EXHIBIT 1
NOTICE OF SPECIAL MEETING OF UNITHOLDERS
to be held November 16, 2004
and
INFORMATION CIRCULAR and PROXY STATEMENT
October 18, 2004
October 18, 2004
To: Holders of Units of Petrofund Energy Trust
You are invited to attend a special meeting (the "Meeting") of holders (the
"Unitholders") of trust units ("Units") of Petrofund Energy Trust ("Petrofund"
or the "Trust") to be held at the Westin Hotel, Eau Claire Room, 320 - 4th
Avenue SW, Calgary, Alberta on Tuesday, November 16, 2004 at 2:00 p.m. (Calgary
time) for the purposes set forth in the accompanying Notice of Special Meeting
of Unitholders. At the Meeting, Unitholders will be asked to consider and vote
upon: (i) a special resolution approving amendments to the trust indenture of
Petrofund relating to a reclassification of the trust unit capital of Petrofund
into Class R Units, which can only be held by Canadian residents, and Class N
Units, which will contain no residency restrictions (the "Reclassification");
and (ii) a special resolution approving additional amendments to the trust
indenture and to the royalty agreement of Petrofund related to various matters
(the "Other Amendments"), all as described in the attached Information Circular.
The purpose of the Reclassification is to change the structure and procedures
that regulate non-resident ownership of Units of Petrofund to ensure that
Petrofund continues to qualify as a mutual fund trust under the Income Tax Act
(Canada) (the "Tax Act") while maintaining active markets for the Units and the
ability to raise capital in Canada and the United States.
This change is proposed to Unitholders as a result of proposed changes to the
Tax Act that were introduced in the March, 2004 Canadian Federal Budget. Draft
amendments to the Tax Act, which give effect to these changes, were released by
the Government of Canada on September 16, 2004. If the amendments are enacted,
non-residents of Canada, as defined for purposes of the Tax Act, will not be
permitted to hold more than 50% of the outstanding Units of the Trust, which is
currently proposed to be calculated on a fair market value basis, in order for
Petrofund to continue to qualify as a mutual fund trust. Petrofund would be
required to meet this 50% threshold on or before December 31, 2006. Based on the
most recent report received by us from our transfer agent, the current level of
Petrofund's non-resident ownership is approximately 67%. The Board of Directors
of Petrofund Corp. has considered various alternatives to ensure compliance with
the non-resident ownership requirement and has determined that the best
alternative is the proposed Reclassification that is detailed in the enclosed
Information Circular.
The consequences of the loss of mutual fund trust status to both the Trust and
Unitholders are severe and, we believe, could have a material negative effect on
the market price of the Units. Among other things, the Units would cease to be
qualified investments for certain registered plans under the Tax Act (such as
registered retirement savings plans) and would become foreign property under
such plans. In addition, Petrofund would be required to pay tax at the trust
level on a portion of its income. Finally, the Units would constitute taxable
Canadian property for purposes of the Tax Act, potentially subjecting
non-residents to tax pursuant thereto on a disposition of Units.
PETROFUND CORP. 600, 444-7th Avenue S.W. TEL (403) 218-8625 www.petrofund.ca
Calgary, Alberta, Canada FAX (403) 269-5858
T2P 0X8
2
Petrofund Energy Trust
Although, based on the proposed amendments to the Tax Act, the Trust has until
December 31, 2006 to reduce the level of Non-Resident ownership of Trust Units
below 50%, the Board of Directors has determined to take steps to implement the
proposed Reclassification as soon as practicable for a number of reasons.
Firstly, implementation of the proposed Reclassification will stop further
increases in the level of Non-Resident ownership of Trust Units. As non-resident
ownership levels rise, we believe it will become increasingly difficult and
costly for the Trust to cause levels to fall below 50%. Secondly, implementation
of the proposed Reclassification will provide the Trust with the flexibility of
utilizing a number of mechanisms to cause a decrease in the level of
Non-Resident ownership when determined appropriate and in an appropriate manner
if required. If the Reclassification is determined to be no longer required
based on amendments to the Tax Act ultimately enacted, the Class R Units and
Class N Units may be recombined into one class of Units.
THE BOARD OF DIRECTORS OF PETROFUND CORP. UNANIMOUSLY RECOMMENDS THAT YOU VOTE
IN FAVOUR OF THE RECLASSIFICATION AND THE OTHER AMENDMENTS.
The accompanying Information Circular provides a detailed description of the
Reclassification and the Other Amendments. Please give this material your
careful consideration and, if you require assistance, contact your financial,
income tax or other professional advisor.
To be represented at the Meeting, you must either attend the Meeting in person
or complete and sign the enclosed form of proxy and forward it so that it is
received by Computershare Trust Company of Canada, 9th Floor, 100 University
Avenue, Toronto, Ontario M5J 2Y1, at least 24 hours (excluding Saturdays,
Sundays and holidays) prior to the Meeting or any adjournment thereof.
If you are a non-registered holder of Units and have received these materials
from your broker or other intermediary, please complete and return the proxy or
other authorization form provided to you by your broker or other intermediary in
accordance with the instructions provided with it. Failure to do so may result
in your Units not being eligible to be voted at the Meeting.
We encourage you to participate in this process.
Yours truly
(signed) "Jeffery E. Errico"
Jeffery E. Errico
President and Chief Executive Officer
Petrofund Corp.
PETROFUND CORP. 600, 444-7th Avenue S.W. TEL (403) 218-8625 www.petrofund.ca
Calgary, Alberta, Canada FAX (403) 269-5858
T2P 0X8
Petrofund Energy Trust
NOTICE OF SPECIAL MEETING OF UNITHOLDERS OF PETROFUND ENERGY TRUST
NOTICE IS HEREBY GIVEN that a Special Meeting (the "MEETING") of the holders
(the "UNITHOLDERS") of trust units ("UNITS") of PETROFUND ENERGY TRUST
("PETROFUND") will be held at the Westin Hotel, Eau Claire Room, 320 - 4th
Avenue SW, Calgary, Alberta on Tuesday, November 16, 2004, at the hour of 2:00
p.m. (Calgary time) for the following purposes:
1. to consider, and if thought fit, pass a special resolution approving
amendments to the Trust Indenture related to a reclassification of the
trust unit capital of the Trust, all as more particularly described under
"Special Meeting Matters - Proposed Reclassification of Trust Unit
Capital" in the Information Circular which accompanies this Notice;
2. to consider, and if thought fit, pass a special resolution approving
additional amendments to the Trust Indenture and amendments to the Royalty
Agreement related to various matters, all as described under "Special
Meeting Matters - Other Proposed Amendments to Trust Indenture and
Proposed Amendments to Royalty Agreement" in the Information Circular
which accompanies this Notice; and
3. to transact any other business which may properly come before the Meeting
or any adjournment thereof.
The specific details of the matters proposed to be put before the Meeting and
the text of the resolutions proposed are set forth in the Information Circular
which accompanies this Notice.
Every registered holder of Units on October 17, 2004 is entitled to receive
notice of the Meeting and to vote such Units at the Meeting. No person acquiring
Units after such date shall be entitled to vote at the Meeting or any
adjournment thereof.
THE QUORUM FOR THE MEETING IS TWO OR MORE INDIVIDUALS PRESENT IN PERSON OR BY
PROXY REPRESENTING AT LEAST 10% OF THE OUTSTANDING UNITS.
UNITHOLDERS ARE REQUESTED TO COMPLETE, SIGN, DATE, AND RETURN THE ACCOMPANYING
FORM OF PROXY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE, IF THEY CANNOT ATTEND
THE MEETING. To be used at the Meeting, the form of proxy must be received by
Computershare Trust Company of Canada, 9th Floor 100 University Avenue, Toronto,
Ontario M5J 2Y1, at least 24 hours (excluding Saturdays, Sundays and holidays)
prior to the Meeting or any adjournment thereof.
Dated at Calgary, Alberta, this 18th day of October, 2004.
By order of the Board of Directors of
PETROFUND CORP.
(signed) JEFFERY E. ERRICO
President and Chief Executive Officer
i
TABLE OF CONTENTS
GLOSSARY OF TERMS................................................................................. 1
SOLICITATION OF PROXIES........................................................................... 5
APPOINTMENT AND REVOCATION OF PROXIES............................................................. 5
EXERCISE OF DISCRETION BY PROXIES................................................................. 6
NON-REGISTERED HOLDERS............................................................................ 6
VOTING BY HOLDERS OF SPECIAL VOTING UNITS......................................................... 7
VOTING UNITS AND PRINCIPAL HOLDERS THEREOF........................................................ 7
SPECIAL MEETING MATTERS........................................................................... 7
EXECUTIVE COMPENSATION............................................................................ 40
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS................................ 40
INDEBTEDNESS OF DIRECTORS AND OFFICERS............................................................ 41
INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS....................................... 41
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON........................................... 41
ADDITIONAL INFORMATION............................................................................ 41
OTHER MATTERS..................................................................................... 41
DIRECTORS' APPROVAL AND CERTIFICATE............................................................... 42
SCHEDULE "A" - RECLASSIFICATION RESOLUTION
SCHEDULE "B" - PROPOSED AMENDMENTS TO TRUST INDENTURE CONTEMPLATED
BY RECLASSIFICATION RESOLUTION
SCHEDULE "C" - OTHER AMENDMENTS RESOLUTION
SCHEDULE "D" - PROPOSED AMENDMENTS TO TRUST INDENTURE AND ROYALTY
AGREEMENT CONTEMPLATED BY OTHER AMENDMENTS
RESOLUTION
1
GLOSSARY OF TERMS
The following terms used in this Information Circular shall have the meanings
set out below:
"ADP" means ADP Investor Communications;
"ADP Reports" means reports prepared by ADP that show the geographical locations
of beneficial owners of Trust Units;
"affiliate" and "associate" have the respective meanings ascribed thereto in the
Securities Act (Ontario);
"Aggregate Equivalent Vote Amount" means, with respect to any matter,
proposition or question on which Unitholders are entitled to vote, consent or
otherwise act at a meeting of Unitholders, the number of votes that the holder
of a Special Voting Unit would be entitled to had the holder exchanged all of
the PC Exchangeable Shares then held by the holder for Units immediately prior
to the record date set for such meeting;
"AMEX" means the American Stock Exchange;
"Asset Test" means, certain conditions as to the nature of the assets of a trust
which are set forth in paragraph 132(7)(a) of the Tax Act currently in force
which, if satisfied, a trust may rely upon to qualify as a "mutual fund trust"
for the purposes of the Tax Act;
"Board of Directors" or "Board" means the Board of Directors of PC;
"CDS" means the Canadian Depository for Securities Limited or its successors;
"Certificated Units" means Units that, pursuant to the Reclassification, will,
until such time as a completed Unitholder's Declaration and any other required
documents are received by the Transfer Agent, remain certificated in the form of
Units in existence immediately prior to the Effective Time;
"Class N Coattail Provisions" means those provisions related to the Class N
Units which are described under "Special Meeting Matters - Proposed
Reclassification of Trust Unit Capital - Class N Units - Exclusionary
Offer/Coattail Provisions";
"Class N Units" means the class N trust units of the Trust which will be created
pursuant to the Reclassification;
"Class R Coattail Provisions" means those provisions related to the Class R
Units which are described under "Special Meeting Matters - Proposed
Reclassification of Trust Unit Capital - Class R Units - Exclusionary
Offer/Coattail Provisions";
"Class R Units" means the class R trust units of the Trust which will be created
pursuant to the Reclassification;
"Draft Amendments" means the draft amendments to the Tax Act which were released
by the federal Department of Finance on September 16, 2004 giving effect to,
among other things, the Mutual Fund Trust Amendments;
"DTC" means the Depository Trust Company or its successors;
2
"Effective Date" means the date determined by the Board of Directors for the
Reclassification to become effective;
"Effective Time" means 5:00 p.m. (Calgary time) on the Effective Date;
"Enforcement Date" means the earlier of: (a) December 31, 2006; and (b) the date
of determination by the Board of Directors that the Ownership Threshold has been
reached;
"FMV Test" means the requirement contained in the Draft Amendments that
Non-Residents shall not hold more than 50% of the issued units of the Trust,
calculated on a fair market value basis, which test is further described in
"Special Meeting Matters - Proposed Reclassification of Trust Unit Capital -
Background";
"Information Circular" means this Information Circular dated October 18, 2004
prepared in connection with the Meeting;
"Maximum Non-Resident Ownership Level" means the maximum level of ownership of
issued Units by Non-Residents, as ultimately prescribed by the Tax Act, in order
for the Trust to maintain its status as a mutual fund trust;
"Meeting" means the special meeting of Unitholders to be held on Tuesday,
November 16, 2004 at 2:00 p.m. (Calgary time), and any adjournment thereof;
"Mutual Fund Trust Amendments" means amendments to the Tax Act announced by the
Government of Canada on March 23, 2004 that would eliminate the Asset Test
exemption which the Trust currently relies upon to qualify as a mutual fund
trust;
"Non-Resident" means a person who is a "non-resident" for purposes of the Tax
Act (including a partnership that is not a Canadian partnership for purposes of
the Tax Act);
"Other Amendments Resolution" means the special resolution in the form attached
as Schedule "C" to this Information Circular to approve amendments to the Trust
Indenture and the Royalty Agreement set forth in Schedule "D" to the Information
Circular;
"Ownership Rights" means, all rights attaching to a Unit of any class, including
the rights to vote at meetings of Unitholders (or otherwise in respect of the
Trust or the Corporation) to receive distributions declared thereon by the Trust
and to receive the remaining property of the Trust upon liquidation, dissolution
or winding up of the Trust;
"Ownership Threshold" means the authorized number of Class N Units that may be
issued and outstanding at any point in time equal to 47% (or such lesser or
greater percentage as may be determined by the Board of Directors) of the
aggregate number of issued and outstanding Class N Units and Class R Units at
such time; provided that for the purposes of determining the number of Units
issued and outstanding at any time, except as the Board of Directors may
otherwise determine from time to time, any and all rights to acquire, exchange
for or convert into Class N Units (other than pursuant to the Class R Coattail
Provisions) shall be deemed to have been exercised and any and all rights to
acquire, exchange for or convert into Class R Units shall be deemed not to have
been exercised and any Certificated Units shall be deemed to be Class N Units;
"PC Exchangeable Shares" means non-voting exchangeable shares in the capital of
PC;
3
"PC" or the "Corporation" means Petrofund Corp.;
"Petrofund" or the "Trust" means Petrofund Energy Trust;
"Reclassification" means the reclassification of Units which are issued and
outstanding at the Effective Time into Class R Units and the conversion of any
such Class R Units which are held by a Unitholder who is, or is deemed to be, a
Non-Resident, into Class N Units, as set forth and described in the Information
Circular under "Special Meeting Matters - Proposed Reclassification of Trust
Unit Capital";
"Reclassification Guidelines" means the procedures and guidelines established or
to be established by the Board of Directors to give effect to, administer and
implement the Reclassification;
"Reclassification Resolution" means the Special Resolution in the form attached
as Schedule "A" to this Information Circular to reclassify the trust unit
capital of the Trust and to approve amendments to the Trust Indenture set forth
in Schedule "B" to the Information Circular and summarized in this Information
Circular;
"Restricted Units" means, where referred to under "Special Meeting Matters -
Proposed Reclassification of Trust Unit Capital - Class N Units - Exclusionary
Offer/Coattail Provisions" and "Special Meeting Matters - Proposed
Reclassification of Trust Unit Capital - Class R Units - Exclusionary
Offer/Coattail Provisions", collectively: (i) Class R Units; and (ii) Class N
Units that were Class R Units prior to their conversion pursuant to the Class R
Coattail Provisions;
"Redemption Notes" shall have the meaning set forth in "Special Meeting Matters
- - Proposed Reclassification of Trust Unit Capital - Class N Units - Reduction of
Issued and Outstanding Class N Units";
"Royalty Agreement" means the amended and restated royalty agreement dated April
14, 2004 between PC and the Trustee;
"Special Resolution" means a resolution approved in writing by Unitholders
holding not less than 66 2/3% of the outstanding Units entitled to vote on such
resolution or a resolution passed as a special resolution at a meeting of
Unitholders (including an adjourned meeting) duly convened for the purpose and
held in accordance with the requirements of the Trust Indenture and passed by
the affirmative votes either in person or by proxy of the holders of not less
than 66 2/3% of the Units entitled to vote on such resolution represented at the
meeting and voted on a poll upon such resolution;
"Special Voting Unit" means a special voting unit of Petrofund, which entitles
the holder of record of the PC Exchangeable Shares to a number of votes at each
meeting of Unitholders equal to the Aggregate Equivalent Vote Amount;
"Tax Act" means the Income Tax Act (Canada), as amended;
"Transfer Agent" means Computershare Trust Company of Canada, the transfer agent
and registrar for the Units;
"Trust Indenture" or "Indenture" means the amended and restated trust indenture
governing Petrofund dated April 14, 2004 between PC and the Trustee;
"Trustee" means Computershare Trust Company of Canada, the trustee of Petrofund;
4
"TSX" means the Toronto Stock Exchange;
"Unitholders" means holders of Units;
"Unitholder's Declaration" means a declaration in the form determined by the
Board of Directors from time to time in accordance with the Trust Indenture,
regarding the residency of a Unitholder, any beneficial owner(s) or any other
person; and
"Units" or "Trust Units" means, collectively, the trust units of Petrofund as
constituted on the date hereof and for the purposes of the definition of Special
Resolution as used herein and other matters herein related to voting unless the
context otherwise requires, "Units" or "Trust Units" also includes the Special
Voting Units and, after the Effective Time, the Class N Units, the Class R Units
and Certificated Units, unless the context otherwise requires.
