e6vk
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
For the period May 24, 2006 to May 30, 2006
PENGROWTH ENERGY TRUST
2900, 240 - 4th Avenue S.W.
Calgary, Alberta T2P 4H4 Canada
(address of principal executive offices)
[Indicate by check mark whether the registrant files or will file annual reports under cover
Form 20-F or Form 40-F.]
[Indicate by check mark whether the registrant by furnishing the information contained in this
Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under
the Security Exchange Act of 1934.
[If Yes is marked, indicate below the file number assigned to the registrant in connection
with Rule 12g3-2(b): ]
DOCUMENTS FURNISHED HEREUNDER:
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Notices of Meetings, Information Circular-Proxy Statement
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General Form of Proxy |
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Confirmation of Mailing |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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PENGROWTH ENERGY TRUST |
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by its administrator PENGROWTH CORPORATION |
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May 30, 2006
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By:
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/s/ Gordon M. Anderson |
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Name: Gordon M. Anderson |
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Title: Vice President |
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PENGROWTH CORPORATION
PENGROWTH ENERGY TRUST
NOTICES OF MEETINGS
INFORMATION CIRCULAR PROXY STATEMENT
May 16,
2006
NOTICE TO UNITED STATES HOLDERS
The proposed Consolidation is in respect of the securities of a foreign issuer that is permitted,
under a multijurisdictional disclosure system adopted by the United States, to prepare the Circular
in accordance with the disclosure requirements of applicable Canadian law. Holders of Trust Units
should be aware that these requirements are different from those of the United States. The
financial statements included herein have been prepared in accordance with Canadian generally
accepted accounting principles and are subject to Canadian auditing and auditor independence
standards. They may not be comparable to financial statements of United States companies.
The Consolidation of Pengrowths Trust Units may subject holders of Trust Units to tax consequences
both in the United States and Canada. Such consequences for holders of Trust Units who are
resident in, or citizens of, the United States may not be described fully herein.
The enforcement by investors of civil liabilities under the United States federal securities laws
may be affected adversely by the fact that Pengrowth was created under the laws of the Province of
Alberta, Canada, that some or all of the officers, directors and trustees of Pengrowth and its
management companies may be residents of Canada, that some or all of the experts named in the
Circular may be residents of Canada and that all or a substantial portion of the assets of
Pengrowth and of such persons may be located outside the United States.
No broker, dealer, salesperson or other person has been authorized to give any information or make
any representation other than those contained in this document and, if given or made, such
information or representation must not be relied upon as having been authorized by Pengrowth.
THE SECURITIES OFFERED BY PENGROWTH PURSUANT TO THE CONSOLIDATION HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER SECURITIES
REGULATORY AUTHORITY NOR HAS THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER
SECURITIES REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PENGROWTH CORPORATION
2900, 240 4th Avenue S.W., Calgary, Alberta T2P 4H4
Tel 403-233-0224 Fax 403-265-6251 Toll Free 1-800-223-4122 website: www.pengrowth.com
May 16, 2006
Dear Pengrowth Unitholder:
The Board of Directors of Pengrowth Corporation is pleased to recommend that the holders of Class
A trust units and the holders of Class B trust units approve the extraordinary resolution set out
in the attached Information Circular and Proxy Statement to cause the consolidation of our two
classes of trust units into a single class. Pengrowth is the only Trust with this capital
structure and once the consolidation is completed Pengrowth will
no longer be at a competitive
disadvantage to its peer group.
As you are likely aware, Pengrowth implemented the dual class structure in 2004 in order to
maintain its status as a mutual fund trust under the Income Tax Act (Canada). A number of
significant events have occurred since implementation of the dual class structure which have
resulted in the Trust receiving an opinion from legal and tax counsel in May 2006 that the dual
class structure is no longer required to maintain our status as a mutual fund trust. Based on this
advice, the Board of Directors formed a Special Committee of independent directors that retained
BMO Nesbitt Burns and Merrill Lynch as financial advisors and Burnet. Duckworth and Palmer LLP and
Paul, Weiss, Rifkind, Wharton & Garrison LLP as legal advisors. The mandate of the Special
Committee included examining the impact of the dual class structure on Pengrowth and its ability
to effectively pursue its business plan and examining alternatives to that structure, including
the removal of the ownership restriction from the Class B trust units, the merger of the Class A
trust units and the Class B trust units into a single class and any other alternatives the
committee considered appropriate.
In
executing its mandate and considering advice received from its legal and financial advisors, the
Special Committee concluded that the dual class structure was a significant impediment to the
implementation of Pengrowths business plan, a fundamental component of which is the long-term
creation of unitholder value through accretive acquisitions and related financings, and recommended
that the Board ask the Unitholders to consider and vote on a resolution to cause the consolidation
of the two classes into a single class of Trust Units.
The Board of Directors believes that approval of the consolidation is important to facilitate
Pengrowths execution of its business plan. The dual class structure is an impediment to the
execution of Pengrowths business plan as it results in:
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An inability to effectively raise capital at the lowest
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A significant impediment to completing mergers or acquisitions using trust units as
consideration; |
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Significantly reduced liquidity in the trading of Trust Units; |
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An inability to complete efficient equity financings; and |
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A diversion of managements time. |
If approved by an extraordinary resolution of the holders of Class A trust units and Class B trust
units, voting together as a single class, the consolidation will become effective as follows:
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effective as of 5:00 p.m. (Calgary time) on June 27, 2006: |
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the restriction on the Class B trust units that provides that the Class B
trust units may only be held by residents of Canada will be eliminated; and |
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effective as of 5:00 p.m. (Calgary time) on July 27, 2006: |
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the Class A trust units will be delisted from the Toronto Stock
Exchange; |
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the Class B trust units will be renamed Trust
Units; |
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all of the issued and outstanding Class A trust units
will be converted into
Trust Units on the basis of one Trust Unit for each whole Class A trust unit
previously held (with the exception of Class A trust units held by residents of Canada
who have provided an election and residency declaration to the
Trustee); and |
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the Trust Units will be substitutionally listed in place of the Class A trust
units on the New York Stock Exchange. |
Further details concerning the consolidation are contained in the attached Information Circular
and Proxy Statement, including certain risk factors associated with
the consolidation. I urge all
unitholders to review the circular.
I believe
the prospects for Pengrowth have never been brighter. During 2005, Pengrowth
Corporation hired three new highly experienced Vice-Presidents in the Operations Group and
appointed two new Senior Officers on the financial side of our business. We have also retained a
new Manager of Business Development and have augmented our technical and financial expertise in
that area. Pengrowth embarked on a number of exciting initiatives on
our existing properties,
including pursuit of an enhanced oil recovery CO2 pilot at Judy Creek, development of
Pengrowths coal bed methane properties and various exploration and development projects.
I believe
Pengrowth has the highest quality asset base in our sector. We are well capitalized and
well positioned to grow through internal development and further acquisitions. Simplifying our
capital structure will enable us to move forward aggressively and to meet the demands of an
increasingly competitive marketplace.
Sincerely,
James S. Kinnear
Chairman, President and Chief Executive Officer
Pengrowth
Corporation
TABLE OF CONTENTS
NOTICES OF MEETINGS
NOTICE OF THE ANNUAL AND SPECIAL MEETING OF PENGROWTH CORPORATION
NOTICE OF THE ANNUAL AND SPECIAL MEETING OF PENGROWTH ENERGY TRUST
NOTICE OF A SPECIAL MEETING OF THE ROYALTY UNITHOLDERS OF PENGROWTH CORPORATION
INFORMATION CIRCULAR PROXY STATEMENT
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PART I GENERAL INFORMATION FOR ALL MEETINGS |
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1 |
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Solicitation of Proxies |
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Appointment of Proxyholders and Revocation of Proxies |
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Notice to Beneficial Holders of Trust Units |
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Persons making the Solicitation |
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Exercise of Discretion by Proxy |
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Voting Shares and Units and the Principal Holders Thereof |
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Interests of Certain Persons in Matters Acted Upon |
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Executive Compensation |
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Securities Authorized for Issuance Under Equity Compensation Plans |
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Directors and Officers Liability Insurance |
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Indebtedness of Directors and Executive Officers |
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Interests of Informed Persons in Material Transactions |
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Management Agreement |
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PART II CORPORATE GOVERNANCE |
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Mandates of the Trustee, the Manager and the Board of Directors |
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Board Independence |
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Board Approvals and Structure |
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Board Committees |
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Statement of Corporate Governance Practices |
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PART III MATTERS TO BE CONSIDERED AT THE SHAREHOLDER MEETING |
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Appointment of Auditors |
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Election of Directors |
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Amendments to the Unanimous Shareholder Agreement to Simplify Voting at the Annual General Meeting |
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PART IV MATTERS TO BE CONSIDERED AT THE TRUST MEETING |
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Appointment of Auditors |
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Amendments to the Trust Indenture to Provide for the Consolidation of the Trusts Dual Class Structure |
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Amendments to the Unanimous Shareholder Agreement and the Trust Indenture to Simplify Voting at
the Annual General Meeting |
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Amendments to the DEU Plan |
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Amendments to the Trust Indenture Regarding the Distribution of Net Proceeds from the Sale of Properties |
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PART V MATTERS TO BE CONSIDERED AT THE ROYALTY MEETING |
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Amendments to the Royalty Indenture Regarding the Reclassification of Trust Unit Capital |
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Amendments to the Unanimous Shareholder Agreement and the Royalty Indenture to Simplify Voting at
the Annual General Meeting |
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Amendments to the Royalty Indenture Regarding the Distribution of Net Proceeds from the Sale of
Properties |
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Amendments to the Royalty Indenture Regarding Distributions upon a Liquidation, Winding-up or
Dissolution of the Corporation |
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Amendments to the Royalty Indenture Regarding Certain Expenditures, the Reserve and Other Revenues |
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Miscellaneous Amendments to the Royalty Indenture |
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PART VI ADDITIONAL INFORMATION |
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APPENDICES
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APPENDIX
1
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Statement of Corporation Governance Practices |
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APPENDIX 1-A
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Board of Directors Mandate |
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APPENDIX 1-B
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Corporate Governance Committee Mandate |
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APPENDIX 1-C
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Compensation Committee Mandate |
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APPENDIX
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Fairness Opinion of BMO Nesbitt Burns |
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APPENDIX
3
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Fairness Opinion of Merrill Lynch |
SCHEDULES
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SCHEDULE A-1
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Extraordinary Resolution to Amend the Unanimous Shareholder Agreement to
Simplify Voting Procedures at the Annual General Meeting |
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SCHEDULE A-2
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Extraordinary Resolution to Amend the Unanimous Shareholder Agreement and
the Articles of the Corporation to Increase the Maximum Size of the Board of
Directors of the Corporation |
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SCHEDULE B-1
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Extraordinary Resolution to Amend the Trust Indenture to provide for the
Consolidation of the Trusts Dual Class Structure |
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EXHIBIT A TO SCHEDULE B-1 Revised Schedule C to the Amended and
Restated Trust Indenture |
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EXHIBIT B TO SCHEDULE B-1 Revised Schedule A to the Amended and
Restated Trust Indenture |
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EXHIBIT C TO SCHEDULE B-1 Revised Schedule B to the Amended and
Restated Trust Indenture |
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SCHEDULE B-2
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Extraordinary Resolution to Amend the Unanimous Shareholder Agreement and
the Trust Indenture to Simplify Voting Procedures at the Annual General Meeting |
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SCHEDULE B-3
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Ordinary Resolution to Amend the Deferred Entitlement Unit Plan |
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SCHEDULE B-4
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Extraordinary Resolution to Amend the Trust Indenture regarding the
Distribution of Net Proceeds from the Sale of Properties |
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SCHEDULE B-5
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Extraordinary Resolution to Amend the Unanimous Shareholder Agreement and
the Articles of the Corporation to Increase the Maximum Size of the Board of
Directors of the Corporation |
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SCHEDULE C-1
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Extraordinary Resolution to Amend the Royalty Indenture to provide for the
Consolidation of the Trusts Dual Class Structure |
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SCHEDULE C-2
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Extraordinary Resolution to Amend the Unanimous Shareholder Agreement and
the Royalty Indenture to Simplify Voting Procedures at the Annual General Meeting |
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SCHEDULE C-3
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Extraordinary Resolution to Amend the Royalty Indenture regarding the
Distribution of Net Proceeds from the Sale of Properties |
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SCHEDULE C-4
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Extraordinary Resolution to Amend the Royalty Indenture regarding
Distributions upon a Liquidation, Winding-up or Dissolution of the Corporation |
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SCHEDULE C-5
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Extraordinary Resolution to Amend the Royalty Indenture regarding Certain
Expenditures, the Reserves and Other Revenues |
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SCHEDULE C-6
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Extraordinary Resolution regarding Miscellaneous Amendments to the Royalty
Indenture |
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SCHEDULE C-7
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Extraordinary Resolution to Amend the Unanimous Shareholder Agreement and
the Articles of the Corporation to Increase the Maximum Size of the Board of
Directors of the Corporation |
PENGROWTH CORPORATION
NOTICE OF THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TAKE NOTICE that the annual and special meeting (the Shareholder Meeting) of the holders of
common shares (Shareholders) of Pengrowth Corporation (the Corporation) will be held at the
Fairmont Palliser Hotel, Alberta Room, 133 9th Avenue S.W., Calgary, Alberta, at 10:00 a.m.
(Calgary time) on June 23, 2006 for the following purposes:
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to appoint auditors; |
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to elect directors of the Corporation; |
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to consider an extraordinary resolution approving amendments to the Unanimous
Shareholder Agreement to simplify voting at the Annual General Meeting; |
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to consider an extraordinary resolution approving amendments to the Unanimous
Shareholder Agreement and the Articles of the Corporation to increase the maximum size
of the Board of Directors of the Corporation; and |
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to transact any other business which may properly come before the Shareholder
Meeting or any adjournments thereof. |
Dated at Calgary, Alberta as of May 16, 2006.
By Order of the Board of Directors
(Signed) Charles V. Selby
Vice President and Corporate Secretary,
Pengrowth Corporation
The specific details of the matters proposed to be put before the Shareholder Meeting and the text
of the resolutions are set forth in the Information Circular-Proxy Statement accompanying this
notice.
Royalty Unitholders of the Corporation and Trust Unitholders of Pengrowth Energy Trust
(collectively, Unitholders) are entitled to vote on matters regarding the Corporation as if they
were shareholders of the Corporation. Unitholders are requested to date and sign the enclosed form
of proxy and to mail it to, or deposit it with, the Corporate Secretary of the Corporation in care
of Computershare Trust Company of Canada, 100 University Avenue, 9th Floor, Toronto,
Ontario, M5J 2Y1. In order to be valid and acted upon at the Shareholder Meeting, forms of proxy
must be received not less than 24 hours (excluding Saturdays, Sundays and holidays) before the time
for holding the Shareholder Meeting or any adjournments thereof. Unitholders who wish to attend
and vote in person should appoint themselves as proxy.
Unitholders of record at the close of business on May 5, 2006, will be entitled to notice of, and
to attend and vote at, the Shareholder Meeting and at any adjournments thereof.
PENGROWTH ENERGY TRUST
NOTICE OF THE ANNUAL AND SPECIAL MEETING OF TRUST UNITHOLDERS
TAKE NOTICE that the annual and special meeting (the Trust Meeting) of the holders of trust units
(Trust Unitholders) of Pengrowth Energy Trust (the Trust) will be held at the Fairmont Palliser
Hotel, Alberta Room, 133 9th Avenue S.W., Calgary, Alberta, at 10:15 a.m. (Calgary time) on June
23, 2006 for the following purposes:
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to receive and consider the financial statements of the Trust for the year
ended December 31, 2005 and the auditors report thereon; |
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to appoint auditors; |
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to consider an extraordinary resolution approving the consolidation of the
Trusts dual class structure; |
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to consider an extraordinary resolution approving amendments to the Unanimous
Shareholder Agreement and the Trust Indenture to simplify voting at the Annual General
Meeting; |
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to consider an ordinary resolution approving the amendments to the Deferred
Entitlement Unit Plan; |
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to consider an extraordinary resolution approving the amendments to the Trust
Indenture regarding the distribution of the net proceeds from the sale of properties; |
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to consider an extraordinary resolution approving amendments to the Unanimous
Shareholder Agreement and the Articles of the Corporation to increase the maximum size
of the Board of Directors of the Corporation; and |
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to transact any other business which may properly come before the Trust Meeting
or any adjournments thereof. |
Dated at Calgary, Alberta as of May 16, 2006.
By Order of Computershare Trust Company of Canada
as Trustee
(Signed) Stacie A. Moore
General Manager, Corporate Trust
(Signed) Karen Biscope
Manager, Corporate Trust
The specific details of the matters proposed to be put before the Trust Meeting and the text of the
resolutions are set forth in the Information Circular-Proxy Statement accompanying this notice.
Trust Unitholders are requested to date and sign the enclosed form of proxy and to mail it to, or
deposit it with, the Corporate Secretary of Pengrowth Corporation in care of Computershare Trust
Company of Canada, 100 University Avenue, 9th Floor, Toronto, Ontario, M5J 2Y1. In
order to be valid and acted upon at the Trust Meeting, forms of proxy must be received not less
than 24 hours (excluding Saturdays, Sundays and holidays) before the time for holding the Trust
Meeting or any adjournments thereof. Trust Unitholders who wish to attend and vote in person
should appoint themselves as proxy.
Trust Unitholders of record at the close of business on May 5, 2006, will be entitled to notice of,
and to attend and vote at, the Trust Meeting and at any adjournments thereof.
PENGROWTH CORPORATION
NOTICE OF A SPECIAL MEETING OF ROYALTY UNITHOLDERS
TAKE NOTICE that a special meeting (the Royalty Meeting) of the holders of royalty units (the
Royalty Unitholders) of Pengrowth Corporation (the Corporation) will be held at the Fairmont
Palliser Hotel, Alberta Room, 133 9th Avenue S.W., Calgary, Alberta, at 10:30 a.m. (Calgary time)
on June 23, 2006 for the following purposes:
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to consider an extraordinary resolution approving amendments to the Royalty
Indenture to provide for the consolidation of the Trusts dual class structure; |
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to consider an extraordinary resolution approving amendments to the Unanimous
Shareholder Agreement and the Royalty Indenture to simplify voting at the Annual
General Meeting; |
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to consider an extraordinary resolution approving amendments to the Royalty
Indenture regarding the distribution of the net proceeds from the sale of properties; |
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to consider an extraordinary resolution approving amendments to the Royalty
Indenture regarding distributions upon a liquidation, winding-up or dissolution of the
Corporation; |
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to consider an extraordinary resolution approving amendments to the Royalty
Indenture regarding certain expenditures, the reserve and other revenues; |
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to consider an extraordinary resolution approving miscellaneous amendments to
the Royalty Indenture; |
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to consider an extraordinary resolution approving amendments to the Unanimous
Shareholder Agreement and the Articles of the Corporation to increase the maximum size
of the Board of Directors of the Corporation; and |
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to transact any other business which may properly come before the Royalty
Meeting or any adjournments thereof. |
Dated at Calgary, Alberta as of May 16, 2006.
By Order of the Board of Directors
(Signed) Charles V. Selby
Vice President and Corporate Secretary,
Pengrowth Corporation
The specific details of the matters proposed to be put before the Royalty Meeting and the text of
the resolutions are set forth in the Information Circular-Proxy Statement accompanying this notice.
Royalty Unitholders and Trust Unitholders of Pengrowth Energy Trust (collectively, Unitholders)
are entitled to vote on all matters at the Royalty Meeting. Unitholders are requested to date and
sign the enclosed form of proxy and to mail it to, or deposit it with, the Corporate Secretary of
the Corporation in care of Computershare Trust Company of Canada, 100 University Avenue,
9th Floor, Toronto, Ontario, M5J 2Y1. In order to be valid and acted upon at the
Royalty Meeting, forms of proxy must be received not less than 24 hours (excluding Saturdays,
Sundays and holidays) before the time for holding the Royalty Meeting or any adjournments thereof.
Unitholders who wish to attend and vote in person should appoint themselves as proxy.
Unitholders of record at the close of business on May 5, 2006 will be entitled to notice of, and to
attend and vote at, the Royalty Meeting and at any adjournments thereof.
PENGROWTH CORPORATION
PENGROWTH ENERGY TRUST
INFORMATION CIRCULAR PROXY STATEMENT
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For:
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Annual and Special Meeting of Shareholders |
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Annual and Special Meeting of Trust Unitholders |
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Special Meeting of Royalty Unitholders |
PART
I GENERAL INFORMATION FOR ALL MEETINGS
Solicitation of Proxies
This information circular proxy statement (Circular) is provided in connection with the
solicitation of proxies by management for use at the Annual and Special Meeting of Shareholders
(the Shareholder Meeting) of Pengrowth Corporation (the Corporation), the Annual and Special
Meeting of Trust Unitholders (the Trust Meeting) of Pengrowth Energy Trust (the Trust and
collectively with the Corporation, Pengrowth) and the Special Meeting of Royalty Unitholders of
the Corporation (the Royalty Meeting), (collectively referred to as the Meetings) and at any
adjournment(s) of the Meetings. The Meetings are to be held on June 23, 2006 at 10:00 a.m., 10:15
a.m. and 10:30 a.m. (all Calgary times), respectively, at the Fairmont Palliser Hotel, Alberta
Room, 133 9th Avenue S.W., Calgary, Alberta. This Circular is provided for the purposes set
forth in the accompanying Notices of Meetings. Information contained herein is given as of May 1,
2006 unless otherwise specifically stated. Unless otherwise defined therein, each term that is
defined in this Circular has that same meaning when used in the schedules to this Circular.
Shareholder Meeting
Pursuant to the terms of the Amended and Restated Unanimous Shareholder Agreement dated June 17,
2003 (the Unanimous Shareholder Agreement) among Pengrowth Management Limited (the Manager),
the Trust, the Corporation and Computershare Trust Company of Canada (the Trustee), holders of
royalty units (Royalty Unitholders) issued by the Corporation (the Royalty Units) and holders
(Trust Unitholders) of Class A trust units, Class B trust units and trust units remaining in the
form in existence prior to the reclassification that occurred on July 27, 2004 (the Prior Trust
Units) issued by the Trust (collectively, the Trust Units and together with the Royalty Units,
the Units) (collectively, the Unitholders) are entitled to notice of, and to attend at, the
Shareholder Meeting and to one vote per Royalty Unit or Trust Unit held on any matter put before
the Shareholder Meeting, and at any adjournments thereof, other than the election of two directors
who may be elected by the Manager. The Manager has agreed to refrain from exercising its voting
rights as a shareholder except in respect of the election of two directors or as may be necessary
or desirable to implement any resolutions passed by the Unitholders. The Trust will not exercise
its voting rights as a shareholder except as may be necessary or desirable to implement any
resolutions passed by the Unitholders.
Trust Meeting
Pursuant to the terms of the Amended and Restated Trust Indenture dated July 27, 2004 (the Trust
Indenture) between the Corporation and the Trustee, Trust Unitholders are entitled to notice of,
and to attend at, the Trust Meeting and to one vote per Trust Unit held on any matter put before
the Trust Meeting, and at any adjournments thereof.
Royalty Meeting
Pursuant to the terms of the Amended and Restated Royalty Indenture dated June 17, 2003 (the
Royalty Indenture) between the Corporation and the Trustee, Unitholders are entitled to notice
of, and to attend at, the Royalty Meeting and to one vote per Unit held on any matter put before
the Royalty Meeting, and at any adjournments thereof, provided that the Trustee is not entitled to
vote in respect of any Royalty Units held in its capacity as Trustee under the Trust Indenture.
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Appointment of Proxyholders and Revocation of Proxies
The persons named in the enclosed form of proxy are directors of the Corporation. A Unitholder has
the right to appoint a person (who need not be a Unitholder) other than James S. Kinnear or John B.
Zaozirny to represent the Unitholder at the Meetings. To exercise this right, the Unitholder must
either insert the name of the other person in the blank space provided on the enclosed form of
proxy or submit another appropriate form of proxy. Non-registered Unitholders (Unitholders who
hold their Units through brokerage accounts or other intermediaries) who wish to appear in person
and vote at the Meetings should be appointed as their own representatives at the Meetings in
accordance with the directions of their intermediaries. See Notice to Beneficial Holders of Trust
Units.
In order to be used at the Meetings, completed proxies must be addressed to the Corporate Secretary
of the Corporation and must be deposited with Computershare Trust Company of Canada, 100 University
Avenue, 9th Floor, Toronto, Ontario, M5J 2Y1, not less than 24 hours, excluding
Saturdays, Sundays and holidays, before the time for the holding of the Meetings or any
adjournment(s) of the Meetings. The record date for the Meetings has been established as the close
of business on May 5, 2006. Only Unitholders of record as at the record date are entitled to
receive notice of, and to vote at, the Meetings.
The instrument appointing a proxyholder shall be in writing and shall be executed by the registered
Unitholder or his attorney authorized in writing or, if the registered Unitholder is a corporation,
under its corporate seal or by an officer or attorney thereof duly authorized.
A registered Unitholder who has submitted a proxy may revoke it by an instrument in writing signed
by the registered Unitholder or by an authorized attorney, or, if the registered Unitholder is a
corporation, by a duly authorized officer provided such instrument is deposited either: (i) at the
offices of Computershare Trust Company of Canada, 100 University Avenue, 9th Floor,
Toronto, Ontario, M5J 2Y1, not less than 48 hours, excluding Saturdays, Sundays and holidays,
before the time for the holding of the Meetings or any adjournment(s) of the Meetings, or (ii) with
the Chairman of the Meetings on the day of the Meetings, or any adjournment(s) of the Meetings. In
addition, a proxy may be revoked: (i) by the registered Unitholder personally attending at the
Meetings and voting the Units represented thereby or, if the Unitholder is a corporation, by a
representative of that corporation attending at the Meetings and voting such Units; or (ii) in any
other manner permitted by law. Non-registered Unitholders should follow the directions of their
intermediaries with respect to procedures to be followed for revoking a proxy.
Notice to Beneficial Holders of Trust Units
The information set forth in this section is of significant importance to many Trust Unitholders,
as a substantial number of the Trust Unitholders do not hold Trust Units in their own name. Trust
Unitholders who do not hold their Trust Units in their own name (referred to herein as Beneficial
Unitholders) should note that only proxies deposited by Trust Unitholders whose names appear on
the records of the Trust as the registered holders of Trust Units can be recognized and acted upon
at the Meetings. If Trust Units are listed in an account statement provided to a Beneficial
Unitholder by a broker, then in almost all cases those Trust Units will not be registered in the
Beneficial Unitholders name on the records of the Trust. Such Trust Units will more likely be
registered under the name of the Beneficial Unitholders broker or an agent of that broker. In
Canada, the vast majority of such Trust Units are registered under the name of CDS & Co. (the
registration name for The Canadian Depositary for Securities Limited, which acts as nominee for
many Canadian brokerage firms). In the United States, the vast majority of such Trust Units are
registered under the name of Cede & Co. (the registration name for The Depositary Trust Company,
which acts as nominee for many U.S. brokerage firms). Trust Units held by brokers or their
nominees can only be voted (for or against resolutions) upon the instructions of the Beneficial
Unitholder. Without specific instructions, the broker/nominees are prohibited from voting Trust
Units for their clients.
Applicable regulatory policies require intermediaries/brokers to seek voting instructions from
Beneficial Unitholders in advance of securityholder meetings. Every intermediary/broker has its
own mailing procedures and provides its own return instructions, which should be carefully followed
by Beneficial Unitholders in order to ensure that their Trust Units are voted at the Meetings.
Often, the form of proxy supplied to a Beneficial Unitholder by its broker is identical to the form
of proxy provided to registered Trust Unitholders; however, its purpose is limited to instructing
the registered Trust Unitholder how to vote on behalf of the Beneficial Unitholder. The majority
of brokers in
- 3 -
Canada and the United States now delegate responsibility for obtaining instructions from clients to
ADP Investor Communications (ADP). In most cases, ADP mails a scannable voting instruction form
in lieu of the form of proxy provided by the Trust. The Beneficial Unitholder is requested to
complete and return the proxy or voting instruction form to ADP by mail or facsimile.
Alternatively, the Beneficial Unitholder can call a toll-free telephone number or access ADPs
voting web site at www.proxyvotecanada.com to vote the Trust Units held by the Beneficial
Unitholder. ADP then tabulates the results of all instructions received and provides appropriate
instructions respecting the voting of Trust Units represented at the Meetings. A Beneficial
Unitholder receiving a voting instruction form cannot use that voting instruction form to vote
Trust Units directly at the Meetings as the voting instruction form must be returned as directed by
ADP well in advance of the Meetings in order to have the Trust Units voted.
Although a Beneficial Unitholder may not be recognized directly at the Meetings for the purposes of
voting Trust Units registered in the name of his or her broker (or an agent of the broker), a
Beneficial Unitholder may attend the Meetings as a proxyholder for the registered Unitholder and
vote the Trust Units in that capacity. A Beneficial Unitholder who wishes to attend the Meetings
and indirectly vote his or her Trust Units as proxyholder for the registered Unitholder should
enter his or her own name in the blank space on the form of proxy provided to him or her and return
the same to his or her broker (or brokers agent) in accordance with the instructions provided by
such broker (or agent), well in advance of the Meetings.
Persons making the Solicitation
This solicitation of proxies is made by management of Pengrowth. The costs incurred to prepare and
mail the Notices of Meetings, this Circular and the form of proxy will be borne by the Corporation
and will be deducted in computing the royalty payable by the Corporation to the Trust. Proxies are
being solicited by mail and may also be solicited by oral communication, telephone, telegraph or
facsimile by directors, officers and proposed directors and officers of the Corporation, who will
not be remunerated therefor. While no arrangements have been made to date, Pengrowth may contract
for the solicitation of proxies for the Meetings. Such arrangements would include customary fees
which would be borne by Pengrowth.
Exercise of Discretion by Proxy
The Units represented by a proxy in favour of Mr. Kinnear or Mr. Zaozirny shall be voted at the
Meetings and, where the Unitholder specifies a choice with respect to any matter to be acted upon,
the Units shall be voted in accordance with the specification so made. In the absence of such
specification, Units will be voted in favour of the proposed resolutions. The persons appointed by
the enclosed form of proxy are conferred with discretionary authority with respect to amendments or
variations to those matters specified in the Notices of Meetings. At the time of mailing of this
Circular, Pengrowth is not aware of any such amendment, variation, or other matter. If any such
amendment, variation or other matter properly comes before the Meetings, the Units represented by
proxies in favor of management will be voted on such matters in accordance with the best judgment
of the person voting the proxy.
Voting Shares and Units and the Principal Holders Thereof
The Corporation has 1,100 issued and outstanding common shares (the Common Shares). Of the 1,100
outstanding Common Shares, 1,000 are owned by the Trust and 100 are owned by the Manager. Subject
to the Unanimous Shareholder Agreement, registered holders of Common Shares are entitled to attend
and vote at the Shareholder Meeting on the basis of one vote for each Common Share held. The
Manager has agreed to refrain from exercising its voting rights as a Shareholder except in respect
of the election of two directors or as may be necessary or desirable to implement any resolutions
passed by the Unitholders. The Trust will not exercise its voting rights as a Shareholder except
as may be necessary or desirable to implement any resolutions passed by the Unitholders.
As at May 5, 2006, the Trust had an aggregate of 160,564,653 issued and outstanding Trust Units,
comprised of 77,527,433 Class A trust units, 83,003,108 Class B trust units and 34,112 Prior Trust
Units. The registered holders thereof are entitled to attend and vote at the Trust Meeting, the
Royalty Meeting and the Shareholder Meeting on the basis of one vote for each Trust Unit held.
- 4 -
As at May 5, 2006, the Corporation had 124,085,961 issued and outstanding Royalty Units. The
registered holders thereof (other than Royalty Units held by the Trustee in its capacity as Trustee
under the Trust Indenture) are entitled to attend and vote at the Royalty Meeting and the
Shareholder Meeting on the basis of one vote for each Royalty Unit held. Issued and outstanding
Royalty Units held by registered holders other than the Trustee total 18,240.
To the best of the knowledge of the Manager and the directors and executive officers of the
Corporation, as of May 1, 2006 no persons beneficially own, directly or indirectly, Units carrying
more than 10% of the voting rights attached to the issued and outstanding Units.
Interests of Certain Persons in Matters Acted Upon
Other than as set forth elsewhere in this Circular, there are no material interests, direct or
indirect, of any director or executive officer of the Corporation or the Manager or anyone who has
held office as such since the beginning of the Trusts last financial year, or of any associate or
affiliate of any of the foregoing in any matter to be acted on at the Meetings.
Executive Compensation
Report on Executive Compensation
The compensation policies of the Corporation are designed to recognize and reward Pengrowths
performance and individual performance as well as to provide a competitive level of compensation,
which in turn enables the Corporation to attract and retain employees in a highly competitive
marketplace. Long term incentives are an important component of Pengrowths total compensation
program and have been implemented to encourage ownership of Trust Units, to maintain a direct link
between pay and performance and to motivate directors, officers, employees and special consultants
to improve Pengrowths long-term financial success.
Composition of the Compensation Committee
The Compensation Committee is comprised of Messrs. Michael S. Parrett (Chairman of the Compensation
Committee), John B. Zaozirny and Thomas A. Cumming. None of the members of the Compensation
Committee are, or have been, officers or employees of Pengrowth. Mr. Parrett joined the
Compensation Committee on October 22, 2004 upon the resignation of Michael A. Grandin. Mr.
Zaozirny is also the Vice-Chairman of Canaccord Capital Inc., one of the underwriters in
Pengrowths equity offerings. See Interest of Informed Persons in Material Transactions. Prior
to April 26, 2005, compensation matters were reviewed by the Corporate Governance/Compensation
Committee of the Board of Directors. On April 26, 2005, the Board of Directors determined that in
recognition of the increasingly competitive market place that the Corporation was operating in, a
separate committee of the Board of Directors should focus exclusively on compensation and related
matters.
Independent Advice
The Compensation Committee engages the services of Towers Perrin to attend Compensation Committee
meetings and provide independent advice, compensation analysis and other information for
compensation recommendations. The analysis and advice from Towers Perrin include, but is not
limited to, executive compensation policy (such as the choice of comparator groups and compensation
philosophy), design of incentive plans, position evaluation services and surveys of market data.
Compensation Philosophy
The Corporations compensation philosophy is to target salaries (fixed compensation) at the
50th percentile of the competitive marketplace, and to provide incentive opportunities
at the 50th percentile of the competitive market when corporate and individual
performance is at target or expected levels. When corporate and individual performance
significantly exceeds target or expected levels, then the incentive programs, including the bonuses
paid by the Manager under the Management Agreement, are designed to bring the total compensation to
the 75th percentile of the competitive market for exceptional performance.
- 5 -
Compensation at the Corporation consists of three primary components: base salary, an annual
performance bonus plan and a long-term incentive program.
Base salaries are targeted at the 50th percentile of comparably-sized oil and gas income
trusts and other energy organizations. Positioning of actual salaries considers the employees
level within the organization, background, skills and experience, as well as individual performance
and the nature of their contributions to Pengrowths overall success.
During 2004, Pengrowth retained the services of Towers Perrin to assist with the design of new
annual and long-term incentive awards. This review was undertaken to ensure that the Corporations
total compensation package was competitive and reflects key financial, operational and strategic
measures of performance. The plan design reflects a more formal approach, is aligned with
practices within the highly competitive energy sector and provides an important alignment for
employees with total Trust Unitholder returns over a three year period. The annual performance
bonus plan was implemented for the 2004 fiscal year and provided payouts in early 2005. The
long-term incentive program was finalized in early 2005, and was used for grants in early 2005.
The first payout of the Deferred Entitlement Units (DEUs) pursuant to the DEU Plan (as defined
herein) is anticipated to occur in 2008.
Annual Performance Bonus Plan
The annual performance bonus plan replaced the discretionary approach used in previous years. It
consists of a series of corporate performance measures and individual performance objectives. The
weighting between corporate performance and individual objectives varies by organization level,
with more senior positions having more weight on corporate performance reflecting the nature and
impact of their contributions. For the NEOs (as defined herein), the weighting on corporate
performance ranges from 70% to 80% of the total award.
Pengrowths performance is based on three equally weighted measures, including:
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Three-year average total Trust Unitholder return. This measure reflects the average
total return delivered to Trust Unitholders (change in Trust Unit price plus reinvested
distributions) over the prior three years, and is consistent with the primary measure
used in the Managers performance fee. |
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|
Distributable cash. This measure represents the cash available for distributions to
Trust Unitholders, and is a primary measure of financial success for income trusts. |
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Corporate scorecard. This measure allows the Compensation Committee and the Board
of Directors to make an overall assessment of performance, considering the impact of a
wide range of other performance measures including: production levels, reserves,
operating costs, general and administrative costs, new business activities,
environmental and safety performance, and other corporate initiatives. |
Individual performance is based on a series of planned objectives set out at the beginning of the
year for each individual.
For each of the corporate and individual measures three standards of performance are determined
each year, as follows:
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threshold level of performance, below which there is no award paid, |
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target level of performance, which delivers the target level of award; and |
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maximum level of performance, which provides for a maximum bonus equal to two times
the target award. |
Performance under corporate and individual components is added to arrive at the final incentive
award amount. No awards will be paid under either the corporate or individual components of the
plan if distributable cash is not above a threshold amount determined each year.
- 6 -
Leadership team members and other high performance employees are also eligible for an additional
award of Trust Units under the PML Presidents Award. This program provides additional
compensation on the recommendation of the President of the Corporation to high performing employees
who make significant contributions to the Trusts success. The awards are intended to compensate
high performing employees at levels no higher than the 75th percentile of the Trusts
peer group in the petroleum industry. The awards are funded entirely by the Manager in accordance
with the Management Agreement. Awards are paid in the form of Class B trust units to encourage
ownership and provide alignment with the interest of the Manager and other Trust Unitholders.
Long-term Incentive Program
Effective for fiscal 2005, Pengrowths long-term incentive program was redesigned to incorporate
both grants of Trust Unit Rights (as defined herein) pursuant to the Trust Unit Rights Incentive
Plan (the Rights Incentive Plan) and DEUs pursuant to the DEU Plan (as defined below). The mix
between Trust Unit Rights and DEUs varies by organization level, with more senior positions
receiving more Trust Unit Rights reflecting the impact of those individuals on growing the Trust
Unit prices over the long-term. For the NEOs (as defined herein), there is an equal value weight
between the Trust Unit Rights and DEUs. For lower organization levels, long-term incentives
consist entirely of DEUs.
Trust Unit Rights Incentive Plan
The purpose of the Rights Incentive Plan is to encourage equity ownership in the Trust by
directors, officers, special consultants and employees of the Corporation who contribute to the
management and profitable growth of Pengrowth. It is believed that the Rights Incentive Plan will
advance the interests of the Corporation by providing an additional incentive for superior
performance and will enhance the ability to attract and retain persons of the highest caliber.
During the annual compensation review, rights (Trust Unit Rights) are granted pursuant to the
Rights Incentive Plan to directors, officers, certain consultants and employees of the Corporation.
