto Stock Exchange has neither approved nor disapproved the
    contents of this press release.

For further information:

For further information: Mike Pyle, Chief Executive Officer, Exchange
Industrial Income Fund, 1067 Sherwin Road, Winnipeg, MB R3H 0T8, Phone: (204)
982-1850, Fax: (204) 982-1855, E-mail:; Alice Dunning, Investor
Relations, The Equicom Group Inc., (416) 815-0700 or 1-800-385-5451 ext. 255,

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