5
PETROFUND ENERGY TRUST
INFORMATION CIRCULAR
SOLICITATION OF PROXIES
This Information Circular is furnished in connection with the solicitation of
proxies by the management of PC on behalf of Petrofund for use at the Special
Meeting of Unitholders to be held at the Westin Hotel, Eau Claire Room, 320 -
4th Avenue SW, Calgary, Alberta, on Tuesday, November 16, 2004 commencing at
2:00 p.m. (Calgary time) for the purposes set forth in the Notice of Meeting
accompanying this Information Circular.
Petrofund has outstanding two types of securities that entitle holders to vote
generally at meetings of Unitholders; Units and Special Voting Units. The Units
and the Special Voting Units vote together as a single class on all matters.
Each Unit outstanding on October 17, 2004, (the "RECORD DATE") is entitled to
one vote. Each Special Voting Unit is entitled to a number of votes at the
Meeting equal to the Aggregate Equivalent Vote Amount in respect of such Special
Voting Unit.
In addition to solicitation by mail, proxies for use at the Meeting may be
solicited by personal interviews, telephone or other means of communication by
directors, officers and employees of PC at nominal cost.
In addition, PC may retain the services of a managing soliciting dealer to form
and manage a soliciting dealer group and/or a solicitation agent to solicit
proxies in connection with the Meeting on terms and conditions, including the
payment of fees and reimbursement of expenses, as are customary in such retainer
agreements. The cost of solicitation will be borne by Petrofund.
Petrofund may pay the reasonable costs incurred by persons who are the
registered but not beneficial owners of Units or the Special Voting Units (such
as brokers, dealers, other registrants under applicable securities laws,
nominees and/or custodians) sending or delivering copies of this Information
Circular, the Notice of Meeting and form of proxy to the beneficial owners of
such Units or the Special Voting Units. Petrofund will provide, without cost to
such persons, upon request to the Secretary of PC, additional copies of the
foregoing documents required for this purpose.
APPOINTMENT AND REVOCATION OF PROXIES
A form of proxy accompanies the Notice of Meeting and Information Circular being
sent to Unitholders. The persons named in such form of proxy are directors and
officers of PC. A UNITHOLDER SUBMITTING THE PROXY HAS THE RIGHT TO APPOINT A
PERSON (WHO NEED NOT BE A UNITHOLDER) TO BE A REPRESENTATIVE AT THE MEETING,
OTHER THAN THE PERSONS DESIGNATED IN THE FORM OF PROXY FURNISHED BY PC. SUCH
APPOINTMENT MAY BE EXERCISED BY INSERTING THE NAME OF THE APPOINTED
REPRESENTATIVE IN THE BLANK SPACE PROVIDED FOR THAT PURPOSE AND STRIKING OUT THE
NAMES OF THE MANAGEMENT NOMINEES OR BY SUBMITTING ANOTHER APPROPRIATE PROXY. A
form of proxy will not be valid unless it is completed and delivered so it is
received by Computershare Trust Company of Canada, 9th Floor 100 University
Avenue, Toronto, Ontario M5J 2Y1, at least 24 hours (excluding Saturdays,
Sundays and holidays) prior to the Meeting or any adjournment thereof.
A Unitholder who has given a proxy may revoke it by depositing an instrument in
writing executed by such Unitholder (or by an attorney duly authorized in
writing) or, if such Unitholder is a corporation, by any officer or attorney
thereof duly authorized, either with the Trustee or at the head office of
Petrofund at 600, 444 - 7th Avenue SW, Calgary, Alberta T2P 0X8 at any time up
to and including the close of business on the last day preceding the Meeting or
any adjournment(s) thereof, or with the Chairman of the Meeting on the day
thereof or any adjournment(s) thereof.
6
EXERCISE OF DISCRETION BY PROXIES
The representatives of PC named in the enclosed form of proxy will vote the
Units represented thereby in accordance with the instructions of the Unitholder
who has given such proxy. If a Unitholder specifies a choice with respect to any
matter to be acted upon, the Units represented by the proxy shall be voted
accordingly.
WHERE NO CHOICE IS SPECIFIED, SUCH UNITS WILL BE VOTED BY THE REPRESENTATIVES OF
PC NAMED IN SUCH FORM OF PROXY IN FAVOUR OF ANY MATTER TO BE ACTED UPON, AS
DESCRIBED BELOW, AND WILL BE VOTED BY SUCH REPRESENTATIVES IN THEIR DISCRETION
ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
The enclosed form of proxy confers discretionary authority on the persons
appointed with respect to amendments or variations of matters identified in the
Notice of Meeting or other matters that may properly come before the Meeting. At
the time of printing this Information Circular, management of PC are not aware
of any such amendments, variations or other matters.
NON-REGISTERED HOLDERS
THE INFORMATION SET FORTH IN THIS SECTION IS OF SIGNIFICANT IMPORTANCE TO MANY
UNITHOLDERS OF THE TRUST, AS A SUBSTANTIAL NUMBER OF THE UNITHOLDERS OF THE
TRUST HOLD TRUST UNITS THROUGH A BROKER, INVESTMENT ADVISOR OR OTHER
INTERMEDIARY. 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 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
Meeting. If Trust Units are listed in an account statement provided to a
Unitholder by a broker, then in almost all cases those Trust Units will not be
registered in the Unitholder's name on the records of the Trust. Such Trust
Units will more likely be registered under the name of the Unitholder's 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 CDS, which
acts as nominee for many Canadian 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 policy requires intermediaries/brokers to seek voting
instructions from Beneficial Unitholders in advance of unitholders' 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 Meeting.
Often, the form of proxy supplied to a Beneficial Unitholder by its broker is
identical to the form of proxy provided to registered Unitholders; however, its
purpose is limited to instructing the registered Unitholder how to vote on
behalf of the Beneficial Unitholder. The majority of brokers now delegate
responsibility for obtaining instructions from clients to ADP. ADP typically
mails a scannable voting instruction form in lieu of the form of proxy. The
Beneficial Unitholder is requested to complete and return the voting instruction
form to ADP by mail or facsimile. Alternatively the Beneficial Unitholder can
call a toll-free telephone number 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 to be
represented at the Meeting. A BENEFICIAL UNITHOLDER RECEIVING A VOTING
INSTRUCTION FORM CANNOT USE THAT VOTING INSTRUCTION FORM TO VOTE TRUST UNITS
DIRECTLY AT THE MEETING AS THE VOTING INSTRUCTION FORM MUST BE RETURNED AS
DIRECTED BY ADP WELL IN ADVANCE OF THE MEETING IN ORDER TO HAVE THE TRUST UNITS
REPRESENTED THEREBY VOTED.
7
VOTING BY HOLDERS OF SPECIAL VOTING UNITS
Each Special Voting Unit is entitled to a number of votes at the Meeting equal
to the Aggregate Equivalent Vote Amount in respect of such Special Voting Unit.
VOTING UNITS AND PRINCIPAL HOLDERS THEREOF
As at the Record Date there were 99,411,656 Units (other than Special Voting
Units) issued and outstanding to which are attached voting rights and the
registered holders thereof, at the close of business on the Record Date, are
entitled to attend and vote at the Meeting on the basis of one vote for each
Unit held. No person acquiring Units after such date shall be entitled to vote
at the Meeting or any adjournment thereof.
In addition, as at the Record Date one Special Voting Unit is issued and
outstanding which entitles the registered holder to 939,147 votes at the
Meeting.
To the best of the knowledge of the directors and senior officers of PC, no
person beneficially owns, directly or indirectly, or exercises control or
direction over, Units and Special Voting Units carrying more than 10% of the
voting rights attached to the issued and outstanding Units and Special Voting
Units which may be voted at the Meeting.
SPECIAL MEETING MATTERS
Management has presented to the Board of Directors a number of proposed
amendments to the Trust Indenture and the Royalty Agreement and, after
considering such amendments, the Board of Directors has determined to place
before Unitholders Special Resolutions approving amendments to the Trust
Indenture and the Royalty Agreement as follows.
PROPOSED RECLASSIFICATION OF TRUST UNIT CAPITAL
BACKGROUND
In October 2000, the Trust Units were listed on the American Stock Exchange, and
since that time, the Trust has seen increased interest in its Trust Units, both
in terms of trading volumes and level of ownership, by Non-Residents.
Pursuant to provisions of the Tax Act currently in force, in order for the Trust
to qualify as a "mutual fund trust" for the purposes of the Tax Act, it is
required, among other things, that (i) the Trust not be considered to be a trust
established or maintained primarily for the benefit of Non-Residents, or (ii)
the Trust satisfy the Asset Test. The consequences of the failure of the Trust
to qualify as a mutual fund trust are described below under "- Consequences of
Loss of Mutual Fund Trust Status".
On March 23, 2004 the Government of Canada announced Mutual Fund Trust
Amendments that would eliminate the Asset Test exemption which the Trust
currently relies upon to qualify as a mutual fund trust. With this exemption
removed, it was anticipated the Trust would be required to attain majority
Canadian ownership of its Trust Units by January 1, 2007.
The Trust estimates that effective September 30, 2004, foreign ownership of
Trust Units was approximately 67%. In making residency determinations, the Trust
relies upon reports provided by the Transfer Agent which in turn relies upon ADP
Reports as the best available information about the
8
residency of Unitholders. The Trust has been advised that the Transfer Agent
conservatively assumes that unknown or non-reporting ADP participants represent
Non-Resident Unitholders.
In September 2004, the Draft Amendments to the Tax Act giving effect to the
Mutual Fund Trust Amendments were released by the Government of Canada. Among
other things, the Draft Amendments would delete the requirement that a trust not
be considered to be established or maintained primarily for the benefit of
Non-Residents in order to qualify as a mutual fund trust. The Draft Amendments
instead introduce a requirement that, subject to certain exceptions that would
not apply to the Trust, at any particular time after December 31, 2004, a trust
is required to satisfy the FMV Test in order to qualify as a mutual fund trust.
The Draft Amendments further stipulate that any trust that relied on the Asset
Test on March 23, 2004 in order to maintain its mutual fund trust status will be
permitted to rely on the Asset Test through to and including December 31, 2006,
notwithstanding that such trust fails the FMV Test during the period from
January 1, 2005 to and including December 31, 2006. Petrofund has been advised
by its legal counsel that, as it was entitled to rely on the Asset Test on March
23, 2004, it would not have to satisfy the requirements of the FMV Test
contained in the Draft Amendments until January 1, 2007.
In addition, pursuant to the Draft Amendments, any violation of the FMV Test,
whether inadvertent or not, would result in the Trust permanently losing its
status as a mutual fund trust.
While the Board of Directors presently believes that the Mutual Fund Trust
Amendments will be enacted into law in some form, there can be no assurance that
they will be enacted or, if enacted, if such enactment will be in the form of
the Draft Amendments as presently proposed. Notwithstanding such uncertainty,
the Board of Directors believes that in light of continuing increases in the
level of non-resident ownership of Trust Units and the adverse consequence which
will result if the Trust loses its status as a mutual fund trust (see "-
Consequences of Loss of Mutual Fund Trust Status"), it is prudent and in the
best interests of Unitholders to take steps at this time to regulate
Non-Resident ownership of its Trust Units and then to commence to take steps to
decrease the percentage of Non-Resident ownership of Trust Units in order to
ensure that the Trust does not lose its mutual fund trust status.
CONSEQUENCES OF LOSS OF MUTUAL FUND TRUST STATUS
If, notwithstanding the steps taken by the Trust, the Trust's status as a mutual
fund trust is lost, certain material negative tax consequences would result for
the Trust and the Unitholders. Under the current provisions of the Tax Act,
these negative tax consequences include the following:
1. The Trust Units would cease to be a qualified investment for trusts
governed by registered retirement savings plans ("RRSPs"), registered
retirement income funds ("RRIFS"), registered education savings plans
("RESPS") and deferred profit sharing plans ("DPSPS"). Where, at the end
of a month, a RRSP, RRIF, RESP or DPSP holds Trust Units that ceased to be
a qualified investment, the RRSP, RRIF, RESP or DPSP, as the case may be,
must, in respect of that month, pay a tax under Part XI.I of the Tax Act
equal to 1% of the fair market value of the Trust Units at the time such
Trust Units were acquired by the RRSP, RRIF, RESP or DPSP. In addition,
trusts governed by a RRSP or a RRIF which hold Trust Units that are not
qualified investments will be subject to tax on the income attributable to
the Trust Units while they are non-qualified investments, including the
full capital gains, if any, realized on the disposition of such Trust
Units. Where a trust governed by a RRSP or a RRIF acquires Trust Units
that are not qualified investments, the value of the investment will be
included in the income of the annuitant for the year of the acquisition.
Trusts governed by RESPs which hold Trust Units that are not qualified
investments can have their registration revoked by the Canada Revenue
Agency.
9
While the Board of Directors cannot determine the percentage of Trust
Units held by RRSPs, RRIFs, RESPs and DPSPs, based on publicly available
information, it is believed that generally, approximately 30% of the
income fund units issued in Canada are held by such plans. Assuming this
percentage applies to the Trust Units, the consequences of such plans
holding Trust Units that are not qualified investments may, therefore,
significantly affect the market price of the Trust Units in the event such
plans choose to dispose of Trust Units as a result of the consequences
described above.
2. The Trust would be required to pay a tax under Part XII.2 of the Tax Act.
Generally, the application of Part XII.2 of the Tax Act would serve to
levy a tax at the trust level equal to 36% of, among other things, the
Trust's income from Canadian resource properties. This tax is creditable
to Canadian resident beneficiaries who are subject to Canadian tax under
Part I of the Tax Act but is not creditable to Canadian tax exempt
beneficiaries and non-resident beneficiaries who would have had no
Canadian income tax liability under Part I of the Tax Act or paid a 15%
non-resident withholding tax respectively in respect of their share of the
income.
3. The Trust Units would be foreign property for RRSPs, RRIFs, DPSPs and
other persons subject to tax under Part XI of the Tax Act. Such plans and
persons are generally required to pay a tax of 1% per month on the amount
by which the cost amount of foreign property in the plan exceeds 30% of
the cost amount of all property held by such plans or persons at the end
of each month. As a result these plans would be limited as to the amount
which could be invested in Trust Units.
4. The Trust would not be entitled to use the capital gains refund mechanism
otherwise available for mutual fund trusts. If a mutual fund trust has
incurred, or is about to incur, a tax liability in respect of its taxable
capital gains this tax may be refunded to it, or may be avoided as the
case may be, as a consequence of the redemption of any of its units by its
unitholders. This mechanism is in place to avoid the double taxation that
would otherwise ensue because of the fact that upon such a redemption
unitholders are deemed to have disposed of their units by virtue of the
definition of disposition in the Tax Act and are taxable in respect of
their gain. This capital gains refund mechanism is only available to
mutual fund trusts and as a result of the loss of mutual fund trust
status, capital gains earned within the Trust would potentially be subject
to double taxation.
5. The Trust Units would constitute taxable Canadian property for purposes of
the Tax Act. As a result, the disposition of a Trust Unit by a
Non-Resident holder will generally give rise to a capital gain (or a
capital loss) equal to the amount by which the proceeds of disposition are
greater (or less) that the aggregate of the Non-Resident holder's adjusted
cost base of the Trust Unit and any reasonable costs of disposition.
Generally, one-half of any capital gain (a "taxable capital gain")
realized by a Non-Resident holder in a taxation year must be included in
the income of the Non-Resident holder for the year, and one-half of any
capital loss realized by a Non-Resident holder in a taxation year must be
deducted from taxable capital gains realized in respect of taxable
Canadian property by the Non-Resident holder in that year. In addition,
the Non-Resident holder would be subject to a withholding tax equal to 25%
of the gross proceeds realized on the sale of the Trust Units unless the
Non-Resident holder obtained a "withholding certificate" under section 116
of the Tax Act authorizing the purchaser to withhold and remit a lower
amount. A Non-Resident holder is also required to file a Canadian income
tax return if such Non-Resident holder disposes of taxable Canadian
property and realizes a capital gain on such disposition.
10
IF THE TRUST LOSES ITS MUTUAL FUND TRUST STATUS, THE CUMULATIVE EFFECT OF THESE
TAX CONSEQUENCES IS EXPECTED TO SIGNIFICANTLY DECREASE THE TRUST'S NET AFTER TAX
CASH FLOW AVAILABLE FOR DISTRIBUTION TO UNITHOLDERS AND WOULD LIKELY HAVE A
MATERIAL NEGATIVE IMPACT ON THE MARKET PRICE OF THE UNITS.
CURRENT TRUST INDENTURE PROVISIONS
The Trust Indenture currently contains provisions which grant discretion to and
impose duties on the Trustee (which authority has been delegated to the
Corporation pursuant to the Trust Indenture), upon the Trustee becoming aware,
as a result of requiring declarations as to beneficial ownership from
Unitholders that Non-Resident ownership has reached or exceeded 49% or that such
a situation is imminent. However, because substantially all of the trading of
Trust Units presently occurs through a book-based system administered by CDS and
DTC, it is difficult and impractical to implement these provisions effectively.