The number of Trust Unit Rights granted is dependent upon the position level within the
Corporation as well as on individual performance. Under the Rights Incentive Plan, distributions
per Trust Unit to Trust Unitholders in a calendar quarter which represent a return of more than 2.5
percent of the net book value of property, plant and equipment at the beginning of such calendar
quarter result in a reduction at the election of the holder in the exercise price at the time of
exercise. Trust Unit Rights vest one-third at time of grant, one-third upon the first anniversary
of the grant and one-third upon the second anniversary of the grant, and expire five years from the
date of grant.
In accordance with the terms of the Rights Incentive Plan, subject to any written agreement by the
Manager or by the Corporation providing otherwise, Trust Unit Rights, to the extent not validly
exercised, will terminate on the earlier of the following dates:
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in the event of the death of the participant (in which event all rights granted
shall be deemed to immediately vest in the name of the participant), one year following
the death of the participant; |
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in the event of the disablement of the participant, which disablement is for a
continuous period of 365 days and which prevents the participant from continuing in his
capacity as an officer, director, employee, or a special consultant of the Corporation
(in which event all rights granted shall be deemed to immediately vest in the name of
the participant), 60 days following the expiry of 365 days after an event giving rise
to the disablement; |
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a date which is a maximum of two years beyond the permanent retirement of the
participant (where retirement shall be defined in reference to a minimum age of 55 with
a minimum of five years service as a director, officer, employee or special consultant
of the Corporation); |
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a date which is sixty days following termination of a consulting agreement,
termination of employment of an employee or termination of status as an officer or
director other than for cause (provided that this subclause shall not be triggered if
following the event the participant retains a status as any one of a director, officer,
employee or special consultant of the Corporation); or |
- 7 -
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immediately upon the termination of a consulting agreement, termination of
employment of an employee or termination of status as an officer or director for cause. |
The exercise price of the Trust Unit Rights granted pursuant to the Rights Incentive Plan is
determined as the closing price of the Class B trust units on the Toronto Stock Exchange on the day
immediately preceding the date on which the granting of the Trust Unit Rights is approved by the
Board of Directors.
DEU Plan
The Deferred Entitlement Unit Plan (referred to herein as the DEU Plan) was approved by Trust
Unitholders on April 22, 2004 as an alternative to the executive long-term incentive plan (the
ELTI Plan). Under the ELTI Plan, the Corporation provided bonuses to plan recipients in the form
of Trust Units purchased by the Corporation in the market from time to time.
In accordance with the terms of the DEU Plan, DEUs (referred to in previous disclosure as phantom
units) may be allocated to employees and, pending Trust Unitholder approval, officers, certain
consultants and directors of the Corporation. See Part IV Matters to be Considered at the Trust
Meeting Amendments to the DEU Plan. The number of DEUs granted will be based on a grant value
as a percentage of an individuals base salary and an established weighting of DEUs and/or rights
incentive options that is dependent on an individuals position. The DEUs will fully vest, in
respect of officers, employees, and consultants on the third anniversary year from the date of
grant. The Board of Directors may set performance conditions with respect to the exercise of the
DEUs as appropriate. In respect of officers, employees and consultants at the end of the three
year performance period, the number of DEUs awarded (including additional DEUs acquired through
notional reinvested distributions) are subject to the following performance scale:
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25% of the accrued DEUs vest if the Trusts three-year relative return is at the
25th percentile or less versus the comparator group as long as the
three-year average total return is above 8%; |
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100% of the accrued DEUs vest if the Trusts three-year relative return is at the
50th percentile versus the comparator group; and |
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150% of the accrued DEUs vest if the Trusts three-year relative return is at the
75th percentile or more versus the comparator group. |
Intermediate amounts are paid for performance between the various performance levels. All awards
to officers and employees are subject to a minimum absolute three-year average total Trust
Unitholder return for the Trust that is established for each three-year performance cycle.
Upon vesting, DEUs may currently be exchanged by holders for Class B trust units to be issued from
treasury. Notional distributions will be paid on the DEUs in the form of the issuance of
additional DEUs based upon a deemed reinvestment formula using a 20-day weighted average closing
price of Class B trust units provided that any notional distributions so paid must vest as
described above.
In accordance with the terms of the DEU Plan, DEUs shall terminate on the earlier of the following
dates:
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if a participant ceases to be an eligible person for any reason whatsoever
including, without limitation, termination of his employment by his employer, there
shall be forfeited as of the termination date such DEUs as are not vested. No cash
shall at any time be paid in lieu of any such Units as shall have been forfeited under
the plan, |
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if a participant dies or ceases to be an employee by reason of: |
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retirement from active employment upon reaching the permitted
retirement age set by the Board of Directors (which is presently defined as age
55 with a minimum of five years of service), |
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o |
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total or permanent disability, or |
- 8 -
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o |
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for any other reason specified in each case by the Board of Directors, |
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all DEUs held in the name of the participant shall be immediately considered vested
DEUs, which may be exercised by the holder or the holders estate or designated
beneficiary. |
Subject to Trust Unitholder approval at the Trust Unitholder Meeting, the DEU Plan will be amended
so that: (i) the aggregate number of Class B trust units which may be reserved for issuance to
insiders (as such term is referred to in the policies of the TSX), under the DEU Plan and all
other security-based compensation arrangements of Pengrowth shall not, in the aggregate, exceed ten
percent (10%) of the issued and outstanding Trust Units at the date of grant, calculated on a
non-diluted basis; and (ii) during any one-year period, the Board of Directors shall not grant to
such insiders, under the DEU Plan and all other security-based compensation arrangements of
Pengrowth, in the aggregate, a number of Class B trust units exceeding ten percent (10%) of the
issued and outstanding Trust Units, calculated on a non-diluted basis. See Part IV Matters to
be Considered at the Trust Meeting Amendments to the DEU Plan.
The Trust may add to or amend any of the provisions of the DEU Plan or terminate the DEU Plan,
provided however that, subject to the anti-dilution provisions contained in the DEU Plan, (i) any
approvals required under any applicable law are obtained, and (ii) unless a participant otherwise
agrees, any such addition, amendment or termination shall apply only in respect of DEUs granted on
or after the date of such addition, amendment or termination.
The interest of any participant under the DEU Plan or in any DEU shall be not transferable or
alienable by him either by pledge, assignment or in any other manner whatsoever and, during his
lifetime, shall be vested only in him, but shall enure to the benefit of, and be binding upon, such
participant or the designated beneficiary thereof.
If the Class B trust units are consolidated, subdivided or reclassified, or if any other action of
a similar nature affecting the number of Class B trust units is taken, then in such event the
maximum number of Class B trust units which can be issued under the DEU Plan in accordance with the
DEU Plan, and the number of DEUs granted to each participant, may be correspondingly adjusted by
the Board of Directors.
In the event of a change of control of the Trust, the Board of Directors may, in their discretion,
determine to immediately accelerate the vesting period of any DEUs granted under the DEU Plan.
Other Long Term Incentive Plans
Savings Plan
The purpose of the savings plan is to encourage employees to have ownership in the Trust as well as
to save for retirement. Effective March 1, 2006, the Corporation matched employee contributions to
the plan to a total of eleven percent of the employees base pay. Effective January 1, 2007, the
Corporation will match employee contributions to the plan to a total of twelve percent of the
employees base pay. The savings plan itself consists of two plans: the Employee Trust Unit
Purchase Plan and the Group Registered Retirement Savings Plan (Group RRSP).
Employee Trust Unit Purchase Plan. The Employee Trust Unit Purchase Plan provides employees
with the opportunity to share in the Trusts success and growth through ownership of Class B trust
units. Employees may contribute annually between one and eleven percent of their base annual
salary/wage to the Employee Trust Unit Purchase Plan after completing their three-month probation
period. For each $1.00 in personal contributions made to the plan, employees contributions to the
plan are matched by the Corporation less any matching contribution made by the Corporation to the
employees Group RRSP.
Group Registered Retirement Savings Plan. The Corporation has established a self-directed
Group RRSP to provide eligible participants an opportunity to save for retirement. Employees are
eligible to contribute to the Group RRSP after they have completed one year of service with the
Corporation. Employees may contribute between one and 18 percent of their base annual salary to
the Group RRSP (not to exceed Canada Revenue Agency guidelines). The Corporation will match
employees contributions to a maximum of 5.5% of their base annual
- 9 -
salary/wage. The amount contributed by the Corporation to the Group RRSP (up to a maximum of
5.5%) will reduce the amount available for matching by Pengrowth under the Employee Trust Unit
Purchase Plan.
Trust Unit Margin Purchase Plan.
In February 2000, the Corporation instituted a trust unit margin purchase plan (the Margin
Purchase Plan) which is available to employees and special consultants of the Corporation. In
accordance with the restrictions on financial assistance in the Sarbanes-Oxley Act of 2002 (SOX)
the Margin Purchase Plan is not available to directors and officers. Participants are permitted to
acquire Trust Units of the Trust through individual margin accounts with a specified Canadian
investment dealer which provides participants with up to 75% margin, supported by a letter of
credit by the Corporation. Participants maintain personal margin accounts with the investment
dealer and are responsible for all interest costs and obligations in respect to their margin loans.
If there is a requirement to draw on the letter of credit to support the margin requirements of
the specified Canadian investment dealer, each of the participants in the Margin Purchase Plan will
nonetheless remain responsible to reimburse the Corporation and the specified Canadian investment
dealer for all principal and interest associated with their margin loans. The Margin Purchase Plan
is terminable upon two years notice by the Corporation or by the specified investment dealer. The
amount of the letter of credit (currently $1 million) may vary on the basis of interest rates,
Trust Unit distributions and the trading price of the Trust Units. Costs of administration of the
Margin Purchase Plan are shared equally between the participants and the Corporation, and
participants share costs amongst themselves on a pro rata basis.
The following summarizes the Trust Units in the Trust Unit Margin Purchase Plan as at February 28,
2006.
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Number of Trust Units Held Under the |
Participant |
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Trust Unit Margin Purchase Plan |
Directors and Officers(1) |
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nil |
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Employees and Special Consultants |
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296,194 |
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Total: |
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296,194 |
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Note: |
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(1) |
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No directors or officers are participating in this plan. |
Trust Unit Option Plan
Prior to June 29, 2002, options to acquire Trust Units (Trust Unit Options) were issuable to
directors, officers, special consultants and employees of the Corporation pursuant to a Trust Unit
Option Plan (the Option Plan) and were issued from time to time at the discretion of the Board of
Directors. The Trust Units reserved for issuance pursuant to outstanding Trust Unit Options
granted under the Option Plan will continue to be governed by the Option Plan until such options
are exercised or expire at which time the Option Plan will be terminated. The Trust Unit Options
expire seven years from the date of grant. One third of the options vest on the grant date, one
third on the first anniversary of the date of grant, and the remaining third on the second
anniversary. No Options have been issued since January 28, 2002.
Trust Unit Awards Plan
Effective July 13, 2005, Pengrowth established the Trust Unit Awards Plan to reward and retain
employees whereby Class B trust units and cash were awarded to eligible employees. Employees
received one half of the Class B trust units and cash on or about January 1, 2006 and will receive
one half of the Class B trust units and cash on or about July 1, 2006. Any change in the market
value of the Class B trust units and reinvested distributions over the vesting period accrues to
the eligible employees.
Pengrowth acquired the Class B trust units to be awarded under the Trust Unit Awards Plan on the
open market for $4.3 million and placed the Class B trust units in a trust account established for
the benefit of the eligible employees. The cost to acquire the Class B trust units has been
recorded as deferred compensation expense and is being charged to net income on a straight line
basis over one year. In addition, the cash portion of the incentive plan of approximately $1.5
million is being accrued on a straight line basis over one year. Any unvested Class B trust units
will be sold on the open market.
- 10 -
Effective February 27, 2006, the Trust Unit Award Plan was extended. Eligible employees will
receive Class B trust units and cash on or about July 1, 2007. Pengrowth acquired the Class B
trust units to be awarded under the plan on the open market for $2.4 million and placed them in a
trust account established for the benefit of the eligible employees. The cost to acquire the Class
B trust units has been recorded as deferred compensation expense and is being charged to net income
on a straight line basis over 16 months. In addition, the cash portion of the incentive plan of
approximately $1.1 million is being accrued over 16 months.
Units Issuable
The aggregate number of Class B trust units reserved for issuance under the Rights Incentive Plan,
the Option Plan and the DEU Plan, is presently limited to, as approved by Trust Unitholders, a
maximum of 18 million Class B trust units provided that the aggregate authorized number of Trust
Units issuable under both plans shall not at any time exceed 10% of the issued and outstanding
Trust Units, which restricts Pengrowth to a maximum of 16,056,298 Class B trust units as of April
30, 2006.
As of April 30, 2006, the maximum number of Trust Units issuable pursuant to the Trust Unit Option
Plan, the Rights Incentive Plan and the DEU Plan is 4,013,317 which represents 2.5% of the issued
and outstanding Trust Units.
As of April 30, 2006, the Class B trust units that remain subject to outstanding Trust Unit Rights,
Options and DEUs, and the aggregate number of Trust Units issued or issuable pursuant to Trust Unit
Rights, Options and DEUs granted since inception are as follows:
|
|
|
|
|
|
|
|
|
|
|
Currently Outstanding |
|
Aggregate Issued(1) |
Trust Unit Rights |
|
|
1,591,531 |
|
|
|
4,259,281 |
|
|
Options |
|
|
153,783 |
|
|
|
7,278,914 |
|
|
DEUs(2)(3) |
|
|
504,786 |
|
|
|
504,786 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,250,100 |
|
|
|
12,042,981 |
|
|
|
|
Notes: |
|
|
|
(1) |
|
Aggregate Trust Units issued or issuable pursuant to Trust Unit Rights, Options and DEUs
since inception, net of Trust Unit Rights, Options at DEUs cancelled or expired without
exercise. |
|
(2) |
|
Including Trust Units earned through the Distribution Reinvestment Program up to April 30,
2006. |
|
(3) |
|
Including DEUs subject to performance criteria. |
As of April 30, 2006, the maximum number of Trust Units Rights, Options and DEUs held by
insiders of Pengrowth pursuant to the Rights Incentive Plan, the DEU Plan and the Option Plan is
679,908 which represents 0.42% of the issued and outstanding Trust Units. The largest number of
Trust Unit Rights, Options and DEUs held by any one insider of Pengrowth is 181,080 which
represents 0.113% of the issued and outstanding Trust Units.
Summary Compensation Table
The following table provides a summary of compensation earned during each of the last three fiscal
years ended December 31, 2005 by the Corporations Chief Executive Officer, the Chief Financial
Officer, the next three most highly compensated executive officers of the Corporation and two
additional executive officers who were no longer with the Corporation at December 31, 2005
(collectively, the NEOs).
- 11 -
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|
Long-Term Compensation |
|
|
|
|
|
|
|
|
Annual Compensation |
|
Awards |
|
Payouts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Shares or |
|
|
|
|
|
|
|
|
|
|
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Securities |
|
Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
Under |
|
Subject to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual |
|
Options/Rights |
|
Resale |
|
DEU |
|
All Other |
Name and Principal |
|
|
|
|
|
Salary(10) |
|
Bonus(10) |
|
Comp.(11) |
|
Granted(12) |
|
Restrictions |
|
Payouts |
|
Comp.(13) |
Position |
|
Year |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
James S. Kinnear (1) |
|
|
2005 |
|
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
President, Chairman and |
|
|
2004 |
|
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
Chief Executive Officer |
|
|
2003 |
|
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher G. Webster(2) |
|
|
2005 |
|
|
|
234,282 |
|
|
|
230,861 |
|
|
nil |
|
|
41,971 |
|
|
nil |
|
nil |
|
|
23,428 |
|
Chief Financial Officer |
|
|
2004 |
|
|
|
160,625 |
|
|
|
161,256 |
|
|
nil |
|
|
38,280 |
|
|
nil |
|
nil |
|
|
16,063 |
|
|
|
|
2003 |
|
|
|
145,092 |
|
|
|
80,043 |
|
|
nil |
|
nil |
|
nil |
|
nil |
|
|
47,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gordon M. Anderson(3) |
|
|
2005 |
|
|
|
134,811 |
|
|
|
71,375 |
|
|
nil |
|
|
13,482 |
|
|
nil |
|
nil |
|
|
13,481 |
|
Vice President |
|
|
2004 |
|
|
|
130,036 |
|
|
|
73,830 |
|
|
nil |
|
|
13,920 |
|
|
nil |
|
nil |
|
|
13,003 |
|
|
|
|
2003 |
|
|
|
129,049 |
|
|
|
53,010 |
|
|
nil |
|
nil |
|
nil |
|
nil |
|
|
12,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry Strong(4)(5) |
|
|
2005 |
|
|
|
72,820 |
|
|
|
102,204 |
|
|
nil |
|
nil |
|
nil |
|
nil |
|
|
201,134 |
|
Vice President Geosciences |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Causgrove(4)(6) |
|
|
2005 |
|
|
|
41,174 |
|
|
|
102,204 |
|
|
nil |
|
nil |
|
nil |
|
nil |
|
|
194,817 |
|
Vice President Production &
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry D. McKinnon(7)(8) |
|
|
2005 |
|
|
|
89,828 |
|
|
nil |
|
nil |
|
|
41,144 |
|
|
nil |
|
nil |
|
|
7,884 |
|
Vice
President |
|
|
2004 |
|
|
|
204,664 |
|
|
|
161,202 |
|
|
nil |
|
|
56,370 |
|
|
nil |
|
nil |
|
|
20,466 |
|
Operations |
|
|
2003 |
|
|
|
198,703 |
|
|
|
167,533 |
|
|
nil |
|
nil |
|
nil |
|
nil |
|
|
80,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lynn Kis(7)(8)(9) |
|
|
2005 |
|
|
|
145,230 |
|
|
|
18,000 |
|
|
nil |
|
|
14,829 |
|
|
nil |
|
nil |
|
|
394,050 |
|
Vice
President |
|
|
2004 |
|
|
|
162,545 |
|
|
|
94,132 |
|
|
nil |
|
|
13,920 |
|
|
nil |
|
nil |
|
|
16,254 |
|
Engineering |
|
|
2003 |
|
|
|
159,358 |
|
|
|
65,677 |
|
|
nil |
|
nil |
|
nil |
|
nil |
|
|
53,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Selby(14) |
|
|
2005 |
|
|
nil |
|
nil |
|
nil |
|
|
12,507 |
|
|
nil |
|
nil |
|
nil |
Vice President and |
|
|
2004 |
|
|
nil |
|
nil |
|
nil |
|
|
34,800 |
|
|
nil |
|
nil |
|
nil |
Corporate Secretary |
|
|
2003 |
|
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
|
|
Notes: |
|
|
|
(1) |
|
Management fees are paid by the Corporation to the Manager. James S. Kinnear, the Chairman,
President and Chief Executive Officer of the Corporation, is also the President and Chief
Executive Officer of the Manager and owns, directly or indirectly, all of the issued and
outstanding voting securities of the Manager. See below for a description of these fees. |
|
(2) |
|
Mr. Webster was Interim Chief Financial Officer until his appointment as Chief Financial
Officer, effective March 21, 2005. |
|
(3) |
|
Mr. Anderson received additional annual compensation from the Manager of $57,884 for services
rendered to the Manager during 2005. |
|
(4) |
|
Mr. Causgrove and Mr. Strong received signing bonus Trust Units which vest based on the
following schedule: 1/4 on hire, 1/4 on the first anniversary, 1/4 on the second anniversary and
the final quarter on the third anniversary of the date of grant. |
|
(5) |
|
Mr. Strong was appointed Vice President, Geosciences, effective August 23, 2005. |
|
(6) |
|
Mr. Causgrove was appointed Vice President, Production and Operations, effective October 24,
2005. |
|
(7) |
|
2005 year to date earnings include vacation pay. |
|
(8) |
|
Mr. McKinnon and Ms. Kis ceased to be officers of the Corporation on May 13, 2005 and October
20, 2005, respectively. |
|
(9) |
|
All other compensation in respect of Ms. Kis includes retiring allowance and pay-in-lieu of
notice of $380,471. |
|
(10) |
|
Amounts earned in calendar year, regardless of when paid. |
|
(11) |
|
Perquisites and other personal benefits do not exceed the lesser of $50,000 or 10% of the
total of the annual salary and bonuses for any NEO and therefore are not reported. |
|
(12) |
|
Trust Unit Rights and Options granted in the calendar year, regardless of when earned. |
- 12 -
|
|
|
(13) |
|
All Other Compensation includes amounts paid under the ELTI Plan in 2003 and amounts from
the Trust Unit Savings Plan. |
|
(14) |
|
Legal and consulting fees are paid to the legal and consulting firm controlled by the Vice
President and Corporate Secretary, Charles V. Selby. See below for a description of these
fees. |
James S. Kinnear, the Chairman, President and Chief Executive Officer of the Corporation, is
the sole shareholder of the Manager which is the advisor to the Corporation under the Amended and
Restated Management Agreement dated as of June 17, 2003 (the Management Agreement) and as such
provides management services to the Corporation (see Management Agreement). The management fees
paid to the Manager are pursuant to the Management Agreement which has been approved by the Trust
Unitholders. Mr. Kinnear does not receive any salary or bonus in his capacity as director and
officer of the Corporation and has not received any new trust unit options since November 2002.
The Manager received $16.0 million for management services provided to the Corporation during 2005.
The base fee paid to the Manager totaled $9.1 million and is calculated as a fixed percentage of
net operating income. The management fees also included a performance fee of $6.1 million, which
combined with the base fee for the period is equivalent to the cap of 80% of total fees that would
have been earned by the Manager by 2005 under the previous management agreement. In accordance
with the Management Agreement, in February 2006, the Manager contributed to the bonuses paid to
employees of the Corporation for 2005 of $1,596,100 in the aggregate. The amount paid to the
Manager for management services includes an amount allocated to provide for expenses related to the
corporate development activities of the Corporation. This amount is capped at $2 million per
annum.
The legal and consulting firm controlled by the Vice President and Corporate Secretary, Charles V.
Selby, earned an aggregate of $0.7 million for legal and consulting services provided to the
Corporation in 2005. In addition, the Vice President and Corporate Secretary was granted 12,507
Trust Unit Rights in 2005 with an exercise price of $18.14 per Trust Unit Right and 2,085 DEUs.
Mr. Selby does not receive any salary or bonus from the Corporation in his capacity as Vice
President and Corporate Secretary of the Corporation. Officers of the Corporation also
participated in the incentive programs available to directors, officers, employees and special
consultants discussed elsewhere in this Circular.
Long Term Incentive Program Awards During the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated future payouts |
|
|
DEUs Granted |
|
|
|
|
|
Threshold (#) |
|
Target (#) |
|
Maximum (#) |
Name |
|
Incl. DRIP (#) |
|
Payout Date |
|
25% |
|
100% |
|
150% |
James S. Kinnear |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
Christopher Webster |
|
|
10,905 |
|
|
March 2, 2008 |
|
|
2,726 |
|
|
|
10,905 |
|
|
|
16,358 |
|
|
Gordon Anderson |
|
|
3,503 |
|
|
March 2, 2008 |
|
|
876 |
|
|
|
3,503 |
|
|
|
5,255 |
|
|
Larry Strong |
|
|
3,683 |
|
|
March 2, 2008 |
|
|
921 |
|
|
|
3,683 |
|
|
|
5,525 |
|
|
James Causgrove |
|
|
3,728 |
|
|
March 2, 2008 |
|
|
932 |
|
|
|
3,728 |
|
|
|
5,592 |
|
|
Henry McKinnon(1) |
|
|
10,691 |
|
|
Cancelled |
|
nil |
|
nil |
|
nil |
|
Lynn Kis(2) |
|
|
3,854 |
|
|
Cancelled |
|
nil |
|
nil |
|
nil |
|
Charles Selby |
|
|
3,250 |
|
|
March 2, 2008 |
|
|
813 |
|
|
|
3,250 |
|
|
|
4,875 |
|
Depending on corporate performance, the maximum payout for the DEU Plan would be 150% of
target, whereas the threshold is set at 25% of target as long as the 3-year average annual total
return is above 8%.
|
|
|
Notes: |
|
|
|
(1) |
|
Mr. McKinnon ceased to be an officer of the Corporation on May 13, 2005 and his DEUs expired
on May 13, 2005 in accordance with their terms. |
|
(2) |
|
Ms. Kis ceased to be an officer of the Corporation on October 20, 2005 and her DEUs expired
on January 6, 2006. |
- 13 -
Trust Unit Rights Granted During The Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Units |
|
% of Total Rights |
|
|
|
|
|
Closing Market |
|
|
|
|
Under Rights |
|
Granted in Fiscal |
|
Exercise |
|
Price on Date of |
|
|
|
|
Granted |
|
Year |
|
Price |
|
Grant |
|
Expiry Date |
James S. Kinnear |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
Christopher G.
Webster |
|
|
41,971 |
|
|
|
6.8 |
% |
|
$ |
18.14 |
|
|
$ |
18.14 |
|
|
March 3, 2010 |
|
Gordon Anderson |
|
|
13,482 |
|
|
|
2.2 |
% |
|
$ |
18.14 |
|
|
$ |
18.14 |
|
|
March 3, 2010 |
|
Larry Strong |
|
|
15,728 |
|
|
|
2.6 |
% |
|
$ |
18.70 |
|
|
$ |
18.70 |
|
|
November 2, 2010 |
|
James Causgrove |
|
|
15,916 |
|
|
|
2.6 |
% |
|
$ |
20.05 |
|
|
$ |
20.05 |
|
|
November 21, 2010 |
|
Henry D. McKinnon |
|
|
41,144 |
|
|
|
6.1 |
% |
|
$ |
18.14 |
|
|
$ |
18.14 |
|
|
Cancelled |
|
Lynn Kis |
|
|
14,829 |
|
|
|
2.2 |
% |
|
$ |
18.14 |
|
|
$ |
18.14 |
|
|
Cancelled |
|
Charles Selby |
|
|
12,507 |
|
|
|
2.0 |
% |
|
$ |
18.14 |
|
|
$ |
18.14 |
|
|
March 3, 2010 |
Aggregate Option/Right Exercises During the Year Ended December 31, 2005 and Year-End Option
and Right Values
The following table summarizes, for the NEOs, the number of Trust Units acquired pursuant to the
exercise of Trust Unit Rights and Trust Unit Options during the year ended December 31, 2005, if
any, the aggregate value realized upon exercise, if any, and the number of Trust Units covered by
unexercised Trust Unit Rights and Trust Unit Options under the Rights Plan and Option Plan as at
December 31, 2005. Value realized upon exercise is the difference between the market value of the
Trust Units acquired on the exercise date and the aggregate exercise price of the Trust Unit Rights
and Trust Unit Options. The value of the unexercised and in the money rights and options is the
difference between the exercise price of the Trust Unit Rights or Trust Unit Options and the
closing stock market price of the Class B trust units on the Toronto Stock Exchange on December 31,
2005, which was $22.65 per Class B trust unit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Unexercised in |
|
|
Securities |
|
|
|
|
|
Unexercised Options/Rights |
|
the Money Options/Rights |
|
|
Acquired |
|
|
|
|
|
at December 31, 2005 |
|
at December 31, 2005 |
|
|
on |
|
Aggregate |
|
(#) |
|
($) |
|
|
Exercise |
|
Value Realized |
|
|
|
|
|
Not |
|
|
|
|
|
Not |
Name |
|
(#) |
|
($) |
|
Vested |
|
Vested |
|
Vested |
|
Vested |
James S. Kinnear |
|
|
488,123 |
|
|
|
2,366,355 |
|
|
|
nil |
|
|
|
nil |
|
|
|
nil |
|
|
|
nil |
|
|
Gordon Anderson |
|
|
13,000 |
|
|
|
103,340 |
|
|
|
18,774 |
|
|
|
13,628 |
|
|
|
120,106 |
|
|
|
67,680 |
|
|
Christopher G. Webster |
|
|
nil |
|
|
|
nil |
|
|
|
74,961 |
|
|
|
40,740 |
|
|
|
445,537 |
|
|
|
200,836 |
|
|
Larry Strong |
|
|
nil |
|
|
|
nil |
|
|
|
5,242 |
|
|
|
10,486 |
|
|
|
20,706 |
|
|
|
41,420 |
|
|
James Causgrove |
|
|
nil |
|
|
|
nil |
|
|
|
5,306 |
|
|
|
10,610 |
|
|
|
13,796 |
|
|
|
27,586 |
|
|
Henry D. McKinnon(1) |
|
|
51,294 |
|
|
|
107,620 |
|
|
|
nil |
|
|
|
nil |
|
|
|
nil |
|
|
|
nil |
|
|
Lynn Kis(2) |
|
|
57,856 |
|
|
|
328,041 |
|
|
|
nil |
|
|
|
14,526 |
|
|
|
nil |
|
|
|
71,730 |
|
|
Charles Selby |
|
|
10,000 |
|
|
|
125,329 |
|
|
|
92,369 |
|
|
|
19,938 |
|
|
|
730,892 |
|
|
|
105,464 |
|
|
|
|
Notes: |
|
|
|
(1) |
|
Mr. McKinnon ceased to be an Officer of the Corporation on May 13, 2005 and his unexercised
options and rights expired in accordance with their terms. |
|
(2) |
|
Ms. Kis ceased to be an Officer of the Corporation on October 20, 2005 and her unexercised
options and rights expired on January 6, 2006. |
- 14 -
Employment Contracts, Termination of Employment and Change of Control
Pengrowth has entered into Executive Employment Contracts with three of the NEOs, namely,
Christopher G. Webster, James E. A. Causgrove, and Larry B. Strong. Each contract is in place for
as long as the NEO holds his respective position. The contracts provide for severance payments to
be made to the NEO where a change of control, as defined in the contract, occurs and, within ninety
(90) calendar days after the change of control occurs, the executive is terminated without cause or
resigns for reasons specified under the contract. The CFO is entitled to a severance benefit of
2.25 times annual total cash compensation (salary plus bonus). All other NEOs are entitled to a
severance benefit of 1.75 times annual total cash compensation (salary plus bonus). In the event
of a change of control, all outstanding trust unit rights and DEUs granted pursuant to the DEU Plan
and held by the NEOs as at the effective date of the change of control shall become fully vested,
in accordance with the terms of the Rights Incentive Plan and the DEU Plan.
Performance Graph
The following graph and table compares the yearly percentage change in the cumulative Trust
Unitholder return over the last five years (assuming a $100 investment was made on December 31,
2000 on the Trust Units) with the cumulative total return of the S&P/TSX Composite Index, assuming
reinvestment of distributions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 |
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
Pengrowth Energy Trust (B Units) |
|
$ |
100 |
|
|
$ |
89 |
|
|
$ |
105 |
|
|
$ |
178 |
|
|
$ |
178 |
|
|
$ |
253 |
|
|
Pengrowth Energy Trust (A Units) |
|
$ |
100 |
|
|
$ |
89 |
|
|
$ |
105 |
|
|
$ |
178 |
|
|
$ |
238 |
|
|
$ |
291 |
|
|
S&P/TSX Composite Index |
|
$ |
100 |
|
|
$ |
86 |
|
|
$ |
74 |
|
|
$ |
92 |
|
|
$ |
104 |
|
|
$ |
126 |
|
|
S&P/TSX Capped Energy Index |
|
$ |
100 |
|
|
$ |
106 |
|
|
$ |
118 |
|
|
$ |
146 |
|
|
$ |
188 |
|
|
$ |
300 |
|
Compensation of Directors
The following tables set forth the aggregate retainer and attendance fees paid and Trust Unit
Rights and/or DEUs granted pursuant to the Rights Incentive Plan and the DEU Plan to each director
during 2005.
- 15 -
Directors Compensation 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regular Board Fees |
|
Committee Pay |
|
|
|
|
Lead |
|
Retainer |
|
Meeting Fees |
|
Chair |
|
Retainer |
|
Member |
|
Total |
John Zaozirny |
|
$ |
20,000 |
|
|
$ |
25,000 |
|
|
$ |
16,500 |
|
|
$ |
8,000 |
|
|
$ |
3,000 |
|
|
$ |
13,500 |
|
|
$ |
86,000 |
|
|
Thomas Cumming |
|
nil |
|
$ |
25,000 |
|
|
$ |
16,500 |
|
|
$ |
8,000 |
|
|
$ |
7,000 |
|
|
$ |
22,500 |
|
|
$ |
79,000 |
|
|
Kirby Hedrick(1) |
|
nil |
|
$ |
17,025 |
|
|
$ |
10,500 |
|
|
$ |
1,333 |
|
|
$ |
5,450 |
|
|
$ |
4,500 |
|
|
$ |
38,808 |
|
|
Michael Parrett |
|
nil |
|
$ |
25,000 |
|
|
$ |
16,500 |
|
|
$ |
6,000 |
|
|
$ |
8,000 |
|
|
$ |
22,500 |
|
|
$ |
78,000 |
|
|
Terence Poole(1) |
|
nil |
|
$ |
17,025 |
|
|
$ |
9,000 |
|
|
nil |
|
$ |
5,450 |
|
|
$ |
7,500 |
|
|
$ |
38,975 |
|
|
William Stedman(2) |
|
nil |
|
$ |
20,833 |
|
|
$ |
10,500 |
|
|
$ |
6,667 |
|
|
$ |
5,667 |
|
|
$ |
10,500 |
|
|
$ |
54,167 |
|
|
Stanley Wong |
|
nil |
|
$ |
25,000 |
|
|
$ |
16,500 |
|
|
nil |
|
$ |
4,000 |
|
|
$ |
1,500 |
|
|
$ |
47,000 |
|
|
|
|
Notes: |
|
|
|
(1) |
|
Kirby Hedrick and Terence Poole were appointed to the board, effective April 26, 2005.
|
|
(2) |
|
William Stedman resigned from the board, effective October 28, 2005. |
Trust Unit Rights Granted to Directors During the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Units |
|
% of Total Rights |
|
|
|
|
|
Closing Market |
|
|
|
|
Under |
|
Granted in Fiscal |
|
|
|
|
|
Price on Date of |
|
|
|
|
Rights Granted |
|
Year |
|
Exercise Price |
|
Grant |
|
Expiry Date |
John Zaozirny |
|
|
12,000 |
|
|
|
1.9 |
% |
|
$ |
18.14 |
|
|
$ |
18.14 |
|
|
March 3, 2010 |
|
Thomas Cumming |
|
|
12,000 |
|
|
|
1.9 |
% |
|
$ |
18.14 |
|
|
$ |
18.14 |
|
|
March 3, 2010 |
|
Kirby Hedrick |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
Michael Parrett |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
Terence Poole |
|
|
15,000 |
|
|
|
2.4 |
% |
|
$ |
18.69 |
|
|
$ |
18.69 |
|
|
July 7, 2010 |
|
William Stedman |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
Stanley Wong |
|
|
6,000 |
|
|
|
1.0 |
% |
|
$ |
18.14 |
|
|
$ |
18.14 |
|
|
March 3, 2010 |
DEUs Granted to Directors in the Year Ended December 31, 2005
|
|
|
|
|
|
|
DEUs(1) |
John Zaozirny |
|
|
2,000 |
|
|
Thomas Cumming |
|
nil |
|
Kirby Hedrick |
|
|
2,500 |
|
|
Michael Parrett |
|
|
2,000 |
|
|
Terence Poole |
|
nil |
|
William Stedman |
|
|
2,000 |
|
|
Stanley Wong |
|
|
1,000 |
|
|
|
|
Note: |
|
|
|
(1) |
|
Effective for fiscal 2005, the long-term incentive program was redesigned to incorporate both
grants of Trust Unit Rights and DEUs under the Rights Incentive Plan and the DEU Plan that was
approved by the Trust Unitholders on April 22, 2004. DEUs issued under the DEU Plan may be
exchanged by recipients for Class B trust units, subject to the vesting and exercise
provisions of the plan. The mix between Trust Unit Rights and DEUs is at the discretion of
each individual Director. See Part IV Matters to be Considered at the Trust Meeting
Amendments to the DEU Plan. At the recommendation of Towers Perrin, it is proposed that the
Director DEUs do not have vesting or performance requirements. |
- 16 -
Aggregate Option/Right Exercises During the Year Ended December 31, 2005 and Year
End Option and Right Values
The following table summarizes, for the Board of Directors, the number of Trust Units acquired
pursuant to the exercise, if any, and the number of Trust Units covered by unexercised Trust Unit
Options and Trust Unit Rights under the Option Plan and Rights Incentive Plan as of December 31,
2005. Value realized upon exercise is the difference between the market value of the Class B trust
units acquired on the exercise date and the aggregate exercise price of the Trust Unit Options.
The value of the unexercised and in the money options and rights is the difference between the
exercise price of the Trust Unit Options or Trust Unit Rights and the closing stock market price of
the Class B trust units on the Toronto Stock Exchange on December 31, 2005, which was $22.65 per
Class B trust unit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Unexercised in the |
|
|
Securities |
|
Aggregate |
|
Unexercised Options/Rights at |
|
Money Options/Rights at |
|
|
Acquired on |
|
Value Realized |
|
December 31, 2005 (#) |
|
December 31, 2005 ($) |
Name |
|
Exercise ($) |
|
(#) |
|
Vested |
|
Not Vested |
|
Vested |
|
Not Vested |
John Zaozirny |
|
|
38,634 |
|
|
|
219,618 |
|
|
|
12,360 |
|
|
|
12,180 |
|
|
|
66,946 |
|
|
|
60,533 |
|
|
Thomas Cumming |
|
nil |
|
nil |
|
|
38,360 |
|
|
|
12,175 |
|
|
|
260,479 |
|
|
|
60,504 |
|
|
Kirby Hedrick |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
nil |
|
Michael Parrett |
|
nil |
|
nil |
|
|
10,000 |
|
|
|
5,000 |
|
|
|
32,300 |
|
|
|
16,150 |
|
|
Terence Poole |
|
nil |
|
nil |
|
|
5,000 |
|
|
|
10,000 |
|
|
|
19,800 |
|
|
|
39,600 |
|
|
William Stedman(1) |
|
|
10,000 |
|
|
|
13,500 |
|
|
nil |
|
nil |
|
nil |
|
nil |
|
Stanley Wong |
|
|
8,577 |
|
|
|
70,490 |
|
|
|
25,950 |
|
|
|
8,175 |
|
|
|
127,444 |
|
|
|
42,464 |
|
|
|
|
Note: |
|
|
|
(1) |
|
Mr. Stedman ceased to be a member of the Board of Directors on October 28, 2005 and his
unexercised Trust Unit Options and Trust Unit Rights expired in accordance with their terms. |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information with respect to compensation plans under which equity
securities are authorized for issuance as at December 31, 2005, aggregated for all compensation
plans previously approved by securityholders and all compensation plans not previously approved by
securityholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
remaining available for future |
|
|
Number of Securities to be |
|
Weighted average exercise |
|
issuance under equity |
|
|
issued upon exercise of |
|
price of outstanding |
|
compensation plans (excluding |
|
|
outstanding options, warrants |
|
options, warrants and |
|
securities reflected in column |
|
|
and rights |
|
rights |
|
(a))(1) |
Plan Category |
|
(a) |
|
(b) |
|
(c) |
Equity compensation |
|
Options |
|
|
259,317 |
|
|
$ |
15.22 |
|
|
|
6,699,545 |
|
plans approved by |
|
Rights |
|
|
1,441,737 |
|
|
|
|
|
|
|
|
|
securityholders |
|
DEUs |
|
|
185,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation |
|
none |
|
not applicable |
|
not applicable |
plans not approved by securityholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
1,886,645 |
|
$ |
15.22 |
|
|
|
6,699,545 |
|
|
|
|
Note: |
|
|
|
(1) |
|
This number is available for future issuance under equity compensation plans but is not
currently available for issuance as a result of the restriction that such number not exceed
10% of the issued and outstanding trust units. See - Units Issuable. |
- 17 -
|
|
|
(2) |
|
As of December 31, 2005, the maximum number of Trust Units issuable pursuant to the Trust
Unit Option Plan, the Rights Incentive Plan and the DEU Plan was 4,597,908, which represented
2.9% of the issued and outstanding Trust Units. |
Directors and Officers Liability Insurance
The Corporation provides directors and officers liability insurance to its directors and
officers, to pay on behalf of each insured person all loss, subject to the limits of the policy,
for which they become legally obligated, and for which the insured person is not indemnified by the
Corporation. The cost of the insurance is borne entirely by the Corporation.
Indebtedness of Directors and Executive Officers
Since January 1, 2005, none of the directors, executive officers or associates of such directors or
executive officers of the Corporation have been indebted to the Corporation or the Trust.
Interests of Informed Persons in Material Transactions
There were no material interests, direct or indirect, of any directors, executive officers or
associates of such directors or executive officers of the Corporation, any shareholder or
Unitholder who beneficially owns more than 10% of the Common Shares or Units of the Corporation or
the Trust, or any known associate or affiliate of these persons in any transaction since January 1,
2005 and in any proposed transaction which has materially affected or would materially affect the
Corporation or the Trust other than the interests of the Manager under the terms of the Management
Agreement.
Management Agreement
At the annual and special meeting of Trust Unitholders and the special meeting of Royalty
Unitholders, both of which were held on June 17, 2003, the Trust Unitholders and the Royalty
Unitholders approved the Management Agreement which governs both the Trust and the Corporation.
Key elements of the Management Agreement are:
|
|
|
two distinct 3-year terms with a declining fee structure in the second 3-year term; |
|
|
|
|
a base fee determined on a sliding scale: |
|
o |
|
in the first three-year contract term: |
|
§ |
|
2% of the first $200 million of Income; and |
|
|
§ |
|
1% of the balance of Income over $200 million; and |
|
o |
|
in the second three-year contract term: |
|
§ |
|
1.5% of the first $200 million of Income; and |
|
|
§ |
|
0.5% of the balance of Income over $200 million. |
|
|
|
(For these purposes, Income means the aggregate of net production revenue of the
Corporation and any other income earned from permitted investments of the Trust
(excluding interest on cash or near-cash deposits or similar investments)). |
|
|
|
|
a performance based fee based on total returns received by Trust Unitholders which
essentially compensates the Manager for total annual returns which average in excess of 8%
over a 3-year period; |
|
|
|
|
a ceiling on total fees payable determined in reference to a percentage of the fees paid
under the previous management agreement: 80% each year in the first three-year contract
term and 60% each year in the second three-year contract term and subject to a further
ceiling essentially equivalent to $12 million annually during the second three-year
contract term; |
- 18 -
|
|
|
requirement for the Manager to pay certain expenses of the Corporation and the Trust of
approximately $2 million per year; |
|
|
|
|
an annual minimum management fee of $3.6 million comprised of $1.6 million of management
fees and $2.0 million of expenses; |
|
|
|
|
key man provisions in respect of James S. Kinnear, the President of the Manager; |
|
|
|
|
a bonus structure based on 10% of the Managers base fee for employees and special
consultants of the Corporation; and |
|
|
|
|
an optional buyout of the management agreement at the election of the board of directors
of the Corporation on June 30, 2006 with a termination payment of essentially 2/3 of the
management fee paid during the first three-year contract term plus expenses of termination. |
The responsibilities of the Manager under the Management Agreement include:
|
|
|
reviewing and negotiating acquisitions for the Corporation and the Trust; |
|
|
|
|
providing written reports to the board of directors of the Corporation to keep the
Corporation fully informed about the acquisition, exploration, development, operation and
disposition of properties, the marketing of petroleum substances, risk management practices
and forecasts as to market conditions; |
|
|
|
|
supporting the Corporation in connection with its acting as operator of certain of its
properties; |
|
|
|
|
arranging for, and negotiating on behalf of, and in the name of, the Corporation all
contracts with third parties for the proper management and operation of the properties of
the Corporation; |
|
|
|
|
supervising, training and providing leadership to the employees and consultants of the
Corporation and assisting in recruitment of key employees of the Corporation; |
|
|
|
|
arranging for professional services for the Corporation and the Trust; |
|
|
|
|
arranging for borrowings by the Corporation and equity issuances by the Trust; and |
|
|
|
|
conducting general unitholder services, including investor relations, maintaining
regulatory compliance, providing information to Trust Unitholders in respect of material
changes in the business of the Corporation or the Trust and all other reports required by
law, and calling, holding and distributing material in respect of meetings of Trust
Unitholders and Royalty Unitholders. |
Despite the broad authority of the Manager, approval of the board of directors of the Corporation
is required on decisions relating to any offerings, including the issuance of additional Trust
Units, acquisitions in excess of $5 million, annual operating and capital expenditure budgets, the
establishment of credit facilities, the determination of cash distributions paid to Trust
Unitholders, the amendment of any of the constating documents of the Corporation or the Trust and
the amount of the assumed expenses of the Manager which are a portion of the compensation of the
Manager.
Management Agreement Second Term
Under the terms of the Management Agreement, the Corporation had the right to terminate the
Management Agreement effective June 30, 2006 on payment to the Manager of a termination fee and
certain other amounts. In the absence of such termination, the Management Agreement continues in
effect for a final three year term ending June 30, 2009.
An Independent Committee of the Board of Directors of the Corporation was constituted for the
purpose of considering a termination of the Management Agreement. The Independent Committee
retained Scotia Capital Inc.
- 19 -
as its financial advisor. After considering the anticipated effects to the Corporation and to the
Unitholder value of both a termination of the Management Agreement and a continuation of the
Management Agreement, the Independent Committee recommended to the full Board of Directors that the
Management Agreement not be terminated at the end of the first term.
The Independent Committee based its recommendation on several factors including:
|
|
|
The amount of the termination fee payable to the Manager on termination of the
Management Agreement effective June 30, 2006; |
|
|
|
|
The estimated cost of internal management to June 30, 2009 in the event of a termination
of the Management Agreement effective June 30, 2006; |
|
|
|
|
The estimated maximum management fees that would be payable to the Manager over the
final three years of the term of the Management Agreement; |
|
|
|
|
The advice of its financial advisor; |
|
|
|
|
The management fee ceiling applicable during the final three years of the Management
Agreement which will result in lower management fees in the second term of the Management
Agreement ending June 30, 2009 as compared to the first term of the Management Agreement
ending June 30, 2006; and |
|
|
|
|
The commitment by the Manager to certain key governance standards relating to the
conduct of the affairs of the Trust and a continuing commitment to overall corporate
governance practices (as such practices would apply to Pengrowth in an internalized
management structure); and a further commitment to assist and work with the Board in
establishing a plan for the orderly transition to a traditional corporate management
structure at the end of the final term of the Management Agreement on June 30, 2009. |
Based on the recommendation of the Independent Committee, the Board of Directors resolved not to
terminate the Management Agreement at the end of the first term and has therefore resolved to
continue the Management Agreement in accordance with its terms for a second three year term ending
on June 30, 2009.
- 20 -
PART
II CORPORATE GOVERNANCE
Mandates of the Trustee, the Manager and the Board of Directors
The Corporation holds petroleum and natural gas rights and other assets. Under the Royalty
Indenture, a royalty was created representing 99% of the Royalty Income, which is payable to
Royalty Unitholders. The Trust was created for the purpose of issuing Trust Units to the public,
facilitating an indirect investment in Royalty Units and other permitted investments under the
Trust Indenture. The Trust holds Royalty Units, interests in certain petroleum and natural gas
facilities, cash and other assets. The Class B trust units and the Class A trust units of the
Trust are listed on the Toronto Stock Exchange (the TSX) and the Class A trust units of the Trust
are also listed on the New York Stock Exchange (the NYSE). The Trust is therefore subject to the
corporate governance listing requirements of both exchanges.
Under the terms of the Trust Indenture, the Trustee is empowered to exercise those rights and
privileges that could be exercised by a beneficial owner of the assets of the Trust in respect of
the administration and management of the Trust. The Trustee is permitted to delegate certain of
the powers and duties of the Trustee to any one or more agents, representatives, officers,
employees, independent contractors or other persons. However, specific powers are delegated to the
Corporation as Administrator under the Trust Indenture and the Trustee has granted broad
discretion to the Manager to administer and regulate the day to day operations of the Trust. The
powers of the Trustee are also limited through the voting rights of Trust Unitholders.
Under the Management Agreement, the Manager is empowered to act as agent for the Trust in respect
of various matters, to execute documents on behalf of the Trustee and to make executive decisions
which conform to general policies and general principles previously established by the Trustee.
The Manager is empowered to undertake, on behalf of the Corporation and the Trust, subject to the
Royalty Indenture, all matters pertaining to the properties of the Corporation. See Management
Agreement.
Under the Royalty Indenture, the Corporation makes all operating decisions with respect to the
properties of the Corporation. Under the Trust Indenture, general powers have been delegated to
the Corporation as the Administrator of the Trust to perform those functions of the Trustee which
are largely discretionary, subject to the powers and duties of the Manager. Additionally, specific
powers have been delegated to the Corporation in relation to the offering of securities, the
acquisition of facilities and other assets, the incurring of indebtedness, the granting of security
and the determination of distributable income.
In accordance with the terms of the Unanimous Shareholder Agreement, all Royalty Unitholders other
than the Trustee, and all Trust Unitholders are entitled to attend at, and vote upon, all
resolutions brought before meetings of the Shareholders of the Corporation on the basis of one vote
for each Unit held. Currently, the Unanimous Shareholder Agreement also provides that the Board of
Directors shall consist of two nominees of the Manager and up to six directors who are elected by
the Trust Unitholders of the Trust. The Board of Directors meets a minimum of four times each
year, once in each fiscal quarter. In addition, the Board of Directors meets at other times when
matters requiring its approval are raised and the timing is such that it is not prudent or possible
to await a regularly scheduled quarterly meeting. During 2005, 11 regularly constituted Board of
Directors meetings were held.
Board Independence
The NYSE Listed Company Manual states that a majority of directors must be independent. An
independent director is defined as one who has been determined by the Board of Directors to have no
material relationship with Pengrowth, other than relationships arising from shareholdings. In
addition, a director is not independent if: (i) the director or an immediate family member is, or
has been within the last three years, an employee or executive officer of Pengrowth; (ii) the
director or an immediate family member has received during any twelve month period within the last
three years, more than $100,000 in direct compensation from Pengrowth; (iii) the director or an
immediate family member, a partner or employee of a firm that is Pengrowths internal or external
auditor or the director or an immediate family member has, within the last three years, been a
partner or employee of such firm and worked on Pengrowths audit; (iv) the director or an immediate
family member is, or has been within the last three years, employed as an executive officer of
another company where any of Pengrowths present officers at the same time serves or served on that
companys compensation committee; and (v) the director or an immediate family member is a current
employee of a company that has made payments to, or received payments from, Pengrowth for a
property
- 21 -
or services in an amount which, in any of the last three fiscal years, exceeds the greater of
$1,000,000, or 2% of such other companys consolidated gross revenues.
National Instrument 58-101 Disclosure of Corporate Governance Practices of the Canadian Securities
Administrators (NI 58-101) recommends that the board of directors of every issuer be constituted
with a majority of individuals who qualify as independent. An independent director is a director
that has no material relationship, direct or indirect, with the issuer, which could, in the view of
the issuers board of directors, be reasonably expected to interfere with the exercise of a
members independent judgment.
Six of the eight directors recommended for election to the Board of Directors qualify as
independent directors under the NYSE requirements and NI 58-101. Mr. James S. Kinnear, who is
Chairman, President and Chief Executive Officer of the Corporation as well as President and Chief
Executive Officer of the Manager, is not independent of either entity and is a related director.
Mr. Stanley H. Wong may be considered not to be independent and is a related director as he is the
Managers additional appointee to the Board of Directors pursuant to the terms of the Unanimous
Shareholder Agreement. However, Mr. Wong is neither engaged by the Manager nor by the Corporation
and receives remuneration solely in his capacity as a director of the Corporation. The remainder
of the directors are independent and unrelated in that they have not worked for the Corporation (or
the Manager) nor do they have material contracts with the Corporation (or the Manager) or receive
remuneration from the Corporation (or the Manager), other than Trust Unit Rights, in excess of
directors fees payable by the Corporation.
Board Approvals and Structure
The Manager makes recommendations to the Board of Directors as to the strategic direction of the
Corporation and the Trust. The Board of Directors considers these recommendations and assumes
overall responsibility for the strategic direction of the Corporation and the Trust through the
annual consideration of a strategic plan and budget. Criteria are approved by the Board of
Directors for the acquisition and disposition of oil and natural gas properties and other permitted
investments.
The Manager has general power under the Management Agreement to conduct acquisitions and
dispositions and the operation of properties. Because of the structure created by the Trust
Indenture, the Royalty Indenture and the Unanimous Shareholder Agreement, neither the Manager nor
the Board of Directors has complete authority over the businesses and affairs of the Trust and the
Corporation. The Trustee responds to directions from the Manager and from the Board of Directors
(with respect to the Corporation as administrator of the Trust) within the scope of the authority
of the Trustee and the Trustees power to delegate.
The Board of Directors responds to recommendations brought forward by the Manager to the Board of
Directors on material matters impacting the Corporation and the Trust. Practically, the Manager
defers to the Board of Directors in respect of all matters which may have a material impact upon
the business and undertaking of the Corporation, the Trust, the Royalty Unitholders or the Trust
Unitholders. Reliance is placed upon independent engineering, legal and accounting consultants
where appropriate.
The Board of Directors represents a cross-section of experience in matters of oil and gas, finance
and directors responsibilities. Three of the eight nominated members of the Board of Directors
have been directors since the formation of the Corporation and the Trust. Thomas A. Cumming has
been a director since April 2000. Michael S. Parrett has been a director since April 22, 2004. A.
Terence Poole and Kirby L. Hedrick have been directors since April 26, 2005. Wayne Foo is being
nominated as a director for the first time at the Shareholder Meeting.
Board Committees
The Audit Committee of the Board of Directors is currently comprised of four independent directors.
The Board of Directors has also constituted a Corporate Governance Committee comprised of four
independent directors, a Compensation Committee comprised of three independent directors and a
Reserves Committee comprised of two directors, one of whom is independent. The Reserves Committee
has been established in order to participate in and review the preparation of independent reserve
reports for the oil and gas assets of the Corporation and the reporting thereof. There are no
other committees of the Board of Directors.
- 22 -
In respect of matters such as discussions concerning the Management Agreement or related party
transactions, representatives of the Manager disclose their conflict of interest and absent
themselves from discussions and voting.
Statement of Corporate Governance Practices
The Board of Directors, the Manager and senior management consider good corporate governance to be
central to the effective and efficient operation of the Trust and the Corporation. The Board of
Directors has general corporate authority over the business and affairs of the Corporation and
derives its authority in respect to the Trust by virtue of the delegation of powers by the Trustee
to the Corporation as Administrator in accordance with the Trust Indenture. In accordance with
the Royalty Indenture, Trust Indenture and Unanimous Shareholder Agreement, the Trust Unitholders
and Royalty Unitholders empowered the Trustee and the Corporation to delegate authority to the
Manager. The Manager derives its authority from the Management Agreement with both the Corporation
and the Trust. In practice, the Manager defers to the Board of Directors on all matters material
to the Corporation and the Trust
The Board of Directors and the Manager are aware of their responsibility for corporate governance
and recognize the importance of enhancing the corporate governance practices of the Trust and the
Corporation.
On November 4, 2003, the NYSE adopted a number of changes to the standards for issuers listed on
the NYSE, such as the Trust. The changes to the NYSE listing standards are not mandatory for the
Trust, but any differences in the Trusts corporate governance practices and the NYSE rules must be
disclosed by the Trust in its annual 40F filing with the Securities and Exchange Commission in the
United States. Certain provisions of SOX and certain rules adopted and proposed by the United
States Securities and Exchange Commission (SEC) pursuant to the requirements of SOX, which are
applicable to the Trust, also influence the Trusts approach to corporate governance.
On June 30, 2005, the Canadian Securities Administrators implemented NI 58-101 and National Policy
58-201 Corporate Governance Guidelines, which effectively replaced the corporate governance
guidelines and disclosure policies of the TSX.
Under NI 58-101, the Corporation is required to disclose certain information relating to its
corporate governance practices. This information is set out in Appendix 1 to this Circular.
- 23 -
PART III MATTERS TO BE CONSIDERED AT THE SHAREHOLDER MEETING
Appointment of Auditors
The Unitholders will be asked to consider a resolution to appoint the firm of KPMG LLP, Chartered
Accountants, of Calgary, Alberta, as auditors of the Corporation, to hold office until the next
annual meeting of the Shareholders or until their successor is elected or appointed, at the
remuneration to be fixed by the Board of Directors.
Election of Directors
The current directors of the Corporation are James S. Kinnear, John B. Zaozirny, Stanley H. Wong,
Thomas A. Cumming, Michael S. Parrett, A. Terence Poole and Kirby L. Hedrick. The Corporate
Governance Committee has recommended, and the Board of Directors has nominated, Wayne Foo as a
director of the Corporation.
Pursuant to the Unanimous Shareholder Agreement, the Corporation shall have a Board of Directors of
a minimum of three and a maximum of eight members, two of whom are to be appointed by the Manager.
It is the intention of the Manager to appoint James S. Kinnear and Stanley H. Wong as directors.
The persons named in the enclosed form of proxy intend to vote for the election of John B.
Zaozirny, Thomas A. Cumming, Michael S. Parrett, A. Terence Poole, Kirby L. Hedrick and Wayne Foo
as directors of the Corporation. Should any of the nominees be unable to serve as a director for
any reason, the persons named in the enclosed form of proxy reserve the right to vote for another
nominee at their discretion. Each director elected will hold office until the close of the next
annual meeting of Shareholders of the Corporation.
The following table sets forth the names of the nominees together with their principal occupations,
jurisdiction of residence, the year in which they became directors and the number of Trust Units
over which they exercised control or direction as at May 1, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B |
|
|
|
|
|
|
Trust Units |
|
|
|
|
|
|
Controlled or |
Name, Principal |
|
|
|
|
|
Beneficially |
Occupation and Jurisdiction of Residence |
|
Director Since |
|
Owned(1) |
James S. Kinnear
Chairman, President and Chief Executive Officer of Pengrowth
Corporation and President and Chief Executive Officer of Pengrowth
Management Limited
Alberta, Canada
|
|
|
1988 |
|
|
|
4,051,039 |
(2) |
|
|
|
|
|
|
|
|
|
John B. Zaozirny(4)(5)
Counsel, McCarthy Tétrault
(Barristers & Solicitors)
Alberta, Canada
|
|
|
1988 |
|
|
|
47,362 |
|
|
|
|
|
|
|
|
|
|
Stanley H. Wong(6)(7)
President of Carbine Resources Ltd.
(Private Oil and Gas Company)
Alberta, Canada
|
|
|
1988 |
|
|
|
46,576 |
|
|
|
|
|
|
|
|
|
|
Thomas A. Cumming(3)(4)(5)
Businessman
Alberta, Canada
|
|
|
2000 |
|
|
|
6,678 |
|
|
|
|
|
|
|
|
|
|
Michael S. Parrett(3)(4)(5)
Businessman
Ontario, Canada
|
|
|
2004 |
|
|
|
4,000 |
|
- 24 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B |
|
|
|
|
|
|
Trust Units |
|
|
|
|
|
|
Controlled or |
Name, Principal |
|
|
|
|
|
Beneficially |
Occupation and Jurisdiction of Residence |
|
Director Since |
|
Owned(1) |
A. Terence Poole(3)(4)
Executive Vice President, Corporate Strategy and Development of
Nova Chemicals Corporation (Chemical Manufacturing Company)
Alberta, Canada
|
|
|
2005 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
Kirby L. Hedrick(3)(6)
Businessman
Wyoming, United States
|
|
|
2005 |
|
|
nil
|
|
|
|
|
|
|
|
|
|
Wayne Foo
President, Petro Andina Resources Inc.
(Private Oil and Gas Company)
Alberta, Canada
|
|
Nominee
|
|
nil
|
Notes:
|
|
|
(1) |
|
Does not include Trust Units issuable upon the exercise of outstanding Trust Unit Options,
Trust Unit Rights or DEUs. |
|
(2) |
|
In addition, Mr. Kinnear exercises control over 13,152 Royalty Units which are held by the
Manager. Included in Mr. Kinnears trust units are an insignificant number of Class A trust
units. |
|
(3) |
|
Member of the Audit Committee. |
|
(4) |
|
Member of the Corporate Governance Committee. |
|
(5) |
|
Member of the Compensation Committee. |
|
(6) |
|
Member of the Reserves Committee. |
|
(7) |
|
In addition, Mr. Wong exercises control over 3,288 Royalty Units held by Carbine Resources Ltd. |
Wayne Foo
Wayne Foo is a Geologist. He received a Bachelor of Science in Geology from the University of
Calgary in 1977 and a Masters of Science in Geology from Queens University in 1979. Mr. Foo has
extensive geological and senior management experience in the oil and gas industry. Mr. Foo has a
varied 27-year career in the energy sector, including Geologist at Chevron Canada Resources
(1979-1981), Geologist at Corexcana Ltd. (1981-1983), Geologist, Supervisor and Manager at Chevron
Canada and International (1983-1996), President, Chief Operating Officer and Vice President of
Archer Resources Ltd. (1996-1998), President and Chief Executive Officer of Dominion Energy Canada
Ltd. (1998-2002). At present, Mr. Foo is President of Petro Andina Resources Inc. and Chairman of
Brigantine Energy Inc. Mr. Foo is a member of APEGGA, the Canadian Society of Petroleum Geologists
and the American Association of Petroleum Geologists.
Amendments to the Unanimous Shareholder Agreement to Simplify Voting at the Annual General Meeting
Unitholders will be asked to consider an extraordinary resolution approving amendments to the
Unanimous Shareholder Agreement to simplify Pengrowths annual meeting process.
Pengrowths current annual general meeting process includes three meetings, namely, a meeting of
the Shareholders, a meeting of the Royalty Unitholders and a meeting of the Trust Unitholders.
These meetings are held in immediate succession and are required as a result of the provisions of
the Unanimous Shareholder Agreement, the Royalty Agreement and the Trust Indenture.
The Unanimous Shareholder Agreement currently provides for the following with respect to the voting
of the Common Shares of the Corporation:
1. |
|
The Shareholders of the Corporation are required to abstain from voting their Common Shares
at any and all meetings of the Shareholders. |
2. |
|
The Shareholders may vote their Common Shares or exercise rights to pass a resolution in
writing where required to comply with any provision of the Business Corporations Act (Alberta)
and in so doing will vote in accordance with the majority vote of Unitholders on the same
matter. |
3. |
|
The Unitholders are entitled to notice of, and to attend and vote at, as if they were
Shareholders, any meeting of the Shareholders. |
- 25 -
The Royalty Indenture currently provides for the following with respect to the voting of the
Royalty Units at meetings of the Royalty Unitholders:
1. |
|
In respect of a vote by a show of hands, each Royalty Unitholder who is present and entitled
to vote in person or by proxy shall be entitled to one vote at each meeting of Royalty
Unitholders for each Royalty Unit held. |
2. |
|
In respect of a vote by poll, each Royalty Unitholder who is present and entitled to vote in
person or by proxy shall be entitled to one vote at each meeting of Royalty Unitholders for
each Royalty Unit held. |
The Royalty Indenture further clarifies that the Trustee is not entitled to vote any Royalty Units
held in its capacity as Trustee under the Trust Indenture.
The Trust Indenture currently provides for the following with respect to the voting of Royalty
Units at all meetings of the Royalty Unitholders or Shareholders:
1. |
|
All Royalty Units held by the Trustee as part of the property of the Trust shall not be voted
by the Trustee but shall be voted by the Trust Unitholders at all Shareholder meetings and
Royalty Unitholder meetings. |
2. |
|
The Trustee is required to be a party to the Unanimous Shareholder Agreement and the Royalty
Indenture. |
The foregoing agreements effectively entitle Trust Unitholders to vote separately at each
Shareholder meeting, Royalty Unitholder meeting and Trust Unitholder meeting. It is managements
view that convening three meetings as part of each annual general meeting of Trust Unitholders is
unduly confusing to the Trust Unitholders and inconsistent with standard industry practice.
The requirement to have meetings of the Shareholders and Royalty Unitholders in conjunction with
meetings of the Trust Unitholders results in essentially the same subject matter requiring the
approval of Shareholders, Royalty Unitholders and Trust Unitholders, resulting in repetition
between the meetings, and making the annual general meeting process more cumbersome and time
consuming.
At the Shareholder Meeting, the Trust Meeting and the Royalty Meeting, it is proposed that an
extraordinary resolution of the Shareholders, Trust Unitholders and Royalty Unitholders be passed
to amend the Unanimous Shareholder Agreement, the Trust Indenture and the Royalty Indenture, as
applicable, to remove the provisions which provide that the Trust Unitholders are entitled to vote
at meetings of the Shareholders and Royalty Unitholders and to remove the provisions which provide
that the Royalty Unitholders are entitled to vote at meetings of the Shareholders. Should these
proposed amendments be approved and implemented, the business of the Corporation will be conducted
by way of consent resolutions of the Shareholders, acting with the prior approval of the Trust
Unitholders. By removing the requirement to hold three separate meetings, the Corporation will
streamline the annual meeting procedure, reduce costs and bring the Trust and the Corporation into
conformity with the standard practice of oil and gas income trusts. To ensure the Trust
Unitholders have the ability to pre-approve Shareholder resolutions pertaining to the Corporation,
the Trust Indenture will be amended to require that the Trustee seek the direction of the Trust
Unitholders before voting the Common Shares or Royalty Units held by the Trustee.
To be approved, the extraordinary resolution approving the foregoing amendments to the Unanimous
Shareholder Agreement, the Trust Indenture and the Royalty Indenture requires the approval of not
less than 66 2/3% of the votes cast by the Shareholders, Trust Unitholders and Royalty Unitholders
at the Shareholder Meeting, the Trust Meeting and the Royalty Meeting, respectively. At the
Shareholder Meeting, the Shareholders will therefore be asked to consider and, if thought
appropriate, pass the extraordinary resolution contained in Schedule A-1 to this Circular.
- 26 -
Amendments to the Unanimous Shareholder Agreement and the Articles of the Corporation to Increase
the Maximum Size of the Board of Directors of the Corporation
Unitholders will be asked to consider an extraordinary resolution approving amendments to the
Unanimous Shareholder Agreement and the articles of the Corporation to increase the maximum size of
the Board of Directors of the Corporation.
The Unanimous Shareholder Agreement and the articles of the Corporation currently provide that the
Board of Directors may have no fewer than three members and no more than eight members. The
restrictions on the maximum size of the Board of Directors of the Corporation as currently
contained in the Unanimous Shareholder Agreement and the articles of the Corporation were
determined when the business and governance of the Trust were significantly less complex. Due to
several factors, including the increased size of the Trust, an increase in the complexity of the
Trusts business and a more stringent regulatory environment, particularly relating to matters of
corporate governance, it is managements view that the work load of Directors has significantly
increased and increasing the size of the Board of Directors will be advantageous to Pengrowth.
Increasing the number of Directors will also bring additional skills, experiences and views to the
Board of Directors. In addition, increasing the size of the Board of Directors will provide
flexibility to Pengrowth and the ability to add high-caliber directors as they become available,
rather than when a board vacancy arises.
At the Shareholder Meeting, the Trust Meeting and the Royalty Meeting, it is proposed that an
extraordinary resolution of the Shareholders, Trust Unitholders and Royalty Unitholders be passed
to amend the Unanimous Shareholder Agreement and the articles of the Corporation to increase the
maximum size of the Board of Directors to twelve members.
To be approved, the extraordinary resolution approving the foregoing amendments to the Unanimous
Shareholder Agreement and the articles of the Corporation requires the approval of not less than 66
2/3% of the votes cast by the Shareholders, Trust Unitholders and Royalty Unitholders at the
Shareholder Meeting, the Trust Meeting and the Royalty Meeting, respectively. At the Shareholder
Meeting, the Shareholders will therefore be asked to consider and, if thought appropriate, pass the
extraordinary resolution contained in Schedule A-2 to this Circular.
- 27 -
PART IV MATTERS TO BE CONSIDERED AT THE TRUST MEETING
Appointment of Auditors
It is the intention of the persons named in the enclosed form of proxy, if not expressly directed
to the contrary in the proxy, to vote in favour of a resolution to appoint the firm of KPMG
llp, Chartered Accountants, of Calgary, Alberta, as the auditors of the Trust, to hold
office until the next annual meeting of Unitholders or until their successor is elected or
appointed, at the remuneration to be fixed by the Board of Directors.
Amendments to the Trust Indenture to Provide for the Consolidation of the Trusts Dual Class
Structure
Summary
Pengrowth implemented the Class A and Class B dual trust unit structure (the dual class
structure) in July of 2004 so that Pengrowth could control the level of ownership of Trust Units
by non-residents of Canada and thereby ensure that Pengrowth was a mutual fund trust under the
Income Tax Act (Canada) (the Tax Act).
Early in 2006, Pengrowth received preliminary advice from Bennett Jones LLP that, as a result of a
number of factors, it may no longer be necessary for Pengrowth to regulate the level of ownership
of Trust Units by non-residents of Canada to preserve Pengrowths status as a mutual fund trust
under the Tax Act. Pengrowth also received preliminary advice from its financial advisors that the
dual class structure may be an impediment to Pengrowth in executing its business plan, a
fundamental component of which is the long-term creation of unitholder value through accretive
acquisitions and related financings.
As a result, the Board of Directors considered it appropriate to examine whether the dual class
structure continued to be in the best interests of the Trust and the Trust Unitholders and formed a
Special Committee of independent directors.
The Special Committee has unanimously recommended to the Board of Directors that the Class A trust
units and the Class B trust units of Pengrowth be consolidated as follows:
|
|
effective as of 5:00 p.m. (Calgary time) on June 27, 2006: |
|
o |
|
the restriction on the Class B trust units that provides that the Class
B trust units may only be held by residents of Canada will be eliminated; and |
|
|
effective as of 5:00 p.m. (Calgary time) on July 27, 2006: |
|
o |
|
the Class A trust units will be delisted from the Toronto Stock
Exchange (effective as of the close of markets); |
|
|
o |
|
the Class B trust units will be renamed as Trust Units (for further
clarity, defined herein as Consolidated Trust Units) and the trading symbol of
the Consolidated Trust Units will be changed from PGF.B to PGF.UN (subject to
the approval of the TSX); |
|
|
o |
|
all of the issued and outstanding Class A trust units will be converted
into Consolidated Trust Units on the basis of one Consolidated Trust Unit for each
whole Class A trust unit previously held (with the exception of Class A trust units
held by residents of Canada who have provided a residency declaration to the
Trustee); and |
|
|
o |
|
the Consolidated Trust Units will be substitutionally listed in place
of the Class A trust units on the New York Stock Exchange under the trading symbol
PGH (subject to the approval of the NYSE); |
|
|
(collectively referred to in this Circular as the Consolidation, as described in greater
detail under Terms of the Consolidation below). |
- 28 -
The Board of Directors unanimously recommends that Trust Unitholders approve the Consolidation.
See Recommendations of the Board of Directors. The form of the extraordinary resolution to
approve the Consolidation is attached as Schedule B-1 hereto (the Consolidation Resolution).
The Board of Directors urges all Trust Unitholders to give careful consideration to the factors
described below under Background Significant Considerations of the Special Committee.
THE CONVERSION OF CLASS A TRUST UNITS HELD BY RESIDENTS OF CANADA TO CONSOLIDATED TRUST UNITS
PURSUANT TO THE CONSOLIDATION WILL CONSTITUTE A TAXABLE DISPOSITION. HOLDERS OF CLASS A TRUST
UNITS WHO ARE RESIDENTS OF CANADA AND DO NOT WISH TO HAVE THEIR CLASS A TRUST UNITS CONVERTED INTO
CONSOLIDATED TRUST UNITS MUST DELIVER A DULY COMPLETED ELECTION AND DECLARATION OF RESIDENCY TO THE
TRUSTEE NO LATER THAN 5:00 P.M. (CALGARY TIME) TUESDAY, JULY 25, 2006. COPIES OF THE ELECTION AND
DECLARATION OF RESIDENCY WILL BE MAILED TO HOLDERS OF CLASS A TRUST UNITS FOLLOWING THE TRUST
MEETING. FOR INFORMATION IN RELATION TO THE TAX CONSIDERATIONS ARISING FROM THE CONVERSION OF
CLASS A TRUST UNITS HELD BY RESIDENTS OF CANADA, SEE TAX CONSIDERATIONS.
Background
Mutual Fund Trust Status of the Trust
Maintaining its status as a mutual fund trust under the Tax Act is of fundamental importance to the
Trust. If the Trust ceases to qualify as a mutual fund trust it will significantly adversely
affect the value of Pengrowths Trust Units.
Generally speaking, in addition to several other requirements, in order for a trust such as
Pengrowth to be a mutual fund trust under the Tax Act, either: (i) the trust must not be
established or maintained primarily for the benefit of non-residents of Canada (i.e. a majority of
its trust units must be owned by residents of Canada) (the Benefit Test) or (ii) at all times
after February 21, 1990, all or substantially all of the property of the trust must consist of
property other than taxable Canadian property (the Property Exception).
Early in 2004, it had become apparent that the level of non-resident ownership of the Trust had
risen from approximately 8% at the time of listing on the NYSE in April 2002 to a level approaching
50%. As a result of certain legislative proposals announced by the Minister of Finance
on March 23, 2004 and uncertainty as to whether or not Pengrowth satisfied the Property Exception,
it was considered prudent for Pengrowth to rely upon the Benefit Test and, on July 27, 2004,
Pengrowth implemented the dual class structure to ensure that, after the implementation period,
residents of Canada, through the ownership of Class B trust units, would own a majority of the
outstanding Trust Units.
On November 26, 2004, the Trust received a comfort letter from the Department of Finance (Canada)
(the 2004 Finance Letter) stating that the Department of Finance would recommend to the Minister
of Finance that an amendment be made to the Tax Act that would clarify the Trusts ability to rely
upon the Property Exception. However, various announcements by the Federal Government relating to
the residency requirements for mutual fund trusts during 2004 and 2005 resulted in considerable
uncertainty regarding Pengrowths long-term ability to rely upon the Property Exception and as a
result, Pengrowth considered it prudent to maintain the dual class structure.
In early 2006, the Corporation and Bennett Jones LLP held discussions with the Tax Legislation
Division of the Department of Finance and with the Canada Revenue Agency. These discussions
provided comfort to Pengrowth that it was unlikely that the Department of Finance would impose
additional obligations on mutual fund trusts in respect of non-resident ownership and that the
Department of Finance would also implement the changes to the Tax Act contemplated by the 2004
Finance Letter.
On March 23, 2006, Pengrowth received a letter from the Department of Finance (the 2006 Finance
Letter) confirming that it remains the intention of the department to recommend to the Minister of
Finance the changes to the Tax Act contained in the 2004 Finance Letter. Bennett Jones LLP advised
that, as a result of a number of
- 29 -
factors, including receipt by the Corporation of confirmations from the Canada Revenue Agency and
the Department of Finance (including the 2004 Finance Letter and the 2006 Finance Letter), it was
no longer necessary to regulate the level of ownership of Trust Units by persons who are not
Canadian residents in order to preserve Pengrowths status as a mutual fund trust under the Tax
Act.
For further information concerning the mutual fund trust status of the Trust see Trust Units
Trust Unit Reclassification in the Trusts annual information form dated March 29, 2006, which
section is hereby incorporated by reference.
Appointment and Mandate of the Special Committee
In light of these developments, the Board of Directors considered it appropriate to examine whether
the dual class structure continued to be in the best interests of the Trust and the Trust
Unitholders and the extent to which the structure may be an impediment to the execution by
Pengrowth of its business plan. On March 27, 2006, the Board of Directors formed a special
committee of the Board of Directors consisting of A. Terence Poole, Thomas A. Cumming, Kirby L.
Hedrick and Michael S. Parrett, all of whom are independent directors, to make recommendations to
the Board of Directors. The mandate of the Special Committee included examining the impact of the
dual class structure on Pengrowth and its ability to effectively pursue its business plan and
examining alternatives to that structure, including the removal of the ownership restriction from
the Class B trust units, the merger of the Class A trust units and the Class B trust units into a
single class of trust units or any other alternatives the Special Committee considered appropriate,
together with the impact of any course of action on Pengrowth and both the Class A unitholders and
Class B unitholders and the methods of implementation thereof. For information in relation to the
holdings of the members of the Special Committee of Class B trust units, see Part III Matters to
be Considered at the Shareholders Meeting Election of Directors and see also Part I General
Information for all Meetings Compensation of Directors.
Process and Meetings of the Special Committee
The process that resulted in the recommendation by the Special Committee to the Board of Directors
to proceed with the Consolidation involved nine meetings of the Special Committee held over the
course of seven weeks. Meetings of the Special Committee occurred on March 29, 2006, April 3,
2006, April 7, 2006, April 19, 2006, May 2, 2006, May 8, 2006, May 11, 2006, May 14, 2006 and May
16, 2006. The Special Committee retained Burnet, Duckworth & Palmer LLP, Calgary, Alberta (BDP)
and Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York (Paul Weiss) as its legal
advisors and BMO Nesbitt Burns Inc. (BMO Nesbitt Burns) and Merrill Lynch Canada Inc. (Merrill
Lynch) as its financial advisors. Each meeting of the Special Committee included an in-camera
session where the Special Committee met solely with its legal advisors. In addition to the advice
of its legal and financial advisors, the Special Committee considered the advice of Bennett Jones,
legal advisors to the Corporation, RBC Capital Markets (RBC), financial advisor to the
Corporation, and the information provided by management of the Corporation.