Furthermore, these provisions will not allow the Trust to regulate ownership of
Trust Units in a manner that would ensure that the requirements in the Draft
Amendments if enacted into law in their present form would be satisfied.
REVIEW OF ALTERNATIVES
As a result of the adverse consequences of the loss by the Trust of its mutual
fund trust status and the inability of the present provisions of the Trust
Indenture to deal in an effective manner with Non-Resident ownership, the Board
of Directors has reviewed a number of alternatives to preserve, on a going
forward basis, the mutual fund trust status of the Trust. In reviewing such
alternatives the Board of Directors has considered a number of objectives
including the ability to maintain the mutual fund trust status of the Trust, the
maintenance of active markets for securities of the Trust in Canada and the
United States and the ability to continue to raise capital within Canada and the
United States to facilitate growth of Unitholder value.
To ensure compliance with the Tax Act and the preservation of the Trust's mutual
fund trust status, including compliance with the FMV Test if the Draft
Amendments are enacted, the Board of Directors believes that steps must be taken
in order to stop any increase in Non-Resident ownership of Trust Units above
present levels and which, after Non-Resident ownership levels fall below the
Maximum Non-Resident Ownership Level, maintain Non-Resident ownership of the
equity of the Trust at or below such level on a going forward basis.
Provisions that restrict foreign ownership are not unique. They presently exist
in the transportation, banking and telecommunications sectors of the Canadian
economy.
Alternatives which were considered by the Board of Directors included the
institution of a registration system for trades of Trust Units, delisting the
Trust Units on AMEX and a reclassification of the Trust Unit capital of the
Trust into two classes of Units, one of which cannot be owned by Non-Residents.
A brief description of each of these alternatives is discussed below.
Registration System
Registration systems that could control the level of Non-Resident ownership
would require that all trades to Non-Residents be registered with the Transfer
Agent. While this system would be effective, based upon registration systems
adopted by other Canadian entities with ownership restrictions, it would be very
cumbersome and would impede the ability of Non-Residents to trade their Trust
Units. A registration system would require that persons trading Trust Units to a
Non-Resident secure a registration number prior to executing a trade to ensure
that the residency threshold for Non-Residents would not be exceeded if the
trade were completed with a Non-Resident. This would be required notwithstanding
that a
11
considerable amount of the trading activity occurs between or to Non-Residents.
The consequences of instituting a registration system would be to reduce
liquidity for Non-Residents and might include delisting from AMEX to preserve an
orderly market for Trust Units within the registration system and to ensure that
all trades by Non-Residents are structured within the system.
As a result, the Board of Directors has determined that it does not wish to
pursue the institution of a registration system at this time.
Delisting on AMEX
The Board of Directors has also considered the delisting of the Trust Units from
AMEX. Although such a delisting would discourage some Non-Residents from
purchasing and/or selling Trust Units, a delisting, on its own, would not allow
the Trust to regulate the ownership of Trust Units in a manner that would ensure
satisfaction of the requirements of the Draft Amendments if enacted into law in
their present form. While a delisting from AMEX may reduce the interest of
Non-Residents in purchasing Units, it would not prevent a Non-Resident from
acquiring Trust Units through the facilities of the TSX.
The Board of Directors has determined that it does not wish to pursue the
delisting of the Trust Units from AMEX at this time; however, in the event that
the proposed reclassification of Trust Unit capital discussed below does not
receive all necessary Unitholder and other approvals, the Board of Directors may
further consider such a delisting.
Reclassification
The Board of Directors has also considered a reclassification of the trust unit
capital of the Trust into two new classes of trust units, one of which cannot be
held by Non-Residents. Such reclassification, which would be accomplished
through amendments to the Trust Indenture of the Trust, is summarized below as
well as in further detail under "- Reclassification of Trust Unit Capital".
Amendments to the Trust Indenture as proposed pursuant to the Reclassification
Resolution will result in the reclassification of the existing Trust Units,
other than Certificated Units, into Class R Units and the immediate conversion
thereafter of any such units held by Non-Residents into Class N Units. Subject
to a transition period, and in any event by December 31, 2006, the number of
issued Class N Units will not be permitted to exceed 47% of the aggregate number
of issued Class N Units and Class R Units (calculated on a diluted basis as
described in the definition of Ownership Threshold). The Board of Directors has
determined that an initial threshold of 47% will provide a sufficient difference
between the number of issued Class R Units and Class N Units such that, assuming
that there is little or no difference in the trading price of the Class N Units
and the Class R Units at any time after December 31, 2006, the FMV Test, if
implemented, will not be violated. The Board of Directors will have the power,
however, to reduce the threshold below 47% at any time and from time to time in
order to ensure compliance with the FMV Test, if needed. The Board of Directors
will also have the power to increase the threshold if it determines appropriate.
It is anticipated that this 47% threshold will be reduced if the FMV Test is
implemented and if it appears that the Class N Units will trade at a premium to
the Class R Units. Furthermore, if the FMV Test presently contemplated by the
Draft Amendments is replaced with a test which requires that the 50% threshold
for Non-Resident ownership of Trust Units be calculated on a numerical basis
(i.e. number of issued Trust Units) rather than on a fair market value basis,
then the Board of Directors presently anticipates that the 47% threshold
referred to above would be retained.
Following implementation of the Reclassification, the Trust will take steps to
cause the ownership level of Trust Units by Non-Residents to fall below the
Ownership Threshold. Once such level of ownership of
12
Trust Units is achieved, the Trust will continue to take steps to correct any
inadvertent increase in ownership of Class N Units above such level.
The Board of Directors believes that the Reclassification summarized above and
described in further detail later in this Information Circular is in the best
interests of Unitholders and will provide the Trust with the ability to maintain
its mutual fund trust status, to maintain an active market for securities of the
Trust in both Canada and the United States and to enable the Trust to continue
to raise capital within Canada and, once the appropriate level of non-resident
ownership of Trust Units is reached, in the United States.
Based on advice from legal counsel to the Trust, the Board of Directors is of
the view that the Reclassification can, other than a conversion pursuant to the
Reclassification of Class R Units received by a Unitholder resident in Canada
into Class N Units, be accomplished without adverse tax consequences to
Unitholders resident in either Canada or in the United States (see "- Canadian
Federal Income Tax Considerations" and "- United States Federal Income Tax
Considerations" below).
The Trust estimates that foreign ownership of trust units was approximately 67%
effective September 30, 2004. In making residency determinations, the Trust
relies upon reports from the Transfer Agent which in turn relies upon ADP
Reports to show the geographical locations of beneficial owners of Trust Units
as the best available information about the residency of Unitholders. The Trust
has been advised that the Transfer Agent conservatively assumes that unknown or
non-reporting ADP participants represent Non-Resident Unitholders.
Although the Trust has until December 31, 2006 to reduce the level of
Non-Resident ownership of Trust Units below the Maximum Non-Resident Ownership
Level, the Board of Directors has determined to take steps to implement the
proposed Reclassification as soon as practicable for a number of reasons.
Firstly, implementation of the proposed Reclassification will stop further
increases in the level of Non-Resident ownership of Trust Units. If Non-Resident
ownership levels continue to rise it will become increasingly more difficult and
costly for the Trust to take steps to cause levels to fall below the Maximum
Non-Resident Ownership Level. Secondly, implementation of the proposed
Reclassification will provide the Trust with the flexibility of utilizing a
number of mechanisms to cause a decrease in the level of Non-Resident ownership
when determined appropriate and in an appropriate manner.
RECLASSIFICATION OF TRUST UNIT CAPITAL
After consideration of the options available, the Board of Directors recommends
that Unitholders approve the reclassification of the trust unit capital of the
Trust into two new classes of trust units: Class N Units (which will not be
subject to residency restrictions) and Class R Units (which cannot be held by
Non-Residents). Each class of new Trust Units would have the same rights as the
existing Trust Units to vote, to obtain distributions and to receive the
remaining assets of the Trust upon the termination of the Trust except where the
Ownership Rights attaching to such Trust Units are suspended as described below
under "- Class N Units - Exclusionary Offer/Coattail Provisions", "- Class N
Units - Reduction of Issued and Outstanding Class N Units, "- Class R Units -
Exclusionary Offer/Coattail Provisions" and "- Class R Units - Violation of
Ownership Restriction" and except where the Ownership Rights attaching to
Certificated Units are suspended as described below under "- Manner of Effecting
Reclassification - Certificated Units". The principal distinction of the new
classes of Trust Units as compared to the existing Trust Units relates to who is
entitled to hold and to trade in the respective classes on the basis of
residency.
By reclassifying the capital of the Trust into Class N Units and Class R Units,
restricting Non-Residents from holding Class R Units and limiting the issuance
of Class N Units, Non-Resident ownership of Trust
13
Units will not be permitted to increase above the level of Non-Resident
ownership existing at the time of the Reclassification. Thereafter, the Board of
Directors anticipates that through, among other things, future issuances of
Class R Units to Canadian residents (either through offerings or in connection
with acquisitions) and through restricting Non-Residents from holding Class R
Units, the level of Non-Resident ownership of Trust Units will be decreased to
below the Ownership Threshold, by January 1, 2007. Once the level of
Non-Resident ownership of Trust Units falls below the Ownership Threshold, it is
expected that the Reclassification and the restriction of the ownership of Class
R Units to Canadian residents will provide the Trust, in cooperation with the
Transfer Agent and intermediaries, with greater powers than are presently
contained in the Trust Indenture to monitor and, it is anticipated, control
Non-Resident ownership on a going forward basis and will, it is anticipated,
permit an active market in both the Class N Units and the Class R Units. Also,
future equity issues of both Class R Units and Class N Units will be possible
once the level of Non-Resident ownership of Trust Units is less than the
Ownership Threshold.
The provisions attached to the Class N Units authorize the Board of Directors,
at any time, to cause all or any portion of the Class N Units to be redeemed for
cash or unsecured subordinated promissory notes of either the Trust or the
Corporation as described below under "- Class N Units -Reduction of Issued and
Outstanding Class N Units". Such redemption is one of a number of mechanisms
which the Trust may utilize to attempt to cause the level of Non-Resident
ownership of Trust Units to fall below the Ownership Threshold by January 1,
2007.
The provisions attached to the Class N Units and the Class R Units will also
authorize the Board of Directors to unwind the Reclassification by recombining
the two classes of units into one class of units, in the event that the two
class structure is ultimately determined to no longer be required or is not
effective in order for the Trust to maintain its mutual fund trust status based
on amendments actually enacted to the Tax Act. The Reclassification Resolution
will authorize the Board of Directors to make such amendments to the Trust
Indenture to remove provisions relating to the Reclassification no longer
necessary or desirable in such circumstances.
The key elements of the Class N Units and the Class R Units are summarized below
under "- Class N Units" and "- Class R Units".
Unitholders will be asked to consider and approve the Reclassification
Resolution in the form attached as Schedule "A" to the Information Circular to
reclassify the trust unit capital of the Trust and to approve amendments to the
Trust Indenture related thereto set forth in Schedule "B" to the Information
Circular and summarized in this Information Circular.
IN THE EVENT THAT THE RECLASSIFICATION RESOLUTION IS NOT APPROVED BY THE
UNITHOLDERS, THE BOARD OF DIRECTORS WILL CONSIDER OTHER ALTERNATIVES WHICH ARE
AVAILABLE TO IT, WHICH ALTERNATIVES MAY INCLUDE BUT ARE NOT LIMITED TO: (i)
ADOPTING A REGISTRATION SYSTEM AND DIRECTING THAT ALL TRUST UNITS IN THE NAME OF
NON-RESIDENTS MUST BE HELD IN FULLY REGISTERED FORM WITH THE TRANSFER AGENT AND
THAT ANY TRANSFERS TO NON-RESIDENTS MAY ONLY BE ACCOMPLISHED BY OBTAINING A
RESERVATION OF SECURITIES FOR ANY TRADE FROM THE TRANSFER AGENT; AND/OR (ii)
DELISTING THE TRUST UNITS FROM AMEX.
The TSX has conditionally approved the listing of the Class N Units and the
Class R Units. Listing is subject to the Trust fulfilling all of the
requirements of the TSX.
Upon receipt of Unitholder approval of the Reclassification Resolution and upon
receipt of all required regulatory approvals, including approval from AMEX to
the listing of the Class N Units, the Board of Directors will finalize and cause
to be executed the amendments to the Trust Indenture which are approved pursuant
to the Reclassification Resolution, will set the Effective Date for the exchange
of the
14
current Trust Units for Class N Units and Class R Units and will finalize the
Reclassification Guidelines, including procedures for obtaining Unitholder's
Declarations and letters of transmittal to facilitate the exchange of
certificates representing existing Trust Units for certificates representing
Class R Units or Class N Units, as applicable.
CLASS N UNITS
In addition to those rights, limitations, restrictions and conditions applicable
to Trust Units generally as set forth in the Indenture, the following is a
summary of the principal rights, limitations, restrictions and conditions of the
Class N Units:
Residency Restrictions
The Class N Units are not subject to any residency restrictions.
Ownership Threshold
The number of issued and outstanding Class N Units may not at any time exceed
the Ownership Threshold, provided that the foregoing restriction shall not apply
before the Enforcement Date.
At any time following the Enforcement Date, where the number of issued and
outstanding Class N Units (as shown in the register of holders of Trust Units or
as a result of a determination of the Board of Directors) exceeds the Ownership
Threshold or would exceed the Ownership Threshold as a result of a proposed
subscription or other event or transaction, the Corporation, on behalf of the
Trust, and the Transfer Agent, shall not accept any subscription for Class N
Units or give effect to such other event or transaction.
Permitted Listings
There are no restrictions on the stock exchanges or other markets on which the
Class N Units may be listed and posted for trading.
Exclusionary Offer/Coattail Provisions
If an offer is made to acquire Class R Units that: (a) must, by reason of
applicable securities legislation or the requirements of a stock exchange on
which the Class R Units are listed, be made to all or substantially all holders
of Class R Units; and (b) such offer is not made concurrently with an offer to
acquire Class N Units that is identical to the offer to purchase Class R Units
in terms of price per Unit and percentage of outstanding Units to be taken up
exclusive of Units owned immediately prior to the exclusionary offer by the
offeror, and in all other material respects, each outstanding Class N Unit shall
be convertible into one fully paid and non-assessable Class R Unit at the option
of the holder thereof exercisable during the period of time commencing on the
date that the offer is made and ending at the expiry time for the offer. An
election by a holder of Class N Units to exercise the conversion right as
aforesaid shall be deemed to also constitute irrevocable elections by such
holder (i) to deposit the converted Units pursuant to the exclusionary offer
(subject to such holder's right to subsequently withdraw the Units from the
offer in accordance with the terms thereof and applicable law) and (ii) to
exercise the right to reconvert into Class N Units on a one for one basis, all
converted Units in respect of which such holder exercises his right of
withdrawal from the exclusionary offer or which are not otherwise ultimately
taken up and paid for under the exclusionary offer (including by way of the
abandonment or withdrawal of the exclusionary offer without any Units being
acquired). In connection with any "offer to acquire" (as defined in the
Securities Act (Ontario)) Units, the Corporation, on behalf of the Trust, and
the Transfer Agent may refuse to
15
register any transfer, to the offeror, of Restricted Units unless and until the
offeror and any beneficial owner of Restricted Units provides a Unitholder's
Declaration that provides that the offeror and any such beneficial owner that
will acquire the Restricted Units pursuant to the offer are not Non-Residents.
Unless and until such Unitholder's Declaration is provided such offeror and any
beneficial owner of such Restricted Units shall not be entitled to exercise, or
to, any Ownership Rights in respect of such Restricted Units including in
respect of any such Restricted Units that converted from Class N Units back into
Class R Units pursuant to the Class R Coattail Provisions. The effect of this
last provision is to prevent an offeror that is a Non-Resident from acquiring
outstanding Units where this could result in the loss of the mutual fund trust
status of the Trust.
Conversion
Holders of Class N Units that are not Non-Residents shall have the right, at
their option, at any time, to convert all or any number of their Class N Units
into Class R Units on the basis of one Class R Unit for each Class N Unit so
converted, provided that the holder thereof provides a Unitholders' Declaration
that the holder and any beneficial owner(s) of the Class N Units to be converted
are not Non-Residents and certain other documents.
Reduction of Issued and Outstanding Class N Units
The Board of Directors may, at any time, determine that the Trust shall take
steps to cause the number of issued and outstanding Class N Units to be reduced.
In the event that such a determination is made then any of the following actions
may be implemented: (a) the Corporation, on behalf of the Trust, may make a
public announcement to that effect; (b) the Trust may refuse to accept any
subscription for Class N Units until such time as the number of issued and
outstanding Class N Units has been reduced to the level determined by the Board
of Directors; (c) the Corporation, on behalf of the Trust, may send a
disposition notice (as described below) to registered holders of Class N Units
on a pro rata basis or to such registered holders of Class N Units as shall be
chosen on the basis of inverse order to the order of registration or acquisition
or on such other basis as is practicable and equitable to persons beneficially
owning Class N Units, such basis to be determined by the Board of Directors in
its sole discretion; (d) the Corporation, on behalf of the Trust, may subject to
applicable law and to any required regulatory approval, repurchase or redeem all
or any part of the outstanding Class N Units, with or without notice, on a date
which is determined by the Board of Directors in its sole discretion (which may
be as early as the date that the Board of Directors determines to cause the
redemption to occur), at the price set forth below (in case only a part of the
then outstanding Class N Units are at any time to be repurchased or redeemed as
aforesaid, the Class N Units so repurchased or redeemed shall be repurchased or
redeemed pro rata from the holdings of all holders of Class N Units or from
registered holders of Class N Units as shall be chosen on the basis of inverse
order to the order of registration or acquisition or in such other manner as the
Board of Directors determines is practicable and equitable, such basis to be
determined by the Board of Directors in its sole discretion); and (e) the
Corporation, on behalf of the Trust, may suspend, at such time as is determined
by the Board of Directors, any or all of the Ownership Rights attaching to: (i)
Class N Units in respect of which a disposition notice has been sent and which
are to be sold in accordance with the terms of such notice in the event of a
failure to comply with such notice; and/or (ii) Class N Units which are to be
redeemed; (such Class N Units being referred to below as "SELECTED CLASS N
UNITS").