Significant Considerations of the Special Committee
In concluding that the dual class structure is a significant impediment to Pengrowth in executing
its business plan, and therefore determining to recommend the Consolidation, the Special Committee
considered the advice of its financial advisors, BMO Nesbitt Burns and Merrill Lynch, that the dual
class structure results in:
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An Inability to Effectively Raise Capital at the Lowest Possible
Cost. The dual class structure requires that at least 50.25% of
any equity financing consist of Class B trust units. Although the
Class A trust units and Class B trust units have identical
economic entitlements, the trading price of the Class B trust
units has, since inception of the dual class structure, traded at
a discount to the trading price of the Class A trust units. The
requirement to issue at least as many Class B trust units as Class
A trust units increases Pengrowths cost of capital making it more
difficult and expensive for Pengrowth to effectively raise
capital. |
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A Significant Impediment to Completing Mergers or Acquisitions
Using Trust Units as Consideration. There have been in excess of
$22 billion of mergers and acquisitions in the Canadian royalty
trust sector since Pengrowth implemented the dual class structure,
with 6 of the 7 largest transactions being royalty trust mergers
completed primarily through exchanges of trust units. As the
Class |
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A trust units and Class B trust units have traded at significantly different
prices, the dual class structure makes valuing Pengrowths Trust Units more
challenging and thereby makes it difficult for Pengrowth to complete mergers or
acquisitions through an issuance of Trust Units. |
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Significantly Reduced Liquidity in the Trading of
Trust Units. The dual class structure results in
Pengrowths market capitalization being split between
two classes of Trust Units with the same economic
entitlements, with each class of Trust Units being
less liquid than would be the case if all trust units
of the Trust comprised one class. Increasing
liquidity in the Trust Units will enhance market
efficiencies and will facilitate participation by
different categories of investors in the ownership of
the Trust Units. |
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An Inability to Complete Efficient Equity Financings.
As the Class A trust units have, since inception of
the dual class structure, traded at a premium to the
Class B trust units, for Pengrowth to raise equity
capital at the lowest cost, any equity financing must
include the maximum permitted number of Class A trust
units. The most common form of equity financing in
Canada for trusts like the Trust is the bought deal
short form prospectus financing. As Pengrowth cannot
effectively issue Class A trust units through a
bought deal financing, Pengrowth cannot raise
capital at the lowest cost through this form of
financing and must use more complicated and expensive
and less efficient forms of equity financings. This
puts the Trust at a competitive disadvantage to its
peers, particularly when competing for value
enhancing acquisition opportunities. |
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A Diversion of Managements Time. The dual class
structure diverts Pengrowths resources, including
management time and attention, from the pursuit of
Pengrowths business plan. |
A significant factor in the determination of the Special Committee was the opinion of Bennett Jones
LLP to the effect that, in reliance on the certificate provided by management of the Corporation as
to the relative value of Pengrowths assets, and subject to the assumptions and qualifications
contained therein, Pengrowth would satisfy the requirements of the Tax Act to be a mutual fund
trust even if non-residents of Canada owned a majority of the outstanding Trust Units. In
providing the certificate, management relied upon a valuation of certain assets of the Trust dated
May 10, 2006 prepared by GLJ & Associates Ltd.
During the course of its deliberations, the Special Committee also considered, among other things:
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the independence, qualifications and expertise of the financial and legal advisors
to the Special Committee; |
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the advice of Bennett Jones regarding the applicable legal duties of the members of
the Special Committee and the Board of Directors and the advice of Paul Weiss regarding
the legal duties that would apply to the members of the Special Committee if Pengrowth
was a Delaware corporation; |
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the mandate of the Special Committee, and on the advice of BDP, amendments that
should be made to the mandate; |
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various alternatives to effect the removal of the dual class structure, the required
amendments to Pengrowths trust indenture and the implementation of such alternatives; |
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the advice of BMO Nesbitt Burns, Merrill Lynch and the Corporations financial
advisor, RBC, that the removal of the dual class structure will assist Pengrowth in
executing its business plan, a fundamental component of which is the long-term creation
of unitholder value through accretive acquisitions and related financings; |
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the advice of BMO Nesbitt Burns and Merrill Lynch regarding factors that may have
influenced the spread between the trading prices of the Class A trust units and Class B
trust units and recent narrowing of the spread and the potential impact on the trading
prices of the Class A trust units and Class B trust units of unwinding the dual class
structure and the available mechanisms for maintaining an orderly market throughout the
process including the potential impact of trading by professional market traders; |
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the historical trading patterns of the Class A trust units and Class B trust units
and the risk that the Class A trust units or Class B trust units or resulting
Consolidated Trust Units may trade at reduced prices after the Trust Meeting as a
result of the Consolidation; |
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provisions of the Trust Indenture providing for the equality of the Class A trust
units and Class B trust units for all economic entitlements and voting; |
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the Consolidation will not result in a change to the economic entitlements and
voting rights of holders of the Class A trust units or the Class B trust units; |
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the fairness opinions delivered by BMO Nesbitt Burns and Merrill Lynch; |
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the provisions of the Trust Indenture stipulating that: (i) the Trust Indenture may
only be amended by the affirmative vote of the holders of not less than 66 2/3% of the
votes attaching to the Trust Units represented at a meeting of Trust Unitholders and
voted upon the resolution, with Class A unitholders and Class B unitholders voting
together as a single class; and (ii) the Trust Indenture does not contemplate class
votes; and |
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the factors set forth under Risk Factors herein. |
Recommendation of the Special Committee
After considering the terms of the Consolidation, the financial advice and fairness opinions, the
legal advice and mutual fund trust opinion and other relevant factors, including those factors
described above, on Tuesday, May 16, 2006 the Special Committee unanimously resolved to recommend
to the Board of Directors that: (i) the Consolidation was in the best interests of Pengrowth and
the Trust Unitholders; (ii) the Trust Unitholders should be given an opportunity to consider the
Consolidation Resolution at the Trust Meeting; and (iii) the Board of Directors should recommend to
the Trust Unitholders that they approve the Consolidation.
Fairness Opinions of Financial Advisors to the Special Committee
The Special Committee received fairness opinions regarding the Consolidation from its financial
advisors, BMO Nesbitt Burns and Merrill Lynch. Copies of these fairness opinions are attached as
Appendix 2 and Appendix 3, respectively, to this Circular.
See Risk Factors Effect on Trading Prices.
Recommendation of the Board of Directors
On Tuesday, May 16, 2006, the Board of Directors, having considered the terms of the Consolidation,
the financial advice received from RBC, the legal advice received from Bennett Jones (including an
opinion regarding Pengrowths mutual fund trust status), the financial advice and fairness opinions
received by the Special Committee from BMO Nesbitt Burns and Merrill Lynch, the legal advice
received by the Special Committee from BDP and Paul Weiss, the recommendation of the Special
Committee and the factors considered by the Special Committee, unanimously determined that: (i) the
dual class structure is no longer required for the Trust to maintain its status as a mutual fund
trust under the Tax Act; (ii) the dual class structure is a significant impediment to Pengrowth in
executing its business plan; (iii) the Consolidation is in the best interests of Pengrowth and the
Trust Unitholders; (iv) the Trust Unitholders should be given an opportunity to consider the
Consolidation at the Trust Meeting; and (v) the Board of Directors should recommend to the Trust
Unitholders that they approve the Consolidation.
For information relating to various risk factors, see Risk Factors.
Terms of the Consolidation
The proposed amendments to the Trust Indenture involve two distinct stages. The first stage would
occur two business days following the approval of the Consolidation Resolution by the Trust
Unitholders at the Trust Meeting,
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while the second stage would occur 30 days following the implementation of the first stage. The
following is a summary of the stages of the proposed amendments to the Trust Indenture.
Stage One Elimination of the Foreign Ownership Restriction and Ancillary Amendments
Subject to the approval of the Consolidation Resolution by Trust Unitholders at the Trust Meeting,
the following amendments to the Trust Indenture and other related matters will occur at 5:00 p.m.
(Calgary time) on June 27, 2006:
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the Trust Indenture currently restricts registered and beneficial
ownership of the Class B trust units to residents of Canada and
requires any person that acquires Class B trust units provide the
Corporation, at the Corporations request, with a declaration
setting out the residency of such person. These restrictions on
the foreign ownership of Class B trust units, as set out in
Schedule B of the Trust Indenture, will be removed. Additional
minor revisions will be made to the Trust Indenture to give effect
to this change, including revisions which will permit the holders
of Class A trust units to convert such units to Class B trust
units without providing a residency declaration; |
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the Trust Indenture currently requires that the Class B trust
units be listed and posted for trading only on the facilities of
the TSX, any successor to the TSX or on any other stock exchange
in Canada. This restriction will be removed and the Class B trust
units will be permitted to be listed and posted for trading on the
NYSE or any other stock exchange as determined by the directors of
the Corporation, although it is not proposed that the Class B
trust units would be listed on the NYSE until stage two of the
Consolidation; and |
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Schedule C of the Trust Indenture currently provides the
mechanism for the reclassification or conversion, as the case may
be, of the trust units existing before the July 27, 2004
reclassification into Class A trust units or Class B trust units.
This Schedule C was utilized upon the creation and
implementation of the dual class structure in July of 2004.
Schedule C is no longer required and will be replaced with a new
Schedule C. The new Schedule C will set out the timing and
procedure for the second stage of the amendments to the Trust
Indenture, a description of which is set out below. |
No amendment will be made at this time to the ownership threshold that restricts the Class A trust
units to 49.75% of the Trust Units and accordingly the Class B trust units will not be exchangeable
for Class A trust units upon completion of this stage, except subject to the 49.75% restriction.
Holders of Class A trust units who are residents of Canada will be invited to submit residency
declarations should they wish to exclude their Class A trust units from the conversion into Class B
trust units in stage two. The Class A trust units held by such holders after the consolidation
will not be listed on any stock exchange and will not be transferable. Such persons will be
required to convert the Class A trust units they hold after the Consolidation into Trust Units
prior to disposing of such Class A trust units. See Trust Unit Certificates.
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Stage Two Consolidation of Issued and Outstanding Class A Trust Units, Class B Trust Units
and Prior Trust Units |
Schedule C to the Trust Indenture, as amended pursuant to the Consolidation Resolution, will set
out the timing and procedures for the second stage of the amendments to the Trust Indenture. The
following amendments and related events will occur at 5:00 p.m. (Calgary time) on Thursday, July
27, 2006 (the Consolidation Date):
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the Class A trust units will be delisted from the TSX (effective as of the close of markets); |
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all of the issued and outstanding Class B trust units will be renamed as Trust Units (for further clarity, defined
herein as Consolidated Trust Units) and the trading symbol of the Consolidated Trust Units will be changed from PGF.B
to PGF.UN, subject to TSX approval; |
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all of the issued and outstanding Class A trust units and Prior Trust Units will be converted to Consolidated Trust
Units (with the exception of Class A trust units held by residents of Canada who have provided an election and
residency declaration to the Trustee); and |
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the Consolidated Trust Units will be substitutionally listed in place of the Class A trust units on the NYSE and will
maintain the trading symbol PGH, subject to NYSE approval. |
Residents of Canada who provide a residency declaration shall retain Class A trust units, which may
be converted to Consolidated Trust Units in accordance with the terms thereof.
After these changes are made to the Trust Indenture, the economic entitlements, including as to
voting rights and rights to receive distributions, will be the same for the Consolidated Trust
Units as the economic entitlements that holders of Class A trust units and Class B trust units now
have prior to the Consolidation.
THE CONVERSION OF CLASS A TRUST UNITS HELD BY RESIDENTS OF CANADA TO CONSOLIDATED TRUST UNITS
PURSUANT TO THE CONSOLIDATION WILL CONSTITUTE A TAXABLE DISPOSITION. HOLDERS OF CLASS A TRUST
UNITS WHO ARE RESIDENTS OF CANADA AND DO NOT WISH TO CONVERT THEIR TRUST UNITS TO CONSOLIDATED
TRUST UNITS MUST DELIVER A DULY COMPLETED ELECTION AND DECLARATION OF RESIDENCY TO THE TRUSTEE NO
LATER THAN 5:00 P.M. (CALGARY TIME) TUESDAY, JULY 25, 2006. COPIES OF THE ELECTION AND DECLARATION
OF RESIDENCY WILL BE MAILED TO THE HOLDERS OF CLASS A TRUST UNITS BY PENGROWTH FOLLOWING THE TRUST
MEETING. FOR INFORMATION IN RELATION TO THE TAX CONSIDERATIONS ARISING FROM THE CONVERSION OF
CLASS A TRUST UNITS HELD BY RESIDENTS OF CANADA, SEE TAX CONSIDERATIONS.
Unitholder Approval
For the Consolidation to be approved by the Trust Unitholders, the Consolidation Resolution must be
passed by the affirmative vote of the holders of not less than 66 2/3% of the votes attaching to
the Class A trust units and Class B trust units represented at the Trust Meeting in person or by
proxy and voted upon the Consolidation Resolution, with the holders of Class A trust units and
Class B trust units voting together as a single class as required by the Trust Indenture. The text
of the Consolidation Resolution is set forth as Schedule B-1 to this Circular.
Unless otherwise specified by the Trust Unitholder executing such proxy, the persons named as
proxies in the enclosed form of proxy will vote the Class A trust units or Class B trust units
represented by such proxy FOR the Consolidation Resolution.
Expenses of the Consolidation
The Corporation will pay all costs incurred in connection with the Consolidation, including legal,
financial, filing and printing costs, and the preparation of this Circular. Such costs are
expected to aggregate approximately $2.5 million.
Trust Unit Certificates
Registered holders of Class A trust units or Class B trust units will not be required to exchange
their Trust Unit certificates following completion of the Consolidation to continue to receive
distributions. After approval of the Consolidation, Trust Unitholders who desire to exchange their
current certificates which represent either Class A trust units or Class B trust units for
Consolidated Trust Unit certificates may do so. Holders of Class A trust units who wish to receive
a Consolidated Trust Unit certificate following the Consolidation must complete a letter of
transmittal and deliver it to the Trustee with their original Class A trust unit certificate. The
form of the letter of transmittal will be mailed to Class A trust unitholders following approval of
the Consolidation. Holders of Class B trust units must simply deliver their original Trust Unit
certificates to the Trustee with instructions to issue a new certificate.
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Tax Considerations
Canadian Federal Income Tax Considerations
The following summary describes, as at the date hereof, the principal Canadian federal income tax
considerations generally applicable to a Trust Unitholder who holds Class A trust units, Class B
trust units or Prior Trust Units at the effective time of the Consolidation Resolution and who, for
the purposes of the Tax Act and at all relevant times, holds such Trust Units as capital property
and deals at arms length with the Trust. Generally, the Class A trust units, Class B trust units
and Prior Trust Units will be considered to be capital property to a Trust Unitholder provided the
Trust Unitholder does not hold such Trust Units in the course of carrying on a business and has not
acquired them in one or more transactions considered to be an adventure or concern in the nature of
trade.
Certain Trust Unitholders who are resident in Canada who might not otherwise be considered to hold
their Class A trust units, Class B trust units or Prior Trust Units as capital property may, in
certain circumstances, be entitled to have them treated as capital property by making the
irrevocable election permitted by subsection 39(4) of the Tax Act. This summary is not applicable
to: (i) a Trust Unitholder that is a financial institution, as defined in the Tax Act for
purposes of the mark-to-market rules; (ii) a Trust Unitholder an interest in which would be a
tax shelter or tax shelter investment as defined in the Tax Act; or (iii) a Trust Unitholder
that is a specified financial institution as defined in the Tax Act. Any such Trust Unitholder
should consult its own tax advisor with respect to holding such Trust Units at the effective time
of the Consolidation Resolution.
This summary is based upon the provisions of the Tax Act in force as of the date hereof, the Income
Tax Regulations, all specific proposals to amend the Tax Act and the Income Tax Regulations that
have been publicly announced prior to the date hereof, including the 2004 Finance Letter, and the
current published administrative and assessing policies of the Canada Revenue Agency (CRA),
including previous advance income tax rulings obtained by the Trust from the CRA.
This summary is not exhaustive of all possible Canadian federal income tax considerations and does
not take into account any changes in the law, whether by legislative, governmental or judicial
action. This summary does not take into account provincial, territorial or foreign tax
considerations, which may differ significantly from those discussed herein.
This summary is of a general nature only and is not intended to be legal or tax advice to any
particular Trust Unitholder. Consequently, Trust Unitholders should consult their own tax advisors
with respect to their own particular circumstances.
This summary assumes that the Trust qualifies as a unit trust and a mutual fund trust within
the meaning of the Tax Act as at the effective time of the Consolidation Resolution, and will
continue to qualify thereafter, as a mutual fund trust for the duration of its existence. See
Background Mutual Fund Trust Status of the Trust. In order to qualify as a mutual fund trust,
(i) the Trust, cannot, and may not at any time, reasonably be considered to be established or
maintained primarily for the benefit of non-resident persons, or (ii) at all times after February
21, 1990, all or substantially all of the Trusts property must consist of property other than
taxable Canadian property (as defined in the Tax Act). The 2004 Finance Letter would, if enacted,
modify the Property Exception such that, at all times after December 31, 2003, the Property
Exception would only be required to be met at the time the Benefit Test was not met. Based on the
2004 Finance Letter obtained from the Department of Finance and the Trusts limited holding of
taxable Canadian property, Bennett Jones LLP has advised that the Trust should be able to maintain
its mutual fund trust status even if it cannot meet the Benefit Test. This summary assumes that
these requirements will be satisfied so that the Trust will qualify as a mutual fund trust at all
relevant times. In the event that the Trust were not to qualify as a mutual fund trust, the income
tax considerations would, in some respects, be materially different from those described below.
See Background Mutual Fund Trust Status of the Trust.
This summary assumes that the recommendations in the 2004 Finance Letter received by the Trust are
accepted by the Minister of Finance and Parliament so that the Trust will qualify as a mutual fund
trust at all relevant times. No assurance can be provided that the 2004 Finance Letter will be
accepted by the Minister of Finance or Parliament. See Risk Factors. In the event that the Trust
were not to qualify as a mutual fund trust, the income tax considerations would, in some respects,
be materially different from those described below. See Risk Factors.
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Taxation of Trust Unitholders Resident in Canada
This portion of the summary applies only to a Trust Unitholder who, for the purposes of the Tax Act
and any applicable income tax treaty or convention, is resident or deemed to be resident in Canada
at all relevant times.
Elimination of the Foreign Ownership Restriction on Class B Trust Units and Ancillary
Amendments. As at 5:00 p.m. (Calgary time) on June 27, 2006, the restriction on the foreign
ownership of Class B trust units will be removed, along with the ancillary amendments thereto. The
removal of the foreign ownership restriction and ancillary amendments should not result in a
disposition of any Trust Unit for the purposes of the Tax Act.
Reclassifying of the Class B Trust Units as Consolidated Trust Units. As at 5:00 p.m.
(Calgary time) on July 27, 2006, the Class B trust units will be renamed as Consolidated Trust
Units. The renaming of Class B trust units as Consolidated Trust Units should not result in a
disposition of any Trust Unit for the purposes of the Tax Act.
Conversion of Class A Trust Units and Prior Trust Units to Consolidated Trust Units. A
conversion of Class A trust units or Prior Trust Units into Consolidated Trust Units will
constitute a disposition for the purposes of the Tax Act that will generally result in a Trust
Unitholder realizing a capital gain (or a capital loss) equal to the amount by which the fair
market value of the Consolidated Trust Units received are greater (or less) than the aggregate of
the Trust Unitholders adjusted cost base of the Class A trust units or Prior Trust Units being
converted, as the case may be, and any reasonable costs associated with the disposition.
A Trust Unitholder will generally be required to include in income one-half of the amount of any
resulting capital gain (a taxable capital gain) and will generally be required to deduct one-half
of the amount of any resulting capital loss (an allowable capital loss) against taxable capital
gains realized by a Trust Unitholder in the same taxation year. Allowable capital losses not
deducted in the taxation year in which they are realized may be carried back and deducted in any of
the three preceding years or carried forward and deducted in any following years against capital
gains realized in such years, to the extent and in the circumstances described in the Tax Act.
Taxable capital gains realized by a Trust Unitholder that is an individual or a trust, other than
certain types of trusts, may give rise to alternative minimum tax depending on the Trust
Unitholders circumstances.
A Trust Unitholder that is a Canadian-controlled private corporation (as defined in the Tax Act)
may be liable to pay an additional refundable tax of 6 2/3% on certain investment income, including
taxable capital gains. The 6 2/3% refundable tax is to be added to the Canadian-controlled private
corporations refundable dividend tax on hand account and will be eligible for refund at a rate of
$1 for every $3 of dividends paid by the Canadian-controlled private corporation.
Taxation of Trust Unitholders Not Resident in Canada
This portion of the summary applies only to a holder of Class A trust units or Prior Trust Units
who, for the purposes of the Tax Act and any applicable income tax treaty or convention, is neither
resident nor deemed to be resident in Canada at any time and does not use or hold, and is not
deemed to use or hold, such Units in connection with a trade or business that the holder carries
on, or is deemed to carry on, in Canada at any time. Special rules which are not discussed in this
summary may apply to a non-resident holder that is an insurer carrying on business in Canada and
elsewhere.
Conversion of Class A Trust Units and Prior Trust Units to Consolidated Trust Units. For the
purposes of the Tax Act, a conversion of Class A trust units or Prior Trust Units into Consolidated
Trust Units will constitute a disposition for the purposes of the Tax Act. The disposition of a
Class A trust unit or Prior Trust Unit on conversion will not give rise to any capital gains
subject to tax under the Tax Act provided that such Class A trust units or Prior Trust Units are
not taxable Canadian property of the Trust Unitholder for the purposes of the Tax Act. Class A
trust units or Prior Trust Units will not generally be considered taxable Canadian property to such
a Trust Unitholder unless: (i) the Trust Unitholder holds or uses, or is deemed to hold or use such
Class A trust units or Prior Trust Units in the course of carrying on business in Canada; (ii) at
any time during the 60 month period immediately preceding the disposition of the Class A trust
units or Prior Trust Units the Trust Unitholder or persons with whom the Trust Unitholder did not
deal at arms length or any combination thereof, held 25% or more of the Class A trust
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units or Prior Trust Units, as the case may be; or (iii) the Trust is not a mutual fund trust for
the purposes of the Tax Act on the date of disposition of the Class A trust units or Prior Trust
Units.
United States Federal Income Tax Considerations
The following discussion is a summary of certain United States federal income tax consequences of
the conversion of Class A trust units into Consolidated Trust Units pursuant to the Consolidation.
This discussion is based on the Internal Revenue Code of 1986, as amended (the Code),
administrative pronouncements, judicial decisions, existing and proposed Treasury regulations, and
interpretations of the foregoing, all as of the date hereof. All of the foregoing authorities are
subject to change (possibly with retroactive effect), and any such change may result in United
States federal income tax consequences to a holder that are materially different from those
described below. No rulings from the United States Internal Revenue Service (the IRS) have been
or will be sought with respect to the matters described below, and consequently, the IRS may not
take a similar view of the consequences described below.
The following discussion does not purport to be a full description of all United States federal
income tax considerations that may be relevant to a United States holder (as defined below) in
light of such holders particular circumstances and only addresses holders who hold Class A trust
units as capital assets within the meaning of Section 1221 of the Code, and will hold Consolidated
Trust Units as capital assets. Furthermore, this discussion does not address the United States
federal income tax considerations applicable to holders subject to special rules, such as persons
that are not United States holders, certain financial institutions, tax-exempt entities, real
estate investment trusts, regulated investment companies, insurance companies, persons subject to
the alternative minimum tax, traders in securities that elect to use a mark-to-market method of
accounting, individual retirement accounts or tax-deferred accounts, dealers in securities or
currencies, persons holding notes in connection with a hedging transaction, straddle, conversion
transaction or a synthetic security or other integrated transaction and holders whose functional
currency is not the United States dollar. In addition, except as otherwise indicated, this
discussion does not include any description of any estate and gift tax consequences, or the tax
laws of any state, local or foreign government that may be applicable.
As used herein, the term United States holder means a beneficial owner of a Trust Unit that is
(i) an individual citizen or resident of the United States, (ii) a corporation or other entity
taxable as a corporation organized in or under the laws of the United States or any political
subdivision thereof, (iii) a partnership or other entity taxable as a partnership organized in or
under the laws of the United States or any political subdivision thereof, (iv) an estate the income
of which is subject to United States federal income taxation without regard to the source or (v) a
trust if a United States court has primary supervision over its administration and one or more
United States persons have the authority to control all substantial decisions of the trust, or if
the trust has a valid election in effect under applicable Treasury Regulations to be treated as a
United States person.
UNITED STATES HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH REGARD TO THE APPLICATION OF UNITED
STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
Tax Consequences of the Consolidation to United States Holders
The conversion of Class A trust units into Consolidated Trust Units pursuant to the Consolidation
will not be a taxable transaction for United States federal income tax purposes. Consequently, a
United States holder will not be required to recognize any gain, and will not be permitted to
recognize any loss, upon receipt of a Consolidated Trust Unit. A United States holders holding
period for a Consolidated Trust Unit will include the holding period for the Class A trust unit
converted pursuant to the Consolidation. A United States holders tax basis in a Consolidated
Trust Unit will be the same as the adjusted basis of such holder in the Class A trust unit at the
time of the conversion. The United States federal income tax consequences of holding and disposing
of a Consolidated Trust Unit generally will be the same as the United States federal income tax
consequences of holding and disposing of a Class A trust unit. For a description of such
consequences, see the Risk Factors in the Trusts annual information form dated March 29, 2006,
and go to www.pengrowth.com and click on the link for Investor Information Taxation US Tax
Information.
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Risk Factors
Effect on Trading Prices
There can be no assurance regarding the effect of the Consolidation on the trading price of the
Class A trust units or the Class B trust units, which effect may be significantly different as
between the Class A trust units and the Class B trust units and which may result in a decline in
the trading price of the Class A trust units, the Class B trust units or the Consolidated Trust
Units. The fairness opinions of BMO Nesbitt Burns and Merrill Lynch referred to above under
Fairness Opinions of Financial Advisors to the Special Committee do not opine as the to the
impact on the trading prices of the Class A trust units, the Class B trust units or the
Consolidated Trust Units as a result of the approval of the Consolidation Resolution or the
implementation of the Consolidation. The Board of Directors has determined, based upon the advice,
opinions and other factors described herein, that the Consolidation is in the best interests of
Unitholders, but such determination was based in part upon the Consolidation enhancing Pengrowths
ability to execute its business plan over the longer term, which may not be reflected in the
short-term trading prices of the Class A trust units and the Class B trust units. The trading
prices of the Class A trust units and the Class B trust units are sensitive to a variety of
market-based factors, including, but not limited to, interest rates, foreign exchange rates and the
comparability of Pengrowths Trust Units to other yield-oriented securities, as well as
sector-based factors such as commodity prices for crude oil and natural gas and announcements
regarding sector consolidation. Any changes in these factors may adversely affect the trading
prices of the Class A trust units and Class B trust units which may offset the benefits of the
Consolidation, even over the longer term.
Failure to Achieve the Anticipated Benefits of the Consolidation
The anticipated benefits of the Consolidation to Pengrowth and its Trust Unitholders are in part
due to the expectation that the Consolidation will facilitate acquisitions or mergers by Pengrowth
in the future to strengthen its position in the oil and gas industry. The oil and gas industry is
highly competitive and there is no assurance that any acquisitions or mergers will be available to
Pengrowth. Achieving the benefits of future acquisitions or mergers depends in part on
successfully consolidating functions and integrating operations, procedures and personnel of
Pengrowth and the acquired business in a timely and efficient manner, as well as Pengrowths
ability to realize the anticipated growth opportunities and synergies from combining the acquired
businesses and operations. The integration of acquired businesses requires the dedication of
substantial management effort, time and resources, which might avert managements focus, and
resources from other strategic opportunities and from operational matters. The integration process
may result in the loss of key employees and the disruption of ongoing business, supplier, customer
and employee relationships that may adversely affect Pengrowths ability to achieve the anticipated
benefits of future acquisitions.
Adverse Consequences of a Failure to Qualify as a Mutual Fund Trust
While the Trust has received an opinion from Bennett Jones LLP to the effect that Pengrowth may
rely on the Property Exception in order to maintain its status as a mutual fund trust, this opinion
is subject to certain qualifications and assumptions including the assumption that the Department
of Finance will amend the provisions of the Tax Act in the manner contemplated in the 2004 and 2006
Finance Letters. While the Board of Directors believes these assumptions and qualifications to be
reasonable, as a result of the Consolidation the Trust may no longer satisfy the Benefit Test and
will have no practical ability to control ownership of Trust Units by non-residents. As a result,
the Trust will be relying solely on the Property Exception in order to maintain its status as a
mutual fund trust under the Tax Act. If the provisions of the Tax Act are not amended as
contemplated in the 2004 and 2006 Finance Letters, or if the Canada Revenue Agency were to
challenge the Trusts satisfaction of and reliance on the Property Exception, and if such a
challenge was ultimately successful, the Trust would permanently lose mutual fund trust status
under the Tax Act. The consequences of a loss of mutual fund trust status would have a material
adverse effect on the Trust and its unitholders.
Additional Risks
The risk factors contained in the Trusts annual information form dated March 29, 2006 under the
headings Risk Factors If the Trust ceases to qualify as a mutual fund trust it would adversely
affect the value of our Trust Units, Changes in Canadian legislation could adversely affect the
value of our Trust Units and
- 38 -
Changes to the terms of the Class A Trust Units or to the Class B Trust Units could adversely
affect the market value of either class of Trust Units are incorporated by reference in this
Circular.
Caution Regarding Forward Looking Information
This Circular contains forward-looking statements within the meaning of securities laws, including
the safe harbour provisions of the Ontario Securities Act and the United States Private
Securities Litigation Reform Act of 1995. Forward-looking information is often, but not always,
identified by the use of words such as anticipate, believe, expect, plan, intend,
forecast, target, project, may, will, should, could, estimate, predict or similar
words suggesting future outcomes or language suggesting an outlook. Forward-looking statements in
this Circular include, but are not limited to, statements with respect to: business strategy and
strengths, goals, focus and the effects thereof, the benefits of the Consolidation, including, a
reduction in the cost of raising capital, an improved ability to complete mergers and acquisitions,
an increase in liquidity in the trading of Trust Units, an ability to efficiently complete equity
financings and a reduction in the diversion of Pengrowths resources, including management time and
attention, from the pursuit of Pengrowths business plan, the implementation of changes to the Tax
Act contemplated by the 2004 Finance Letter and the 2006 Finance Letter, the policy of the federal
government regarding the taxation of mutual fund trusts, the policy of the federal government
regarding non-resident ownership of mutual fund trusts and the impact of acquisitions and related
financings on Unitholder value.
Forward-looking statements and information are based on Pengrowths current beliefs as well as
assumptions made by and information currently available to Pengrowth concerning anticipated
financial performance, business prospects, strategies and regulatory developments. Although
management considers these assumptions to be reasonable based on information currently available to
it, they may prove to be incorrect.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both
general and specific, and risks that predictions, forecasts, projections and other forward-looking
statements will not be achieved. We caution readers not to place undue reliance on these
statements as a number of important factors could cause the actual results to differ materially
from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions
expressed in such forward-looking statements. These factors include, but are not limited to: the
volatility of oil and gas prices; production and development costs and capital expenditures; the
imprecision of reserve estimates and estimates of recoverable quantities of oil, natural gas and
liquids; Pengrowths ability to replace and expand oil and gas reserves; environmental claims and
liabilities; incorrect assessments of value when making acquisitions; increases in debt service
charges; the loss of key personnel; the marketability of production; defaults by third party
operators; unforeseen title defects; fluctuations in foreign currency and exchange rates;
inadequate insurance coverage; compliance with environmental laws and regulations; changes in tax
laws; the failure to qualify as a mutual fund trust; and Pengrowths ability to access external
sources of debt and equity capital. Further information regarding these factors may be found under
the heading Business Risks in our managements discussion and analysis for the year ended
December 31, 2005 and under Risk Factors in the Trusts Annual Information Form dated March 29,
2006.
Pengrowth cautions that the foregoing list of factors that may affect future results is not
exhaustive. When relying on our forward-looking statements to make decisions with respect to
Pengrowth, investors and others should carefully consider the foregoing factors and other
uncertainties and potential events. The forward-looking statements contained in this Circular are
expressly qualified by this cautionary statement.
Information for United States Holders
The Consolidated Trust Units to be issued to United States holders of Class A trust units pursuant
to the Consolidation will be registered under the Securities Act of 1933 (the 1933 Act) and such
securities will be freely tradeable under applicable United States securities laws except for any
securities acquired by an affiliate of Pengrowth.
Trust Unitholders are urged to consult their legal advisers to determine the extent of all
applicable resale provisions.
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Documents Filed As Part of Pengrowths U.S. Registration Statement
A registration statement on Form F-10 has been filed by the Trust with the SEC under the 1933 Act
relating to the Consolidation. The following documents have been or will be filed with the SEC as
part of the registration statement of which this Circular is a part, insofar as called for by the
SECs Form F-10: (i) the form of proxy accompanying this Circular; (ii) selected sections of the
Trusts Annual Information Form dated March 29, 2006; (iii) consent of counsel, and (iv) powers of
attorney pursuant to which the amendments to the registration statement may be signed.
Availability of Disclosure Documents
In the United States, the Trust is subject to the informational requirements of the United States
Securities Exchange Act of 1934, as amended, and in accordance therewith must file reports and
other information with the SEC. Under a multijurisdictional disclosure system adopted by the SEC,
such reports and other information may be prepared in accordance with the disclosure requirements
of Canada, which requirements are different from those in the United States. Such reports and
other information filed by the Trust are available for inspection and copying at the public
reference facilities maintained by the SEC at Room 1580, 100#F Street N.E., Washington, DC 20549.
Amendments to the Unanimous Shareholder Agreement and the Trust Indenture to Simplify Voting at the
Annual General Meeting
Trust Unitholders will be asked to consider an extraordinary resolution approving amendments to the
Unanimous Shareholder Agreement and the Trust Indenture to simplify Pengrowths annual meeting
process. The reasons for this amendment are set out in, and reference should be made to, Part III
Matters to be Acted Upon at the Shareholder Meeting Amendments to the Unanimous Shareholder
Agreement to Simplify Voting at the Annual General Meeting.
At the Trust Meeting, the Trust Unitholders will therefore be asked to consider and, if thought
appropriate, pass the extraordinary resolution contained in Schedule B-2 to this Circular.
Amendments to the DEU Plan
Trust Unitholders will be asked to consider and approve an ordinary resolution in the form set out
in Schedule B-3 to amend the long-term incentive plan.
Pengrowth has retained the services of Towers Perrin to assist it in reviewing Pengrowths annual
and long-term incentive awards to ensure that Pengrowths total compensation package is competitive
and reflects key financial, operational and strategic measures of performance, aligned with
practices within the highly competitive energy sector. Pengrowths long-term incentive philosophy
incorporates the grant of both Trust Unit Rights and DEUs, with the proportion of Trust Unit Rights
and DEUs varying by organizational level.
The long-term incentive plan was approved by Trust Unitholders on April 22, 2004. However, the DEU
Plan limits the persons to whom DEUs may be issued to under the plan to full-time employees of
Pengrowth excluding officers, directors and consultants to Pengrowth who also contribute to
Pengrowths success and to the creation of Trust Unitholder value. The Board of Directors therefor
resolved to issue DEUs to officers, directors and consultants to Pengrowth subject to ratification
of amendments to the plan by Trust Unitholders.
At the recommendation of Towers Perrin, in extending the plan to the members of the Board of
Directors of the Corporation, it is proposed that the vesting and performance criteria of the plan
will not apply.
The DEU Plan will also be amended to conform the DEU Plan with the regulatory requirements of the
TSX by restricting the number of Trust Unit Rights and DEUs available to be issued to insiders of
the Trust and the Corporation.
Accordingly, the approval of Trust Unitholders is being sought to amend the plan to:
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change the name of the plan to the Deferred Entitlement Unit Plan; |
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change all references to Phantom Unit in the plan to references to Deferred
Entitlement Unit; |
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|
|
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amend all references to the persons entitled to participate in the plan to
employees, officers and directors of Pengrowth and consultants to Pengrowth designated
by the Board of Directors, including in Sections 1, 2.1(p) and 3.1 of the DEU Plan; |
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amend the plan to provide that DEUs granted to directors will not be subject to the
vesting or performance criteria provided for by the plan, including the provisions of
Sections 4.4 and 4.5 of the DEU Plan; and |
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amend the DEU Plan so that (i) the aggregate number of Class B trust units which may
be reserved for issuance to insiders (as such term is referred to in the policies of
the TSX), under the DEU Plan and all other security-based compensation arrangements of
Pengrowth shall not, in the aggregate, exceed ten percent (10%) of the issued and
outstanding Trust Units at the date of grant, calculated on a non-diluted basis; and
(ii) during any one-year period, the Board of Directors shall not grant to such
insiders, under the DEU Plan and all other security-based compensation arrangements of
Pengrowth, in the aggregate, a number of Class B trust units exceeding ten percent
(10%) of the issued and outstanding Trust Units, calculated on a non-diluted basis. |
For further information regarding the DEU Plan, see Executive Compensation Long-term Incentive
Program DEU Plan and Executive Compensation Units Issuable. As at April 30, 2006, the
maximum number of DEUs outstanding pursuant to the DEU Plan is 504,786, of which 94,866 have been
issued to officers, directors and consultants designated by the Board of Directors, subject to
Trust Unitholder approval. Accordingly, the approval of Trust Unitholders is being requested
retroactive to January 1, 2005.
Amendments to the Trust Indenture Regarding the Distribution of Net Proceeds from the Sale of
Properties
Trust Unitholders will be asked to consider an extraordinary resolution approving amendments to the
Trust Indenture to provide that the mandatory requirement to distribute any net proceeds from the
sale of properties that are not used to acquire replacement properties within the same calendar
year be amended to make such distribution voluntary and at the discretion of the Corporation. The
reasons for this amendment are set out in, and reference should be made to, Part V Matters to be
Considered at the Royalty Meeting Amendments to the Royalty Indenture Regarding the Distribution
of Net Proceeds from the Sale of Properties.
At the Trust Meeting, the Trust Unitholders will therefore be asked to consider and, if thought
appropriate, pass the extraordinary resolution contained in Schedule B-4 to this Circular.
Amendments to the Unanimous Shareholder Agreement and the Articles of the Corporation to Increase
the Maximum Size of the Board of Directors of the Corporation
Trust Unitholders will be asked to consider an extraordinary resolution approving amendments to the
Unanimous Shareholder Agreement and the articles of the Corporation to increase the maximum size of
the Board of Directors of the Corporation. The reasons for this amendment are set out in, and
reference should be made to, Part III Matters to be Acted Upon at the Shareholder Meeting
Amendments to the Unanimous Shareholder Agreement and the Articles of the Corporation to Increase
the Maximum Size of the Board of Directors of the Corporation.
At the Trust Meeting, the Trust Unitholders will therefore be asked to consider and, if thought
appropriate, pass the extraordinary resolution contained in Schedule B-5 to this Circular.