Any disposition notice sent to a registered holder of Class N Units shall: (a)
specify in reasonable detail the number of selected Class N Units held by such
holder and the consequences of the actions to be taken by the Trust; (b) specify
if the Ownership Rights have been or will be suspended in respect of any of the
selected Class N Units; (c) specify a date to be determined by the Board of
Directors in its sole discretion by which the selected Class N Units held by
such holder are to be sold or otherwise disposed of to a person who is not a,
and does not hold on behalf of a person who is a, Non-Resident and who
16
concurrently agrees to convert such selected Class N Units into Class R Units
or, if the holder of such selected Class N Units is not a, and does not hold on
behalf of a person who is a, Non-Resident, to require the conversion of such
selected Class N Units into Class R Units; (d) if applicable, state that unless
the registered holder sells or otherwise disposes of the selected Class N Units
held by such holder to a person who is not a, and does not hold on behalf of a
person who is a, Non-Resident and who concurrently converts such selected Class
N Units into Class R Units or provides a Unitholder's Declaration to the effect
that such holder is not a, and does not hold the selected Class N Units on
behalf of a, Non-Resident together with an election to convert such selected
Class N Units into Class R Units by the date specified in the disposition
notice, such default may result in, among other things, the redemption of the
selected Class N Units held by such holder without further notice and at the
price set forth below; and (e) provide for such other matters as the Board of
Directors may determine in its sole discretion. The Corporation, on behalf of
the Trust, will have the right to cause the foregoing redemption to occur, which
right is in addition to the general right to redeem Class N Units described
above.
The price to be paid by the Trust to redeem Class N Units in either of the
circumstances described above shall be the lesser of: (i) the weighted average
trading price of the Class N Units on the principal stock exchange or principal
stock exchanges (as determined by the Board of Directors) on which the Class N
Units are traded over the last 10 trading days ending on the trading day
immediately preceding the date that the Corporation, on behalf of the Trust,
gives notice of the redemption (which date shall, in circumstances where the
Trust gives a disposition notice, be the date that the Trust gives such
disposition notice); and (ii) the weighted average trading price of the Class N
Units on the principal stock exchange or principal stock exchanges (as
determined by the Board of Directors) on which the Class N Units are traded over
the last 10 trading days ending on the trading day immediately preceding the
redemption date (which redemption date may be as early as the date that the
Corporation, on behalf of the Trust, gives notice of the redemption ). The price
paid to a Unitholder pursuant to a redemption as aforesaid shall be decreased by
any amount required to be deducted and withheld on account of tax. The form of
consideration to be paid to redeem Class N Units as aforesaid shall, at the
option of the Board of Directors in its sole discretion, be either cash in the
amount of the redemption price or unsecured subordinated promissory notes of
either the Trust or the Corporation ("REDEMPTION NOTES") in the principal amount
equal to the redemption price, subject to withholding tax as required by law.
The Redemption Notes, if issued, will be issued by the Trust or the Corporation,
as applicable, and will have terms and conditions which are determined by the
Board of Directors including the following: the Redemption Notes will be
unsecured and will bear interest from the date of issue at a rate to be
determined by the Board of Directors as the then prevailing rate of interest for
comparable instruments; interest will be due and payable for each month during
the term, on the last business day of the month, subject to withholding tax as
required by law; the Redemption Notes will rank subordinate to all long term
indebtedness to third parties and any other indebtedness determined by the Board
of Directors; the outstanding principal amount of the Redemption Notes will be
due and payable not more than 10 years from the date of issuance of the
Redemption Notes; all or any part of the Redemption Notes may be prepaid or
purchased at any time without bonus or penalty.
THE TRUST PLANS TO REDUCE THE LEVEL OF NON-RESIDENT OWNERSHIP OF TRUST UNITS
BELOW THE OWNERSHIP THRESHOLD IN AN ORDERLY FASHION AND ANTICIPATES THAT ONCE
SUCH LEVEL OF OWNERSHIP HAS BEEN REACHED THAT SUCH LEVEL WILL BE ABLE TO BE
MAINTAINED. THE TRUST ONLY PLANS TO SEND DISPOSITION NOTICES IN RESPECT OF
SELECTED CLASS N UNITS, REDEEM CLASS N UNITS OR SUSPEND OWNERSHIP RIGHTS IN
RESPECT OF CLASS N UNITS IF THE BOARD OF DIRECTORS DETERMINES THAT SUCH ACTIONS
ARE NECESSARY TO MAINTAIN THE MUTUAL FUND TRUST STATUS OF THE TRUST OR TO CAUSE
THE LEVEL OF NON-RESIDENT OWNERSHIP OF TRUST UNITS TO BE REDUCED BELOW THE
OWNERSHIP THRESHOLD. IT IS ANTICIPATED THAT IF A REDEMPTION IS TO BE EFFECTED AS
AFORESAID THAT NOT LESS THAN 30 DAYS NOTICE OF SUCH REDEMPTION WOULD BE GIVEN
AND THAT THE REDEMPTION PRICE WOULD BE PAID IN CASH. IT IS ANTICIPATED THAT THE
ONLY TIME THAT A REDEMPTION OF CLASS N UNITS WOULD BE EFFECTED WITHOUT PROVIDING
NOTICE AND/OR BY PAYING THE REDEMPTION PRICE
17
WITH NON-CASH CONSIDERATION WOULD BE IN CIRCUMSTANCES WHERE THE BOARD OF
DIRECTORS BELIEVES THAT, HAVING REGARD TO THE THEN CURRENT CIRCUMSTANCES OF THE
TRUST, IT IS NECESSARY OR ADVISABLE TO DO SO IN CONNECTION WITH MAINTAINING THE
MUTUAL FUND TRUST STATUS OF THE TRUST.
Deemed Redemption of Class N Units in Certain Circumstances
In addition to the authority of the Board of Directors to repurchase or redeem
Class N Units at any time and from time to time as described above under "-
Reduction of Issued and Outstanding Class N Units", solely in the circumstance
where, following the Enforcement Date, a violation of the Maximum Non-Resident
Ownership Level was imminent, the Trust shall be deemed to have effected a
redemption of that number of Class N Units immediately prior to the occurrence
of any breach of the Maximum Non-Resident Ownership Threshold as shall result in
the Trust being capable of issuing one additional Class N Unit without such
breach occurring. The occurrence of any such deemed redemption shall be subject
to ratification by the Board of Directors as described below.
The Board of Directors shall, promptly upon becoming aware of the occurrence of
a deemed redemption, ratify the occurrence of the deemed redemption unless such
ratification is not necessary to maintain the mutual fund trust status of the
Trust and, following any such ratification, shall determine the basis on which
such redemption shall have occurred, including as to whether the Class N Units
were redeemed pro rata from the holdings of all holders of Class N Units or in
such other manner as the Board of Directors determines is practicable and
equitable, such basis to be determined by the Board of Directors in its sole
discretion.
The redemption price to be paid by the Trust to redeem Class N Units in the
event of a deemed redemption shall be the weighted average trading price of the
Class N Units on the principal stock exchange or principal stock exchanges (as
determined by the Board of Directors) on which the Class N Units are traded over
the last 10 trading days ending on the trading day immediately preceding the
date on which the Board of Directors determines that the deemed redemption
occurred.
The form of consideration to be paid following ratification of a deemed
redemption of Class N Units as aforesaid shall, at the option of the Board of
Directors in its sole discretion, be either cash in the amount of the redemption
price or Redemption Notes (as defined and described under "- Reduction of Issued
and Outstanding Class N Units above) in the principal amount equal to the
redemption price. The price paid to a Unitholder pursuant to a redemption as
aforesaid shall be decreased by any amount required to be deducted and withheld
on account of tax.
Retraction
The Board of Directors may, at any time, determine, subject to applicable law
and to any required regulatory approval, to provide the holders of Class N Units
with the right to require the Trust to repurchase, at a price per Class N Unit
which is determined by the Board of Directors in its sole discretion, less any
amounts withheld on account of tax required to be deducted and withheld
therefrom, all or any part of the Class N Units registered in the name of the
holder, up to an aggregate number of Class N Units which the Board of Directors
determines in its sole discretion (which Class N Units shall be retracted on a
pro rata basis or in such other manner as the Board of Directors determines is
practicable or equitable if at any time more Class N Units are tendered for
retraction than the maximum number of Class N Units that the Board of Directors
determines).
18
Automatic Conversion of Class N Units into Class R Units
If the Tax Act is ultimately amended in a manner such that the Board of
Directors determines that the Reclassification would not have been required or
is not effective in order to preserve the mutual fund trust status of the Trust
at the time of such amendments or thereafter, then, upon a date which is
determined by the Board of Directors in its sole discretion, all Class N Units
may be deemed to be converted into Class R Units on the basis of one Class R
Unit for each Class N Unit held without any further act or formality. Pursuant
to the Reclassification Resolution, the Board of Directors are authorized to
approve any and all amendments to the Trust Indenture as they consider necessary
or advisable as a result of such automatic conversion, which amendments may
include, but would not be limited to, removing the residency restrictions on
owners of Class R Units and removing the restriction on the stock exchanges on
which the Class R Units may be listed and removing from, or amending within, the
Indenture, provisions thereof as have been added or modified solely for purposes
of effecting the Reclassification.
Ranking
The Class N Units have identical rights to the Class R Units in respect of
voting, distributions and to the remaining assets of the Trust on the
termination of the Trust except where the Ownership Rights attaching to such
Class N Units or Class R Units are suspended as described under "- - Class N
Units - - Exclusionary Offer/Coattail Provisions", "- - Class N Units -
Reduction of Issued and Outstanding Class N Units", " - - Class R Units - -
Exclusionary Offer/Coattail Provisions" and "- - Class R Units - - Violation of
Ownership Restriction".
The Board of Directors shall not authorize or permit to occur any (a)
subdivision or other change of only one class of Units into a greater number of
Units; (b) consolidation, reduction or combination of Units of one class only
into a lesser number of Units (other than in connection with a normal course
issuer bid or issuer bid applicable to only one class of Units or pursuant to
the retraction or redemption rights applicable to any one class of Units
pursuant to the Indenture including the provisions relating to the Class N Units
and the Class R Units); (c) issuance of Units to all or substantially all
holders of outstanding Units of one class only as a dividend or distribution;
(d) issuance of rights, options or warrants to all or substantially all of the
holders of outstanding Units of one class only to purchase Units or other
securities convertible into or exchangeable for Units (other than an issuance to
all or substantially all holders of Class R Units of rights to purchase
additional Class R Units provided that the price payable for Class R Units on
the exercise of such rights is not less than 95% of the weighted average trading
price of the Class R Units on the principal stock exchange on which the Class R
Units are traded over the last 10 trading days ending on the trading day
immediately preceding the date that the pricing of the rights offering is
determined by the Board of Directors); (e) any other distribution in cash or
property or securities of the Trust to all or substantially all of the holders
of outstanding Units of one class only; or (f) otherwise effect any similar
transaction or change to the Units of one class only, unless an equivalent
transaction or change is made to the Units of the other class so that, except as
specifically differentiated in the provisions of the Indenture, including the
provisions relating to the Class N Units and the Class R Units, the equal
ranking of the Class N Units and Class R Units is at all times maintained.
Quorum for Unitholder Meetings
Holders of Class N Units, Class R Units and Special Voting Units will vote
together as a single class at all Unitholder meetings. The quorum requirement
for voting at meetings of Unitholders will be two or more individuals present in
person holding personally or representing by proxy, in aggregate, not less than
10% of the Trust Units entitled to be voted at the meeting.
19
Directors' Determinations
In administering, on behalf of the Corporation or the Trust, the Trust Indenture
(including the provisions related to the Class N Units and the Class R Units)
and in establishing or administering the Reclassification Guidelines, the Board
of Directors shall act in accordance with the fiduciary duties and standards set
forth in the Trust Indenture.
In making certain determinations relating to the Class N Units and the Class R
Units, including, without limitation, the level of Non-Resident ownership of
Units, the Board of Directors will be entitled to rely on relevant Unitholder's
Declarations that have been requested and received by the Trust or such other
information (including, without limitation, information provided by the Transfer
Agent, CDS, DTC and ADP or their respective successors, securities registers of
the Trust, the knowledge of any director, officer or employee of the Trust or
the Corporation or any advisor to the Trust and the opinion of counsel to the
Trust) that the Board of Directors considers it reasonable to rely on in the
circumstances provided, however, that in making such a determination the Board
of Directors is acting in accordance with the fiduciary duties and standards set
forth in the Trust Indenture.
THE FOREGOING IS A SUMMARY ONLY AND IS SUBJECT TO THE RIGHTS, LIMITATIONS,
RESTRICTIONS AND CONDITIONS TO BE ATTACHED TO THE CLASS N UNITS IN THE AMENDED
INDENTURE, A COPY OF WHICH, SUBJECT TO FINALIZATION AT OR PRIOR TO THE EFFECTIVE
DATE, WILL BE PROVIDED TO UNITHOLDERS UPON REQUEST MADE TO THE SECRETARY OF THE
CORPORATION AT 600, 444 - 7TH AVENUE SW, CALGARY, ALBERTA T2P 0X8, TELEPHONE:
(403) 218-8625.
CLASS R UNITS
In addition to those rights, limitations, restrictions and conditions applicable
to Trust Units generally as set forth in the Indenture, the following is a
summary of the principal rights, limitations, restrictions and conditions of the
Class R Units:
Ownership Restriction
No person who is a Non-Resident shall beneficially own any of the issued and
outstanding Class R Units (other than as a result of a conversion of Class N
Units into Class R Units pursuant to the Class N Coattail Provisions). For
purposes of monitoring the compliance with and of enforcing the foregoing
ownership restriction, the Trust, may, and in certain circumstances shall,
require that any registered holder or beneficial owner, or any other person of
whom it is, in the circumstances, reasonable to make such request, deliver to
the Trust or the Transfer Agent a completed Unitholder's Declaration. For the
purpose of enforcing compliance with the foregoing restriction, no transfer of
Class R Units shall be effected on the register of holders of Class R Units
unless the transferee provides a declaration that the transferee(s) and any
beneficial owner(s) holding through the transferee(s) are not Non-Residents,
except for a transfer from a participant in CDS to CDS.
Permitted Listings
The Class R Units may only be listed and posted for trading on the TSX or any
successor thereto organized in Canada or any other stock exchange or market in
Canada.
Exclusionary Offer/Coattail Provisions
If an offer is made to acquire Class N Units that: (a) must, by reason of
applicable securities legislation or the requirements of a stock exchange on
which the Class N Units are listed, be made to all or substantially
20
all holders of Class N Units; and (b) such offer is not made concurrently with
an offer to acquire Class R Units that is identical to the offer to purchase
Class N Units in terms of price per Unit and percentage of outstanding Units to
be taken up exclusive of Units owned immediately prior to the exclusionary offer
by the offeror, and in all other material respects, each outstanding Class R
Unit shall be convertible into one fully paid and non-assessable Class N Unit at
the option of the holder thereof exercisable during the period of time
commencing on the date that the offer is made and ending at the expiry time for
the offer. An election by a holder of Class R Units to exercise the conversion
right as aforesaid shall be deemed to also constitute irrevocable elections by
such holder (i) to deposit the converted Units pursuant to the exclusionary
offer (subject to such holder's right to subsequently withdraw the Units from
the offer in accordance with the terms thereof and applicable law) and (ii) to
exercise the right to reconvert into Class R Units on a one for one basis, all
converted Units in respect of which such holder exercises his right of
withdrawal from the exclusionary offer or which are not otherwise ultimately
taken up and paid for under the exclusionary offer (including by way of the
abandonment or withdrawal of the exclusionary offer without any Units being
acquired). Where Class R Units are converted into Class N Units as aforesaid,
such Class N Units shall be reconverted back into Class R Units immediately
after they are taken-up pursuant to the exclusionary offer and for greater
certainty, such conversion back into Class R Units shall occur regardless of
whether the holder thereof is at the time of conversion a Non-Resident and the
Trust shall nevertheless possess all remedies set forth in the Indenture in
respect of any prohibited Class R Units. In connection with any "offer to
acquire" (as defined in the Securities Act (Ontario)) Units, the Corporation, on
behalf of the Trust, and the Transfer Agent may refuse to register any transfer,
to the offeror, of Restricted Units unless and until the offeror and any
beneficial owner of Restricted Units provides a Unitholder's Declaration that
provides that the offeror and any such beneficial owner that will acquire the
Restricted Units pursuant to the offer are not Non-Residents. Unless and until
such Unitholder's Declaration is provided such offeror and any beneficial owner
of such Restricted Units shall not be entitled to exercise, or to, any Ownership
Rights in respect of such Restricted Units (including in respect of any such
Restricted Units that converted from Class N Units back into Class R Units as
described above). The effect of this last provision is to prevent an offeror
that is a Non-Resident from acquiring outstanding Units where this could result
in the loss of the mutual fund trust status of the Trust.