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PART
V MATTERS TO BE CONSIDERED AT THE ROYALTY MEETING
Amendments to the Royalty Indenture Regarding the Reclassification of Trust Unit Capital
At the Special Meeting of Royalty Unitholders held on April 22, 2004, amendments (the 2004
Amendments) were approved to the provisions of the Royalty Indenture relating to the exchange of
Royalty Units for Trust Units as a consequence of amendments made to the Trust Indenture at the
Annual and Special Meeting of Trust Unitholders held on the same date, to provide that
non-residents of Canada could receive only Class A trust units for their Royalty Units, subject to
certain limitations, and that Canadian residents could exchange their Royalty Units for either
Class A trust units or Class B trust units.
If the Extraordinary Resolution in Schedule B-1 (the Consolidation Resolution) hereto approving
the amendments to the Trust Indenture described in Part IV Matters to be Considered at the Trust
Meeting Amendments to the Trust Indenture to Provide for the Consolidation of the Trusts Dual
Class Structure of this Circular is approved by the requisite majority, Royalty Unitholders will
be asked to consider and approve an Extraordinary Resolution in the form attached as Schedule C-1
to this Circular approving of the removal of the 2004 Amendments from the Royalty Indenture. To be
approved, the Extraordinary Resolution in Schedule C-1 requires the affirmative vote of not less
than 66 2/3% of the votes cast by Royalty Unitholders present in person or by proxy at the Royalty
Meeting.
The 2004 Amendments will, upon the approval of the Consolidation Resolution, be inapplicable
because there will be no residency restrictions on the Consolidated Trust Units and the existing
Class A trust units will cease to be listed on a stock exchange. As a practical matter, the
proposed amendments affect only the Royalty Units held by Royalty Unitholders other than the Trust
because the Trust cannot hold Trust Units and derives a substantial part of its Distributable Cash
from the Royalty Units that it holds. There are presently 124,088,369 Royalty Units issued and
outstanding, of which 124,070,129 or 99.99% are held by the Trust.
The 2004 Amendments are summarized as follows:
1. |
|
Definitions of Class A Unit, Class B Unit, Non-Resident, Ownership Threshold and
Unitholders Declaration (corresponding to those in the Trust Indenture) were added to
Article I and conforming changes were made to the definition of Trust Unit. |
2. |
|
Section 4.01 was amended to provide that a holder of Royalty Units who is a Non-Resident may
exchange Royalty Units only for Class A trust units and not Class B trust units and that a
holder of Royalty Units who is not a non-resident was able to exchange Royalty Units for Class
A trust units or Class B trust units, subject in both cases to the terms, conditions and
limitations in Article IV, including without limitation those set forth below. |
3. |
|
Section 4.02 was amended to provide that a holder of Royalty Units wishing to exchange any or
all of his Royalty Units for Class A trust units would be able to do so only if and to the
extent that the number of Class A trust units issued and outstanding at the particular time is
not greater than the ownership threshold on the Class A trust units provided for in the Trust
Indenture (the Ownership Threshold). |
4. |
|
Section 4.02 was amended to require that a holder of Royalty Units wishing to exercise his
right to exchange any or all of his Royalty Units for Class B trust units shall submit a
declaration of residency stating that the beneficial owner of the Royalty Units is not a
non-resident. |
5. |
|
Article IV was amended to provide that a holder of Royalty Units applying to exchange Royalty
Units for Trust Units is required to elect and indicate irrevocably at that time: |
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a) |
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how many Royalty Units he wishes to exchange; |
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b) |
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how many Class A trust units and Class B trust units respectively he wishes to
receive upon the exchange; |
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c) |
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whether, if having regard to the Ownership Threshold fewer Class A trust units
are available than the number that he has requested to receive upon the exchange, he
wishes to receive the smaller number and to retain the balance of his Royalty Units;
and |
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d) |
|
whether, if Class A trust units are not available, he elects and is entitled by
virtue of not being a non-resident to receive Class B trust units instead. |
6. |
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The exchange form to be used in connection with a conversion was modified to reflect the
foregoing amendments and the form thereof was appended to the Royalty Indenture. Subsection
4.02(a) was amended accordingly to refer to this new form and to require that it be completed
and submitted to the Trustee by a holder of Royalty Units applying to exercise his right of
exchange. |
7. |
|
Article IV was amended to provide that if it appears that a proposed exchange of Royalty
Units for Class A trust units would result in the number of Class A trust units issued and
outstanding exceeding the Ownership Threshold, the Trust and its transfer agent may refuse to
accept any request to exchange Royalty Units for Class A trust units. |
8. |
|
Article IV was amended to provide that the Trust, together with its transfer agent, may from
time to time establish procedures for recognizing the priorities of requested exchanges of
Royalty Units for Class A trust units and requests for conversions of Class B trust units into
Class A trust units, which procedures may, but are not required to, apply a reservation or
waiting list system to holders of Royalty Units and Class B trust units whose requests to
exchange Royalty Units for Class A trust units and to convert Class B trust units into Class A
trust units are refused due to the approach of the number of Class A trust units issued and
outstanding to the Ownership Threshold. |
Amendments to the Unanimous Shareholder Agreement and the Royalty Indenture to Simplify Voting at
the Annual General Meeting
Royalty Unitholders will be asked to consider an Extraordinary Resolution approving amendments to
the Unanimous Shareholder Agreement and the Royalty Indenture to simplify Pengrowths annual
meeting process. The reasons for this amendment are set out in, and reference should be made to,
Part III Matters to be Acted Upon at the Shareholder Meeting Amendments to the Unanimous
Shareholder Agreement to Simplify Voting at the Annual General Meeting.
At the Royalty Meeting, the Royalty Unitholders will therefore be asked to consider and, if thought
appropriate, pass the extraordinary resolution contained in Schedule C-2 to this Circular. To be
approved, the Extraordinary Resolution in Schedule C-2 requires the affirmative vote of not less
than 66 2/3% of the votes cast by Royalty Unitholders present in person or by proxy at the Royalty
Meeting.
Amendments to the Royalty Indenture Regarding the Distribution of Net Proceeds from the Sale of
Properties
The Royalty Indenture currently provides that the Corporation may sell its interests in its
properties, up to a maximum of 25% of the Corporations assets in any given year (determined at the
date of disposition and based upon an independent engineering appraisal), and release the royalty
therefrom, without the requirement of obtaining the approval of the Trust Unitholders. Any
disposition exceeding this 25% threshold must be approved by an extraordinary resolution of the
Trust Unitholders.
The Royalty Indenture also provides that if properties subject to the royalty are sold and the
Corporation does not reinvest the entire net proceeds in replacement properties within the same
calendar year, then the remaining net proceeds must be distributed to Royalty Unitholders. This
obligation of the Corporation is subject to the rights of the Corporations lenders under the
Corporations credit facility and operating line of credit.
At the Special Meeting of Royalty Unitholders, it is proposed that an extraordinary resolution of
the Royalty Unitholders be passed to amend the Royalty Indenture to provide that the mandatory
requirement to distribute any net proceeds from the sale of properties that are not used to acquire
replacement properties within the same calendar year be amended to make such distribution voluntary
and at the discretion of the Corporation.
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While management of the Corporation does not foresee any significant dispositions of properties by
the Corporation, it is managements view that the mandatory nature of this requirement is unduly
restrictive in that it requires the reinvestment of the net proceeds in properties, and within the
same calendar year. Requiring the reinvestment and the restrictive timing place artificial
constraints on the Corporation. These artificial constraints may require the Corporation to
acquire replacement properties, and in very short time frame, even though the best interests of the
Corporation at that time may require that the net proceeds be retained and used for capital
expenditures or debt repayment rather than the purchase of replacement properties or distributions
to the Trust. The proposed amendment will provide the Corporation with greater financial
flexibility while preserving the discretion of the Board of Directors to declare a special
distribution of the net proceeds from the disposition of the Corporations properties where it is
appropriate and desirable to do so.
At the Royalty Meeting, the Royalty Unitholders will therefore be asked to consider and, if thought
appropriate, pass the Extraordinary Resolution set forth in Schedule C-3. To be approved, the
Extraordinary Resolution in Schedule C-3 requires the affirmative vote of not less than 66 2/3%
of the votes cast by Royalty Unitholders present in person or by proxy at the Royalty Meeting.
Amendments to the Royalty Indenture Regarding Distributions upon a Liquidation, Winding-up or
Dissolution of the Corporation
The Royalty Unitholders will be asked to consider and approve an extraordinary resolution amending
the Royalty Indenture to make technical amendments clarifying amendments made at the Special
Meeting of Royalty Unitholders held on April 26, 2005, regarding the distribution of assets of the
Corporation in the event of a winding-up, liquidation or dissolution of the Corporation. The text
of this Extraordinary Resolution is set forth in Schedule C-4 to this Circular. To be approved,
the Extraordinary Resolution in Schedule C-4 requires the affirmative vote of not less than 66
2/3% of the votes cast by Royalty Unitholders present in person or by proxy at the Royalty Meeting.
The first of these amendments relates to subsection 3.12(b) of the Royalty Indenture and provides
that to the extent that entities that are controlled by the Corporation are liquidated, dissolved
or wound-up as contemplated in Section 3.12(b), the assets of those entities that are Canadian
resource properties shall become subject to the Royalty granted in the Royalty Indenture and
otherwise subject to the Royalty Indenture. The purpose of this amendment is to make it clear that
all such Canadian resource properties of the Corporation will come within the ambit of the Royalty
Indenture and that the Royalty Unitholders will receive the benefit of them.
There are presently 124,085,961 Royalty Units issued and outstanding under the Royalty Indenture,
124,067,691 of which (or 99.99%) are owned by the Trust. Therefore, the Trust Unitholders will
receive substantially all of the benefit of the income from those Canadian resource properties.
The second proposed amendment affects Section 3.12(c), which provides that all of the Canadian
resource properties of the Corporation will be sold or otherwise liquidated in the course of the
liquidation, dissolution or winding-up of the Corporation and that the proceeds thereof would be
used to pay the indebtedness of the Corporation remaining after the application of the proceeds of
the sale of all other property and assets of the Corporation to the payment of its indebtedness.
Firstly, the amendment will provide that the Canadian resource properties acquired by the
Corporation on a liquidation or winding-up of controlled entities as described above will be
liquidated and that the proceeds will be applied to reduce indebtedness borrowed or incurred by the
Corporation to acquire investments that are not Canadian resource properties; the remainder of
those proceeds would be paid into the Reserve. Secondly, the amendment will provide that the
proceeds of the sale or liquidation of the Corporations other Canadian resource properties would
be distributed as a distribution to the Royalty Unitholders. The purposes of this amendment are to
maximize the portion of the proceeds of sale of the Corporations Canadian resource properties that
would accrue to the Royalty Unitholders on a liquidation of the Corporation and to preserve the
Royaltys status as a Canadian resource property.
The third proposed amendment to Section 3.12 of the Royalty Indenture amends Section 3.12(d) to
provide that the holders of Common Shares and exchangeable shares of the Corporation will not be
entitled to any of the proceeds of the sale of the Corporations Canadian resource properties and
associated tangibles. Again, the purpose is to maximize the portion of those proceeds available to
the Royalty Unitholders.
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The fourth and final proposed amendment affects Sections 3.12(d) and 3.12(e) and clarifies that
holders exchangeable Shares share in any remaining proceeds of liquidation only to the extent that
the class and series provisions applicable to the exchangeable Shares so provide.
Amendments to the Royalty Indenture Regarding Certain Expenditures, the Reserve and Other Revenues
At the Special Meeting of Royalty Unitholders held on March 14, 2005, amendments to the Royalty
Indenture were approved in relation to the treatment of income other than income derived from
Canadian resource properties held directly or beneficially by the Corporation. Unitholders will be
asked to consider an Extraordinary Resolution approving additional amendments to the Royalty
Indenture clarifying the amendments approved in 2005. The text of this Extraordinary Resolution is
set forth in Schedule C-5 to this Circular. To be approved, the Extraordinary Resolution in
Schedule C-5 requires the affirmative vote of not less than 66 2/3% of the votes cast by Royalty
Unitholders present in person or by proxy at the Royalty Meeting.
In the 2005 meeting, the Royalty Unitholders approved an Extraordinary Resolution to amend the
definition of Debt Service Charges. The purpose of this amendment was to clarify the ability of
the Corporation to apply, in the calculation of the Royalty, interest and other income earned by
the Corporation otherwise than from properties that are subject to the royalty against interest
expenses incurred in respect of indebtedness borrowed for the purchase of such properties, and to
apply royalty income against interest expenses for all indebtedness of the Corporation, regardless
whether the indebtedness was borrowed to buy such properties. The implementation of the amendment
was subject to the confirmatory advice of counsel. Counsel is of the view that the latter
application of royalty income is not optimal having regard to the preservation of the status of the
royalty as a Canadian resource property and that the relevant provision should therefore be removed
from the definitions and that the issue is best addressed in other amendments described below.
The Corporation also wishes to match more precisely the categories of its income to the expenses to
which that income is applied. In particular, the Corporation wishes to apply income from
investments (Other Investments) that are not Canadian resource properties and therefore not
subject to the royalty provided for in the Royalty Indenture, to principal repayments and interest
related to indebtedness incurred to acquire those Other Investments. Secondly, because those Other
Investments are not themselves Canadian resource properties, the Corporation wishes to ensure that
the income from Other Investments that is applied to pay expenses incurred in connection with the
Corporations gross revenue from its Canadian resource properties does not constitute more than 10%
of the royalty income of the Corporation for the period. Thirdly, the Corporation proposes to
amend Section 13.04, which relates to the use of the reserve after there are no Canadian resource
properties that are any longer subject to the royalty, to make it clear that income from Other
Investments that has been paid into the reserve is to be applied to any remaining indebtedness (and
interest thereon) incurred or borrowed in respect of those Other Investments, and that the
remainder if any will, along with any other amounts in the reserve, be paid to the grantor for
distribution to the Royalty Unitholders. The purpose of these limitations is to ensure that the
royalty constitutes a Canadian resource property as that term is defined the Tax Act, which
provides that, among other things at least 90% of the royalty must be paid from income or the
proceeds of disposition in respect of properties that are subject to the royalty.
To this end, the Extraordinary Resolution set forth in Schedule C-5 contemplates the following
amendments to the Royalty Indenture:
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(a) |
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the addition of a definition of Other Investments to refer to the Other
Investments described above; |
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(b) |
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the addition of a definition of Investment Income, to refer to net income
from those investments; |
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(c) |
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the amendment of the definition of Debt Service Charges to exclude
specifically the reference to indebtedness related to Other Investments; |
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(d) |
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the amendments of the definition of Other Revenues to mean 99% of all
revenues accruing to the Corporation during a particular month so that it includes: |
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(i) |
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fees and similar payments made by third parties
for the processing, transportation, gathering, storage or treatment of
petroleum substances intangibles that are related to or associated with
the properties; |
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(ii) |
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proceeds from the sale of interest intangibles
or miscellaneous interests that relate to or are associated with the
properties; |
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(iii) |
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insurance proceeds that relate to the
properties; |
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(iv) |
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income investing from incentives, rebates and
credits in respect of production costs relating to the properties,
other than ARC; |
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(v) |
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royalty and similar income, if any, which is
not included in the definition of Properties; |
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(vi) |
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overhead recoveries received from third parties
in respect of their working interest relating to the properties
operated by the grantor; |
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(vii) |
|
trust distributions; and |
|
|
(viii) |
|
income from Other Investments that is not applied to principal
repayments and interest related to indebtedness incurred to acquire
those Other Investments; and |
|
(e) |
|
the amendment of the definition of Properties by the addition of a reference
to natural accumulations of petroleum or natural gas to conform the definition more
closely with the relevant provisions of the Tax Act; and |
|
|
(f) |
|
the amendment of Section 13.04 to provide that income from Other Investments
that has been paid into the reserve is to be applied to any remaining indebtedness
incurred or borrowed in respect of those Other Investments, and that the remainder if
any will, along with any other amounts in the reserve, be paid to the grantor for
distribution to the Royalty Unitholders. |
The Extraordinary Resolution set forth in Schedule C-5 also provides for clarification as to how
capital expenditures and the purchase of Canadian resource properties may be financed. Firstly, as
to capital expenditures, it proposes amendments to the Royalty Indenture that make it clear that
capital expenditures may be paid out of Royalty Income and the reserve as well as from borrowings,
farmouts or the issuance of Royalty Units. Secondly, it proposes an amendment to the effect that
acquisitions of Canadian resource properties may be financed in any manner that the Corporation in
its discretion sees fit. These amendments will give the Corporation flexibility to finance these
expenditures in the best and most efficient way available at the particular time. Conforming
amendments to Sections 13.01 and 13.03 are also proposed to make them consistent in their
references to the purposes for which the reserve can be used as those purposes are described in
various provisions of the indenture, namely to pay, among other things, capital expenditures and
royalty income.
The Extraordinary Resolution in Schedule C-5 also proposes amendments to Sections 11.12 and 12.01
of the Royalty Indenture that give the Trustee and the Corporation the authority in their
discretion to make such future amendments to the Royalty Indenture as they consider necessary or
expedient to preserve the status of a royalty as a Canadian resource property, so that the Trustee
and the Corporation will have the ability to make changes that they consider appropriate without
requiring that a meeting of Unitholders be held, which involves considerable expense.
Finally, the Extraordinary Resolution in Schedule C-5 proposes an amendment to the definition of
Operating Income to clarify that Crown obligations (which are Crown lessor royalties paid on the
production of petroleum substances from the properties) are not operating costs, except to the
extent the Corporation waives its right to reimbursement.
- 46 -
Miscellaneous Amendments to the Royalty Indenture
The Royalty Unitholders will be asked to consider and approve an Extraordinary Resolution, the text
of which is set forth in Schedule C-6, to make miscellaneous amendments to the Royalty Indenture,
as follows:
|
(a) |
|
to delete the definition of Acquisition Fee and all other references to it,
as the Management Agreement no longer provides for the payment thereof; and |
|
|
(b) |
|
to replace Canada Customs and Revenue Agency with Canada Revenue Agency in
all instances, to reflect the change in the name of that agency. |
To be approved, the Extraordinary Resolution in Schedule C-6 requires the affirmative vote of not
less than 66 2/3% of the votes cast by Royalty Unitholders present in person or by proxy at the
Royalty Meeting.
Amendments to the Unanimous Shareholder Agreement and the Articles of the Corporation to Increase
the Maximum Size of the Board of Directors of the Corporation
Royalty Unitholders will be asked to consider an extraordinary resolution approving amendments to
the Unanimous Shareholder Agreement and the articles of the Corporation to increase the maximum
size of the Board of Directors of the Corporation. The reasons for this amendment are set out in,
and reference should be made to, Part III Matters to be Acted Upon at the Shareholder Meeting
Amendments to the Unanimous Shareholder Agreement and the Articles of the Corporation to Increase
the Maximum Size of the Board of Directors of the Corporation.
At the Royalty Meeting, the Royalty Unitholders will therefore be asked to consider and, if thought
appropriate, pass the extraordinary resolution contained in Schedule C-7 to this Circular.
- 47 -
PART VI ADDITIONAL INFORMATION
Additional information regarding the business of Pengrowth is contained in the Trusts Annual
Information Form for the year ended December 31, 2005. Additional financial information is
provided in the Trusts consolidated financial statements and Managements Discussion and Analysis
of Financial Condition and Results of Operations for the financial year ended December 31, 2005.
Copies of those documents and additional copies of this Information Circular Proxy Statement may
be obtained upon request from Investor Relations at 2900, 240 4th Avenue S.W., Calgary, AB T2P
4H4, (403) 233-0224 or 1-800-223-4122 and at Scotia Plaza, 40 King Street West, Suite 3006, Box
106, Toronto, Ontario, M5H 3Y2, (416) 362-1748 or 1-888-744-1111. In addition, copies of the
documents incorporated herein by reference may be obtained by accessing the disclosure documents
available through the Internet on the Canadian System for Electronic Document Analysis and
Retrieval (SEDAR) website at www.sedar.com.
APPENDIX 1
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The following discussion is required by NI 58-101. Each of the requirements of NI 58-101 are set
out below and Pengrowths response follows immediately thereafter.
|
(a) |
|
Disclose the identity of directors who are independent. |
|
|
|
|
The Board of Directors has determined that the following members are independent
of the Trust and the Corporation, within the meaning of NI 58-101: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Cumming
|
|
|
|
A. Terence Poole |
|
|
|
|
|
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|
|
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|
|
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Michael S. Parrett
|
|
|
|
Kirby L. Hedrick |
|
|
|
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|
|
|
John B. Zaozirny |
|
|
|
|
|
(b) |
|
Disclose the identity of directors who are not independent, and describe the basis
for that determination. |
|
|
|
|
The Board of Directors has determined that the following members of the Board of
Directors are not independent: Mr. James S. Kinnear, the Chairman, President and
Chief Executive Officer of the Corporation as well as the President and Chief
Executive Officer of the Manager and Mr. Stanley H. Wong, the Managers additional
appointee to the Board of Directors pursuant to the terms of the Unanimous
Shareholder Agreement. |
|
|
(c) |
|
Disclose whether or not a majority of directors are independent. If a majority
of directors are not independent, describe what the board of directors does to
facilitate its exercise of independent judgment in carrying out its responsibilities |
|
|
|
|
The Board of Directors has determined that five of seven members of the Board of
Directors are independent within the meaning of NI 58-101. |
|
|
(d) |
|
If a director is presently a director of any other issuer that is a reporting
issuer (or the equivalent) in a jurisdiction or a foreign jurisdiction, identify both
the director and the other issuer. |
|
|
|
|
The members of the Board of Directors that currently serve on the board of any other
issuer that is a reporting issuer (or equivalent) are set out below: |
- 2 -
|
|
|
Director |
|
Directorships |
Thomas A. Cumming
|
|
Western Lakota Energy Services Inc. |
|
|
|
Kirby L. Hedrick
|
|
N/A |
|
|
|
James S. Kinnear
|
|
N/A |
|
|
|
Michael S. Parrett
|
|
Fording Canadian Coal Trust |
|
|
Gabriel Resources Ltd. |
|
|
|
A. Terence Poole
|
|
Methanex Corporation |
|
|
|
Stanley H. Wong
|
|
N/A |
|
|
|
John B. Zaozirny
|
|
Bankers Petroleum Ltd. |
|
|
Canaccord Capital Inc. |
|
|
Canadian Oil Sands Trust |
|
|
Candax Energy Inc. |
|
|
Computer Modeling Group |
|
|
Fording Canadian Coal Trust |
|
|
High Arctic Energy Services Trust |
|
|
IPSCO Inc. |
|
|
Petroworld Corp. |
|
|
Provident Energy Ltd. |
|
|
Terravest Income Fund |
|
(e) |
|
Disclose whether or not the independent directors hold regularly scheduled meetings
at which members of management are not in attendance. If the independent directors
hold such meetings, disclose the number of meetings held since the beginning of the
issuers most recently completed financial year. If the independent directors do not
hold such meetings, describe what the board does to facilitate open and candid
discussion among its independent directors. |
|
|
|
|
A meeting of the independent members of the Board of Directors is held in
conjunction with every regular meeting of the Board of Directors. |
|
|
|
|
During the financial year ended December 31, 2005, there were 11 meetings of the
independent members of the Board of Directors. |
|
|
|
|
The independent members of the Board of Directors are authorized to retain
independent financial, legal and other experts as required whenever, in their
opinion, matters come before the Board of Directors which require an independent
analysis by the independent members of the Board of Directors. |
|
|
(f) |
|
Disclose whether or not the chair of the board is independent. If the board
has a chair or lead director who is independent, disclose the identity of the
independent chair or lead director, and describe his or her role and responsibilities.
If the board has neither a chair that is independent nor a lead director that is
independent, describe what the board does to provide leadership for its independent
directors. |
|
|
|
|
Mr. James S. Kinnear is the Chairman of the Board of Directors and is not
independent as he is the President and Chief Executive Officer of the Corporation
and the President and Chief Executive Officer of the Manager. |
|
|
|
|
In order to provide leadership for the independent members of the Board of
Directors, the Board of Directors has appointed John B. Zaozirny as the Lead
Director. |
- 3 -
|
(g) |
|
Disclose the attendance record of each director for all board meetings held
since the beginning of the issuers most recently completed financial year. |
|
|
|
|
The following table discloses the attendance of the members of the Board of
Directors at meetings of the Board of Directors and its committees: |
|
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|
|
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|
|
Subcommittee |
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|
|
|
|
Corporate |
|
|
|
|
|
of the |
|
|
|
|
Board of |
|
Audit |
|
Governance |
|
Compensation |
|
Compensation |
|
Reserves |
|
|
Directors |
|
Committee |
|
Committee |
|
Committee |
|
Committee |
|
Committee |
Director |
|
(11 Meetings) |
|
(6 Meetings) |
|
(4 Meetings) |
|
(2 Meetings) |
|
(3 Meetings) |
|
(1 Meeting) |
Thomas A. Cumming |
|
|
11/11 |
|
|
|
6/6 |
|
|
|
4/4 |
|
|
|
2/2 |
|
|
|
3/3 |
|
|
|
N/A |
|
|
Kirby L. Hedrick(1) |
|
|
8/8 |
|
|
|
2/2 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
1/3 |
|
|
|
N/A |
|
|
James S. Kinnear |
|
|
11/11 |
|
|
|
6/6 |
|
|
|
4/4 |
|
|
|
2/2 |
|
|
|
N/A |
|
|
|
N/A |
|
|
Michael S. Parrett |
|
|
11/11 |
|
|
|
6/6 |
|
|
|
4/4 |
|
|
|
2/2 |
|
|
|
3/3 |
|
|
|
N/A |
|
|
A. Terence Poole(2) |
|
|
7/8 |
|
|
|
2/2 |
|
|
|
1/1 |
|
|
|
N/A |
|
|
|
2/3 |
|
|
|
N/A |
|
|
Stanley H. Wong |
|
|
11/11 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
1/1 |
|
|
John B. Zaozirny |
|
|
11/11 |
|
|
|
N/A |
|
|
|
4/4 |
|
|
|
2/2 |
|
|
|
3/3 |
|
|
|
N/A |
|
|
William R.
Stedman(3) |
|
|
7/11 |
|
|
|
5/6 |
|
|
|
N/A |
|
|
|
1/2 |
|
|
|
N/A |
|
|
|
1/1 |
|
|
|
|
Notes: |
|
(1) |
|
Three Board of Directors, four Audit Committee, three Corporate Governance Committee and
one Reserves Committee meetings were held before the election of Mr. Hedrick as a member of
the Board of Directors on April 26, 2005. |
|
(2) |
|
Three Board of Directors, four Audit Committee, three Corporate Governance Committee and
one Reserves Committee meetings were held before the election of Mr. Poole as a member of the
Board of Directors on April 26, 2005. |
|
(3) |
|
William R. Stedman resigned effective October 28, 2005. |
2. |
|
Mandate of the Board of Directors |
|
(a) |
|
Disclose the text of the boards written mandate. If the board does not have a
written mandate, describe how the board delineates its role and responsibilities. |
|
|
|
|
The Board of Directors is responsible for the stewardship and affairs of the Trust
and the Corporation. The Board of Directors has established administrative
procedures which prescribe the rules governing the approval of transactions carried
out in the course of the Corporations operations, the delegation of authority and
the execution of documents on behalf of the Corporation. The Board of Directors
reviews and approves various matters, including the appointment of corporate
officers, as well as the annual capital and operating budgets and authorization of
unbudgeted investments and divestitures above a specified dollar threshold. The
Board of Directors expectations of management of the Corporation are communicated
directly to management and through committees of the Board of Directors. |
|
|
|
|
The responsibilities and obligations of the Board of Directors are set forth in a
written mandate of the Board of Directors, a copy of which is attached hereto as
Appendix 1-A. The Board of Directors annually reviews its mandate and considers
changes as appropriate. |
- 4 -
|
(a) |
|
Disclose whether or not the board has developed written position descriptions
for the chair and the chair of each board committee. If the board has not developed
written position descriptions for the chair and/or the chair of each board committee,
briefly describe how the board delineates the role and responsibilities of each such
position. |
|
|
|
|
The Board has developed but has not yet approved written position descriptions for
the chairman of the Board and the chair of each of the Audit Committee, the
Corporate Governance Committee, the Compensation Committee and the Reserves
Committee. The primary role of the chair of each such committee is managing the
affairs of the committee, including ensuring the committee is organized properly,
functions effectively and meets its obligations and responsibilities. |
|
|
|
|
The chair of the Audit Committee also maintains on-going communications with the
Trusts external auditors in order to lead the Audit Committee in performing its
oversight and other audit-related functions. For further information regarding the
Corporations Audit Committee, including the relevant education and experience of
the Audit Committee members, see page 60 of the Trusts Annual Information Form for
the financial year ended December 31, 2005. |
|
|
(b) |
|
Disclose whether or not the board and CEO have developed a written position
description for the CEO. If the board and CEO have not developed such a position
description, briefly describe how the Board delineates the role and responsibilities of
the CEO. |
|
|
|
|
The Board of Directors has developed but has not yet approved a written position
description for the Chief Executive Officer of the Corporation. |
4. |
|
Orientation and Continuing Education |
|
(a) |
|
Briefly describe what measures the board takes to orient new directors
regarding (i) the role of the board, its committees and its directors, and (ii) the
nature and operation of the issuers business. |
|
|
|
|
The Corporate Governance Committee is responsible for procedures relating to the
orientation and education of new members of the Board of Directors and for the
continued development of existing directors. Materials have been prepared for
review by new members of the Board of Directors in respect of the structure,
business and results of the Trust, the Corporation and its subsidiaries. New
members of the Board of Directors are also provided with the opportunity to have
meetings and discussions with senior management and other members of the Board of
Directors. The details of the orientation of each new member are tailored to that
members individual needs, requests and areas of interest. |
|
|
(b) |
|
Briefly describe what measures, if any, the Board takes to provide continuing
education for its directors. If the board does not provide continuing education,
describe how the Board ensures that its directors maintain the skill and knowledge
necessary to meet their obligations as directors |
|
|
|
|
The Corporation undertakes ongoing education efforts that include meetings with
management of the Corporation and regular industry updates with the Board of
Directors to discuss developments in the industry and market conditions. Continuing
education opportunities are directed at enabling individual members of the Board of
Directors to maintain or enhance their skills and abilities, as well as ensuring
that their knowledge and understanding of the Trusts and the Corporations affairs
remains current. |
- 5 -
5. |
|
Ethical Business Conduct |
|
(a) |
|
Disclose whether or not the board has adopted a written code for the directors,
officers and employees. If the board has adopted a written code: (i) disclose how a
person or company may obtain a copy of the code; (ii) describe how the board monitors
compliance with its code, or if the board does not monitor compliance, explain whether
and how the board satisfies itself regarding compliance with its code; and (iii)
provide a cross-reference to any material change report filed since the beginning of
the issuers most recently completed financial year that pertains to any conduct of a
director or executive officer that constitutes a departure from the code. |
|
|
|
|
The Board of Directors has adopted a Code of Business Conduct for the Trust and the
Corporation (the Code). The Code has been filed on, and is accessible through,
SEDAR at www.sedar.com. A copy of the Code may be obtained, upon
request, from the Corporation at 2900, 240 4th Avenue S.W., Calgary, AB T2P 4H4. |
|
|
|
|
The Board of Directors expects directors, officers and employees to act ethically at
all times and to acknowledge their adherence to the policies comprising the Code.
Any material issues regarding compliance with the Code are brought forward by
management at either the Board or appropriate committee meetings, or are referred to
the senior executive officers of the Corporation, as may be appropriate in the
circumstances. The Board of Directors and/or appropriate committee or senior
executive officers determine what remedial steps, if any, are required. Any waivers
from the Code that are granted for the benefit of a director, officer or employee
may be granted only by the Board of Directors. The Board of Directors has not
granted any such waivers since the beginning of the financial year ended December
31, 2005. |
|
|
(b) |
|
Describe any steps the board takes to ensure directors exercise independent
judgment in considering transactions and agreements in respect of which a director or
executive officer has a material interest. |
|
|
|
|
Each member of the Board of Directors must disclose all actual or potential
conflicts of interest and refrain from voting on matters in which such director has
a conflict of interest. In addition, the director must excuse himself or herself
from any discussion or decision on any matter in which the director is precluded
from voting as a result of a conflict of interest. |
|
|
(c) |
|
Describe any other steps the board takes to encourage and promote a culture of
ethical business conduct. |
|
|
|
|
Pengrowths Board of Directors adopted a new Code of Business Conduct and Ethics
(Code) on November 3, 2005. The new Code does not detract from any of the
requirements of the prior code and is more encompassing than the old code. In
addition, the Board of Directors determined to request that all employees accept the
new Code in writing. |
6. |
|
Nomination of Directors |
|
(a) |
|
Describe the process by which the board identifies new candidates for board
nomination. |
|
|
|
|
The Corporate Governance Committee serves as the nominating committee of the Board
of Directors. The Corporate Governance Committee identifies potential candidates
and reviews the qualifications of potential candidates for the Board of Directors.
In particular, the Corporate Governance Committee assesses, among other factors,
industry experience, functional expertise, financial literacy and expertise, board
experience and diversity of background, and considers potential conflicts arising in
connection with potential candidates for the Board of Directors. Upon such review,
and after conducting appropriate due diligence, the Corporate Governance Committee
makes recommendations on candidates to the Board of Directors. |
- 6 -
|
(b) |
|
Disclose whether or not the board has a nominating committee composed entirely
of independent directors. If the board does not have a nominating committee composed
entirely of independent directors, describe what steps the board takes to encourage an
objective nomination process. |
|
|
|
|
The Corporate Governance Committee of the Board of Directors serves as the
nominating committee of the Board of Directors and is composed of three independent
directors. |
|
|
(c) |
|
If the board has a nominating committee, describe the responsibilities, powers
and operation of the nominating committee. |
|
|
|
|
The Corporate Governance Committee has been established to assist the Board of
Directors in reviewing and making recommendations to the Board of Directors in
respect of, among other things, the nomination of candidates for election to the
Board of Directors. |
|
|
|
|
For further information concerning the responsibilities, powers and operations of
the Corporate Governance Committee, see the text of the mandate of the Corporate
Governance Committee attached as Appendix 1-B to this Circular. |
|
(a) |
|
Describe the process by which the board determines the compensation for the
issuers directors and officers. |
|
|
|
|
The Board of Directors has established the Corporate Governance Committee and
delegated to it the responsibility of annually reviewing and approving the
compensation paid by the Corporation to the directors of the Corporation. The Board
of Directors has established the Compensation Committee and delegated to it the
responsibility of annually reviewing and approving the compensation paid by the
Corporation to the officers and employees of the Corporation. The Corporate
Governance Committees review of compensation to directors, and the Compensation
Committees review of compensation to officers and employees include a consideration
of all forms of compensation paid, both with regards to the expertise and experience
of each individual and in relation to industry peers. |
|
|
(b) |
|
Disclose whether or not the board has a compensation committee composed
entirely of independent directors. If the Board does not have a compensation committee
composed entirely of independent directors, describe what steps the board takes to
ensure an objective process for determining such compensation. |
|
|
|
|
The Compensation Committee is composed of three independent members of the Board of
Directors. |
|
|
(c) |
|
If the board has a compensation committee, describe the responsibilities,
powers and operation of the compensation committee. |
|
|
|
|
For further information concerning the responsibilities, powers and operations of
the Compensation Committee, see the text of the mandate of the Compensation
Committee attached as Appendix 1-C to this Circular. |
- 7 -
|
(d) |
|
If a compensation consultant or advisor has, at any time since the beginning of
the issuers most recently completed financial year, been retained to assist in
determining compensation for any of the issuers directors and officers, disclose the
identity of the consultant or advisor and briefly summarize the mandate for which they
have been retained. If the consultant or advisor has been retained to perform any
other work for the issuer, state that fact and briefly describe the nature of the work. |
|
|
|
|
The Compensation Committee has retained Towers Perrin to attend committee meetings
and provide independent advice, compensation analysis and other information for
compensation recommendations. The analysis and advice from Towers Perrin include,
but is not limited to, executive compensation policy (such as the choice of
comparator groups and compensation philosophy), design of incentive plans, position
evaluation services and surveys of market data. |
8. |
|
Other Board Committees |
|
|
|
If the board has standing committees other than the audit, compensation and nominating
committees, identify the committees and describe their function. |
|
|
|
In addition to the Audit Committee, the Corporate Governance Committee and the Compensation
Committee, the Board of Directors has established the Reserves Committee, which is
responsible for assisting the Board of Directors in respect of its annual independent and/or
internal review of the Corporations petroleum and natural gas reserves. |
|
9. |
|
Assessments |
|
|
|
Disclose whether or not the board, its committees and individual directors are regularly
assessed with respect to their effectiveness and contribution. If assessments are regularly
conducted, describe the process used for the assessments. If assessments are not regularly
conducted, describe how the board satisfies itself that the board, its committees, and its
individual directors are performing effectively. |
|
|
|
The Corporate Governance Committee is responsible for making regular assessments of the
overall performance, effectiveness and contribution of the Board of Directors, the chairman
of the Board of Directors, each committee of the Board of Directors, each committee chair
and each director, and reporting on such assessments to the Board of Directors. The
objective of the assessments is to ensure the continued effectiveness of the Board of
Directors in the execution of its responsibilities and to contribute to a process of
continuing improvement. In addition to any other matters the Corporate Governance Committee
deems relevant, the assessments will consider in the case of the board or a committee, the
applicable mandate or charter, and in the case of individual directors, the applicable
position descriptions, as well as the competencies and skills each individual director is
expected to bring to the Board of Directors. |
|
|
|
The Corporate Governance Committee has developed an annual effectiveness survey, which
includes and evaluation of board responsibility, board operations and board effectiveness.
The survey is completed by each director and submitted anonymously. The results are
reviewed by the Chairman and Lead Director. |
APPENDIX 1-A
BOARD OF DIRECTORS MANDATE
CORPORATE GOVERNANCE POLICY
PENGROWTH CORPORATION
PENGROWTH ENERGY TRUST
(collectively Pengrowth)
Board of Directors
Corporate Governance Policy
In accordance with the recommendation of the Corporate Governance Committee (the Committee) the
Board of Directors (the Board) of Pengrowth Corporation (the Corporation) wishes to formalize
the guidelines pursuant to which the Board fulfills its obligations to the Corporation and ensures
that the Corporation performs its duties as administrator of Pengrowth Energy Trust (Energy
Trust). The Board acknowledges the formal guidelines on Corporate Governance in Canada issued
by the Toronto Stock Exchange and the overriding objective of promoting appropriate behaviour with
respect to all aspects of Pengrowths business. In consultation with the Committee, the Board will
continuously review and modify its terms of reference with regard to the applicable business
environment, industry standards on matters of corporate governance, additional standards which the
Board believes may be applicable to Pengrowths business, the location of Pengrowths business and
its Unitholders and the application of laws and policies.
The Board of Directors will fulfill its duties in cooperation with the Manager which acts as
Manager both to the Corporation and to Energy Trust. The Board of Directors also acknowledges the
elements which distinguish Pengrowth from corporate structures and the shared responsibility and
cooperation between the Corporation and the Manager in respect of Energy Trust. Although overall
responsibilities are shared between the Corporation and the Manager, in practice, the Manager
defers to the Board on all matters material to the Corporation and to Energy Trust. The guidelines
are intended to be flexible and are intended to provide direction to the Board in conjunction with
its legal obligations and mandate from the Unitholders to oversee and direct the affairs of the
Corporation.