Violation of Ownership Restriction
In the event that it appears to the Board of Directors from the register of
holders of Class R Units of the Trust that, or in the event of a determination
of the Board of Directors that, a person that is a Non-Resident holds or
beneficially owns any Class R Units, the Corporation, on behalf of the Trust,
may send a disposition notice (as described below) to the registered holder(s)
of Class R Units who is or appears to be, or holds on behalf of a person who is,
a Non-Resident. The Corporation, on behalf of the Trust, may suspend, at such
time as may be determined by the Board of Directors, any or all of the Ownership
Rights of a holder of prohibited Class R Units selected to receive a disposition
notice as aforesaid. Any such disposition notice sent to a registered holder of
Class R Units shall: (a) specify the number of Class R Units that are prohibited
Class R Units and the consequences of the contravention; (b) specify if
Ownership Rights have been or will be suspended in respect of any of the
prohibited Class R Units; (c) specify a date (to be determined by the Board of
Directors in its sole discretion by which the prohibited Class R Units are to be
sold or otherwise disposed of to a person who is not a, and does not hold on
behalf of a person who is a, Non-Resident or by which the holder of the
prohibited Class R Units must provide a declaration to the effect that such
holder is not, and does not hold Class R Units on behalf of, a Non-Resident; (d)
state that unless the registered holder sells or otherwise disposes of the
prohibited Class R Units to a person who is not a, and does not hold on behalf
of a person who is a, Non-Resident or provides a declaration to the effect that
such holder is not, and does not hold the prohibited Class R Units on behalf of,
a Non-Resident by the date specified in the disposition notice, such default may
result in, among other things, the consequence of redemption of the prohibited
Class R Units held by such holder without further notice and at the price set
forth below; and (e) provide for such other matters as the Board
21
of Directors may determine in its sole discretion. The Corporation, on behalf of
the Trust, will have the right to cause the foregoing redemption.
The price to be paid by the Trust to redeem Class R Units in the circumstances
described above shall be the lesser of: (i) the weighted average trading price
of the Class R Units on the principal stock exchange on which the Class R Units
are traded over the last 10 trading days ending on the trading day immediately
preceding the date that the Trust gives the disposition notice; and (ii) the
weighted average trading price of the Class R Units on the principal stock
exchange on which the Class R Units are traded over the last 10 trading days
ending on the trading day immediately preceding the redemption date (which
redemption date may be as early as the date that the Corporation, on behalf of
the Trust, gives the disposition notice). The price paid to a Unitholder
pursuant to a redemption as aforesaid shall be decreased by any amount required
to be deducted and withheld on account of tax. The form of consideration to be
paid to redeem Class R Units as aforesaid shall, at the option of the Board of
Directors in its sole discretion, be either cash in the amount of the redemption
price or Redemption Notes (as defined and described under "- Class N Units -
Reduction of Issued and Outstanding Class N Units" above) in the principal
amount equal to the redemption price, subject to withholding tax as required by
law.
Ranking
The Class R Units have identical rights to the Class N Units in respect of
voting, distributions and to the remaining assets of the Trust on the
termination of the Trust, except where the Ownership Rights attaching to such
Class R Units or Class N Units are suspended as described above under "-
Violation of Ownership Restriction" and "- Exclusionary Offer/Coattail
Provisions".
See also the discussion under "Special Meeting Matters - Proposed
Reclassification of Trust Unit Capital - Class N Units - Ranking".
Request for Unitholder's Declaration
In order to permit the Trust to further ascertain the residency of Unitholders
for the purpose of verifying that Non-Residents do not hold any Class R Units,
the Corporation, on behalf of the Trust, or the Transfer Agent, may at any time
require that any registered holder or beneficial owner, or any other person of
whom it is, in the circumstances, reasonable to make such request, deliver to
the Trust or the Transfer Agent a completed Unitholder's Declaration.
Automatic Conversion of Class N Units into Class R Units
If the Tax Act is ultimately amended in a manner such that the Board of
Directors determines that the Reclassification would not have been required or
is not effective in order to preserve the mutual fund trust status of the Trust
at the time of such amendments or thereafter, then, upon a date which is
determined by the Board of Directors in its sole discretion, all Class N Units
may be deemed to be converted into Class R Units on the basis of one Class R
Unit for each Class N Unit held without any further act or formality as
described above under "- Proposed Reclassification of Trust Unit Capital - Class
N Units - Automatic Conversion of Class N Units into Class R Units". Pursuant to
the Reclassification Resolution, the Board of Directors is authorized to approve
any and all amendments to the Trust Indenture as they consider necessary or
advisable as a result of such automatic conversion, which amendments may
include, but would not be limited to, removing the residency restrictions on
owners of Class R Units and removing the restriction on the stock exchanges on
which the Class R Units may be listed and removing from, or amending within, the
Indenture, all other provisions as have been added or modified solely for
purposes of effecting the Reclassification.
22
Quorum for Unitholder Meetings
See the discussion under "Special Meeting Matters - Proposed Reclassification of
Trust Unit Capital - Class N Units - Quorum for Unitholder Meetings".
Directors' Determination
See the discussion under "Special Meeting Matters - Proposed Reclassification of
Trust Unit Capital - Class N Units - Directors' Determinations".
THE FOREGOING IS A SUMMARY ONLY AND IS SUBJECT TO THE RIGHTS, LIMITATIONS,
RESTRICTIONS AND CONDITIONS TO BE ATTACHED TO THE CLASS R UNITS IN THE AMENDED
INDENTURE, A COPY OF WHICH, SUBJECT TO FINALIZATION AT OR PRIOR TO THE EFFECTIVE
DATE, WILL BE PROVIDED TO UNITHOLDERS UPON REQUEST MADE TO THE SECRETARY OF THE
CORPORATION AT 600, 444 - 7TH AVENUE SW, CALGARY, ALBERTA T2P 0X8, TELEPHONE:
(403) 218-8625.
MANNER OF EFFECTING RECLASSIFICATION
The Reclassification will be effected at the Effective Time as follows:
Reclassification of Existing Units
Subject to the Reclassification Guidelines, at the Effective Time, all issued
and outstanding Units of the Trust, other than Certificated Units, shall be
deemed to be reclassified as Class R Units. Upon completion of the foregoing
reclassification, each holder of Units immediately prior to the Effective Time
that has had such Units deemed to be reclassified as Class R Units shall cease
to be such a holder of such Units, shall, if a registered holder, have such
Unitholder's name removed from the register of holders of such Units and shall
be deemed to be a holder of a number of Class R Units equal to the number of
Units held by such Unitholder immediately prior to the Effective Time and, if a
registered holder, such holder's name shall be added to the register of holders
of Class R Units accordingly.
Conversion of Class R Units Held by Non-Residents
Immediately following the reclassification provided for in "- Reclassification
of Existing Units" above, all Class R Units held by a Unitholder who is, or is
deemed to be pursuant to the Reclassification Guidelines, a Non-Resident shall
be deemed to be converted into Class N Units on the basis of one Class N Unit
for each Class R Unit held without any further act or formality. Other than the
forgoing conversion, and except as described under "- Class R Units -
Exclusionary Offer/Coattail Provisions", Class R Units are not convertible into
Class N Units.
Procedures to Effect Reclassification
The Reclassification Resolution authorizes the Board of Directors to establish
and administer Reclassification Guidelines to give effect to and administer the
Reclassification.
Although the Reclassification Guidelines have not yet been determined, it is
anticipated that the Reclassification Guidelines may include some or all of the
following: (a) sending a letter of transmittal containing or accompanied by a
Unitholder's Declaration to registered Unitholders together with a notice to
registered Unitholders that sets forth the consequences of the failure to return
such letter of transmittal and/or Unitholder's Declaration prior to the
Effective Date; (b) instructing CDS to send a notice to their participants
requiring them to inform CDS no later than a date which will be determined by
the Board of
23
Directors of the number of Units held by Non-Residents and by persons who are
not Non-Residents, as at the most recent date practicable and which notice may
also advise participants in CDS as to other matters as may be determined by the
Board of Directors, which may include: (i) that Non-Residents will be receiving
Class N Units; (ii) that persons who are not Non-Residents will be receiving
Class R Units; and (iii) of the consequences of the failure to provide any
required information to CDS; (c) instructing DTC to send a notice to their
participants requiring them to inform DTC no later than a date which will be
determined by the Board of Directors of the number of Units held by
Non-Residents and by persons who are not Non-Residents, as at the most recent
date practicable and which notice may also advise participants in DTC as to such
matters as may be determined by the Board of Directors, which may include: (i)
that Non-Residents will be receiving Class N Units; (ii) that persons who are
not Non-Residents will be receiving Class R Units; and (iii) of the consequences
of the failure to provide any required information to DTC; (d) deeming certain
types of holders of Units as Non-Residents; (e) the consequences of registered
Unitholders (other than as to those types of holders, if any, that are deemed to
be Non-Residents and, accordingly will ultimately receive Class N Units) not
providing any required documents to the Transfer Agent before the Effective
Time, which consequences may include that such Unitholders shall not have the
Units held by them reclassified as Class R Units (or converted to Class N Units)
and that the Units held by such Unitholders may remain certificated in the form
of Certificated Units; (f) the consequences in respect of Units held by
participants in CDS or DTC (other than Units held by those types of holders, if
any, that are deemed to be Non-Residents and, accordingly will ultimately
receive Class N Units) who do not respond to the request of CDS or DTC or
otherwise provide a similar response by the Effective Time, which consequences
may be that such participants shall not have the Units held by them reclassified
as Class R Units (or converted to Class N Units) and that the Units held by such
participants may, effective as of the Effective Time, be withdrawn from CDS or
DTC, as applicable, and certificated by the Transfer Agent in accordance with
registration instructions provided by CDS or DTC, as applicable, or, if no
registration instructions are provided by CDS or DTC, as applicable, in
accordance with registration instructions provided by PC, as registered Units in
the form of Certificated Units (see "- Certificated Units" below); and (g) as to
the issue of certificates representing the Class N Units and the Class R Units.
AS SET FORTH ABOVE, THE RECLASSIFICATION GUIDELINES MAY DEEM CERTAIN PERSONS TO
BE NON-RESIDENTS WITH THE RESULT THAT THE CLASS R UNITS RECEIVED PURSUANT TO THE
RECLASSIFICATION BY SUCH PERSONS WILL BE AUTOMATICALLY CONVERTED INTO CLASS N
UNITS PURSUANT TO THE RECLASSIFICATION. THIS AUTOMATIC CONVERSION MAY HAVE TAX
CONSEQUENCES TO PERSONS THAT ARE RESIDENTS OF CANADA FOR PURPOSES OF THE TAX ACT
(SEE - CANADIAN FEDERAL INCOME TAX CONSIDERATIONS). PERSONS WHO ARE RESIDENTS OF
CANADA AND WHOSE CERTIFICATES REPRESENTING THEIR TRUST UNITS ARE NOT REGISTERED
IN THEIR NAME SHOULD ENSURE THAT, AT THE EFFECTIVE TIME, SUCH UNITS ARE NOT HELD
IN A MANNER WHICH, AS A RESULT OF THE RECLASSIFICATION GUIDELINES, WILL BE
DEEMED TO BE HELD BY A NON-RESIDENT.
Certificated Units
In connection with the Reclassification, the Board of Directors shall request a
Unitholder's Declaration from each Unitholder or from such Unitholders as may be
determined by the Board of Directors. If the Units are held through a broker or
other intermediary, that broker or other intermediary may provide that
information to the Transfer Agent on behalf of the beneficial holder. If any
Unitholder or the broker or other intermediary of a beneficial holder fails to
return a completed Unitholder's Declaration in accordance with such request, the
Trust Units held by such Unitholder, other than holders who are deemed to be
Non-Residents pursuant to the Reclassification Guidelines and accordingly will
receive Class N Units, for which a Unitholder's Declaration is not received,
shall remain as Certificated Units. The Board of Directors will have the
authority to determine: (a) whether distributions will be declared in respect of
any Certificated Units and if so declared as to the manner in which the payment
of such
24
distributions are dealt with, which payment arrangements may include the
withholding of such distributions until the Transfer Agent has received the
required Unitholder's Declaration (and any other required documents) and which
payment arrangements may also include the Trust remitting withholding taxes on
such distributions at the highest rate required by the Tax Act on payments to
Non-Residents; and (b) the other rights, if any, which attach to Certificated
Units, which rights may include the right to vote (including being counted
towards quorum) and the right to receive the distribution of proceeds upon the
termination of the Trust. The Corporation, on behalf of the Trust, by
determination of the Board of Directors, has the power and authority to suspend
any or all Ownership Rights of holders of Certificated Units.
Redemption After Effective Time
The Board of Directors may, at any time, determine that the Trust shall, subject
to applicable law and to any required regulatory approval, repurchase or redeem
all or any part of the outstanding Certificated Units. In case only a part of
the then outstanding Certificated Units are at any time to be redeemed, the
Certificated Units so repurchased or redeemed shall be redeemed on the basis
that only the holders of such Units holding less than a specified number of
units will have their Units redeemed or on a pro rata basis from the holdings of
all holders of Certificated Units or in such other manner as the Board of
Directors determines is practicable and equitable, such basis to be determined
by the Board of Directors in its sole discretion. The price to be paid by the
Trust to redeem Certificated Units shall be the weighted average trading price
of the Class R Units on the principal stock exchange on which the Class R Units
are traded over the last 10 trading days ending on the trading day immediately
preceding the date that the Corporation, on behalf of the Trust, gives notice of
the redemption. The price paid to a Unitholder pursuant to a redemption as
aforesaid shall be decreased by any amount required to be deducted and withheld
on account of tax.
Transitional Provisions
Prior to the Enforcement Date, until the Non-Resident ownership level of Trust
Units falls below the Ownership Threshold, actions which may be taken by the
Board of Directors in order to, or which may have the effect of, reducing the
level of Non-Resident ownership may include, but are not limited to:
- - a private placement or public equity offering of Trust Units (Class R
Units after the Effective Date) to Canadian residents that has the
resulting effect of reducing the Non-Resident ownership percentage of
Trust Units;
- - a business combination with or an acquisition of an entity with a lower
Non-Resident ownership percentage or another suitable form of
restructuring;
- - an issuer bid for Class N Units;
- - a rights offering to holders of Class R Units as permitted by the terms of
the Trust Indenture;
- - actions to increase the number of Trust Units (Class R Units after the
Effective Date) held by Canadian residents and the number of Class R Units
over time including:
- operation and enhancement of the Trust's distribution reinvestment
plan for the benefit of Canadian residents;
- issuance of exchangeable shares that may only be exchanged by
Canadian residents for Class R Units in accordance with their terms;
and
25
- issuance of rights and other incentives providing the right to
acquire Class R Units to directors, officers or employees of the
Corporation that are Canadian residents.
Should the Board of Directors conclude that some or all of the foregoing actions
are insufficient or are not timely enough to preserve the Trust's status as a
mutual fund trust the Board of Directors may elect to invoke the retraction or
redemption provisions relating to the Class N Units which are described above
under "- Reclassification of Trust Unit Capital - Class N Units - Retraction"
and "- Reclassification of Trust Unit Capital - Class N Units - Reduction of
Issued and Outstanding Class N Units". Actions to be taken by the Board of
Directors may also include delisting the Trust Units from AMEX.
Until such time as the Non-Resident ownership level of Trust Units no longer
exceeds the Ownership Threshold, no additional Class N Units will be authorized
to be issued except with a specific authorization of the Board of Directors.
Once the Board of Directors determines that the number of issued and outstanding
Class N Units no longer exceeds the Ownership Threshold, the Trust will make an
announcement to this effect and thereafter the maximum number of Class N Units
authorized to be issued will be equal to the Ownership Threshold.
After the Enforcement Date, should the Board of Directors conclude that it is
necessary or advisable in order to preserve the Trust's status as a mutual fund
trust, the Board of Directors may elect to: (a) reduce the Ownership Threshold
and take the steps described under "- Reclassification of Trust Unit Capital -
Class N Units - Reduction of Issued and Outstanding Class N Units", if
applicable, which may include suspending the Ownership Rights of certain Class N
Units and redeeming any such Class N Units; or (b) invoke the retraction and/or
redemption provisions relating to the Class N Units which are described above
under "- Reclassification of Trust Unit Capital - Class N Units - Retraction"
and "- Reclassification of Trust Unit Capital - Class N Units - Reduction of
Issued and Outstanding Class N Units".
STOCK EXCHANGE LISTINGS AND TRANSFER AGENT
The outstanding Trust Units are listed on each of the TSX and AMEX.
The TSX has conditionally approved the listing of the Class N Units and the
Class R Units. Listing is subject to the Trust fulfilling all of the
requirements of the TSX.
The Reclassification will not be effective until the Board of Directors is
satisfied that AMEX will accept for filing all necessary documentation for the
listing of the Class N Units. Once the Class R Units and Class N Units commence
trading on the TSX and on the TSX and AMEX, respectively, it is anticipated that
the existing Trust Units, including Units which, after the Effective Time,
remain outstanding in the form of Certificated Units, will no longer trade on
either the TSX or AMEX.
The transfer agent and registrar for the Class N Units and the Class R Units
will be Computershare Trust Company of Canada at its principal offices in
Calgary and Toronto.
OTHER STEPS
In connection with the Reclassification, the Trust also intends to take the
following actions:
- - subject to receipt of all regulatory approvals, the distribution
reinvestment and unit purchase plan of the Trust will be amended to
provide that the Trust Units issuable in accordance with the terms
26
of such plan are Class R Units (only persons who are not Non-Residents may
participate in such plan) and that the Class R Units that may be purchased
thereunder, when issued from treasury, shall be issued at a price equal to
95% of the weighted average trading price of all Class R Units traded on
the TSX for the 10 trading days preceding the last payment date for cash
distributions paid to Unitholders;
- - subject to receipt of all regulatory approvals, all present incentive
plans of the Trust (including the unit rights incentive plan of the Trust,
the restricted unit plan of the Trust and the long-term incentive plan of
the Trust) will be amended to provide that the Trust Units issuable in
accordance with such plans are Class R Units and only persons who are not
Non-Residents may participate in such plans; and
- - the terms of the presently outstanding PC Exchangeable Shares will be
amended to provide that the Trust Units issuable in exchange for such
exchangeable shares are Class R Units and that such shares cannot be
disposed of to a Non-Resident and the Special Voting Unit issued in
respect of such exchangeable shares and the supporting documents in
respect of such exchangeable shares will be amended accordingly. The
holder of such PC Exchangeable Shares and such Special Voting Unit has
advised the Trust that it is not a Non-Resident and that it will agree to
such amendments.
Subject to the receipt of all necessary regulatory approvals, the foregoing
actions will be effective at the Effective Time.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Burnet, Duckworth & Palmer LLP, counsel to the Trust
("COUNSEL"), the following summary fairly describes, as at the date hereof, the
principal Canadian federal income tax considerations generally applicable to a
Unitholder who holds Trust Units at the Effective Time and who, for the purposes
of the Tax Act, holds the Trust Units as capital property and deals at arm's
length with the Trust. Generally, Trust Units will be considered to be capital
property to a Unitholder provided the Unitholder does not hold the 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 Unitholders who might not otherwise be considered to hold their Trust
Units as capital property may, in certain circumstances, be entitled to have
them treated as capital property by making the election permitted by subsection
39(4) of the Tax Act. This summary is not applicable to: (i) a Unitholder that
is a "financial institution", as defined in the Tax Act for purposes of the
"mark-to-market" rules; (ii) a Unitholder an interest in which would be a "tax
shelter" or "tax shelter investment" as defined in the Tax Act; or (iii) a
Unitholder that is a "specified financial institution" as defined in the Tax
Act. Any such Unitholder should consult its own tax advisor with respect to
holding Units at the effective time.
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, including the Draft
Amendments, (the "PROPOSALS") to amend the Tax Act and the Income Tax
Regulations that have been publicly announced prior to the date hereof, and
counsel's understanding of the current published administrative and assessing
policies of the Canada Revenue Agency ("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 (other than
the Proposals), 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.
27
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE LEGAL OR TAX
ADVICE TO ANY PARTICULAR UNITHOLDER. CONSEQUENTLY, PROSPECTIVE UNITHOLDERS
SHOULD CONSULT THEIR OWN LEGAL AND TAX ADVISORS WITH RESPECT TO THEIR OWN
PARTICULAR CIRCUMSTANCES.
Based in part upon representations of PC on behalf of the Trust as to certain
factual matters, the Trust currently qualifies as a "unit trust" and a "mutual
fund trust" within the meaning of the Tax Act. In order to so qualify, there
must be at least 150 Unitholders each of whom owns not less than one "block" of
trust units having a fair market value of not less than $500. A "block" of trust
units means 100 trust units if the fair market value of one trust unit is less
than $25 and 25 trust units if the fair market value of one trust unit is
greater than $25 and less than $100. Subject to certain exceptions, which for
the Trust effectively expire on December 31, 2006, in order to qualify as a
mutual fund trust, 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. In addition, the undertakings of the Trust must be
restricted to the investing of its funds in property (other than real property
or an interest in real property), the acquiring, holding, maintaining,
improving, leasing or managing of any real property (or interest in real
property) that is capital property of the Trust, or a combination of these
activities. Commencing January 1, 2007, assuming that the Draft Amendments are
enacted, the Trust will need to satisfy the FMV Test in order to maintain its
mutual fund trust status. This summary assumes that all of the above
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 "- Consequences of Loss of
Mutual Fund Trust Status".
Unitholders Resident in Canada
This portion of the summary applies only to a 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.
Redesignation of Trust Units as Class R Units
As at the Effective Time, Trust Units of the Trust will be redesignated as Class
R Units. The redesignation of the Trust Units as Class R Units will not result
in a disposition of Trust Units for the purposes of the Tax Act.
The adjusted cost base to a Unitholder of Class R Units held immediately after
the Effective Time will be the adjusted cost base of the Trust Units held
immediately prior to the Effective Time. The cost of any additional Class R
Units acquired subsequent to the Effective Time will generally be averaged with
the cost of all other Class R Units held by the Unitholder to determine the
adjusted cost base of each such Class R Unit.
Conversion of Class N Units or Class R Units
A conversion of Class R Units into Class N Units at the Effective Time or a
conversion of Class N Units into Class R Units at any time after the Effective
Time (including in circumstances where there is an automatic conversion of Class
N Units into Class R Units resulting from the Tax Act being ultimately amended
in a manner such that the Reclassification would not have been required or
effective in order to preserve the mutual fund trust status of the Trust) will
generally result in a Unitholder realizing a capital gain (or a capital loss)
equal to the amount by which the fair market value of the Class N Units or Class
R Units received, as the case may be, are greater (or less) than the aggregate
of the Unitholder's adjusted cost base of the Class R Units or Class N Units so
converted, as the case may be, and any reasonable costs associated with the
disposition.
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A 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
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 Unitholder that is an individual or a trust,
other than certain types of trusts, may give rise to alternative minimum tax
depending on the Unitholder's circumstances.
A 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% tax is to
be added to the Canadian-controlled private corporation's 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.
Redemption or Retraction
A redemption or retraction of Class N Units, a redemption of Class R Units or a
redemption of Certificated Units in consideration for cash or, where applicable,
Redemption Notes, will be a disposition of such Units for proceeds of
disposition equal to the cash received or the fair market value of the
Redemption Notes received. Redeeming Unitholders will consequently realize a
capital gain (or capital loss), depending on whether the proceeds of disposition
received exceed (or are exceeded by) the adjusted cost base of the Class N or
Class R Trust Units or Certificated Units so redeemed or retracted.
A Redemption Note received as a result of a redemption of Class N Units or Class
R Units may not be a qualified investment for an RRSP, RRIF, RESP or DPSP, which
could give rise to adverse consequences to the RRSP, RRIF, RESP or DPSP or the
annuitant or beneficiary thereunder.
The cost of any Redemption Note distributed by the Trust to a Unitholder upon a
redemption of Class N Units or Class R Units will be equal to the fair market
value of such Redemption Note at the time of the distribution less any accrued
interest thereon. Such a Unitholder will be required to include in income
interest on such Redemption Note (including interest that had accrued to the
date of the acquisition of such Redemption Note by a Unitholder) in accordance
with the provisions of the Tax Act. To the extent that a Unitholder is required
to include in income any interest that had accrued to the date of the
acquisition of such Redemption Note, an offsetting deduction will be available.
Tax-Exempt Unitholders
Provided that the Trust qualifies as a mutual fund trust, the Class N Units and
Class R Units will be qualified investments for trusts governed by RRSPs, RRIFs,
RESPs and DPSPs. RRSPs, RRIFs, RESPs and DPSPs will generally not be liable for
tax in respect of any distributions received from the Trust or any capital gain
realized on the conversion of Class N Units into Class R Units, the conversion
of Class R Units into Class N Units, the redemption or, where applicable,
retraction of Class N Units or Class R Units or the redemption of Certificated
Units.
Unitholders Not Resident in Canada
This portion of the summary applies only to a holder of 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
29
Canada at any time and does not use or hold, and is not deemed to use or hold,
the Trust 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.
Redesignation of Trust Units as Class R Units
As described above, the redesignation of the Trust Units as Class R Units will
not constitute a disposition for the purposes of the Tax Act.
Disposition of Class N Units or Class R Units
For the purposes of the Tax Act, a conversion of Class R Units into Class N
Units at the Effective Time or a conversion of Class N Units into Class R Units
at any time after the Effective Time (including in circumstances where there is
an automatic conversion of Class N Units into Class R Units resulting from the
Tax Act being ultimately amended in a manner such that the Reclassification
would not have been required or effective in order to preserve the mutual fund
trust status of the Trust) will constitute a disposition for the purposes of the
Tax Act. A disposition of a Class N Trust Unit, Class R Trust Unit or a
Certificated Unit, on conversion, redemption, retraction or otherwise, will not
give rise to any capital gains subject to tax under the Tax Act provided that
such Trust Units are not "taxable Canadian property" of the Unitholder for the
purposes of the Tax Act. Class N Units or Class R Units will not generally be
considered taxable Canadian property to such a Unitholder unless: (i) the
Unitholder holds or uses, or is deemed to hold or use such 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 N Units or Class R
Units the Unitholder or persons with whom the Unitholder did not deal at arm's
length or any combination thereof, held 25% or more of the Class N Units or
Class R 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 N Units
or Class R Units.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the U.S. federal income tax considerations
generally applicable to U.S. Holders (as defined below) that hold Trust Units at
the Effective Time. This summary is based upon the Internal Revenue Code of
1986, as amended (the "CODE"), proposed, temporary and final U.S. Treasury
regulations under the Code, administrative rulings and judicial decisions, all
as in effect as of the date of this document and all of which are subject to
change (possibly with retroactive effect) or to differing interpretations. This
summary does not discuss all aspects of U.S. federal income taxation that may be
relevant to a particular holder of Trust Units in light of its particular
circumstances or to holders of Trust Units subject to special treatment under
the U.S. federal income tax laws, including banks, insurance companies, trusts
and financial institutions, tax-exempt organizations, mutual funds, persons that
have a functional currency other than the U.S. dollar, traders in securities who
elect to apply a mark-to-market method of accounting, dealers in securities or
foreign currency, and holders of Trust Units who hold their Trust Units as part
of a hedge, straddle, constructive sale, conversion transaction or other
integrated investment.
For purposes of this summary, a "U.S. HOLDER" is:
- an individual who is a U.S. citizen or resident alien for U.S.
federal income tax purposes;
- a corporation, or entity taxable as a corporation, created or
organized under the laws of the United States, any state thereof, or
the District of Columbia;
30
- an estate that is subject to U.S. federal income tax on its
worldwide income; or
- a trust if (i) a U.S. court is able to exercise supervision over the
administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust or (ii)
the trust has a valid election in effect to be treated as a U.S.
person for U.S. federal income tax purposes.
If a partnership holds Trust Units, the U.S. federal income tax treatment of a
partner in the partnership generally will depend upon the status of the partner
and the activities of the partnership. Partners of partnerships that hold Trust
Units should consult their tax advisors regarding the U.S. federal income tax
consequences to them of the Reclassification.
Classification of Petrofund as a Non-U.S. Corporation
Based on the advice of U.S. counsel, Petrofund believes that it is classified as
a non-U.S. corporation for U.S. federal income tax purposes under current U.S.
Treasury regulations. Accordingly, this summary treats Petrofund as a non-U.S.
corporation and treats the Trust Units as shares of stock of a non-U.S.
corporation for U.S. federal income tax purposes.
Reclassification of Trust Units
The reclassification of Trust Units as Class R Units and the immediate
conversion in the case of U.S. Holders who are, or are deemed to be,
Non-Residents, of Class R Units to Class N Units will not be taxable events for
U.S. federal income tax purposes. As a result, a U.S. Holder will not recognize
any gain or loss upon reclassification or conversion. A U.S. Holder's holding
period for its Trust Units will include the holding period of the Trust Units
reclassified. A U.S. Holder's adjusted tax basis in its Trust Units will be the
same as the adjusted tax basis of the Trust Units reclassified immediately
before the reclassification.
Conversion of Class N Units to Class R Units
The conversion of Class N Units to Class R Units (including the automatic
conversion of Class N Units into Class R Units in the event that the Tax Act is
ultimately amended in a manner such that the Reclassification would not have
been required or effective in order to preserve the mutual fund trust status of
the Trust) will not be a taxable event for U.S. federal income tax purposes. As
a result, a U.S. Holder will not recognize any gain or loss upon conversion. A
U.S. Holder's holding period for its Class R Units will include the holding
period of the Class N Units converted. A U.S. Holder's adjusted tax basis in the
Class R Units will be the same as the adjusted tax basis of the Class N Units
converted immediately before the conversion.
Distributions on Class N Units or Class R Units
Subject to the passive foreign investment company ("PFIC"), foreign investment
company ("FIC") and foreign personal holding company ("FPHC") rules discussed
below, the gross amount of any distributions, including certain redemptions as
described under "Redemption or Retraction of Trust Units", on the Class N Units
or Class R Units (before reduction for Canadian withholding taxes) will be
taxable to a U.S. Holder as dividends to the extent of Petrofund's current and
accumulated earnings and profits, as determined under U.S. federal income tax
principles. The gross amount of such distributions will include the amount of
cash and the fair market value of any property, including Redemption Notes,
received. Subject to certain limitations, dividends paid to non-corporate U.S.
Holders, including individuals, may be eligible for a reduced rate of taxation
if Petrofund is deemed to be a "qualified foreign
31
corporation" for U.S. federal income tax purposes. A qualified foreign
corporation includes a non-U.S. corporation that is eligible for the benefits of
a comprehensive income tax treaty with the United States that includes an
exchange of information program and that the U.S. Treasury Department has
determined to be satisfactory for purposes of the qualified dividend provisions
of the Code. The U.S. Treasury Department has determined that the income tax
treaty between the United States and Canada is satisfactory for purposes of the
qualified dividend provisions of the Code. A qualified foreign corporation does
not include a non-U.S. corporation that is a PFIC, a FIC, or a FPHC for the
taxable year in which a dividend is paid or for the preceding taxable year.
Dividends on the Class N Units or Class R Units should be eligible for this
reduced rate of taxation as long as Petrofund is not a PFIC, a FIC, or a FPHC
and is eligible for the benefits of the income tax treaty between the United
States and Canada.
Dividends will be includable in a U.S. Holder's gross income on the date
actually or constructively received by the U.S. Holder. These dividends will not
be eligible for the dividends received deduction generally allowed to U.S.
corporations in respect of dividends received from other U.S. corporations. To
the extent that the amount of any distribution exceeds Petrofund's current and
accumulated earnings and profits, as determined under U.S. federal income tax
principles, the distribution will first be treated as a tax-free return of
capital, causing a reduction in the adjusted basis of the Class N Units or Class
R Units (thereby increasing the amount of gain or decreasing the amount of loss
that a U.S. Holder would recognize on a subsequent disposition of the Class N
Units or Class R Units), and the balance in excess of adjusted basis will be
subject to tax as capital gain.
To the extent Petrofund pays distributions, taxable to a U.S. Holder as
dividends as described above, on the Class N Units or Class R Units in Canadian
dollars, the U.S. dollar value of such dividends should be calculated by
reference to the exchange rate prevailing on the date of actual or constructive
receipt of the dividend, regardless of whether the Canadian dollars are
converted into U.S. dollars at that time. If Canadian dollars are converted into
U.S. dollars on the date of actual or constructive receipt of such dividends, a
U.S. Holder's tax basis in such Canadian dollars will be equal to their U.S.
dollar value on that date and, as a result, the U.S. Holder generally should not
be required to recognize any foreign currency exchange gain or loss. Any gain or
loss recognized on a subsequent conversion or other disposition of the Canadian
dollars generally will be treated as U.S. source ordinary income or loss.
A U.S. Holder may be entitled to deduct, or claim a U.S. foreign tax credit for,
Canadian taxes that are withheld on dividends received by the U.S. Holder,
subject to applicable limitations in the Code. Dividends paid on the Class N
Units or Class R Units generally will constitute "passive income" or, in the
case of certain U.S. Holders, "financial services income" and will be treated as
income from sources outside the United States for U.S. foreign tax credit
limitation purposes. The amount of foreign income taxes that may be claimed as a
credit in any year is subject to complex limitations and restrictions, which
must be determined on an individual basis by each holder. U.S. Holders are urged
to consult their tax advisors regarding the availability of the U.S. foreign tax
credit in their particular circumstances.
Redemption or Retraction of Trust Units
The redemption at Petrofund's option of all or any part of a U.S. Holder's Class
N Units, Class R Units, or Certificated Units and the redemption by Petrofund of
all or any part of a U.S. Holder's Class N or Class R Units upon the exercise of
a U.S. Holder's retraction rights will be subject to Section 302 of the Code.
Pursuant to Section 302 of the Code, cash and any Redemption Notes received by a
U.S. Holder in such a redemption will be treated as a distribution taxable as a
dividend, as described above under "Distributions on Class N Units or Class R
Units," unless the redemption (i) is "substantially disproportionate" with
respect to the U.S. Holder, (ii) is not "essentially equivalent to a dividend"
with respect to the U.S. Holder, or (iii) is in complete redemption of all of
the Trust Units owned by the U.S. Holder. If the
32
redemption meets one of these tests, it will be treated as a sale of Trust
Units, as discussed below under "Sale, Exchange or Other Disposition of Trust
Units".