Board Responsibilities
As mandated by the Toronto Stock Exchange (TSE) guidelines and the provisions of National Policy
58-201 with respect to Corporate Governance Guidelines that came into force on June
30th, 2005, the Board should explicitly assume responsibility for the stewardship of the
Corporation (in cooperation with the Manager) and specifically should be responsible for the
following:
1. |
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to the extent feasible, satisfying itself as to the integrity of the Chief Executive Officer
(CEO) and other executive officers and that the CEO and other executive officers create a
culture of integrity throughout the organization; |
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2. |
|
in consultation with the Manager, adoption of a strategic planning process for both the
Corporation and Energy Trust and approving, on at least an annual basis, a strategic plan
which takes into account, among other things, the opportunities and risks of that business and
monitoring performance against those plans. (The Board will seek recommendations from the
Manager and will direct the Manager with respect to the execution of strategic plans adopted
by the Board.); |
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3. |
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the identification of the principal risks of the Corporations business and Energy Trusts
business and ensuring the implementation of appropriate risk management systems. Adopt
policies and processes to identify business risks to address what risks are acceptable to the
Corporation and Energy Trust and to ensure that systems and actions are put in place to manage
them; |
- 2 -
4. |
|
succession planning, including making recommendations to the Unitholders of Energy Trust on
the appointment of the Manager and any amendments to the Management Contract. Monitoring the
Manager and, in conjunction with the Manager, senior management; |
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5 |
|
approve the Corporations communication policy and other relevant policies, including insider
trading, environmental, health and safety matters; |
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6 |
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require the Manager to ensure the integrity of the internal control and management
information systems; |
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7 |
|
approve annual capital and operating plans recommended by the Manager and monitoring
performance against those plans (the Audit Committee will review and recommend these plans to
the Board of Directors); and |
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8. |
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developing an approach to corporate governance, including developing a set of corporate
governance principles and guidelines that are specifically applicable to the issuer. |
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9. |
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developing measures for receiving feedback from unitholders and other stakeholders on the
business of Pengrowth and other matters whether through Investor Relations, the CEO or other
mechanics independent of management; and |
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10. |
|
developing guidelines with respect to expectations and responsibilities of directors,
including basic duties and responsibilities with respect to attendance at Board meetings and
advance review of meeting materials, either directly or through recommendations from the
Corporate Governance Committee. |
Composition of the Board
1. |
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Criteria for the Board of Directors |
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The majority of the Board shall be unrelated (independent of management and free from
conflicting interest) to the Corporation and Energy Trust. The Manager is presently
entitled to appoint two members to the Board and the unitholders of Energy Trust are
entitled to appoint the remaining directors, who must be a majority of at least three
additional directors. The Board is responsible for making the determination of whether a
director is unrelated. It will be the responsibility of the Committee to implement a
process for assessing the effectiveness of the Board, its committees and each individual
Board member and shall review with the Board, on an annual basis, the results of their
assessment. |
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2. |
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Size of the Board |
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The size of the Board shall enable its members to effectively and responsibly discharge
their responsibilities to the Corporation and to the Unitholders of the Corporation and
Energy Trust. The demands upon the Board will likely evolve with the future growth and
development of Pengrowth. The size of the Board should be considered over time and within
the context of the development of the business of Pengrowth, the formation of committees,
the workload and responsibilities of the Board and the required expertise and experience of
members of the Board. |
Board Committees
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The Board shall, at this time, have the following standing committees: |
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1. |
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Audit Committee; |
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2. |
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Corporate Governance Committee; |
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3. |
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Compensation Committee; and |
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4. |
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Reserves Committee. |
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The responsibilities of the foregoing committees shall be as set
forth in the mandates for these committees as prescribed from time
to time by the Board. |
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The Board Committees shall be comprised of a sufficient number of
independent directors so as to comply with applicable laws. |
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Appointment of members to standing committees shall be the
responsibility of the Board, having received the recommendation of
the Committee, based upon consultations with the members of the
Board and the Manager. In this regard, consideration should be
given to rotating committee members from time to time and to the
special skills of particular directors. Committee chairs will be
selected by the Committees members in each case. The Committee
chairs will be responsible for determining the agenda of meetings
of their respective committees and determining the frequency and
length of meetings, provided that the Committee must meet at least
semi-annually (with recommended meetings three to four times per
year). |
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The Board shall regularly assess the effectiveness of each of the
standing committees. An assessment should consider, among other
things, the mandate of each standing committee and the
contribution of each member thereof. |
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The Board may constitute additional standing committees or special
committees with special mandates as may be required or appropriate
from time to time. In appropriate circumstances, the committees
of the Board shall be authorized to engage independent advisors as
may be necessary in the circumstances. |
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In discharging his or her obligations, an individual director may
engage outside advisors, at the expense of the Corporation, in
appropriate circumstances and subject to the approval of the
Committee. |
Selection of New Directors & Chairman of the Board
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The Board will ultimately be responsible for
nominating and appointing new directors and for
the selection of its chairman. However, initial
responsibility for identifying and nominating
Board members shall reside with the Corporate
Governance Committee. |
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The
process of identifying and recommending new
directors shall be the responsibility of the
Committee, following consultation with members
of the Board at large. |
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Invitations to join the Board should be extended
by the Lead Director or by its Chairman as
appropriate. |
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New members of the Board shall be provided with
an orientation and education program as to the
nature of the business of Pengrowth current
issues, strategies and responsibilities of
directors. |
Board Expectations of Senior Management and Access to Senior Management
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The Manager is responsible for the day to day operation of the Corporation. |
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The Board shall determine the specific or general terms and levels of authority for the
Manager subject to the terms of the Management Agreement and shall review and recommend to
the Unitholders any changes to the terms of the Management Agreement from time to time in
the best interests of the Unitholders. |
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The Manager is encouraged, upon invitation of the Board only, to bring appropriate
management members to Board meetings in order to expose directors to key members of the
management team; to provide reports in their specific areas of expertise and provide
additional insight into matters being considered by the Board. However, the Board will
ordinarily conduct business with only members of the Board present, with the addition of
the Corporate Secretary and Assistant Corporate Secretary to ensure that the Board is
acting independently of management. Outside Directors should also meet at every meeting,
without representatives of the Manager and management present, under the chairmanship of
the Lead Director to |
- 4 -
fully discuss any procedural or substantive issues which they wish. Results of
these meetings should be communicated to the CEO as appropriate. The Board
will typically schedule a portion of each meeting as a meeting solely of the
independent directors under the direction and chairmanship of the Lead
Director.
Meeting Procedures
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The Board should be supported in its work by a
Corporate Secretary who has a position description
approved by the Board. The Corporate Secretary in
his/her capacity as Corporate Secretary should report
to the Chief Executive Officer and Chairman of the
Board. |
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The members of the Board, the Corporate Secretary and
a secretary to the meeting should be invited to any
regularly constituted meeting of the Board. Officers
or other persons shall attend by invitation only and
for those elements of the meetings where their input
is sought by the Directors. |
APPENDIX 1-B
CORPORATE GOVERNANCE COMMITTEE MANDATE
TERMS OF REFERENCE
CORPORATE GOVERNANCE COMMITTEE
PENGROWTH CORPORATION
PENGROWTH ENERGY TRUST
(collectively Pengrowth)
The Corporate Governance Committee (the Committee) of the Board of Directors (the Board) of
Pengrowth Corporation (the Corporation) acknowledges the formal guidelines relating to corporate
governance in Canada as provided for by National Instrument 58-101 Disclosure of Corporate
Governance Practices and National Policy 58-201 Corporate Governance Guidelines, both of the
Canadian Securities Administrators and the overriding objective of promoting appropriate behaviour
with respect to all aspects of Pengrowths business. The primary function of the Committee is to
assist the Board in carrying out its responsibilities by reviewing corporate governance and
nomination issues and making recommendations to the Board as appropriate. The Committee will
continuously review and modify its terms of reference with regard to applicable business
environment, industry standards on matters of corporate governance, additional standards which the
Board believes may be applicable to Pengrowths business, the location of Pengrowths business and
its unitholders and the application of laws and policies.
I. |
|
Organization of the Corporate Governance Committee |
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The Board has constituted and established the Committee to be composed of not less than
three and not more than six directors, one of whom shall serve as Chair of the Committee, as
determined by the Board from time to time. Each member of the Committee shall be
independent of the Corporation as that term is defined in Multilateral Instrument 52-110
Audit Committees. An independent director is a director who has no direct or indirect
material relationship with the Corporation, which, in the view of the Board of Directors,
could reasonably interfere with the exercise of a members independent judgment. Each
member of the Committee shall be elected annually to one year terms by a majority vote of
the Board. Vacancies on the Committee shall be filled by majority vote of the Board at the
next meeting of the Board following occurrence of the vacancy. The members of the Committee
may be removed by a majority vote of the related directors of the Board then in office. The
Committee may form and delegate authority to subcommittees as appropriate and in accordance
with applicable laws, regulations and listing requirements. |
|
II. |
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Purpose of the Corporate Governance Committee |
|
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The purpose of the Committee is (a) to review and report to the Board
on matters of corporate governance and Board composition and (b) to
provide oversight review of the Corporations systems for achieving
compliance with legal and regulatory requirements. The Committees
oversight role regarding compliance systems shall not include
responsibility for the Corporations actual compliance with
applicable laws and regulations. |
|
III. |
|
Duties and Responsibilities of the Corporate Governance Committee |
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The Committee shall have the following duties and responsibilities: |
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1. |
|
To bring to the attention of the Board such corporate
governance issues necessary for the proper governance of Pengrowth and to
develop the approach of the Corporation in matters of corporate governance,
including the written statement of corporate governance principles applicable
to the Corporation, as set forth in the Corporations annual |
- 2 -
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management proxy circular and to make recommendations to the Board with
respect to all such matters. |
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2. |
|
To assess and report to the Board in respect of matters
relating to the ongoing composition of the Board, including: |
|
(a) |
|
to consider the appropriate size of the Board; |
|
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(b) |
|
to recommend to the Board criteria for the
composition of the Board and the selection of directors; |
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(c) |
|
to identify, either directly or with the
assistance of a search firm, candidates for membership on the Board and
review their qualifications; |
|
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(d) |
|
to review succession planning issues with
respect to the members of the Board and, upon the retirement of the
Chair, make a recommendation to the Board with respect to the
appointment of a new Chair; |
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(e) |
|
to monitor the individual performance of
members of the Board; and |
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(f) |
|
to recommend to the Board candidates to fill
vacancies occurring between annual meetings and to recommend nominees
for election at annual meetings. |
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3. |
|
To oversee the evaluation of, and report to the Board on, the
performance of the Board as a whole, its committees and, in conjunction with
the Compensation Committee, the management of the Corporation. |
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4. |
|
To consider the mandates of the committees of the Board,
selection and rotation of Committee members and the Chair, and make
recommendations to the Board in connection with the same. |
|
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5. |
|
To consider the adequacy and the nature of the compensation to
be paid to the members of the Board, whether it reflects the risks and
responsibilities of an effective director and make recommendations to the Board
in connection with the same. |
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6. |
|
To assess and report to the Board with respect to the new
directors familiarization program of the Corporation. |
|
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7. |
|
Monitoring the appropriate sharing of duties and
responsibilities between the Manager and the Corporation. |
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8. |
|
In conjunction with the Manager, within the context of an
overall corporate budget approved by the Board of Directors, recommend to the
Board the appointment of officers on behalf of the Corporation and other key
employees. |
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9. |
|
In consultation with the Manager, develop a succession plan for
senior management of the Corporation. |
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10. |
|
Establish structures and procedures to permit the Board to
function independently of the management and the Manager, relying in part upon
a Lead Director to be appointed by the Board at an additional remuneration
approved by the Board to perform those duties set out in Schedule A. |
|
|
11. |
|
Develop a position description for the Chairman of the Board. |
- 3 -
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1. |
|
To review the policies, programs and practices of the
Corporation and monitor the adequacy of compliance systems in the following
areas: |
|
(a) |
|
environmental law; |
|
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(b) |
|
health and safety law; |
|
|
(c) |
|
corporate and securities law (including insider
trading and self dealing); |
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(d) |
|
anti-trust and competition law; |
|
|
(e) |
|
regulation of employment practices; |
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(f) |
|
code of business conduct and ethics; |
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(g) |
|
corporate policy on conflicts of interest; |
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(h) |
|
corporate policy with respect to communications
and disclosure; |
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(i) |
|
such other areas of regulatory law and
corporate policy statements as the Committee considers appropriate from
time to time. |
|
2. |
|
To report and make recommendations to the Board on such areas
of regulatory and corporate compliance as are considered appropriate from time
to time. |
IV. |
|
Meetings and Reports of the Corporate Governance Committee |
|
|
|
The Committee will meet as often as necessary to carry out its
responsibilities. Notice of time and place of every meeting shall be
given in writing to each member of the Committee, unless waived by all
members entitled to attend, at least two (2) clear business days prior
to the time fixed for such meeting. Attendance of a member of the
Committee at a meeting shall constitute waiver of notice of the
meeting except where a member attends a meeting for the express
purpose of objecting to the transaction of any business on the grounds
that the meeting was not lawfully called. A quorum for meetings shall
be not less than a majority of its members present in person or by
telephone. Reports of meetings of the Committee shall be made to the
Board at its next regularly scheduled meeting following the Committee
meeting, accompanied by any recommendations to the Board approved by
the Committee. The Corporate Secretary of the Corporation or an
alternative secretary designated by the Committee shall act as
Secretary of the Committee. If the Chairman of the Committee is not
present at any meeting of the Committee, one of the other members of
the Committee present at the meeting shall be chosen to preside by a
majority of the members of the Committee present at such meeting. The
President of the Corporation shall ordinarily be invited to attend
meetings or those portions thereof which do not have to be addressed
separately by the independent directors. The Committee may, by
specific invitation, have other resource persons in attendance. |
|
V. |
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Outside Advisors |
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|
|
The Committee is given sole authority to engage and compensate any outside advisor that it
determined to be necessary to permit it to carry out its duties. The Committee has sole
authority to retain and terminate any search firm to be used to identify director
candidates. The Committee also has sole authority to negotiate contracts with the search
firm and to establish the fees payable to the search firm. |
APPENDIX 1-C
COMPENSATION COMMITTEE MANDATE
TERMS OF REFERENCE
COMPENSATION COMMITTEE
PENGROWTH CORPORATION
PENGROWTH ENERGY TRUST
(collectively Pengrowth)
Objectives
The Compensation Committee (the Committee) of the Board of Directors acknowledges the formal
guidelines on Corporate Governance in Canada issued by the Toronto Stock Exchange, the guidelines
of the New York Stock Exchange and other regulatory provisions as they pertain to compensation
matters. The objective of the Committee is to enable the Corporation to recruit, retain and
motivate employees and ensure conformity between compensation and other corporate objectives. The
Committee will assist the Board in fulfilling its oversight responsibilities with respect to
executive management compensation, human resources policies and compensation of the Manager and
will make recommendations to the Board as appropriate. The Committee will continuously review and
modify its terms of reference with regard to the applicable business environment, industry
standards, matters of Corporate Governance, additional standards which the Committee believes may
be applicable to Pengrowths business, the location of Pengrowths business and its Unitholders and
the application of laws and policies.
Constitution
|
|
|
The Committee shall consist of not less than three or more than six Directors, a
majority of who shall be independent of the Corporation as that term is defined in
Multilateral Instrument 52-110 Audit Committees. An independent director is a Director
who has no direct or indirect material relationship with Pengrowth , which, in the view of
the Board of Directors, could reasonably interfere with the exercise of a members
independent judgment. |
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The members of the Committee shall be appointed or re-appointed at the organizational
meeting of the Board immediately following each Annual Meeting of the shareholders of
Pengrowth Corporation (the Corporation) and shall continue as members of the Committee
until their successors are appointed or they cease to be directors of the Corporation.
Where a vacancy occurs at any time in the membership of the Committee, the Board may fill
it. |
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The members of the Committee shall appoint a Chairman from amongst their number. The
Corporate Secretary of the Corporation, or an alternative secretary designated by the
Committee, shall act as Secretary of the Committee. If the Chairman of the Committee is
not present at any meeting of the Committee, one of the other members of the Committee
present at the meeting shall be chosen to preside by a majority of the members of the
Committee present at such meeting. |
Meetings and Minutes
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|
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The time and place of meetings of the Committee and the procedures at such meetings
shall be determined from time to time by the members, provided that: |
|
(a) |
|
a quorum for meetings shall not be less than a majority of its members present
in person or by telephone;
|
- 2 -
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(b) |
|
the Committee shall meet as often as necessary, likely at least on a quarterly
basis. Matters to be considered at the meetings will include: |
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|
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matters related to compensation in the annual budget excluding the compensation of directors which is a matter
within the scope of authority of the Corporate Governance Committee. |
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matters related to annual bonus and advance bonus payments. |
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matters relating to incentive payments and programs. |
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compensation issues in the annual report |
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compensation disclosure in the information circular and proxy statement |
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Matters pertaining to the Manager including: |
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|
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review of KPMG reports on Managers compensation |
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consideration of Assumed Expenses |
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consideration of extension or termination of the Management Agreement |
|
(c) |
|
notice of time and place of every meeting shall be given in writing to each
member of the Committee, unless waived by all members entitled to attend, at least two
(2) clear business days prior to the time fixed for such meeting. Attendance of a
member of the Committee at a meeting shall constitute waiver of notice of the meeting
except where a member attends a meeting for the express purpose of objecting to the
transaction of any business on the grounds that the meeting was not lawfully called; |
|
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(d) |
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A meeting may be called by the Chairman of the Committee, the Chief Executive
Officer or any member of the Committee; |
|
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(e) |
|
The President of Pengrowth Corporation would ordinarily be invited to attend
meetings or those portions thereof which do not have to be addressed separately by the
independent directors. The Committee may, by specific invitation, have other resource
persons in attendance; and |
|
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(f) |
|
The Chairman of the Committee shall provide updates to the Board, as
appropriate, as to the matters considered by the Committee at the next Board meeting
following a Committee meeting. |
Scope, Duties and Responsibilities
|
|
|
The Committees responsibilities shall include the following (provided that some of the
following functions, such as the function of determining compensation, might be assumed
from time to time by other committees of the Board as Board priorities and resources
permit): |
|
(a) |
|
act in an advisory capacity to the Board; |
|
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(b) |
|
in consultation with Pengrowth Management Limited (the Manager), set general
compensation guidelines for employees of Pengrowth Corporation and recommend for
approval by the Board specific compensation guidelines for senior employees, officers
and consultants of Pengrowth Corporation in the form of stock options, cash
compensation and bonuses to be paid within the
context of an overall corporate budget approved by the Board of Directors.
Consideration will be given to:
|
- 3 -
|
(i) |
|
amendment of the Option Plan, the Trust Unit Rights Incentive
Plan; the Long Term Incentive Plan and The Trust Unit Awards Plan |
|
|
(ii) |
|
implementation of or changes to compensation and benefits
policies; and |
|
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(iii) |
|
number and level of total incentive awards. |
As the Manager is accountable for performance, retaining and compensating
appropriate personnel will also be a key responsibility of the Manager.
|
(c) |
|
Review Pengrowth Corporations key Human Resources policies. |
|
|
(d) |
|
Review and recommend to the Board any significant changes to the overall
compensation program and Pengrowth Corporations objectives related to executive
compensation. |
|
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(e) |
|
Review and approve a report on executive compensation for inclusion in
Pengrowth Corporations proxy statement and information circular. |
|
|
(f) |
|
With regard to the Manager: |
|
(i) |
|
consideration of matters related to the performance and
compensation of the Manager, including receiving reports from the auditors with
respect to Management compensation; |
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(ii) |
|
discussions with the Manager with respect to the strategy and
objectives for Pengrowth Corporation and Pengrowth Trust, the performance of
the Manager in accordance with the Management Agreement and matters in relation
to the extension or termination of the Management Agreement; and |
|
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(iii) |
|
review and recommendation to the Board for approval of
Assumed Expenses under the Management Agreement. |
|
(g) |
|
Review annually and report to the Board on the adequacy of the Committees
terms of reference. |
|
|
(h) |
|
Perform any other activities consistent with this Mandate, the Corporations
By-Laws and applicable law as the Committee or the Board deems necessary or
appropriate. |
|
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The Committee shall make regular reports to the Directors. |
|
|
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|
The Committee shall have the authority to engage independent counsel and other advisors
as it deems necessary to carry out its duties. |
The duties and responsibilities of a member of the Committee are in addition to those duties set
out for a member of the Board of Directors.
APPENDIX 2
FAIRNESS OPINION OF BMO NESBITT BURNS
|
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Investment & Corporate Banking |
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2200, 333 7th Avenu S.W |
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Calgary, AB 12P 221 |
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Tel., (403) 515-1500 |
|
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Fax: (403) 515-1535 |
May 16, 2006
Special Committee of the Board of Directors of Pengrowth Corporation
c/o Pengrowth Corporation
2900, 240 4 Avenue SW
Calgary, Alberta
T2P 4H4
To the Members of the Special Committee:
BMO Nesbitt Burns Inc. (BMO Nesbitt Burns) understands that the Special Committee of the
Board of Directors of Pengrowth Corporation (the
Corporation) has unanimously recommended to the
Board of Directors of the Corporation that the Class A trust units and the Class B trust units of
Pengrowth Energy Trust (the Trust) be consolidated as follows:
|
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effective as of 5:00 p.m. (Calgary time) on June 27, 2006: |
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the restriction on the Class B trust units that provides that the Class B trust units may
only be held by residents of Canada will be eliminated; and |
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effective as of 5:00 p.m. (Calgary time) on July 27, 2006: |
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the Class A trust units will be de-listed from the
Toronto Stock Exchange (the TSX)
(effective as of the close of markets); |
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the Class B trust units will be renamed as Trust Units (for further clarity, defined
herein as Consolidated Trust Units) and the trading symbol of the Consolidated Trust
Units will be changed from PGF.B to PGF.UN (subject to the approval of the TSX); |
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all of the issued and outstanding Class A trust units will be converted into Consolidated
Trust Units on the basis of one Consolidated Trust Unit for each whole Class A trust unit
previously held (with the exception of Class A trust units held by residents of Canada
who have provided a residency declaration to Computershare Trust
Company of Canada); and |
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the Consolidated Trust Units will be substitutionally listed in place of the Class A
trust units on the New York Stock Exchange (the NYSE) under the trading symbol PGH
(subject to the approval of the NYSE); |
(the foregoing collectively referred to herein as the Consolidation). We understand that,
pursuant to the Consolidation, the Amended and Restated Trust Indenture (the Trust Indenture)
dated July 27, 2004 between the Corporation and Computershare Trust Company of Canada by which the
Trust is constituted will be amended to give effect to the
Consolidation.
The terms and conditions of the Consolidation will be more fully described in the information
circular proxy statement of the Trust and the Corporation to be dated May 16, 2000 (the
Information
Circular)
and which is to be prepared in connection with the annual and special meeting (the
AGM) of holders (the Unitholders) of Class A trust units and Class B trust units of the Trust
to be held in Calgary, Alberta on June 23, 2006. We understand that the Consolidation will be
conditional upon among other things, approval by a minimum of 66 2/3% of the votes cast by
Unitholders at the AGM.
BMO Nesbitt Burns understands that the economic entitlement to receive distributions,
including as to the amount and timing thereof, and the economic entitlement to receive
distributions on termination of the Trust are identical as between the Class A trust units and
Class B trust units. BMO Nesbitt Burns further understands that there are no preferential voting
rights attached to either the Class A trust units or Class B trust units and that under the Trust
Indenture in every circumstance the holders of Class A trust units and Class B trust units vote as
one group. BMO Nesbitt Burns understands that, other than as necessary to provide for reciprocal
rights as between the holders of Class A trust units and the holders of Class B trust units, the
rights and entitlements of Class A trust units and the Class B trust units are the same in all
material respects except that the Class B trust units can only be owned by Canadian residents
whereas the Class A trust units have no restrictions on ownership.
Engagement of BMO Nesbitt Burns
BMO Nesbitt Burns was engaged by the Corporation pursuant to an agreement dated April 19,
2006 (the Engagement Agreement) to act as financial advisor to the Special Committee in respect
of the Consolidation and, if requested, to provide a fairness opinion to the Special Committee as
to whether the Consolidation is fair from a financial point of view to the Unitholders.
For
its services under the Engagement Agreement. BMO Nesbitt Burns will receive a fee
regardless of the result of the vote on a resolution to approve the Consolidation at the AGM. In
addition, BMO Nesbitt Burns is to be reimbursed for its reasonable out-of-pocket expenses and be
indemnified by the Corporation in respect of certain liabilities which may be incurred by BMO
Nesbitt Burns in connection with the provision of its services.
BMO Nesbitt Burns is not an insider, associate or affiliate of the Trust or the Corporation,
BMO Nesbitt Burns acts as a trader and dealer, both as principal and agent, in major financial
markets and, as such, may have had and may in the future have positions in the securities of
Pengrowth. BMO Nesbitt Burns may have executed or may execute transactions for clients from whom
it received or may receive compensation. BMO Nesbitt Burns, as an investment dealer, conducts
research on securities and may, in the ordinary course of its business, provide research reports
and investment advice to its clients on investment matters, including with respect to the
Consolidation, the Trust or the Corporation. BMO Nesbitt Burns controlling shareholder, Bank of
Montreal, is a lender to the Corporation in the ordinary course of business.
Other than as set forth above, there are no understandings, agreements or commitments between
BMO Nesbitt Burns and the Trust or the Corporation with respect to any future business dealings.
BMO Nesbitt Burns may in the future, in the ordinary course of its business, perform financial
advisory or investment banking services for, and Bank of Montreal may
provide banking services to the Trust or the Corporation.
BMO Nesbitt Burns understands that this opinion and a summary of this opinion will be included
in the Information Circular and subject to the terms of the Engagement Agreement. BMO Nesbitt
Burns consents to the inclusion of this opinion in its entirety, together with a summary thereof,
in a form acceptable to BMO Nesbitt Burns, in the Information Circular and to the filing thereof
with the TSX, the NYSE and securities commissions or similar regulatory authorities in each
province of Canada and in the United States where such filing is required.
2
Credentials of BMO Nesbitt Burns
BMO Nesbitt Burns is one of Canadas largest investment banking firms with operations in all
facets of corporate and government finance, mergers and acquisitions, equity and fixed income sales
and trading and investment research, BMO Nesbitt Burns has participated in a significant number of
transactions involving public and private companies, income funds and royalty trusts and has
extensive experience in preparing valuations and fairness opinions.
The opinion expressed herein is the opinion of BMO Nesbitt Burns, the form and content of
which have been approved for release by a committee of directors and other professionals of BMO
Nesbitt Burns, each of whom is experienced in merger, acquisition, divestiture, valuation and
fairness opinion matters.
Scope of Review
In
preparing this opinion, BMO Nesbitt Burns has reviewed and/or relied upon, among other
things, the following (without attempting to verify the accuracy or completeness thereof):
(a) |
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The Information Circular; |
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(b) |
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The Trust Indenture; |
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(c) |
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Legal advice in respect of the Consolidation and available alternatives provided by Bennett
Jones LLP, the Corporations external legal counsel, and Burnet,
Duckworth & Palmer LLP,
the Special Committees external legal counsel; |
|
(d) |
|
Legal opinion in respect of the Trusts status as a mutual fund trust as defined by the
Income
Tax Act (Canada) after the Consolidation provided by Bennett
Jones LLP, the Corporations
external legal counsel; |
|
(e) |
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Public information related to the business, operations, financial performance and trading
histories of the Trust and other selected oil and gas royalty trusts, as we considered
relevant; |
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(f) |
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Discussions with senior officers of the Corporation regarding financial results, business
strategy and plans and historical and prospective business development initiatives; |
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(g) |
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A certificate of senior officers of the Corporation addressed to us and dated the date
hereof, as to matters of fact relevant to the Consolidation and as to the completeness and
accuracy of the information upon which this opinion is based (the Certificate); |
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(h) |
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Such other financial, market, corporate and industry
information, research reports,
investigations, discussions and analysis, research and testing of assumptions as we
considered necessary or appropriate in the circumstances. |
In addition to the information described above, BMO Nesbitt Burns also participated in certain
discussions regarding the Consolidation with the Special Committee, the Board of Directors, and
senior officers of the Corporation and with Burnet, Duckworth &
Palmer LLP and Paul, Weiss,
Rifkind, Wharton & Garrison LLP, the Special Committees
external legal counsel, Bennett Jones LLP,
the Corporations external legal counsel, and other parties.
3
Assumptions and Limitations
BMO Nesbitt Burns has relied, without independent verification, upon all financial and other
information that was obtained by us from public sources or that was provided to us by or on behalf
of the Trust or the Corporation and their advisors or otherwise. We have assumed that all such
information was complete and accurate and did not omit to state any material fact or any fact
necessary to be stated to make that information not misleading. Our opinion is conditional upon
such completeness and accuracy and non-omission of facts. We have not conducted any independent
investigation to verify the completeness or accuracy of any of such information. Senior management
of the Corporation have represented to us, in the Certificate, that, to the best of their
knowledge, information and belief, among other things (i) the information, data and other material
(the Information) provided to BMO Nesbitt Burns is complete, true and correct and did not and
does not contain any untrue statement of a material fact in respect of the Trust or the
Corporation and the Consolidation; (ii) the Information does not omit to state a material fact in
relation to the Trust, the Corporation and the Consolidation necessary to make the Information not
misleading in light of the circumstances under which the Information was presented; (iii) the
legal and economic entitlements of Unitholders is unchanged upon completion of the Consolidation;
(iv) since the dates on which the Information was provided to BMO Nesbitt Burns, there has been no
material change in the business or affairs of the Trust or the Corporation and no material change
has occurred in the Information or any part thereof which would have or which would reasonably be
expected to have a material effect on the Opinion.
With respect to all legal and tax matters relating to the Consolidation and the
implementation thereof, we have relied upon the Trusts and the Corporations legal and tax
counsel and have assumed the accuracy of the disclosure, including the validity and efficacy of
the procedures being followed to implement the Consolidation, set forth in the Information
Circular that we have reviewed and we do not express any opinion
thereon. We do not express any
opinion with respect to the tax consequences to the Trust or the Corporation that may arise as a
result of the Consolidation and have assumed that no negative tax consequences to any such party
will arise as a result of the Consolidation. We have not considered the income tax impact of the
Consolidation for any of the Unitholders. The Consolidation is subject to a number of conditions
outside of the control of the Trust and we have assumed that all conditions precedent to the
completion of the Consolidation will be satisfied in due course and all consents, permissions,
exemptions or orders of relevant regulatory authorities will be obtained, without adverse
conditions or qualifications. In rendering this opinion we express no view as to the likelihood
that the conditions to the Consolidation will be satisfied or waived or that the Consolidation
will be implemented within the timeframe indicated in the Information
Circular. We have assumed
that the Consolidation will be implemented as set out in the
Information Circular.
We have also assumed that the Trust will continue to qualify as a unit trust and as a
mutual fund trust as defined by the Income Tax Act (Canada), and that the Units will continue to
be qualified investments under the Income Tax Act (Canada) for trusts governed by registered
retirement savings plans, registered education savings plans, registered retirement income funds
and deferred profit sharing plans.
This opinion is based on the securities markets, economic, general, business and financial
conditions prevailing as of the date of this opinion and the conditions and prospects, financial
and otherwise, of the Trust as they were reflected in the information reviewed by us. In our
analysis and in preparing this opinion. BMO Nesbitt Burns has made numerous assumptions with
respect to general business and economic conditions and other matters, many of which are beyond the
control of any party involved in the Consolidation. BMO Nesbitt Burns believes that the analyses
described in this opinion must be considered as a whole and that selecting portions of such
analyses or the factors considered by BMO Nesbitt Burns, without considering all factors and
analyses, together, may create a misleading view of the process underlying this opinion. The
preparation of a fairness opinion is a
4
complex process and is not necessarily susceptible to partial analysis or summary description.
Any attempt to do so may lead to undue emphasis on any particular
factor or analysis.
This opinion is provided to the Special Committee for its use only and may not be relied upon
by any other person. BMO Nesbitt Burns disclaims any undertaking or obligation to advise any person
of any change in any fact or matter affecting the opinion, which may come, or be brought, to the
attention of BMO Nesbitt Burns after the date hereof. Without limiting the foregoing, in the event
that there is any material change in any fact or matter affecting this opinion after the date
hereof. BMO Nesbitt Burns reserves the right to change, modify or withdraw the opinion.
BMO Nesbitt Burns is not expressing herein any opinion as to the price at which any class of
trust units of the Trust will trade before or after completion of the Consolidation. This opinion
should not be construed as a recommendation to vote in favour of the
Consolidation.
Fairness Conclusion
Based upon and subject to the foregoing and such other matters as we consider relevant. BMO
Nesbitt Burns is of the opinion that, as of the date hereof, the Consolidation is fair, from a
financial point of view, to the Unitholders.
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Yours very truly, |
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BMO Nesbitt Burns Inc. |
5
APPENDIX 3
FAIRNESS OPINION OF MERRILL LYNCH
Global Markets & Investment Banking Group
May 16,
2006
Special Committee of the Board of Directors of Pengrowth Corporation
c/o Mr. Terence Poole
Chairman of the Special Committee
1550 Coraopolis Heights Road
Moon Township, PA 15108
Members of the Special Committee:
The Special Committee (the Special Committee) of the Board of Directors of Pengrowth
Corporation (the Corporation) proposes to recommend to the Board of Directors of the
Corporation that the Class A trust units and the Class B trust units of Pengrowth Energy Trust
(the Trust) be consolidated as follows:
|
|
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effective as of 5:00 p.m. (Calgary time) on June 27, 2006: |
|
o |
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the restriction on the Class B trust units that
provides that the Class B trust units may only be held by residents of
Canada will be eliminated; and |
|
|
|
effective as of 5:00 p.m. (Calgary time) on July 27, 2006: |
|
o |
|
the Class A trust units will be delisted from the
Toronto Stock Exchange (the TSX) (effective as of the close of
markets); |
|
|
o |
|
the Class B trust units will be renamed as Trust
Units (for further clarity, defined herein as Consolidated Trust
Units) and the trading symbol of the Consolidated Trust Units will be
changed from PGF.B to PGF.UN (subject to the approval of the TSX); |
|
|
o |
|
all of the issued and outstanding Class A trust
units will be converted into Consolidated Trust Units on the basis of
one Consolidated Trust Unit for each whole Class A trust unit previously
held (with the exception of Class A trust units held by residents of
Canada who have provided a residency declaration to Computershare Trust
Company of Canada); and |
|
|
o |
|
the Consolidated Trust Units will be substitutionally
listed in place of the Class A trust units on the New York Stock Exchange
(the NYSE) under the trading symbol PGH (subject to the approval of
the NYSE). |
(the
foregoing collectively referred to herein as the Consolidation). We understand that,
pursuant to the Consolidation, the Amended and Restated Trust
Indenture (the Trust
Indenture) dated July 27, 2004 between the Corporation and Computershare Trust Company of
Canada by which the Trust is constituted will be amended to give effect to the Consolidation.
Global Markets & Investment Banking Group
The terms and conditions of the Consolidation are more fully described in the information
circular proxy statement of the Trust and the Corporation to be dated May 16, 2006 (the
Information Circular) being prepared in connection with the annual and special meeting (the
AGM) of holders (the Unitholders) of Class A trust units and Class B trust units of the Trust
to be held in Calgary, Alberta on June 23, 2006.
We understand that the economic entitlement to receive distributions, including as to the
amount and timing thereof, and the economic entitlement to receive distributions on termination of
the Trust are identical as between the Class A and Class B trust units. We further understand that
there are no preferential voting rights attached to either the Class A or Class B trust units and
that under the Trust Indenture, in every circumstance the holders of Class A trust units and Class
B trust units vote as one group. We understand that, other than as necessary to provide for
reciprocal rights as between the holders of Class A trust units and the holders of Class B trust
units, the rights and entitlements of the Class A trust units and the Class B trust units are the
same in all material respects except that the Class B trust units can only be owned by Canadian
residents whereas the Class A trust units have no restrictions
on ownership.
You have asked us whether, in our opinion, the Consolidation is fair from a financial point
of view to the holders of Class A trust units and the holders of Class B trust units. At your
request, we have considered the effect of the Consolidation on the holders of Class A trust units.
In arriving at the opinion set forth below, we have, among other things:
|
(1) |
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Reviewed a draft of the Information Circular; |
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(2) |
|
Reviewed the Trust Indenture; |
|
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(3) |
|
Relied upon the legal advice furnished by Bennett Jones LLP,
counsel to the
Corporation, and Burnet, Duckworth & Palmer LLP, counsel to the Special Committee,
in respect of the Consolidation and available alternatives; |
|
|
(4) |
|
Relied upon the legal opinion furnished by Bennett Jones LLP in respect of
the ability
of the Trust to retain its status as a mutual fund trust under the Income Tax Act
(Canada) after the Consolidation has been implemented; |
|
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(5) |
|
Compared the Consolidation as contemplated herein with other available
alternatives
from the perspective of the Unitholders; |
|
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(6) |
|
Reviewed certain publicly available business, financial and other information
relating to the Corporation and the Trust that we deemed to be relevant; |
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(7) |
|
Participated in certain discussions regarding the Consolidation with the
Special Committee and senior officers of the Corporation and with Burnet, Duckworth &
Palmer LLP, Bennett Jones LLP and Paul, Weiss, Rifkind Wharton & Garrison LLP, U.S.
counsel to the Special Committee, and other parties; |
2
Global Markets & Investment Banking Group
|
(8) |
|
Reviewed and relied upon a certificate of senior officers of the
Corporation addressed
to us, as to matters of fact relevant to the Consolidation and as to the completeness
and accuracy of the information upon which this opinion is based; and |
|
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(9) |
|
Reviewed such other studies, analyses and other information and took into
account
such other matters as we deemed necessary, including our assessment of general
economic, market and monetary conditions. |
In preparing our opinion, we have assumed and relied on the accuracy and completeness of
all information supplied or otherwise made available to us, discussed with or reviewed by or for
us, or publicly available, and we have not assumed any responsibility for independently
verifying such information or undertaken an independent evaluation or appraisal of any of the
assets or liabilities of the Corporation or the Trust, nor have we evaluated the solvency or
fair value of the Corporation or the Trust under any provincial or federal laws relating to
bankruptcy, insolvency or similar matters. We have not considered the income tax impact of the
Consolidation for any of the Unitholders. We have also assumed that the final form of the
Information Circular will be substantially similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions as they exist
and can be evaluated on, and on the information made available to us as of, the date hereof. We
have assumed that in the course of obtaining the necessary regulatory or other consents or
approvals (contractual or otherwise) for the Consolidation, no restrictions, amendments or
modifications will be imposed that will have a material adverse effect on the contemplated
benefits of the Consolidation.