For purposes of these tests, a U.S. Holder must take into account its Trust
Units actually owned as well as the Trust Units constructively owned by reason
of certain constructive ownership rules set forth in the Code. Under these
rules, a U.S. Holder will be deemed to own any Trust Units that are either
actually or constructively owned by certain related individuals or entities.
The redemption of a U.S. Holder's Trust Units will be "substantially
disproportionate" with respect to the U.S. Holder if, among other things, the
percentage of Trust Units actually and constructively owned by the U.S. Holder
immediately following the redemption is less than 80% of the percentage of Trust
Units actually and constructively owned by the U.S. Holder immediately prior to
the redemption.
The redemption of a U.S. Holder's Trust Units will be treated as "not
essentially equivalent to a dividend" with respect to the U.S. Holder if the
U.S. Holder experiences a "meaningful reduction" in its percentage interest as a
result of the redemption. For this purpose, a U.S. Holder will compare its
percentage interest in Petrofund represented by its Trust Units actually and
constructively owned immediately prior to the redemption with its percentage
interest in Petrofund represented by its Trust Units actually and constructively
owned immediately following the redemption. Depending on a particular U.S.
Holder's facts and circumstances, even a small reduction in the U.S. Holder's
proportionate equity interest may satisfy the meaningful reduction test. For
example, the Internal Revenue Service (the "IRS") has held that any reduction in
the percentage interest of a stockholder whose relative stock interest in a
publicly held corporation is minimal (e.g. an interest of less than 1%) and who
exercises no control over corporate affairs constitutes a "meaningful
reduction."
Sale, Exchange, or Other Disposition of Trust Units
Subject to the discussions below of the PFIC and FIC rules, upon the sale,
exchange, or other disposition (including a redemption of Trust Units that meets
one of the three tests discussed above under "Redemption or Retraction of Trust
Units") of Class N Units, Class R Units or Certificated Units, a U.S. Holder
generally will recognize capital gain or loss equal to the difference between
the amount realized upon the disposition and the U.S. Holder's adjusted tax
basis in the Trust Units disposed of. The amount realized will include the
amount of cash and the fair market value of any property, including Redemption
Notes received. The capital gain or loss generally will be long-term capital
gain or loss if, at the time of disposition the U.S. Holder has held the Trust
Units for more than one year. Net long-term capital gains of non-corporate U.S.
Holders, including individuals, are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations. Any gain or loss that
a U.S. Holder recognizes generally will be treated as gain or loss from sources
within the United States for U.S. foreign tax credit limitation purposes.
Passive Foreign Investment Company Rules
Special U.S. federal income tax rules apply to U.S. Holders if Petrofund
currently is or has been a PFIC at any time during which the U.S. Holder has
held Trust Units, Class N Units, or Class R Units. A non-U.S. corporation
generally is classified as a PFIC for U.S. federal income tax purposes in any
taxable year if, either (i) at least 75% of its gross income is "passive" income
(the "INCOME TEST"), or (ii) on average at least 50% of the gross value of its
assets is attributable to assets that produce passive income or are held for the
production of passive income (the "ASSET TEST"). For purposes of the income test
and the asset test, if a non-U.S. corporation owns directly or indirectly at
least 25% (by value) of the stock of another corporation, the non-U.S.
corporation will be treated as if it held its proportionate share of the assets
of the latter corporation and received directly its proportionate share of the
income of that latter corporation.
33
The Code and applicable U.S. Treasury regulations exclude gains from
transactions in commodities from the definition of passive income if (i) the
gains arise from the sale of the commodity in the active conduct of a
commodities business as a producer, processor, merchant or handler of the
commodity and (ii) substantially all of the non-U.S. corporation's business is
as an active producer, processor, merchant or handler of the commodity.
Petrofund believes that it should be considered to be engaged in the active
conduct of a commodities business, and thus should not be a PFIC for 2004.
Because this conclusion is a factual determination that is made annually and is
subject to change, there can be no assurances that Petrofund will not be a PFIC
for the current or any future taxable year. Under the Code, if Petrofund were
considered to be a PFIC in any taxable year that a U.S. Holder held Trust Units,
Class N Units or Class R Units, Petrofund generally would be considered a PFIC
for all taxable years that such U.S. Holder held Trust Units, Class N Units, or
Class R Units after the first taxable year that Petrofund was considered to be a
PFIC.
In general, if Petrofund were a PFIC, a U.S. Holder would be taxed at ordinary
income tax rates on any gain realized on the sale, exchange, redemption or
retraction of the Class N Units or Class R Units and on any "excess
distributions" received, and would be subject to an interest charge on the value
of the deferral of their U.S. federal income tax attributable to such amounts.
U.S. HOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
POSSIBLE CLASSIFICATION OF PETROFUND AS A PFIC, THE ADVERSE TAX CONSEQUENCES
THAT WOULD RESULT FROM SUCH CLASSIFICATION AND THE AVAILABILITY OF MAKING A
MARK-TO-MARKET OR QUALIFIED ELECTING FUND ELECTION.
Foreign Investment Company Rules
Special U.S. federal income tax rules would apply to U.S. Holders if Petrofund
were a FIC. A non-U.S. corporation generally is classified as a FIC for U.S.
federal income tax purposes in any taxable year if it is (i) engaged primarily
in the business of investing, reinvesting, or trading in securities,
commodities, or interests in securities or commodities (ii) at a time when 50%
or more of the total combined voting power of all classes of stock entitled to
vote, or the total value of all classes of stock, is held, directly or
indirectly, by U.S. persons. U.S. persons may own 50% or more of Petrofund's
voting power or value. As discussed above, however, Petrofund believes that it
is engaged in the active conduct of a commodities business and thus is not the
type of investment company intended to be covered by the FIC rules.
Foreign Personal Holding Company Rules
Special U.S. federal income tax rules would apply to U.S. Holders if Petrofund
were a FPHC. A non-U.S. corporation generally is classified as a FPHC for U.S.
federal income tax purposes in any taxable year if both (i) five or fewer
individuals who are U.S. citizens or residents actually or constructively own
more than 50% of all classes of the corporation's stock by vote or value at any
time during the corporation's taxable year and (ii) at least 60% of the
corporation's income is passive income, as described above with respect to the
PFIC rules. Petrofund believes that it should not currently be a FPHC. Because
this conclusion is a factual determination that is made annually and is subject
to change, there can be no assurances that Petrofund will not be a FPHC for the
current or any future taxable year.
RISK FACTORS
The Reclassification is subject to certain risks including the following.
34
Failure to Achieve Ownership Threshold
While the Board of Directors intends, following the Effective Date, to take
steps to reduce the percentage of Non-Resident ownership of Trust Units to below
the Ownership Threshold, there is no assurance that this level of ownership will
be achieved and the failure to reach the required threshold could have adverse
consequences as described under " - Consequences of Loss of Mutual Fund Trust
Status".
Trading of Trust Units following the Reclassification
As a result of the Reclassification, Non-Residents will not be able to own or
trade in the Class R Units and the Class R Units will only be listed on the TSX
while the Class N Units will be listed on both the TSX and the AMEX.
Historically, there has been little variance in trading prices, adjusting for
exchange rates, between Trust Units traded on the TSX and Trust Units traded on
the AMEX. As a result of the Reclassification and the resulting ownership
restrictions applicable to the Class R Units and depending on, among other
things, the relative demand for Class R Units and the Class N Units from time to
time, there may be differences in the relative trading prices between the Class
R Units and the Class N Units and as between such units and the Trust Units in
existence immediately prior to the Reclassification, and such differences may be
material.
Violations of FMV Test
The Draft Amendments provide that, in the case of the Trust, if at any
particular time after December 31, 2006 the Trust fails to satisfy the FMV Test
it will cease to qualify as a mutual fund trust. While the amendments proposed
to the Indenture pursuant to the Reclassification Resolution are intended to
ensure that the Trust will, at all times after December 31, 2006 satisfy the FMV
Test if enacted, unforeseen increases in the trading price of Class N Units
relative to the trading price of Class R Units and/or breaches in the
restrictions applicable to Class N Units or Class R Units as described above
under "- Reclassification of Trust Unit Capital - Class N Units - Reduction of
Issued and Outstanding Class N Units" and "- Reclassification of Trust Unit
Capital - Class R Units - Violation of Ownership Restriction" after December 31,
2006 and/or other circumstances which have not presently been identified by the
Board of Directors could result in a violation of the Maximum Non-Resident
Ownership Level. Such violation would have adverse consequences to the Trust and
to Unitholders as summarized above under "- Consequences of Loss of Mutual Fund
Trust Status" as well as adverse consequences to trading prices for the
securities for the Trust and the ability of the Trust to access capital markets
to finance operations and acquisitions.
Changes in Applicable Tax Laws
The Reclassification is being undertaken to ensure that the Trust continues to
qualify as a mutual fund trust, based on the current provisions of the Tax Act
and in light of the amendments to the Tax Act proposed in the Canadian federal
budget of March 23, 2004 as reflected in the Draft Amendments. There can be no
assurance that the provisions of the Tax Act concerning the requirements
applicable to mutual fund trusts will not be further altered in a manner not
contemplated by the proposed Reclassification or that otherwise affects the
Trust's status as a mutual fund trust.
Redemption of Units
From and after the Effective Time, the Board of Directors will have, in certain
circumstances, the right to cause the redemption of all or a portion of the
Trust Units held by certain Unitholders for either cash or Redemption Notes
without the consent of such Unitholder(s) and, in certain circumstances, a
redemption may be deemed to have occurred. There may not be any market for such
Redemption Notes received,
35
such Redemption Notes will be unsecured and subordinated and may have a maturity
date of up to 10 years from the issue date and, as discussed under " - Canadian
Federal Income Tax Considerations" may not be qualified investments for certain
plans.
Failure to Provide or Cause to be Provided a Unitholder's Declaration
If a beneficial owner of Units who is not a Non-Resident receives, pursuant to
the Reclassification, Class N Units, then such owner may have tax consequences
as a result of the automatic conversion of Class R Units into Class N Units as
described under "- Canadian Federal Income Tax Considerations - Conversion of
Class N Units or Class R Units". Accordingly, persons who are residents of
Canada and whose certificates representing their Trust Units are not registered
in their name should ensure that, at the Effective Time, such Units are not held
in a manner which, as a result of the Reclassification Guidelines, will be
deemed to be held by a Non-Resident. In addition, the failure to provide, or
cause to be provided, the required Unitholder's Declaration, may result in
existing Trust Units remaining Certificated Units for which there will be no
market and may result in transfers of the Certificated Units being restricted
and certain Ownership Rights being restricted or suspended. Further,
Certificated Units may also be redeemed in accordance with the provisions
thereof.
Suspension of Ownership Rights
As a result of the Reclassification, in certain circumstances some or all of the
Ownership Rights attaching to the Units held by a Unitholder may be suspended.
Unfavourable Tax Effects of the Reclassification
The Trust has not sought an advance income tax ruling in respect of the
Reclassification. While the Trust has received opinions or advice from legal
counsel concerning the Canadian and U.S. tax consequences to Unitholders from
the Reclassification, there can be no assurance that the Canada Revenue Agency
and the IRS will not interpret the relevant provisions of the Tax Act and/or the
Code in a contrary manner and therefore assess the Trust and/or Unitholders as
regards the Reclassification and, in the event of such a contrary interpretation
and reassessment, the reclassification may have adverse tax consequences for
certain Unitholders (see "- Canadian Federal Income Tax Considerations" and "-
United States Federal Income Tax Considerations" above).
Effect on Liquidity of Units
The liquidity of the Class N Units and/or the Class R Units may be adversely
affected by the Reclassification and this may affect, among other things, the
ability for the Trust to complete financings of either class of Trust Units or
to complete acquisitions where the consideration offered consists of Trust
Units. In order to transfer Class R Units, except for transfers from a
participant in CDS to CDS, transferees will be required to provide a
Unitholder's Declaration confirming that the transferee is not a Non-Resident
which may affect the liquidity of the Class R Units and, if the required
Unitholder's Declarations are not provided, result in the inability to settle
such trades.
Reliance on ADP Reports
In making residency determinations, the Trust will, among other things, rely
upon reports provided by the Transfer Agent which will in turn rely upon ADP
Reports as to the geographical locations of beneficial owners of Trust Units.
The Board of Directors understands that ADP Reports may contain inaccuracies.
While the Board of Directors intends to maintain an appropriate Ownership
Threshold which provides some protection against, among other things, minor
inaccuracies which may be contained in the ADP
36
Reports, there can be no assurance that the ADP Reports will not contain
inaccuracies which are material and, in such event, the reliance on such reports
may result in the Trust losing its mutual fund trust status.
NOTWITHSTANDING THAT THE RECLASSIFICATION IS SUBJECT TO A NUMBER OF RISKS
INCLUDING THOSE WHICH ARE SET FORTH AND DESCRIBED ABOVE, THE BOARD OF DIRECTORS
NONETHELESS BELIEVES THAT IN LIGHT OF CONTINUING INCREASES IN THE LEVEL OF
NON-RESIDENT OWNERSHIP OF TRUST UNITS AND THE ADVERSE CONSEQUENCE WHICH WILL
RESULT IF THE TRUST LOSES ITS STATUS AS A MUTUAL FUND TRUST, IT IS PRUDENT AND
IN THE BEST INTERESTS OF UNITHOLDERS TO TAKE STEPS AT THIS TIME TO EFFECT THE
RECLASSIFICATION.
UNITHOLDER APPROVAL
At the Meeting, Unitholders will be asked to consider and, if thought fit, pass
the Reclassification Resolution in the form attached as Schedule "A" to the
Information Circular.
In accordance with the terms of the Trust Indenture, to be approved, the
Reclassification Resolution must receive the affirmative vote of not less than
66-2/3% of the Units represented at the Meeting and voted on such resolution.
The Reclassification Resolution provides the Board of Directors, without further
notice to or approval of Unitholders, with the authority to approve additional
amendments to the Trust Indenture than those which are described under "Special
Meeting Matters - Proposed Reclassification of Trust Unit Capital" in the
Information Circular and in Schedule "B" to the Information Circular, including
revising the proposed amendments which are so described, as they consider
necessary or advisable, in order to maintain the status of the Trust as a
"mutual fund trust" for the purposes of the Tax Act or as may be required by
applicable regulatory authorities, including the TSX and AMEX, and any such
additional amendments as aforesaid shall be deemed to have been approved by a
Special Resolution of the Unitholders of the Trust.
The Reclassification Resolution authorizes the Board of Directors to establish
and administer procedures or guidelines which they deem necessary or advisable
to give effect to and administer the Reclassification.
The Reclassification Resolution also provides that notwithstanding the approval
of such resolution by Unitholders that the Board of Directors, without further
notice to or approval of Unitholders, may decide not to implement any or all of
the matters provided for in such resolution at any time prior to the
implementation thereof.
The Board of Directors unanimously recommends that Unitholders vote for the
Reclassification Resolution.
PROXIES RECEIVED IN FAVOUR OF PC WILL BE VOTED IN FAVOUR OF THE RECLASSIFICATION
RESOLUTION, UNLESS THE UNITHOLDER HAS SPECIFIED IN THE PROXY THAT HIS OR HER
UNITS ARE TO BE VOTED AGAINST THE RECLASSIFICATION RESOLUTION.
OTHER PROPOSED AMENDMENTS TO TRUST INDENTURE AND PROPOSED AMENDMENTS TO ROYALTY
AGREEMENT
Management has also presented to the Board of Directors a number of additional
proposed amendments to the Trust Indenture as well as proposed amendments to the
Royalty Agreement and, after considering such amendments, the Board of Directors
has determined to place before Unitholders the Other
37
Amendments Resolution, a Special Resolution approving the amendments set forth
in Schedule "D" to the Information Circular which are described below.
DELETION OF ACQUISITION CRITERIA
The Royalty Agreement currently contains in Section 3.01 a number of acquisition
criteria (the "ACQUISITION CRITERIA") which must be adhered to for each
acquisition of oil and gas properties by the Corporation.
The Board of Directors has determined that it is in the best interests of the
Trust and its Unitholders that the Royalty Agreement be amended to delete the
Acquisition Criteria for the following reasons:
1. The Acquisition Criteria are negatively impacting the ability of the Trust
to bid for oil and gas assets at levels that are appropriate. As a result
of the review by PC of public disclosure documents of other Canadian oil
and gas royalty trusts, it has been determined that it is presently
customary for such trusts not to be required to adhere to mandatory
acquisition criteria in respect of acquisitions of oil and gas properties.
2. The Acquisition Criteria were formulated in 1988 when the business
environment was markedly different from today's conditions.
3. At the time that the Acquisition Criteria were formulated, both the Trust
and the Canadian oil and gas royalty trust business were unproven. Since
then, both the Trust and the Canadian oil and gas royalty trust sectors
have developed a long-term track record and, accordingly, acquisition
criteria are no longer needed to give the markets confidence in the
ability of management of the Trust to manage the business and affairs of
the Trust, including completing acquisitions determined appropriate.
4. The Acquisition Criteria were formulated at a time when the Trust's
business model was different from today's business model. In particular,
the Acquisition Criteria were specifically designed to limit the Trust's
ability to pursue the internal development of its own oil and gas
properties. Since 1988, the Trust has developed a significant undeveloped
land position and has had great success in adding production from these
lands at a relatively low cost.