We are acting as financial advisor to the Special Committee in connection with the
Consolidation and will receive a fee from the Corporation for our services, a portion of which
is contingent upon the delivery by us of our opinion letter, but which is not contingent on the
outcome of the vote to approve the Consolidation at the AGM. In addition, the Special Committee
on behalf of the Trust has agreed to indemnity us for certain liabilities arising out of our
engagement. We may provide financial advisory and/or financing services to the Special
Committee, the Board of Directors of the Corporation, the Corporation or the Trust and/or their
respective affiliates in the future and may receive fees for the rendering of such, services. In
addition, in the ordinary course of our business, we may actively trade securities of the Trust
for our own account and for the accounts of customers and, accordingly, may at any time hold a
long or short position in such securities.
This opinion is solely for the use and benefit of the Special Committee in its evaluation of
the Consolidation and shall not be used for any other purpose. This opinion is not intended to be
relied upon or confer any rights or remedies upon any employee, creditor, shareholder or other
equity holder of the Corporation or Trust, or any other party. In addition, you have not asked us
to address, and this opinion does not address, the fairness to, or any other consideration of,
the holders of any class of securities, creditors or other constituencies of the Corporation or
the Trust. This opinion shall not be reproduced, disseminated, quoted, summarized or referred to
at any time, in any manner or for any purpose, nor shall any public references to Merrill Lynch
Canada Inc. (Merrill Lynch) or any of its affiliates be made by the Special Committee or the
Corporation, without the prior written consent of Merrill Lynch.
3
Global Markets & Investment Banking Group
We are not expressing any opinion herein as to the prices at which the units of the Trust
will trade following the announcement, implementation or completion of the Consolidation.
On the basis of and subject to the foregoing, we are of the opinion that, as of the date
hereof, the Consolidation is fair from a financial point of view to the holders of Class A trust
units and the holders of Class B trust units.
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Very truly yours, |
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MERRILL LYNCH CANADA INC. |
4
SCHEDULE
A-1
EXTRAORDINARY RESOLUTION TO AMEND THE UNANIMOUS SHAREHOLDER AGREEMENT
TO SIMPLIFY VOTING PROCEDURES AT THE ANNUAL GENERAL MEETING
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
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The Unanimous Shareholder Agreement be amended by: |
|
(a) |
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Clarifying that only holders of common shares of the Corporation (Shares)
shall be entitled to notice of, to attend and to vote at, any meeting of, and in
respect of any matter put before, the holders of Shares. |
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(b) |
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Deleting Sections 4.01 through 4.07, inclusive. |
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(c) |
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Making such supplemental and ancillary amendments as are deemed necessary or
expedient to give effect to the foregoing. |
2. |
|
Any officer or director of the Corporation is hereby authorized, for and in the name of the
Corporation, to execute and deliver an amending agreement to the Unanimous Shareholder
Agreement, or an amended and restated Unanimous Shareholder Agreement, and execution thereof
shall evidence approval of the said amendments and the amending agreement or the amended and
restated Unanimous Shareholder Agreement pursuant to this Extraordinary Resolution. |
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3. |
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Any officer or director of the Corporation, is hereby authorized and directed, for and in the
name of the Corporation, to execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution. |
All terms defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006,
have the same meanings in this Extraordinary Resolution when used herein.
SCHEDULE A-2"
EXTRAORDINARY RESOLUTION TO AMEND THE UNANIMOUS SHAREHOLDER AGREEMENT
AND THE ARTICLES OF THE CORPORATION TO INCREASE THE MAXIMUM SIZE OF THE
BOARD OF DIRECTORS OF THE CORPORATION
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
|
The Unanimous Shareholder Agreement be amended to increase the maximum size of the Board of
Directors of the Corporation by: |
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(a) |
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amending Section 3.01 to read as follows: |
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The Board of Directors of the Corporation shall consist of a minimum of three (3)
members and a maximum of twelve (12) members, two (2) of whom shall be appointed by
the Manager and the balance of whom shall be appointed by the Trust Unitholders. If
the appointment of two (2) members by the Manager would result in the Trust
Unitholders, not having appointed a majority of the Board of Directors, then the
Manager shall appoint only one (1) member of the Board of Directors. |
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(b) |
|
Making such supplemental and ancillary amendments as are deemed necessary or
expedient to give effect to the foregoing. |
2. |
|
The articles of the Corporation be amended to increase the maximum size of the Board of
Directors of the Corporation from eight (8) members to twelve (12) members. |
|
3. |
|
Any officer or director of the Corporation is hereby authorized, for and in the name of the
Corporation, to execute and deliver an amending agreement to the Unanimous Shareholder
Agreement, or an amended and restated Unanimous Shareholder Agreement, and execution thereof
shall evidence approval of the said amendments and the amending agreement or the amended and
restated Unanimous Shareholder Agreement pursuant to this Extraordinary Resolution. |
|
4. |
|
Any officer or director of the Corporation is hereby authorized, for and in the name of the
Corporation, to execute and deliver articles of amendment with the Alberta Registrar of
Corporations, and execution thereof shall evidence approval of the said articles of amendment
pursuant to this Extraordinary Resolution. |
|
5. |
|
Any officer or director of the Corporation, is hereby authorized and directed, for and in the
name of the Corporation, to execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution. |
All terms defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006,
have the same meanings in this Extraordinary Resolution when used herein.
SCHEDULE B-1"
EXTRAORDINARY RESOLUTION TO AMEND THE TRUST INDENTURE
TO PROVIDE FOR THE CONSOLIDATION OF THE TRUSTS DUAL CLASS STRUCTURE
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
|
Effective as at 5:00 p.m. (Calgary time) on June 27, 2006, the Trust Indenture shall be
amended and restated to give effect to the following changes: |
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(a) |
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Delete the residency restrictions on the ownership of Class B trust units and
permit the Class B trust units to be listed on the New York Stock Exchange and any
other exchange or exchanges as may be determined by the Board of Directors, which
amendments may include, without limitation: |
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(i) |
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Deleting the definitions of Prohibited Class B Units and Valid Offer. |
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(ii) |
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Deleting Section 3.12. |
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(iii) |
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Amending Section 13.05 by deleting the phrase: |
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Notwithstanding the above, any Person becoming entitled to any Trust Units
shall not be recorded as the holder of such Trust Units if such
registrations would conflict with or violate any of the provisions of
Schedule A or Schedule B hereto. |
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(iv) |
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Deleting Section B.2. |
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(v) |
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Amending Section B.3 to read as follows: |
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The Class B Units may be listed and posted for trading on either or both of
the Toronto Stock Exchange and the New York Stock Exchange and any other
exchange or exchanges as may be determined by the Directors of the
Corporation. |
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(vi) |
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Deleting Sections B.6 and B.7. |
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(vii) |
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Amending Schedule E by deleting the phrase: |
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provided that no Class B Trust Units may be held by a person who is a
non-resident for the purpose of the Income Tax Act (Canada). |
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(viii) |
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Amending the Transfer Form set out in Schedule E to delete the paragraph
entitled Residency Declaration of Transferee and the legend immediately
following such paragraph. |
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(b) |
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Provide an unrestricted right of the holders of Class A trust units to convert
those units to Class B trust units, including making such amendments to the Trust
Indenture as the Board of Directors deems necessary or advisable, which amendments may
include, without limitation: |
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(i) |
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Amending Section A.5(a) by deleting the phrase: |
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provided that each holder of such Class A Units is not a Non-Resident and
provides a Unitholders Declaration addressed to the Fund and the transfer
agent of the Fund effective at the time of conversion declaring that each
such holder is not a Non-Resident. |
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(ii) |
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Amending Section A.5(b) by deleting the phrase: |
- 2 -
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accompanied by a Unitholders Declaration satisfactory to the Corporation,
on behalf of the Fund, declaring that the holder, and any beneficial
owner(s) are not Non-Residents. |
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(iii) |
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Deleting Section A.5(d). |
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(iv) |
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Deleting Section A.5(e). |
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(c) |
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Amend the provisions of the Trust Indenture relating to the exchange of Royalty
Units in order to give effect to the foregoing amendments by: |
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(i) |
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Amending Section 6.01 to read: |
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A holder of Royalty Units (other than the Trustee) shall have the right, at
his option, to exchange any or all such Royalty Units for a number of Class
B Units or, after the Reorganization Date, Trust Units having a value on the
date of exchange equal to the value of such Royalty Units as conclusively
determined by the Corporation. Such exchange may be made at any time so
long as there are Class B Units or, after the Reorganization Date, Trust
Units outstanding, and subject to the foregoing, such exchange shall occur
on the terms and conditions set forth below and in the Royalty Indenture. |
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(ii) |
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Deleting Section 6.02(a). |
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(iii) |
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Deleting Section 6.02(b). |
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(iv) |
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Amending Section 6.02(c) to read: |
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The Corporation, on behalf of the Fund, may establish a form of Royalty Unit
exchange form (a Royalty Unit Exchange Form) to be submitted to the Fund
and to the transfer agent of the Fund by any holder of Royalty Units that
wishes to exchange such Royalty Units for Class B Units or, after the
Reorganization Date, Trust Units, which Royalty Exchange Form shall require
the holder to elect and indicate irrevocably: |
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(i) |
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the number of Royalty Units the holder wishes to exchange; |
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(ii) |
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the number of Class B Units or, after the
Reorganization Date, Trust Units the holder wishes to receive upon the
exchange; |
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(v) |
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Deleting Section 6.02(c)(iii). |
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(vi) |
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Deleting Section 6.02(c)(iv). |
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(vii) |
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Amending Section 6.02(d) by replacing the word Trust Units
and replacing it with the phrase Class B Units or, after the Reorganization
Date, Trust Units and by deleting the phrase: |
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and, if the holder wishes to receive Class B Units, together with a
completed Unitholders Declaration stating that such holder is not at the
time of exchange a Non-Resident. |
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(viii) |
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Amending Sections 6.02(d)(i) and (ii), Section 6.02(e) and Section 6.03 by
replacing the word Trust Units and replacing each occurrence with the phrase
Class B Units or Trust Units, as applicable. |
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(ix) |
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Deleting Section 6.02(f). |
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(x) |
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Deleting Section 6.02(g). |
- 3 -
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(d) |
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Amend the Indenture to provide for a mechanism to reclassify or convert, as the
case may be, the issued and outstanding Class A trust units, Class B trust units and
Prior Trust Units of the Fund to Consolidated Trust Units in accordance with paragraph
2 of this resolution by: |
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(i) |
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Deleting the definitions of Effective Date, Effective Time
and Notice Date. |
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(ii) |
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Amending the definition of Class A Units to read as follows: |
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Class A Units means the Class A Trust Units of the Fund, created, issued
and certified hereunder which, at the Reorganization Date, shall be
converted to Trust Units in accordance with, and subject to the exceptions
set out in, Schedule C hereof; |
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(iii) |
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Amending the definition of Class B Units to read as follows: |
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|
|
Class B Units means the Class B Trust Units of the Fund, created, issued
and certified hereunder which, at the Reorganization Date, shall be
reclassified as Trust Units in accordance with Schedule C hereof; |
|
|
(iv) |
|
Adding the definition of Prior Trust Units to read as
follows: |
|
|
|
|
Prior Trust Units means the trust units of the Fund not comprising Class A
Units or Class B Units currently issued and outstanding, which, at the
Reorganization Date, will be converted to Trust Units in accordance with
Schedule C hereof; |
|
|
(v) |
|
Adding the definition of Reorganization Date to read as
follows: |
|
|
|
|
Reorganization Date shall be July 27, 2006, being the date that is 30 days
from the date of this Amended and Restated Trust Indenture; |
|
|
(vi) |
|
Adding the definition of Reorganization Time to read as follows: |
|
|
|
|
Reorganization Time means 5:00 p.m. (Calgary time) on the Reorganization Date. |
|
|
(vii) |
|
Deleting the definition of Trust Units and replacing it with: |
|
|
|
|
Trust Units means the trust units of the Fund created, issued and
certified hereunder, which, at the Reorganization Date, shall be outstanding
upon the renaming of the Class B Units and issued upon the conversion of
Prior Trust Units and the Class A Units, all in accordance with Schedule C
hereof; |
|
|
(viii) |
|
Adding the definition of Units to read as follows: |
|
|
|
|
Units means the units of the Fund created, issued and certified hereunder,
including, but not limited to, the Prior Trust Units, the Class A Units, the
Class B Units and, after the Reorganization Date, the Class A Units and the
Trust Units, provided that the term Unit shall not include the Special
Voting Unit except where the term Trust Unit is used in the definitions of
Ordinary Resolution and Extraordinary Resolution and in Sections 14.02,
14.03, 14.08 and 16.05 hereof and Articles XI and XII hereof; |
|
|
(ix) |
|
Replacing all instances of the word Trust Unitholders with
Unitholders, all instances of the word Trust Unit Certificate with Unit
Certificate, all instances of the word Special Voting Trust Units with
Special Voting Units, and all instances of the word Special Voting Trust
Unitholder with the phrase Special Voting Unitholder. |
|
|
(x) |
|
Deleting the second paragraph of Section 3.01 and replacing it
with: |
- 4 -
|
|
|
The Fund shall have three classes of Units until the Reorganization Date,
consisting of the Prior Trust Units, the Class A Units and the Class B
Units, each such class shall be entitled to the rights and subject to the
limitations, restrictions and conditions set out herein, and, in the case of
the Class A Units, as supplemented or amended by the rights, limitations,
restrictions and conditions set out in Schedule A and, in the case of the
Class B Units as supplemented or amended by the rights, limitations,
restrictions and conditions set out in Schedule B. At the Reorganization
Date, the existing issued and outstanding Units in the Fund shall be
irrevocably deemed to be reclassified and, if applicable, converted for all
purposes in accordance with, and subject to the exceptions set out in,
Schedule C, and all other provisions of Schedule C shall take effect,
without any further act or formality and following such reclassification
and, if applicable, conversion all existing issued and outstanding Units
shall possess those rights attaching to the applicable class of Units into
which such Units were ultimately reclassified or converted. The provisions
of Schedule A and B shall take precedence over any provision to the
contrary in this Indenture. At and following the Reorganization Date, the
provisions of Schedule C shall take precedence over any provision to the
contrary in this Indenture. |
|
|
(xi) |
|
Amending the first paragraph of Section 3.05 to read as
follows: |
|
|
|
|
Each Unit represents an equal fractional undivided beneficial interest in
the Trust Fund provided however that the Directors of the Corporation may
cause the issuance of classes of Units in addition to the Class A Units,
Class B Units and Trust Units and set priorities in respect of capital and
income for such classes as among the Class A Units, the Class B Units, the
Trust Units and such additional class or classes. |
|
|
(xiii) |
|
Deleting existing Schedule C in its entirety. |
|
|
(xiv) |
|
Amending the Trust Indenture to add a revised Schedule C, a
copy of which is attached as Exhibit A to this
Schedule B-1. |
2. |
|
Effective as at 5:00 p.m. (Calgary time) on July 27, 2006 (the Reorganization Date), the
Trust Indenture will be further amended and restated as necessary to give effect to the
following events, the purpose of which is to consolidate the Class A trust units, the Class B
trust units and the Prior Trust Units into a single class of Consolidated Trust Units, other
than Class A trust units for which a declaration of residency is provided: |
|
(a) |
|
Reclassify the Class B trust units as Consolidated Trust Units by: |
|
(i) |
|
Deleting existing Schedule B in its entirety. |
|
|
(ii) |
|
Amending the Trust Indenture to add a revised Schedule B,
which Schedule shall contain the terms and conditions of the Trust Units after
the Reorganization Date (as defined herein), a copy of which is attached as
Exhibit C to this Schedule B-1. |
|
|
(iii) |
|
Deleting existing Schedule E in its entirety. |
|
|
(iv) |
|
Amending the Trust Indenture to add a revised Schedule E,
which Schedule shall contain the form of certificate for the Trust Units after
the Reorganization Date (as defined herein). |
|
(b) |
|
Converting the Prior Trust Units and Class A trust units, subject to the
exceptions set out in Schedule C of the Trust Indenture, to Consolidated Trust Units
by: |
- 5 -
|
(i) |
|
Deleting existing Schedule A in its entirety. |
|
|
(ii) |
|
Amending the Trust Indenture to add a revised Schedule A,
which Schedule shall contain the terms and conditions of the Class A Units
after the Reorganization Date (as defined herein), a copy of which is attached
as Exhibit B to this Schedule B-1. |
|
|
(iii) |
|
Deleting existing Schedule D in its entirety. |
|
|
(iv) |
|
Amending the Trust Indenture to add a revised Schedule D,
which Schedule shall contain the form of certificate for the Class A Units
after the Reorganization Date (as defined herein), including an amendment to
the terms of the Class A Units to prohibit the transfer of such Class A Units
by replacing the phrase in existing Schedule D: |
|
|
|
|
The Class A Trust Units represented by this certificate are transferable. |
|
|
|
|
with the phrase: |
|
|
|
|
The Class A Trust Units represented by this certificate are not
transferable. |
|
|
|
|
by deleting the paragraph entitled Exercise of Transfer and by deleting
the Transfer Form from existing Schedule D. |
|
(c) |
|
Amend the Indenture to give effect to the reclassification of Class B trust
units as set out in paragraph 2(a) and the conversion of the Prior Trust Units and the
Class A trust units, subject to the exceptions set out in Schedule C of the Trust
Indenture, as set out in paragraph 2(b) hereof by: |
|
(i) |
|
Deleting the definitions of CDS, Conversion Period,
Converted Units, Directors Determination, Disposition Notice, DTC,
Enforcement Date, Excess Class A Units, Exclusionary Offer, Expiry
Date, Offeror, Offer Date, Ownership Rights, Ownership Threshold,
Unitholder Default and Unitholders Declaration. |
|
|
(ii) |
|
Deleting the second paragraph of Section 3.01 and replacing it
with: |
|
|
|
|
The Fund shall have two classes of Units, consisting of the Class A Units
and the Trust Units, each such class shall be entitled to the rights and
subject to the limitations, restrictions and conditions set out herein, and,
in the case of the Class A Units, as supplemented or amended by the rights,
limitations, restrictions and conditions set out in Schedule A and, in the
case of the Trust Units as supplemented or amended by the rights,
limitations, restrictions and conditions set out in Schedule B. The
provisions of Schedules A, B and C shall take precedence over any
provision to the contrary in this Indenture. |
|
|
(iii) |
|
Amending the first paragraph of Section 3.05 to read as
follows: |
|
|
|
|
Each Unit represents an equal fractional undivided beneficial interest in
the Trust Fund provided however that the Directors of the Corporation may
cause the issuance of classes of Units in addition to the Class A Units and
Trust Units and set priorities in respect of capital and income for such
classes as among the Class A Units, the Trust Units and such additional
class or classes. |
|
|
(iv) |
|
Amending the second paragraph of Section 3.05 by: |
|
(i) |
|
deleting the phrase Prior to the Reorganization Date and; |
|
|
(ii) |
|
replacing the term Class B Units with the term Trust Units. |
- 6 -
|
(v) |
|
Deleting Section 6.04. |
|
|
(vi) |
|
Deleting the references to Class B Units in Section 12.04. |
|
|
(vii) |
|
Amending Section 13.02 to read as follows: |
|
|
|
|
The forms of certificates representing the classes of Units, other than the
form of certificate representing the Class A Units which is set out in
Schedule D hereto and the form of certificate representing the Trust Units
which is set out in Schedule E hereto, shall be such as is from time to
time authorized by the Trustee. Each such certificate shall be signed
manually on behalf of the Trustee. Any additional signature required to
appear on such certificate by the Trustee may be printed, lithographed or
otherwise mechanically reproduced thereon and, in such event, certificates
so signed are as valid as if they had been signed manually. Any certificate
which has one manual signature as hereinbefore provided shall be valid
notwithstanding that one or more of the persons whose signature is printed,
lithographed or mechanically reproduced no longer holds office at the date
of issuance of such certificate. |
|
(d) |
|
Amend the provisions of the Trust Indenture relating to the exchange of Royalty
Units in order to give effect to the foregoing amendments by: |
|
(i) |
|
Amending Section 6.01 to read: |
|
|
|
|
A holder of Royalty Units (other than the Trustee) shall have the right, at
his option, to exchange any or all such Royalty Units for a number of Trust
Units having a value on the date of exchange equal to the value of such
Royalty Units as conclusively determined by the Corporation. Such exchange
may be made at any time so long as there are Trust Units outstanding, and
subject to the foregoing, such exchange shall occur on the terms and
conditions set forth below and in the Royalty Indenture. |
|
|
(ii) |
|
Amending Section 6.02(a) to read: |
|
|
|
|
The Corporation, on behalf of the Fund, may establish a form of Royalty Unit
exchange form (a Royalty Unit Exchange Form) to be submitted to the Fund
and to the transfer agent of the Fund by any holder of Royalty Units that
wishes to exchange such Royalty Units for Trust Units which Royalty Exchange
Form shall require the holder to elect and indicate irrevocably: |
|
(i) |
|
the number of Royalty Units the holders wishes to obtain; and |
|
|
(ii) |
|
the number of Trust Units the holder wishes to receive upon the
exchange. |
|
(iii) |
|
Amending Section 6.02(b) by replacing the phrase Class B
Units or, after the Reorganization Date, Trust Units and replacing it with the
word Trust Units. |
|
|
(iv) |
|
Amending Section 6.02(b)(i) and (ii) Section 6.03 by replacing
the phrase Class B Units or Trust Units, as applicable with the word Trust
Units. |
3. |
|
The amendment of all incentive plans of the Trust which presently contemplate issuance of
Class A trust units or Class B trust units to contemplate the issuance of Trust Units be and
it is hereby approved. |
|
4. |
|
Making such further amendments or revisions to the Trust Indenture, any incentive plans of
the Trust, the DRIP and any other document of the Trust or any subsidiary entity of the
Trust as the Board of Directors may deem necessary or advisable, and such mechanical,
incidental and other amendments or revisions as |
- 7 -
|
|
the Board of Directors may deem necessary or advisable, to give effect to the amendments
described above and in the Circular. |
|
5. |
|
The Trustee is hereby authorized, for and on behalf of the Trust, and any officer or director
of the Corporation is hereby authorized, for and in the name of the Corporation, from time to
time, to execute and deliver such amending agreements to the Trust Indenture, or amended and
restated versions of the Trust Indenture in respect of any amendments approved by the Board of
Directors pursuant to this Extraordinary Resolution, and the execution thereof by the
Corporation shall evidence approval of the said amendments by the Board of Directors and the
amending agreements or the amended and restated trust indentures pursuant to this
Extraordinary Resolution. |
|
6. |
|
Any officer or director of the Corporation is hereby authorized, for and in the name of the
Trust, to make application to the NYSE to have the Trust Units substitutionally listed for the
Class A Units and to take all reasonable and necessary steps to satisfy such conditions of
listing as the NYSE may impose. |
|
7. |
|
Any officer or director of the Corporation is hereby authorized, for and in the name of the
Trust, to make application to the TSX to have the Class A Units de-listed from the facilities
of the TSX, to change the trading symbol of the Trust Units from PGF.B to PGF.UN and to
take all reasonable and necessary steps to satisfy such conditions of listing as the TSX may
impose. |
|
8. |
|
Any officer or director of the Corporation is hereby authorized, for and in the name of the
Corporation or the Trust as administrator thereof, to execute all documents and to do all
things as deemed necessary or desirable, from time to time, to implement this Extraordinary
Resolution. |
All terms defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006,
have the same meanings in this Extraordinary Resolution when used herein.
EXHIBIT A
TO SCHEDULE B-1
REVISED SCHEDULE C TO THE AMENDED AND RESTATED TRUST INDENTURE
SCHEDULE C
To the annexed amended and restated trust indenture (the Indenture) dated as of June 27,
2006 and made between PENGROWTH CORPORATION and COMPUTERSHARE TRUST COMPANY OF CANADA.
In this Schedule C, unless the context otherwise requires, capitalized terms shall have the
meaning set out in the Indenture.
C.2 |
|
Renaming of Class B Units |
a) |
|
At the Reorganization Time, all issued and outstanding Class B Units shall be renamed as
Trust Units, and the register of holders of such Class B Units shall be renamed as the
register of holders of Trust Units. |
|
C.3 |
|
Conversion of Prior Trust Units and Class A Units |
|
a) |
|
At the Reorganization Time: (i) all issued and outstanding Prior Trust Units; and (ii) all
existing and outstanding Class A Units (other than Class A Units held by a Unitholder who
provides a duly completed Unitholders Declaration) shall be converted into Trust Units on the
basis of one Trust Unit for each Prior Trust Unit or Class A Unit, as applicable, held,
without any further act or formality. |
|
b) |
|
Upon completion of the conversion referred to in Section C.3(a), each holder of Prior Trust
Units or Class A Units, as the case may be, immediately prior to the Reorganization Time that
has had such Units converted to Trust Units shall cease to be a holder of such Prior Trust
Units or Class A Units, shall, if a registered holder, have such Unitholders name removed
from the register of holders of such Units and shall be deemed to be a holder of a number of
Trust Units equal to the number of Prior Trust Units or Class A Units, as applicable, held by
such Unitholder immediately prior to the Reorganization Time and, if a registered holder, such
holders name shall be added to the register of holders of Trust Units accordingly. |
|
C.4 |
|
Reorganization Procedure |
On the date that is two business days following the date of this Amended and Restated Trust
Indenture, the Board of Directors of the Corporation shall cause the following to occur:
a) |
|
send a letter of transmittal to all registered holders of Class A Units; |
|
b) |
|
send a Unitholders Declaration to all registered holders of Class A Units; |
|
c) |
|
all registered holders of Class A Units who provide a Unitholders Declaration to the
registrar and transfer agent of the Fund on or before 5:00 p.m. (Calgary time) on July 25,
2006 which confirms that such holder is not a Non-Resident, shall not have such Class A Units
converted to Trust Units pursuant to Section C.3(a) hereof; |
|
d) |
|
all registered holders of Class A Units who do not provide a duly completed Unitholders
Declaration to the registrar and transfer agent of the Fund on or before 5:00 p.m. (Calgary
time) on July 25, 2006, shall have such Class A Units converted to Trust Units pursuant to
Section C.3(a) hereof without further act or formality; |
- 2 -
e) |
|
in respect of any registered or beneficial holder of Units, the Corporation, on behalf of the
Fund, may at any time and from time to time deem the Units held by such registered or
beneficial holder to be reclassified as, or converted into, Trust Units without any further
action on the part of the holder thereof in the sole and absolute discretion of the
Corporation including upon: |
|
i) |
|
the receipt by the Fund of a Unitholders Declaration acceptable to the
Corporation indicating that the holder is a Non-Resident; or |
|
|
ii) |
|
the passing of the Reorganization Time with the registrar and transfer agent of
the Fund not having received from the Unitholder a Unitholders Declaration. |
C.6 |
|
Issuance of Certificates Representing Trust Units |
|
a) |
|
Upon surrender to the Corporations registrar and transfer agent of a certificate which prior
to the Reorganization Time represented outstanding Prior Trust Units, Class A Units or Class B
Units together with a letter of transmittal, where applicable, and together with such
additional documents and instruments as the registrar and transfer agent may reasonably
require, the holder of such surrendered certificate shall be entitled to receive in exchange
therefor, and the transfer agent of the Fund shall deliver to such holder as soon as
practicable, a certificate representing that number of Trust Units to which such holders
Units have been reclassified or converted and any certificate representing Units so
surrendered shall forthwith be cancelled. |
|
b) |
|
If any certificate which prior to the Effective Time represented outstanding Prior Trust
Units, Class A Units or Class B Units which were reclassified as, or converted into, Trust
Units pursuant to Section C.2(a) or C.3(a) has been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such certificate to be lost, stolen
or destroyed, and delivery to the transfer agent of the Fund of a Unitholders Declaration and
such additional documents and instructions as the transfer agent of the Fund may reasonably
require the transfer agent will issue in exchange for such lost, stolen or destroyed
certificate, certificates representing the Trust Units to which such Unitholder is entitled.
When seeking such certificate in exchange for any lost, stolen or destroyed certificate, the
person to whom certificates representing Trust Units are to be issued shall, as a condition
precedent to the issuance thereof, give a bond satisfactory to the Corporation, on behalf of
the Fund, and the transfer agent of the Fund, in such sum as the Corporation, on behalf of the
Fund, and the transfer agent of the Fund may direct or otherwise indemnify the Fund and its
transfer agent in a manner satisfactory to the Corporation, on behalf of the Fund, and the
transfer agent of the Fund against any claim that may be made against the Fund or its transfer
agent with respect to the certificate alleged to have been lost, stolen or destroyed. |
EXHIBIT B
TO SCHEDULE B-1
REVISED SCHEDULE A TO THE AMENDED AND RESTATED TRUST INDENTURE
SCHEDULE A
To the annexed amended and restated trust indenture (the Indenture) dated as of July 27,
2006 and made between PENGROWTH CORPORATION and COMPUTERSHARE TRUST COMPANY OF CANADA.
The Class A Units shall have the rights and be subject to the limitations, restrictions and
conditions set out in the Indenture, as supplemented or amended by the rights, limitations,
restrictions and conditions applicable to the Class A Units as set out below:
In this Schedule A and in the Class A Units, unless the context otherwise requires,
capitalized terms shall have the meaning set out in the Indenture.
A.2 |
|
Permitted Stock Exchange Listings |
|
|
|
The Class A Units may not be listed and posted for trading on any stock exchange. |
|
A.3 |
|
Transfer Restrictions |
|
|
|
The Class A Units may not be transferred by the holder thereof. |
|
A.4 |
|
Conversion |
a) |
|
At any time, a holder of one or more Class A Units shall have the right at his or her option
to convert, subject to these provisions, any one or more of such Class A Units into Trust
Units, on a one for one basis. |
|
b) |
|
The conversion of one or more Class A Units shall be effected by the deposit of the
certificate or certificates representing the same at any time during usual business hours at
any office of the transfer agent of the Fund at which the Trust Units are transferable,
together with a written conversion form in form satisfactory to the Corporation, on behalf of
the Fund, duly executed by the registered holder or his attorney duly authorized in writing,
in which instrument such holder may elect to convert only part of the Class A Units
represented by such certificate or certificates, in which event the Corporation, on behalf of
the Fund, shall issue and deliver or cause to be delivered to such holder, at the expense of
the holder, a new certificate representing the Class A Units represented by such certificate
or certificates which have not been converted. |
|
c) |
|
As promptly as practicable after the deposit of any Class A Units for conversion, the
Corporation, on behalf of the Fund, shall issue and shall deliver or cause to be delivered to
or to the written order of the holder of the Class A Units so surrendered, a certificate or
certificates issued in the name of such holder representing the number of Trust Units to which
such holder is entitled. Such conversion shall be deemed to have been made at the close of
business on the date such Class A Units shall have been properly deposited for conversion, so
that the rights of the holder of such Class A Units as the holder thereof shall cease at such
time and the person or persons entitled to receive Trust Units upon such conversion shall be
treated for all purposes as having become the holder or holders of record of such Trust Units
at such time; provided, however, that no such deposit on any date when the Funds register of
transfers of Trust Units shall be properly closed shall be effective to constitute the person
or persons entitled to receive Trust Units upon such conversion as the holder or holders of
record of such Trust Units on such date, but such deposit shall be effective to constitute the
person or persons entitled to receive such Trust Units as the holder or holders of record
thereof for all purposes when the registers next open. For these purposes the date of deposit
of
|
- 2 -
|
|
any Class A Units for conversion shall be deemed to be the date when the certificate
representing such Class A Units accompanied by a satisfactory form of conversion is received
by the registrar and transfer agent of the Fund as provided for herein. |
EXHIBIT C
TO
SCHEDULE B-1
REVISED SCHEDULE B TO THE AMENDED AND RESTATED TRUST INDENTURE
SCHEDULE B
To the annexed amended and restated trust indenture (the Indenture) dated as of July 27, 2006 and
made between PENGROWTH CORPORATION and COMPUTERSHARE TRUST COMPANY OF CANADA.
The Trust Units shall have the rights and be subject to the limitations, restrictions and
conditions set out in the Indenture, as supplemented or amended by the rights, limitations,
restrictions and conditions applicable to the Trust Units as set out below:
In this Schedule B and in the Trust Units, as applicable, unless the context otherwise
requires, capitalized terms shall have the meaning set out in the Indenture.
B.2 Permitted Stock Exchange Listings |
The Trust Units may be listed and posted for trading on either or both of the Toronto Stock
Exchange and the New York Stock Exchange and any other exchange or exchanges as may be determined
by the directors of the Corporation.
SCHEDULE
B-2
EXTRAORDINARY RESOLUTION
TO AMEND THE UNANIMOUS SHAREHOLDER AGREEMENT AND THE TRUST INDENTURE
TO SIMPLIFY VOTING PROCEDURES AT THE ANNUAL GENERAL MEETING
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
|
The Unanimous Shareholder Agreement be amended by: |
|
(a) |
|
Clarifying that only holders of common shares of the Corporation (Shares)
shall be entitled to notice of, to attend and to vote at, any meeting of, and in
respect of any matter put before, the holders of Shares. |
|
|
(b) |
|
Deleting Sections 4.01 through 4.07, inclusive. |
|
|
(c) |
|
Making such supplemental and ancillary amendments as are deemed necessary or
expedient to give effect to the foregoing. |
2. |
|
The Trust Indenture be amended by: |
|
(a) |
|
Clarifying that the Shareholders and the Trustee are required to seek the
direction of the Trust Unitholders prior to voting on, or consenting to, any resolution
of the shareholders of the Corporation whether by vote at a meeting of shareholders of
the Corporation or by written resolution of the shareholders of the Corporation. |
|
|
(b) |
|
Deleting Section 9.04 and replacing it with the following: |
|
|
|
|
9.04 Voting of Royalty Units and Common Shares Held by the Fund |
|
|
|
|
All Royalty Units and Shares held from time to time by the Trustee as part of the
property of the Fund shall be voted by the Trustee at any and all meetings of the
Royalty Unitholders or any and all meetings of the Shareholders. The Trustee shall
seek the direction of the Unitholders prior to voting such Royalty Units or Shares
at any and all meetings of the Royalty Unitholders or Shareholders. |
|
|
(c) |
|
Adding the definition of Shareholders to read as follows: |
|
|
|
|
Shareholders means the holders of Shares of the Corporation. |
|
|
(d) |
|
Adding the definition of Shares to read as follows: |
|
|
|
|
Shares means the shares of the Corporation of any class from time to time
outstanding. |
|
|
(e) |
|
Making such supplemental and ancillary amendments as are deemed necessary or
expedient to give effect to the foregoing. |
3. |
|
The Trustee is hereby authorized, for and in the name of the Trust, to execute and deliver an
amending agreement to the Unanimous Shareholder Agreement or to the Amended and Restated Trust
Indenture, or an amended and restated Unanimous Shareholder Agreement or an amended and
restated Trust Indenture, and execution thereof shall evidence approval of the said amendments
and the amending agreements or the amended and restated Unanimous Shareholder Agreement or
amended and restated Trust Indenture, as applicable, pursuant to this Extraordinary
Resolution. |
|
4. |
|
The Trustee is hereby authorized and directed for and on behalf of the Trust Unitholders and
any officer or director of the Corporation, is authorized and directed, for and in the name of
the Corporation, to execute |
- 2 -
|
|
all documents and to do all things as deemed necessary or desirable to implement this
Extraordinary Resolution. |
All terms
defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006,
have the same meanings in this Extraordinary Resolution when used herein.
SCHEDULE
B-3
ORDINARY RESOLUTION TO AMEND THE DEFERRED ENTITLEMENT UNIT PLAN
BE IT RESOLVED AS AN ORDINARY RESOLUTION THAT:
1. |
|
The DEU Plan be amended by: |
|
|
|
changing the name of the plan to the Deferred Entitlement Unit Plan; |
|
|
|
|
changing all references to Phantom Unit in the plan to references to Deferred
Entitlement Unit; |
|
|
|
|
amending all references to the persons entitled to participate in the plan to
employees, officers and directors of Pengrowth and consultants to Pengrowth designated
by the Board of Directors, including in Sections 1, 2.1(p) and 3.1; |
|
|
|
|
amending the plan to provide that DEUs granted to directors will not be subject to
the vesting or performance criteria provided for by the plan, including the provisions
of Sections 4.4 and 4.5; |
|
|
|
|
making such further amendments or revisions as the Board of Directors may deem
necessary or advisable, and such mechanical, incidental and other amendments or
revisions as the Board of Directors may deem necessary or advisable, to give effect to
the amendments described above and in the Circular; and |
|
|
|
|
providing that: (i) the aggregate number of Class B trust units which may be
reserved for issuance to insiders (as such term is referred to in the policies of the
TSX), under the DEU Plan and all other security-based compensation arrangements of
Pengrowth shall not, in the aggregate, exceed ten percent (10%) of the issued and
outstanding Trust Units at the date of grant, calculated on a non-diluted basis; and
(ii) during any one-year period, the Board of Directors shall not grant to such
insiders, under the DEU Plan and all other security-based compensation arrangements of
Pengrowth, in the aggregate, a number of Class B trust units exceeding ten percent
(10%) of the issued and outstanding Trust Units, calculated on a non-diluted basis. |
2. |
|
The Corporation and the Trustee are hereby authorized and directed on behalf of the Trust to
execute all documents and do all things as deemed necessary or desirable to implement this
resolution. |
All terms
defined in the Information Circular Proxy Statement of the Corporation and the Trust
dated May 16, 2006, have the same respective meanings in this resolution when used herein.
SCHEDULE
B-4
EXTRAORDINARY RESOLUTION TO AMEND THE TRUST INDENTURE REGARDING THE
DISTRIBUTION OF NET PROCEEDS FROM THE SALE OF PROPERTIES
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
|
The board of directors of the Corporation is hereby granted the authority to direct the
Corporation and the Trustee to amend the Trust Indenture by deleting Section 5.03 thereof and
replacing it with the following: |
The net proceeds from any sale of the Royalty, if and when
distributed by the Corporation to and received by the Trustee
pursuant to the Royalty Indenture, shall be included in
Distributable Cash.
2. |
|
The Trustee is hereby authorized for and on behalf of the Trust to execute and deliver an
amending agreement to the Trust Indenture, or an amended and restated Trust Indenture, and the
execution thereof shall evidence approval of the said amendments and of the amending agreement
or the amended and restated Trust Indenture pursuant to this Extraordinary Resolution; and |
|
3. |
|
The Trustee is hereby authorized and directed for and on behalf of the Trust Unitholders and
any officer or director of the Corporation, is authorized and directed, for and in the name of
the Corporation, to execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution. |
All terms
defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006
and the Trust Indenture have the same meanings in this Extraordinary Resolution when used herein.
SCHEDULE
B-5
EXTRAORDINARY RESOLUTION TO AMEND THE UNANIMOUS SHAREHOLDER AGREEMENT
AND THE ARTICLES OF THE CORPORATION TO INCREASE THE MAXIMUM SIZE OF THE
BOARD OF DIRECTORS OF THE CORPORATION
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
|
The Unanimous Shareholder Agreement be amended to increase the maximum size of the Board of
Directors of the Corporation by: |
|
(a) |
|
amending Section 3.01 to read as follows: |
|
|
|
|
The Board of Directors of the Corporation shall consist of a minimum of three (3)
members and a maximum of twelve (12) members, two (2) of whom shall be appointed by
the Manager and the balance of whom shall be appointed by the Trust Unitholders. If
the appointment of two (2) members by the Manager would result in the Trust
Unitholders, not having appointed a majority of the Board of Directors, then the
Manager shall appoint only one (1) member of the Board of Directors. |
|
|
(b) |
|
Making such supplemental and ancillary amendments as are deemed necessary or
expedient to give effect to the foregoing. |
2. |
|
The articles of the Corporation be amended to increase the maximum size of the Board of
Directors of the Corporation from eight (8) members to twelve (12) members. |
|
3. |
|
The Trustee is hereby authorized, for and in the name of the Trust, to execute and deliver an
amending agreement to the Unanimous Shareholder Agreement, or an amended and restated
Unanimous Shareholder Agreement, and execution thereof shall evidence approval of the said
amendments and the amending agreements or the amended and restated Unanimous Shareholder
Agreement pursuant to this Extraordinary Resolution. |
|
4. |
|
Any officer or director of the Corporation is hereby authorized, for and in the name of the
Corporation, to execute and deliver articles of amendment with the Alberta Registrar of
Corporations, and execution thereof shall evidence approval of the said articles of amendment
pursuant to this Extraordinary Resolution. |
|
5. |
|
The Trustee is hereby authorized and directed for and on behalf of the Trust Unitholders and
any officer or director of the Corporation, is authorized and directed, for and in the name of
the Corporation, to execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution. |
All terms
defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006,
have the same meanings in this Extraordinary Resolution when used herein.
SCHEDULE
C-1
EXTRAORDINARY RESOLUTION TO AMEND THE ROYALTY INDENTURE
TO PROVIDE FOR THE CONSOLIDATION OF THE TRUSTS DUAL CLASS STRUCTURE
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
|
The board of directors of the Corporation is hereby granted the authority to direct the
Corporation and the Trustee to amend the Royalty Indenture by deleting therefrom the following
amendments that were approved by Extraordinary Resolution at the Special Meeting of Royalty
Unitholders on March 15, 2004: |
|
(a) |
|
Definitions of Class A Unit, Class B Unit, Non-Resident, Ownership
Threshold and Unitholders Declaration
(corresponding to those in the Trust
Indenture) were added to Article I and conforming changes will
be made to the
definition of Trust Unit; |
|
|
(b) |
|
Section 4.01 was amended to provide that a holder of Royalty Units who is a
Non-Resident may exchange Royalty Units only for Class A Units and not Class B Units
and that a holder of Royalty Units who is not a Non-Resident will be able to exchange
Royalty Units for Class A Units or Class B Units, subject in both cases to the terms,
conditions and limitations in Article IV, including without limitation those set forth
below; |
|
|
(c) |
|
Section 4.02 was amended to provide that a holder of Royalty Units wishing to
exchange any or all of his Royalty Units for Class A Units would be able to do so only
if and to the extent that the number of Class A Units issued and outstanding at the
particular time is not greater than the Ownership Threshold; |
|
|
(d) |
|
Section 4.02 was also amended to require that a holder of Royalty Units wishing
to exercise his right to exchange any or all of his Royalty Units for Class B Units
shall submit a Unitholders Declaration stating that the beneficial owner of the
Royalty Units is not a Non-Resident; |
|
|
(e) |
|
Article IV was amended to provide that a holder of Royalty Units applying to
exchange Royalty Units for Trust Units will be required to elect and indicate
irrevocably at that time: |
|
(i) |
|
how many Royalty Units he wishes to exchange; |
|
|
(ii) |
|
how many Class A Units and Class B Units respectively he wishes
to receive upon the exchange; |
|
|
(iii) |
|
whether, if having regard to the Ownership Threshold fewer
Class A Units are available than the number that he has requested to receive
upon the exchange, he wishes to receive the smaller number and to retain the
balance of his Royalty Units; and |
|
|
(iv) |
|
whether, if Class A Units are not available, he elects and is
entitled by virtue of not being a Non-Resident to receive Class B Units
instead. |
|
(f) |
|
Schedule A (the form of Royalty Unit certificate) and the exchange form to be
used in connection with a conversion were modified to reflect the foregoing amendments
and the form thereof will be appended to the Royalty Indenture. Subsection 4.02(a) was
amended accordingly to refer to this new form and to require that it be completed and
submitted to the Trustee by a holder of Royalty Units applying to exercise his right of
exchange; |
|
|
(g) |
|
Article IV was amended to provide that if it appears that a proposed exchange
of Royalty Units for Class A Units would result in the number of Class A Units issued
and outstanding exceeding the Ownership Threshold, the Fund and its transfer agent may
refuse to accept any request to exchange Royalty Units for Class A Units; |
- 2 -
|
(h) |
|
Article IV was amended to provide that the Fund, together with its transfer
agent, may from time to time establish procedures for recognizing the priorities of
requested exchanges of Royalty Units for Class A Units and requests for conversions of
Class B Units into Class A Units, which procedures may, but are not required to, apply
a reservation or waiting list system to holders of Royalty Units and Class B Units
whose requests to exchange Royalty Units for Class A Units and to convert Class B Units
into Class A Units are refused due to the approach of the number of Class A Units
issued and outstanding to the Ownership Threshold; |
|
|
with the result that Article IV of the Royalty Indenture, Schedule A thereto and the
Exchange Form will read as they read immediately prior to the approval of the said
Extraordinary Resolution; |
|
2. |
|
Making such further amendments or revisions as the Board of Directors may deem necessary or
advisable, and such mechanical, incidental and other amendments or revisions as the Board of
Directors may deem necessary or advisable, to give effect to the amendments described above
and in the Circular. |
|
3. |
|
The Trustee is hereby authorized for and on behalf of the Trust to execute and deliver an
amending agreement to the Royalty Indenture, or an amended and restated Royalty Indenture, and
the execution thereof by the Corporation shall evidence approval of the said amendments by the
Board of Directors and of the amending agreement or the amended and restated Royalty Indenture
pursuant to this Extraordinary Resolution; and |
|
4. |
|
Any officer or director of the Corporation, is authorized and directed, for and in the name
of the Corporation, to execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution. |
All terms
defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006
and the Royalty Indenture have the same meanings in this Extraordinary Resolution when used herein.
SCHEDULE
C-2
EXTRAORDINARY RESOLUTION
TO AMEND THE UNANIMOUS SHAREHOLDER AGREEMENT AND THE ROYALTY INDENTURE
TO SIMPLIFY VOTING PROCEDURES AT THE ANNUAL GENERAL MEETING
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
|
The Unanimous Shareholder Agreement be amended by: |
|
(a) |
|
Clarifying that only holders of common shares of the Corporation (Shares)
shall be entitled to notice of, to attend and to vote at, any meeting of, and in
respect of any matter put before, the holders of Shares. |
|
|
(b) |
|
Deleting Sections 4.01 through 4.07, inclusive. |
|
|
(c) |
|
Making such supplemental and ancillary amendments as are deemed necessary or
expedient to give effect to the foregoing. |
2. |
|
The Royalty Indenture be amended by: |
|
(a) |
|
Clarifying that only holders of Royalty Units shall be entitled to notice of,
to attend and to vote at, any meeting of, and in respect of any matter put before, the
holders of Royalty Units. |
|
|
(b) |
|
Amending Sections 8.01 through 8.16, inclusive, by replacing all references to
Unitholders with a reference to Royalty Unitholders and replacing all references to
Unit or Units with references to Royalty Unit or Royalty Units, as applicable. |
|
|
(c) |
|
Making such supplemental and ancillary amendments as are deemed necessary or
expedient to give effect to the foregoing. |
3. |
|
Making such further amendments or revisions as the Board of Directors may deem necessary or
advisable, and such mechanical, incidental and other amendments or revisions as the Board of
Directors may deem necessary or advisable, to give effect to the amendments described above
and in the Circular. |
|
4. |
|
The Trustee is hereby authorized, for and in the name of the Trust, to execute and deliver an
amending agreement to the Unanimous Shareholder Agreement or to the Amended and Restated
Royalty Indenture, or an amended and restated Unanimous Shareholder Agreement or an amended
and restated Royalty Indenture, and execution thereof shall evidence approval of the said
amendments and the amending agreements or the amended and restated Unanimous Shareholder
Agreement or amended and restated Royalty Indenture, as applicable, pursuant to this
Extraordinary Resolution. |
|
5. |
|
The Trustee is hereby authorized and directed for and on behalf of the Trust Unitholders and
any officer or director of the Corporation, is authorized and directed, for and in the name of
the Corporation, to execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution. |
All terms
defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006,
have the same meanings in this Extraordinary Resolution when used herein.
SCHEDULE
C-3
EXTRAORDINARY RESOLUTION TO AMEND THE ROYALTY INDENTURE REGARDING THE
DISTRIBUTION OF NET PROCEEDS FROM THE SALE OF PROPERTIES
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
|
The board of directors of the Corporation is hereby granted the authority to direct the
Corporation and the Trustee to amend the Royalty Indenture by deleting the second sentence of
the last paragraph of Section 2.06(c) thereof and replace it with the following: |
The Corporation may in its sole and absolute discretion distribute
all or any of the net proceeds from the sale of Properties as a
Special Distribution or to acquire Replacement Properties.
2. |
|
Making such further amendments or revisions as the Board of Directors may deem necessary or
advisable, and such mechanical, incidental and other amendments or revisions as the Board of
Directors may deem necessary or advisable, to give effect to the amendments described above
and in the Circular. |
|
3. |
|
The Trustee is hereby authorized for and on behalf of the Trust to execute and deliver an
amending agreement to the Royalty Indenture, or an amended and restated Royalty Indenture, and
the execution thereof shall evidence approval of the said amendments and of the amending
agreement or the amended and restated Royalty Indenture pursuant to this Extraordinary
Resolution; and |
|
4. |
|
The Trustee is hereby authorized and directed for and on behalf of the Royalty Unitholders
and any officer or director of the Corporation, is authorized and directed, for and in the
name of the Corporation, to execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution. |
All terms
defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006
and the Royalty Indenture have the same meanings in this Extraordinary Resolution when used herein.
SCHEDULE
C-4
EXTRAORDINARY RESOLUTION TO AMEND THE ROYALTY INDENTURE
REGARDING DISTRIBUTIONS UPON A LIQUIDATION, WINDING-UP OR
DISSOLUTION OF THE CORPORATION
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
|
The board of directors of the Corporation is hereby granted the authority to direct the
Corporation and the Trustee to amend the Royalty Indenture as follows: |
|
(a) |
|
to delete Section 3.12(a) and replace it with the following: |
|
|
|
|
In the event of the liquidation, dissolution or winding-up of the
Corporation, the following provisions of this Section 3.12 will
apply. |
|
|
(b) |
|
to add the following sentence at the end of Section 3.12(b): |
|
|
|
|
All of the assets of such persons who are liquidated, dissolved or
wound up that are Canadian Resource Properties shall if and to the
extent that such Canadian Resource Properties are conveyed to the
Corporation as a result of the liquidation, dissolution or
winding-up become subject to the Royalty hereby granted and
otherwise subject to this Royalty Indenture in accordance with its
terms. |
|
|
(c) |
|
delete Section 3.12(c) and replace it with the following: |
|
|
|
|
In the event of a liquidation, dissolution or winding-up of the
Corporation, to the extent possible, all property and assets of the
Corporation other than Canadian Resource Properties shall be sold or
otherwise liquidated and the proceeds therefrom used to reduce the
outstanding indebtedness of the Corporation related to or associated
with the Other Investments and the remaining proceeds will
constitute Other Revenues. The Canadian Resource Properties
referred to in the last sentence of Section 3.12(b) hereof shall be
sold or liquidated and the proceeds therefrom used to reduce the
outstanding indebtedness related to or associated with the Other
Investments and the balance of such proceeds if any remaining after
reduction shall be paid into the Reserve. The other Canadian
Resource Properties of the Corporation shall also be sold or
otherwise liquidated and the proceeds therefrom used to pay the
remaining indebtedness of the Corporation if any after the
application of the proceeds as contemplated in the immediately
preceding sentences; and the remaining balance if any of the
proceeds from the sale or liquidation of such Canadian Resource
Properties shall be distributed as a Special Distribution to the
Royalty Unitholders. |
|
|
(d) |
|
to delete Section 3.12(d) and replace it with the following: |
|
|
|
|
Notwithstanding any provision of this Agreement, in the event of a
liquidation, dissolution or winding-up of the Corporation, the
holders of Common Shares and Exchangeable Shares shall be entitled
to receive in the aggregate a portion of the net assets of the
Corporation other than its Canadian Resource Properties and the
proceeds therefrom (after the deduction from the said net assets
(including monies or other liquid assets) of the Corporation of an
amount equal to the liabilities and claims of the Corporation) equal
to a fraction, which has as its numerator the sum of the aggregate
number of outstanding Common Shares and Exchangeable Shares and
which has as its denominator the sum of the aggregate number of
outstanding Trust Units, Exchangeable Shares, Common |
- 2 -
|
|
|
Shares and Royalty Units (excluding Royalty Units held by the Fund).
For the purposes hereof, Exchangeable Shares shall mean
Exchangeable Shares in respect of which the class or series
provisions provide that such Exchangeable Shares are entitled to
participate in the assets of the Corporation on the liquidation,
dissolution or winding-up of the Corporation, to the extent of the
participation to which such Exchangeable Shares are entitled. |
|
|
(e) |
|
to add the following sentence at the end of Section 3.12(e): |
|
|
|
|
For the purposes hereof, Exchangeable Shares shall mean
Exchangeable Shares in respect of which the class or series
provisions provide that such Exchangeable Shares are entitled to
participate in the assets of the Corporation on the liquidation,
dissolution or winding-up of the Corporation, to the extent of the
participation to which such Exchangeable Shares are entitled. |
2. |
|
Making such further amendments or revisions as the Board of Directors may deem necessary or
advisable, and such mechanical, incidental and other amendments or revisions as the Board of
Directors may deem necessary or advisable, to give effect to the amendments described above
and in the Circular. |
|
3. |
|
The Trustee is hereby authorized for and on behalf of the Trust to execute and deliver an
amending agreement to the Royalty Indenture, or an amended and restated Royalty Indenture, and
the execution thereof shall evidence approval of the said amendments and of the amending
agreement or the amended and restated Royalty Indenture pursuant to this Extraordinary
Resolution; and |
|
4. |
|
The Trustee is hereby authorized and directed for and on behalf of the Royalty Unitholders
and any officer or director of the Corporation, is authorized and directed, for and in the
name of the Corporation, to execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution. |
All terms
defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006
and the Royalty Indenture have the same meanings in this Extraordinary Resolution when used herein.
SCHEDULE
C-5
EXTRAORDINARY RESOLUTION TO AMEND THE ROYALTY INDENTURE
REGARDING CERTAIN EXPENDITURES, THE RESERVE AND OTHER REVENUES
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
|
The board of directors of the Corporation is hereby granted the authority to direct the
Corporation and the Trustee to amend the Royalty Indenture as follows: |
|
(a) |
|
to delete the definition of Debt Service Charges and replace it with the
following: |
|
|
|
|
Debt Service Charges means all interest and principal repayments
related to the borrowing of funds by the Grantor for all purposes in
connection with its business as contemplated herein, including,
without limitation, the funding of Capital Expenditures and the
acquisition of Canadian Resource Properties where permitted, but
excluding principal repayments and interest relating to the
borrowing of funds in connection with the acquisition of Other
Investments, except to the extent contemplated in the definition of
Royalty Income;. |
|
|
(b) |
|
to delete paragraph (ii) from the definition of Gross Revenue
and renumber the subsequent paragraphs of the said definition and to
add a reference to Section 13.02(b) of the indenture immediately before
the reference to Section 13.02(c) in paragraph (vii) of the said
definition; |
|
|
(c) |
|
to add the following after Crown Obligations in the
definition of Operating Costs: |
(except to the extent that payment thereof is waived
pursuant to Section 2.01(d) hereof)
|
(d) |
|
to add the following definitions to Section 1.01: |
Investment Income means net income from Other Investments,
whether in the form of distributions, dividends, interest or
otherwise;
Other Investments means shares, units, interests and other
investments of or in property that is not subject to the
Royalty;
|
(e) |
|
to delete the delete the definition of Other Revenues and replace it with the
following: |
|
|
|
|
Other Revenues means, in respect of a month, 99% of all revenues
which accrue during such month in respect of the Properties or
otherwise (other than Gross Revenues, ARC and proceeds from the sale
of Canadian Resource Properties), including, without limitation: |
|
i) |
|
fees and similar payments made by third parties
for the processing, transportation, gathering, storage or
treatment of the Petroleum Substances in Tangibles; |
|
|
ii) |
|
proceeds from the sale of any interest in
Tangibles or miscellaneous assets; |
|
|
iii) |
|
insurance proceeds, including business
interruption insurance, property damage insurance and third
party liability insurance; |
- 2 -
|
iv) |
|
income from investing the incentives, rebates
and credits in respect of production costs, other than ARC; |
|
|
v) |
|
royalty and similar income, if any, which is
not included in the definition of Properties; |
|
|
vi) |
|
overhead recoveries received from third parties
in respect of their working interests in Properties operated by
the Grantor; |
|
|
vii) |
|
trust distributions; and |
|
|
viii) |
|
Investment Income less principal repayments
and interest on loans and indebtedness incurred in relation to
Other Investments; |
|
|
|
provided further that Other Revenues will not include ARC payable to
the Royalty Unitholders in respect of Crown Obligations which the
Royalty Unitholders reimburse to the Grantor; |
|
|
(f) |
|
to delete the definition of Property or
Properties and replace it with
the following: |
|
|
|
|
Property or Properties, as the case may be, means those lands, property,
geological zones therein, wells and natural accumulations of petroleum or natural
gas, that the Grantor has an interest in and that are: |
|
i) |
|
Canadian Resource Properties; and |
|
|
ii) |
|
legally or beneficially owned from time to time by the Grantor,
including, without limitation, Petroleum Substances within, upon or under such
lands, together with the right to explore for and recover same insofar as such
rights are granted by the Leases and any royalty or net profits interest
computed by reference to the production from or value of Petroleum Substances; |
|
(g) |
|
to delete the definition of Royalty Income and replace it with the following: |
|
|
|
|
Royalty Income means the aggregate of any Special Distribution and
Gross Revenue less, without duplication, the aggregate of the
following amounts: |
|
i) |
|
Operating Costs and Capital Expenditures; |
|
|
ii) |
|
General and Administrative Costs;
|
|
|
iii) |
|
Management Fees and Debt Service Charges;
|
|
|
iv) |
|
taxes or other similar charges payable by the Grantor; and |
|
|
v) |
|
any amounts paid into the Reserve pursuant to
Section 13.02(b) or (c); |
provided that:
|
vi) |
|
the deductions for Capital Expenditures,
General and Administrative Costs, Management Fees and Debt
Service Charges shall only be made to the extent such costs,
fees and charges for any quarter or month, as the case may be,
are not paid with funds paid into the Reserve (the |
- 3 -
|
|
|
costs that are thus paid out of the Reserve being referred
to herein as the Recovered Costs); |
|
|
vii) |
|
in no case shall any payment (in respect of
Recovered Costs) out of the Reserve in a quarter or month that
is attributable to Other Revenues be more than 10% of the
aggregate of the Royalty Income for a quarter or month
(computed without reference to vi) above) and the amount of the
Recovered Costs paid out of the Reserve as contemplated herein
(and any such excess amount of Other Revenues that therefore
cannot be paid out the Reserve in a quarter or month shall
remain in the Reserve and may be applied in a future time
period); and |
|
|
viii) |
|
the deductions referred to in paragraphs (i)
to (v) above do not include amounts paid by the Grantor with
funds borrowed by the Grantor or, in respect of Debt Service
Charges, funds raised by the Grantor through the issuance of
additional Royalty Units; |
|
(h) |
|
to delete the last sentence of Section 2.02(o) and replace it with the
following: |
|
|
|
|
Capital Expenditures may be financed by payments from the Reserve or
from Gross Revenue (and therefore deducted in the computation of
Royalty Income as contemplated in the definition thereof), bank
borrowings, farm-outs and the issuance of Royalty Units, or any of
them. |
|
|
(i) |
|
to add the following sentence at the end of Section 2.06(f): |
|
|
|
|
The acquisition of Canadian Resource Properties may be financed in
any manner that the Corporation sees fit in its sole discretion,
including without limitation through proceeds from the sale of
Properties, borrowings from the Fund and other lenders and the
issuance of Royalty Units, Exchangeable Shares, notes, debentures
and other securities and instruments. |
|
|
(j) |
|
to add the following as Section 11.12: |
|
|
|
|
Amendment of this Indenture |
|
|
|
|
The Trustee and the Corporation (when authorized by the Board of
Directors) are hereby irrevocably directed and authorized to make
such amendments to this indenture as they may in their sole and
absolute discretion consider necessary or expedient to preserve the
status of the Royalty as a Canadian Resource Property, and to
execute and deliver all such supplemental and amended and restated
indentures and other documents and do such other acts and things as
may be necessary or expedient to give effect to any such amendments. |
|
|
(k) |
|
to add the following at the end of Section 12.01(f): |
|
|
|
|
pursuant to Section 11.12. |
|
|
(l) |
|
to add Capital Expenditures, after Operating Costs and
Royalty Income, after Administrative Costs in Sections 13.01 and
13.03; |
|
|
(m) |
|
to delete Section 13.02(a) and replace it with the following: |
|
|
|
|
Other Revenues for a month within sixty days of the end of that
month; |
- 4 -
|
(n) |
|
to delete Section 13.04 and replace it with the following: |
|
|
|
|
When there are no Canadian Resource Properties subject to the
Royalty, amounts deposited into the Reserve that can reasonably be
attributed to Other Revenues will be used to repay principal and
interest in respect of indebtedness borrowed or incurred to acquire
Other Investments and any excess will be paid to the Grantor. The
remaining amounts in the Reserve will be used to pay, in the
following order: (i) Debt Service Charges; (ii) Operating Costs and
Reclamation Obligations and (iii) General and Administrative Costs
and Management Fees. Ninety-nine percent (99%) of the amounts
remaining in the Reserve after the payment of the costs described
above shall be distributed to the holders of Royalty Units, pro
rata. |
2. |
|
Making such further amendments or revisions as the Board of Directors may deem necessary or
advisable, and such mechanical, incidental and other amendments or revisions as the Board of
Directors may deem necessary or advisable, to give effect to the amendments described above
and in the Circular. |
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3. |
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The Trustee is hereby authorized for and on behalf of the Trust to execute and deliver an
amending agreement to the Royalty Indenture, or an amended and restated Royalty Indenture, and
the execution thereof shall evidence approval of the said amendments and of the amending
agreement or the amended and restated Royalty Indenture pursuant to this Extraordinary
Resolution; and |
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4. |
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The Trustee is hereby authorized and directed for and on behalf of the Royalty Unitholders
and any officer or director of the Corporation, is authorized and directed, for and in the
name of the Corporation, to execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution. |
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5. |
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Notwithstanding the passing of this resolution by Royalty Unitholders, the Board of
Directors, without further notice to or approval of Royalty Unitholders, may decide not to
implement all, or a portion of, the matters provided for in this Extraordinary Resolution or
may revoke the resolution at any time prior to the implementation thereof. |
All terms
defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006
and the Royalty Indenture have the same meanings in this Extraordinary Resolution when used herein.
SCHEDULE
C-6
EXTRAORDINARY RESOLUTION REGARDING MISCELLANEOUS AMENDMENTS TO THE
ROYALTY INDENTURE
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
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The board of directors of the Corporation is hereby granted the authority to direct the
Corporation and the Trustee to amend the Royalty Indenture as follows: |
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(a) |
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to delete the definition of Acquisition Fee and all other
references to it in the Royalty Indenture; |
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(b) |
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to replace Canada Customs and Revenue Agency, in all
instances where that term is used, with Canada Revenue Agency; and |
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(c) |
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to replace mining reclamation trust with qualifying environmental trust, in
Section 13.05. |
2. |
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Making such further amendments or revisions as the Board of Directors may deem necessary or
advisable, and such mechanical, incidental and other amendments or revisions as the Board of
Directors may deem necessary or advisable, to give effect to the amendments described above
and in the Circular. |
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3. |
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The Trustee is hereby authorized for and on behalf of the Trust to execute and deliver an
amending agreement to the Royalty Indenture, or an amended and restated Royalty Indenture, and
the execution thereof shall evidence approval of the said amendments and of the amending
agreement or the amended and restated Royalty Indenture pursuant to this Extraordinary
Resolution; and |
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4. |
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The Trustee is hereby authorized and directed for and on behalf of the Royalty Unitholders
and any officer or director of the Corporation, is authorized and directed, for and in the
name of the Corporation, to execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution. |
All terms
defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006
and the Royalty Indenture have the same meanings in this Extraordinary Resolution when used herein.
SCHEDULE
C-7
EXTRAORDINARY RESOLUTION TO AMEND THE UNANIMOUS SHAREHOLDER AGREEMENT
AND THE ARTICLES OF THE CORPORATION TO INCREASE THE MAXIMUM SIZE OF THE
BOARD OF DIRECTORS OF THE CORPORATION
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. |
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The Unanimous Shareholder Agreement be amended to increase the maximum size of the Board of
Directors of the Corporation by: |
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(a) |
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amending Section 3.01 to read as follows: |
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The Board of Directors of the Corporation shall consist of a minimum of three (3)
members and a maximum of twelve (12) members, two (2) of whom shall be appointed by
the Manager and the balance of whom shall be appointed by the Trust Unitholders. If
the appointment of two (2) members by the Manager would result in the Trust
Unitholders, not having appointed a majority of the Board of Directors, then the
Manager shall appoint only one (1) member of the Board of Directors. |
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(b) |
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Making such supplemental and ancillary amendments as are deemed necessary or
expedient to give effect to the foregoing. |
2. |
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The articles of the Corporation be amended to increase the maximum size of the Board of
Directors of the Corporation from eight (8) members to twelve (12) members. |
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3. |
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The Trustee is hereby authorized, for and in the name of the Trust, to execute and deliver an
amending agreement to the Unanimous Shareholder Agreement, or an amended and restated
Unanimous Shareholder Agreement, and execution thereof shall evidence approval of the said
amendments and the amending agreements or the amended and restated Unanimous Shareholder
Agreement pursuant to this Extraordinary Resolution. |
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4. |
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Any officer or director of the Corporation is hereby authorized, for and in the name of the
Corporation, to execute and deliver articles of amendment with the Alberta Registrar of
Corporations, and execution thereof shall evidence approval of the said articles of amendment
pursuant to this Extraordinary Resolution. |
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5. |
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The Trustee is hereby authorized and directed for and on behalf of the Trust Unitholders and
any officer or director of the Corporation, is authorized and directed, for and in the name of
the Corporation, to execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution. |
All terms
defined in the Information Circular Proxy Statement of the Trust dated May 16, 2006,
have the same meanings in this Extraordinary Resolution when used herein.
PENGROWTH CORPORATION
PENGROWTH ENERGY TRUST
(HOLDERS OF TRUST UNITS)
GENERAL FORM OF PROXY
The following general form of proxy is provided for use by Trust Unitholders at the Shareholders
Meeting, the Trust Meeting and the Royalty Meeting (collectively, the Meetings), all of which
Meetings are to be held on June 23, 2006. The details of the resolutions are set out in the
Information Circular Proxy Statement dated May 16, 2006 (the Circular) with respect to the
Meetings. Capitalized terms used in this general form of proxy and not defined herein shall have
the meanings given to them in the Circular. In order to be valid and acted upon at the Meetings,
this proxy must be returned as directed in the Circular and received not less than 24 hours
(excluding Saturdays, Sundays and holidays) before the time for holding the Meetings or any
adjournment(s) thereof.
PROXY FOR THE SHAREHOLDER MEETING
The undersigned Trust Unitholder of Pengrowth Trust hereby appoints James S. Kinnear or failing
him, John B. Zaozirny, or, instead of either of the foregoing, ,
as proxyholder of the undersigned to attend and act on behalf of the undersigned at the Shareholder
Meeting to be held on June 23, 2006 and at any adjournment(s) thereof, and directs the said
proxyholder to vote the Trust Units represented by this proxy in the following manner:
1. |
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To vote FOR o or to WITHHOLD VOTING FOR o the ordinary resolution appointing
KPMG LLP, Chartered Accountants, as auditors of the Corporation, to hold office until the next
annual meeting of shareholders or until their successor is elected or appointed. |
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2. |
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To vote FOR o or to WITHHOLD VOTING FOR o the ordinary resolution electing the
nominees named in the Circular as directors of the Corporation. |
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3. |
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To vote FOR o or to vote AGAINST o the extraordinary resolution approving
amendments to the Unanimous Shareholder Agreement to simplify voting procedures at meetings of
the shareholders of the Corporation, as described in the Circular and as set forth in Schedule
A-1 to the Circular. |
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4. |
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To vote FOR o or to vote AGAINST o the extraordinary resolution approving
amendments to the Unanimous Shareholder Agreement and the articles of the Corporation to
increase the maximum size of the Board of Directors of the Corporation, as described in the
Circular and as set forth in Schedule A-2 to the Circular. |
At the discretion of the said proxyholder, upon any amendment or variation of the above
matters or any other matter that may properly be brought before the
Shareholder Meeting or any adjournment(s) thereof, in such matter as such proxyholder in his sole
judgement may determine.
FORM OF PROXY FOR THE TRUST MEETING
The undersigned Trust Unitholder of Pengrowth Trust hereby appoints James S. Kinnear or, failing
him, John B. Zaozirny, or instead of either of the foregoing, , as proxyholder
of the undersigned to attend and act on behalf of the undersigned at the Trust Meeting to be held
on June 23, 2006, and at any adjournment(s) thereof, and directs the said proxyholder to vote the
Trust Units represented by this proxy in the following manner:
1. |
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To vote FOR o or to WITHHOLD VOTING FOR o the ordinary resolution appointing
KPMG LLP, Chartered Accountants, as auditors of Pengrowth Trust, to hold office until the next
annual meeting of Unitholders or until their successor is elected or appointed. |
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2. |
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To vote FOR o or to vote AGAINST o the extraordinary resolution approving
amendments to the Trust Indenture to provide for the consolidation of the Trusts dual class
structure, as described in the Circular and as set forth in Schedule B-1 to the Circular. |
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3. |
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To vote FOR o or to vote AGAINST o the extraordinary resolution approving
amendments to the Unanimous Shareholder Agreement and the Trust Indenture to simplify voting
procedures at meetings of the shareholders of the Corporation, as described in the Circular
and as set forth in Schedule B-2 to the Circular. |
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4. |
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To vote FOR o or to vote AGAINST o the ordinary resolution approving amendments
to the Deferred Entitlement Unit Plan, as described in the Circular and as set forth in
Schedule B-3 to the Circular. |
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5. |
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To vote FOR o or to vote AGAINST o the extraordinary resolution approving
amendments to the Trust Indenture regarding the distribution of net proceeds from the sale of
properties, as described in the Circular and as set forth in Schedule B-4 to the Circular. |
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6. |
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To vote FOR o or to vote AGAINST o the extraordinary resolution approving
amendments to the Unanimous Shareholder Agreement and the articles of the Corporation to
increase the maximum size of the Board of Directors of the Corporation, as described in the
Circular and as set forth in Schedule B-5 to the Circular. |
At the discretion of the said proxyholder, to vote upon any amendment or variation of the
above matters or any other matter that may properly be brought before the Trust Meeting or any
adjournment(s) thereof in such manner as such proxyholder in his sole judgement may determine.
FORM OF PROXY FOR THE ROYALTY MEETING
The undersigned Trust Unitholder of Pengrowth Trust hereby appoints James S. Kinnear or, failing
him, John B. Zaozirny, or instead of either of the foregoing, , as proxyholder
of the undersigned to attend and act on behalf of the undersigned at the Royalty Meeting to be held
on June 23, 2006, and at any
adjournment(s) thereof, and directs the said proxyholder to vote the Royalty Units represented by
this proxy in the following manner:
1. |
|
To vote FOR o or to vote AGAINST o the extraordinary resolution approving
amendments to the Royalty Indenture to provide for the consolidation of the Trusts dual class
structure, as described in the Circular and as set forth in Schedule C-1 to the Circular. |
- 2 -
2. |
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To vote FOR o or to vote AGAINST o the extraordinary resolution approving
amendments to the Unanimous Shareholder Agreement and the Royalty Indenture to simplify voting
procedures at meetings of the shareholders of the Corporation, as described in the Circular
and as set forth in Schedule C-2 to the Circular. |
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3. |
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To vote FOR o or to vote AGAINST o the extraordinary resolution approving
amendments to the Royalty Indenture regarding the distribution of net proceeds from the sale
of properties, as described in the Circular and as set forth in Schedule C-3 to the Circular. |
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4. |
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To vote FOR o or to vote AGAINST o the extraordinary resolution approving
amendments to the Royalty Indenture regarding distributions upon a liquidation, winding-up or
dissolution of the Corporation, as described in the Circular and as set forth in Schedule C-4
to the Circular. |
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5. |
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To vote FOR o or to vote AGAINST o the extraordinary resolution approving
amendments to the Royalty Indenture regarding certain expenditures, the reserve and other
revenues, as described in the Circular and as set forth in Schedule C-5 to the Circular. |
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6. |
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To vote FOR o or to vote AGAINST o the extraordinary resolution approving
miscellaneous amendments to the Royalty Indenture, as described in the Circular and as set
forth in Schedule C-6 to the Circular. |
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7. |
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To vote FOR o or to vote AGAINST o the extraordinary resolution approving
amendments to the Unanimous Shareholder Agreement and the articles of the Corporation to
increase the maximum size of the Board of Directors of the Corporation, as described in the
Circular and as set forth in Schedule C-7 to the Circular. |
At the discretion of the said proxyholder, to vote upon any amendment or variation of the
above matters or any other matter that may properly be brought before the Royalty Meeting or any
adjournment(s) thereof, in such manner as such proxyholder in his sole judgement may determine.
I HEREBY REVOKE ANY PROXIES HERETOFORE GIVEN.
THIS PROXY IS SOLICITED ON BEHALF OF PENGROWTH MANAGEMENT LIMITED. THE TRUST UNITS REPRESENTED BY
THIS PROXY SHALL BE VOTED AS DIRECTED IN THE SPACES PROVIDED ABOVE OR, IF NO DIRECTION IS GIVEN,
SHALL BE VOTED IN FAVOUR OF EACH OF THE ABOVE MATTERS.
THE PERSONS NAMED IN THIS PROXY ARE DIRECTORS AND/OR OFFICERS OF PENGROWTH CORPORATION. EACH TRUST
UNITHOLDER
HAS THE RIGHT TO APPOINT A PERSON, WHO NEED NOT BE A TRUST UNITHOLDER, TO ATTEND AND TO ACT ON HIS
BEHALF AT THE MEETINGS, OTHER THAN THE PERSONS DESIGNATED ABOVE. TO EXERCISE SUCH RIGHT, THE NAMES
OF THE PERSONS DESIGNATED BY PENGROWTH MANAGEMENT LIMITED SHOULD BE CROSSED OUT AND THE NAME OF THE
TRUST UNITHOLDERS APPOINTEE SHOULD BE LEGIBLY PRINTED IN THE BLANK SPACE. TRUST UNITHOLDERS WHO
HOLD THEIR TRUST UNITS THROUGH BROKERAGE ACCOUNTS OR OTHER INTERMEDIARIES WHO WISH TO APPEAR IN
PERSON AND VOTE AT THE MEETINGS SHOULD APPOINT THEMSELVES AS THEIR OWN REPRESENTATIVES AT THE
MEETINGS OR OTHERWISE FOLLOW THE DIRECTIONS OF THEIR INTERMEDIARIES.
- 3 -
TRUST UNITHOLDERS SHOULD COMPLETE THE PROXY AND MAIL IT IN THE
ENVELOPE PROVIDED HEREWITH.
Dated this day of , 2006.
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Signature of Trust Unitholder |
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Name of Trust Unitholder |
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(Please Print) |
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Note: |
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1.
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If the appointer is a corporation, its corporate seal must be affixed
or this form of proxy must be signed by an officer or attorney thereof
duly authorized. |
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2.
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Persons signing as executors, administrators, trustees, etc., should
so indicate. |
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3.
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THIS FORM OF PROXY MUST BE DATED AND THE SIGNATURE OF THE TRUST
UNITHOLDER SHOULD BE EXACTLY THE SAME AS THE NAME IN WHICH THE TRUST
UNITS ARE REGISTERED. IF THIS PROXY IS NOT DATED, IT WILL BE DEEMED
TO BE DATED AS OF THE DATE IT IS RECEIVED BY COMPUTERSHARE TRUST
COMPANY OF CANADA. |
- 4 -
LETTER OF CONFIRMATION
May 30, 2006
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To:
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Alberta Securities Commission |
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British Columbia Securities Commission |
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Manitoba Securities Commission |
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Office of the Administrator, New Brunswick |
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Securities Commission of Newfoundland and Labrador |
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Nova Scotia Securities Commission |
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Ontario Securities Commission |
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Registrar of Securities, Prince Edward Island |
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LAutorite des marches financiers |
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Securities Division, Saskatchewan Financial Services Commission |
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Securities Registry, Government of the Northwest Territories |
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Registrar of Securities, Government of the Yukon Territory |
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The Toronto Stock Exchange |
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Computershare Trust Company of Canada |
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530 8th Ave SW, Suite 600 |
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Calgary, Alberta |
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T2P 3S8 |
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Telephone: (403) 267-6800
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Canada |
Facsimile: (403) 267-6529
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Australia |
www.computershare.com
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Channel Islands |
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Hong Kong |
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Germany |
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Ireland |
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New Zealand |
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Phillippines |
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South Africa |
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United Kingdom |
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USA |
Dear Sirs:
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Subject: |
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Pengrowth Energy Trust Meeting of Trust Unitholders |
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Pengrowth Corporation Meeting of Shareholders and Royalty Unitholders |
We confirm that the following materials were sent by pre-paid mail on May 29, 2006, to the
registered holders of the units of the subject Energy Trust:
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1. |
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Notice of Meetings / Information Circular Proxy Statement |
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2. |
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General Form of Proxy |
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3. |
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Postage Paid Return Envelope |
We further confirm that copies of the above-mentioned materials were sent by courier on May 29,
2006 to those intermediaries holding units of the subject Energy Trust who responded directly to
Computershare with respect to the search procedures in compliance with current securities
legislation requirements for delivery to beneficial owners.
We are providing this confirmation to you in our capacity as agent for the
Corporation.
Yours truly,
COMPUTERSHARE TRUST COMPANY OF CANADA
(Signed)
Jodie Hansen
Assistant Trust Officer
Corporate Trust Department