5. The Acquisition Criteria were designed to limit the Trust's ability to
pursue opportunities outside of conventional oil and natural gas in
Western Canada. While the Trust intends to continue to focus on growth in
conventional oil and natural gas in Western Canada in the foreseeable
future, increased competition in the Canadian oil and gas royalty trust
sector makes it desirable to evaluate opportunities in other areas as
well.
6. At the time that the Acquisition Criteria were formulated, fees were paid
to the external manager of the Trust in respect of each acquisition.
Accordingly, one purpose of the Acquisition Criteria was to prevent
management from generating acquisition opportunities for the purpose of
increasing management fees. The Trust internalized its management
structure in 2002 and, accordingly, management fees (including those
resulting from completing acquisitions) are no longer paid to an external
manager.
AMENDMENT OF ROYALTY AGREEMENT
The Trust Indenture currently provides that amendments to the Royalty Agreement
require the approval of Unitholders by Special Resolution. As a result of the
review by PC of public disclosure documents of
38
other Canadian oil and gas royalty trusts, it has been determined that it is
presently customary for many trusts not to acquire unitholder approval of
amendments to the royalty agreements that the trusts are a party to and that the
board of directors for such trusts have the responsibility of approving any
amendments to such royalty agreements.
In connection with the amendment of the Royalty Agreement to remove the
Acquisition Criteria as described above, the Board of Directors has also
determined that it is appropriate to amend the Trust Indenture to remove the
present requirement that amendments to the Royalty Agreement (and any other
royalty agreement to which the Trust is a party) be approved by Unitholders and
to add to the powers delegated to the Corporation in the Trust Indenture the
responsibility and authority for approving the entering into and the amendment
of the provisions of royalty agreements.
EXCHANGEABLE SHARES
The Trust Indenture presently provides that in conjunction with the issuance by
PC or an affiliate of PC Exchangeable Shares that the Trust is authorized to
issue Special Voting Units which entitle the holders to vote at all meetings of
Unitholders. The Indenture presently defines PC Exchangeable Shares as shares in
the capital of PC or an affiliate of PC which are, by their terms, exchangeable
into Trust Units.
In order to provide additional flexibility to the Trust in respect of future
acquisitions, the Board of Directors has determined that it is appropriate to
amend the definition of PC Exchangeable Shares contained in the Indenture to
include, in addition to shares in the capital of PC or an affiliate which are by
their terms exchangeable into Trust Units, interests in a partnership in which
PC or an affiliate of PC is the managing partner or interests in a limited
partnership in which PC or an affiliate of PC is the general partner which are,
by their terms, exchangeable into one or more classes of Trust Units.
PC NOTES AND TRUST RETRACTION NOTES
Article 5 of the Trust Indenture presently provides Unitholders with the right
to require the Trustee to retract, at any time or from time to time, at the
demand of the Unitholder all or any part of the Units registered in the name of
the Unitholder at the price determined, and payable, in accordance with the
Trust Indenture. The Trust Indenture further provides that the "Retraction
Price" per Trust Unit payable in such event is equal to the lesser of: (a) 85%
of the "market price" (as defined in the Indenture) of the Units on the
principal market on which the Trust Units are listed for trading during the 10
trading day period commencing immediately after the retraction date; and (b) the
"closing market price" (as defined in the Indenture) on the principal market on
which the Trust Units are listed for trading, on the retraction date.
Based on the understanding of counsel to the Trust of the current administrative
practices of the Canada Revenue Agency, PC has determined that it is preferable
that the retraction price payable to unitholders be amended to be equal to the
lesser of 95% of the market price of the trust units over an established period
of trading days (which percentage reflects a 5% discount to such market price)
and the closing market price on the retraction date.
Accordingly, the Board of Directors has determined that it is in the best
interests of the Trust that the Trust Indenture be amended to provide that the
"Retraction Price" be equal to the lesser of: (a) 95% of the market price of the
applicable class of Units on the principal market on which the Trust Units are
listed for trading during the 10 trading day period commencing immediately after
the Retraction Date; and (b) the closing market price on the principal market on
which the applicable class of Units are listed for trading, on the Retraction
Date.
39
The Trust Indenture further provides in respect of retractions of Trust Units as
described above that in certain circumstances the Trust is not required to pay
the Retraction Price in respect of Units tendered for retraction by cheque but
rather, subject to all necessary regulatory approvals, such price may be paid
and satisfied by way of a distribution in specie to such unitholder of debt
securities of the Corporation having a rate of interest which is not less than
the then highest rate of interest charged by the Trust to the Corporation (the
"PC NOTES") in a principal amount equal to such retraction price. Furthermore,
the Trust Indenture provides that if the Trust does not hold PC Notes having a
sufficient principal amount to effect such payment, the Trust will be entitled
to create and, subject to any applicable regulatory approvals, issue in
satisfaction of the Retraction Price its own debt securities (the "TRUST
RETRACTION NOTES") having such terms and conditions as the Trustee may determine
and with recourse of the holder limited to the assets of the Trust.
The Board of Directors has also determined that it is appropriate to amend the
Trust Indenture to provide that the PC Notes shall have a term ending not more
than five (5) years after the date of issue and to provide that the Trust
Retraction Notes also have a term determined by the Board of Directors ending
not more than five (5) years after the date of issue and also to have a rate of
interest (similar to the PC Notes) which is not less than the highest rate of
interest charged by the Trust to the Corporation (in addition to such other
terms and conditions as the Trustee may determine).
The Board of Directors has also determined that it is appropriate to amend
Article 5 of the Trust Indenture to clarify that in circumstances where (a) at
the time that Units are tendered for retraction, the Units of that class are not
listed for trading on a Canadian stock exchange and are not traded or quoted on
any other stock exchange or market which provides representative fair market
value prices; or (b) normal trading of Units of the class tendered for
retraction is suspended or halted on any stock exchange or market on which the
Units of that class are listed for trading or, if not so listed, quoted for
trading, on the redemption date or for more than five trading days during the
ten day trading period commencing immediately after the retraction date; that
instead of receiving the Retraction Price, the Unitholder will be entitled to
receive a price per Unit equal to 95% of the fair market value thereof as
determined by the Board of Directors as of the date upon which such Units were
tendered for retraction and that in such circumstances the price payable shall
be paid on the last day of the third calendar month following the month in which
the Units were tendered for retraction.
ANNUAL AND QUARTERLY REPORTING
National Instrument 51-102 - Continuous Disclosure Obligations, which instrument
is applicable to the Trust and which instrument came into force on March 30,
2004 has reduced the period of time by which issuers are required to file
audited comparative annual financial statements and unaudited comparative
interim financial statements to 90 days after year end and 45 days after quarter
end, respectively.
The Board of Directors has determined that it is appropriate to amend the Trust
Indenture to provide that the Trustee will mail to each Unitholder within 90
days after the end of each calendar year, the audited financial statements of
the Trust for such year, together with a report of the auditor thereon and for
the Trustee to mail to each Unitholder within 45 days after the end of each
quarter unaudited financial statements of the Trust for such quarter.
UNITHOLDER APPROVAL
At the Meeting, Unitholders will be asked to consider and, if thought fit, pass
the Other Amendments Resolution in the form attached as Schedule "C" to the
Information Circular to approve amendments to the Trust Indenture and the
Royalty Agreement set forth in Schedule "D" to the Information Circular.
40
In accordance with the terms of the Trust Indenture, to be approved, the Other
Amendments Resolution must receive the affirmative vote of not less than 66-2/3%
of the Units represented at the Meeting and voted on such resolution.
The Other Amendments Resolution provides that notwithstanding the approval of
such resolution by Unitholders that the Board of Directors, without further
notice to or approval of Unitholders, may decide not to implement any or all of
the matters provided for in such resolution at any time prior to the
implementation thereof.
The Board of Directors unanimously recommends that Unitholders vote for the
Other Amendments Resolution.
PROXIES RECEIVED IN FAVOUR OF PC WILL BE VOTED IN FAVOUR OF THE ABOVE
RESOLUTION, UNLESS THE UNITHOLDER HAS SPECIFIED IN THE PROXY THAT HIS OR HER
UNITS ARE TO BE VOTED AGAINST THE ABOVE RESOLUTION.
EXECUTIVE COMPENSATION
Information with respect to executive compensation is contained in the
Information Circular of the Trust dated February 27, 2004 which was prepared in
connection with the Annual and Special Meeting of Unitholders held on April 14,
2004 (the "AGM CIRCULAR") under the headings "Executive Compensation Prior to
the Internalization" and "Executive Compensation", which disclosure is
incorporated herein by reference. The AGM Circular can be found on the SEDAR
website at www.sedar.com. The Trust's SEDAR profile number is 2835. Upon
request, the Trust will promptly provide a copy of the AGM Circular free of
charge to Unitholders.
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,
2003, aggregated for all compensation plans previously approved by
securityholders and all compensation plans not previously approved by
securityholders.
Number of Securities to be Weighted average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation plans
(excluding securities
reflected in column (a))
Plan Category (a) (b) (c)
- --------------------------------------------------------------------------------------------------------------------
Equity compensation plans 799,122 $12.93 4,107,491
approved by securityholders
Equity compensation plans not none not applicable not applicable
approved by securityholders
Total 799,122 $12.93 4,107,491
Notes:
(1) In addition to the information set forth in the above table, all of which
relates to Petrofund's Incentive Plan and Petrofund's Unit Rights
Incentive Plan, at the Annual and Special Meeting of Unitholders held
April 14, 2004, Unitholders also approved a Restricted Unit Plan which
authorizes the issuance of up to 1,200,000 Trust Units from treasury and a
Long Term Incentive Plan which authorizes the issuance of up to 800,000
Trust Units from treasury. As a result of the approval of the Restricted
Unit Plan and the Long Term Incentive Plan, no further rights to purchase
Trust Units will be granted under Petrofund's Incentive Plan or
Petrofund's Unit Rights Incentive Plan.
41
INDEBTEDNESS OF DIRECTORS AND OFFICERS
As at October 18, 2004, there is no indebtedness, whether in connection with a
purchase of securities or any other indebtedness, of any director, executive
officer or employee, or former director, executive officer or employee of, the
Trust, PC or any other subsidiaries of the Trust or associates of any such
persons to: (a) the Trust or any subsidiary of the Trust; or (b) any other
entity where the indebtedness is the subject of a guarantee, support agreement,
letter of credit or other similar arrangement or understanding provided by the
Trust to any of its subsidiaries.
INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
To the knowledge of the Board, none of the directors, executive officers of PC,
or any associate or affiliate of the foregoing, has had any material interest,
direct or indirect, in any transaction since January 1, 2003 that has materially
affected Petrofund, or in any proposed transaction that would materially affect
Petrofund other than as is described in the AGM Circular under the heading
"Interests of Management and Others in Material Transactions", which disclosure
is incorporated herein by reference.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
There are no material interests, direct or indirect, of any director or
executive officer of PC or anyone who has held office as such since the
beginning of Petrofund's last financial year, or of any associate or affiliate
of any of the foregoing in any matter to be acted on at the Meeting, other than:
(a) the ownership of all of the outstanding Special Voting Units by Petro Assets
Inc., a company owned by the Driscoll Family Trust (a trust established for the
family of John F. Driscoll, the Chairman of the Board of the Corporation); (b)
the ownership of Trust Units by directors and executive officers of the
Corporation who held, as at October 18, 2004, an aggregate of 366,679 Trust
Units (0.4%)(excluding the Special Voting Units) and; (c) the ownership by
directors and officers of the Corporation of securities granted pursuant to,
and/or participation by such directors and officers in, incentive and other
plans of the Trust.
ADDITIONAL INFORMATION
Additional information relating to Petrofund is available on the SEDAR website
at www.sedar.com. Financial information is provided in Petrofund's comparative
financial statements and management's discussion and analysis for the year ended
December 31, 2003 and for the six months ended June 30, 2004. Any Unitholder may
obtain a copy of Petrofund's financial statements and related management's
discussion and analysis by contacting the Corporate Secretary of PC at Petrofund
Corp., 600, 444 - 7th Avenue SW, Calgary, Alberta T2P 0X8, Telephone (403)
218-8625.
OTHER MATTERS
As of the date of this Information Circular, the Board of Directors does not
know of any amendment, variation or other matter to come before the Meeting
other than the matters referred to in the Notice of Meeting. If any other matter
properly comes before the Meeting, however, the accompanying proxies will be
voted on such matter in accordance with the best judgment of the person or
persons voting the proxies.
42
DIRECTORS' APPROVAL AND CERTIFICATE
The foregoing contains no untrue statement of a material fact and does not omit
to state a material fact that is required to be stated or that is necessary to
make a statement not misleading in the light of the circumstances in which it
was made. The contents and distribution of this Information Circular to
Unitholders have been approved by the Board of Directors.
DATED at Calgary, Alberta this 18th day of October, 2004.
ON BEHALF OF THE BOARD OF DIRECTORS OF PETROFUND CORP.
(signed) JOHN F. DRISCOLL (signed) SANDRA S. COWAN
Chairman Director
PETROFUND ENERGY TRUST
BY: PETROFUND CORP.
(signed) JEFFERY E. ERRICO (signed) VINCE P. MOYER
President and Vice-President, Finance and
Chief Executive Officer Chief Financial Officer
SCHEDULE "A"
SPECIAL RESOLUTION OF UNITHOLDERS TO AMEND THE TRUST
INDENTURE TO RECLASSIFY THE TRUST UNIT CAPITAL
BE IT RESOLVED AS A SPECIAL RESOLUTION OF THE UNITHOLDERS OF PETROFUND ENERGY
TRUST THAT:
1. the Trust Indenture be and is hereby amended substantially in the manner
summarized under "Special Meeting Matters - Proposed Reclassification of
Trust Unit Capital" in the Information Circular - Proxy Statement of
Petrofund Energy Trust dated October 18, 2004 (the "Information Circular")
and in Schedule "B" to the Information Circular with such changes as the
Board of Directors (the "Board of Directors") of Petrofund Corp. (the
"Corporation") may deem necessary or advisable to give effect to the
Reclassification;
2. the Board of Directors, without further notice to or approval of
Unitholders, be and are hereby authorized to approve additional amendments
to the Trust Indenture than those which are described under "Special
Meeting Matters - Proposed Reclassification of Trust Unit Capital" in the
Information Circular and in Schedule "B" to the Information Circular,
including revising the proposed amendments which are so described, as they
consider necessary or advisable, as may be required in order to maintain
the status of the Trust as a "mutual fund trust" for the purposes of the
Income Tax Act (Canada) or as may be required by applicable regulatory
authorities, including the Toronto Stock Exchange and the American Stock
Exchange, and any such additional amendments as aforesaid shall be deemed
to have been approved by a Special Resolution of the Unitholders of
Petrofund Energy Trust;
3. the Board of Directors be and is hereby authorized to establish and
administer procedures and guidelines which they deem necessary or
advisable to give effect to and administer the Reclassification;
4. the amendment of:
(i) the distribution reinvestment and unit plan of Petrofund
Energy Trust;
(ii) the unit rights incentive plan of Petrofund Energy Trust;
(iii) the restricted unit plan of Petrofund Energy Trust; and
(iv) the long term incentive plan of Petrofund Energy Trust;
all of which presently contemplate issuance of Trust Units, to contemplate
the participation therein only by persons who are not Non-Residents and
the issuance thereunder of only Class R Units and, in respect of the
distribution reinvestment and unit purchase plan, to provide that the
Class R Units that may be purchased thereunder, when issued from treasury,
shall be issued at a price equal to 95% of the weighted average trading
price of all Class R Units traded on the Toronto Stock Exchange for the 10
trading days preceding the last payment date for cash distributions paid
to Unitholders, be and is hereby approved;
5. notwithstanding the passing of this resolution by Unitholders, the Board
of Directors, without further notice to or approval of Unitholders, may
decide not to implement any or all the matters provided for in this
Special Resolution at any time prior to the implementation thereof;
A-2
6. the Board of Directors is hereby authorized to make such amendments to the
Trust Indenture as they deem necessary or desirable to give effect to the
automatic conversion of Class N Units into Class R Units as described
under " - Proposed Reclassification of Trust Unit Capital - Class N Units
- Automatic Conversion of Class N Units into Class R Units" in the
Information Circular, which amendments may include, but would not be
limited to, removing the residency restrictions on owners and removing the
restriction on the stock exchanges on which the Class R Units may be
listed and removing from, or amending within, the Trust Indenture,
provisions thereof as have been added or modified solely for purposes of
effecting the Reclassification;
7. the Trustee is hereby authorized, for and on behalf of Petrofund Energy
Trust, to enter into, execute and deliver an amending agreement to the
Trust Indenture, or an amended and restated trust indenture, to give
effect to the amendments approved by the Special Resolution and the
agreement or agreements as executed shall conclusively be deemed to be the
agreement or agreements authorized and approved by this Special
Resolution; and
8. the Trustee is hereby authorized, for and in the name of Petrofund Energy
Trust, and any officer or director of the Corporation is hereby
authorized, for and in the name of the Corporation, to execute all
documents and to do all things as deemed necessary or advisable to
implement this Special Resolution.
All terms defined in the Information Circular - Proxy Statement of Petrofund
Energy Trust dated October 18, 2004, have the same respective meanings in this
Special Resolution when used herein.
SCHEDULE "B"
In order to give effect to the reclassification of Trust Unit capital described
in the Information Circular under "Special Meeting Matters - Proposed
Reclassification of Trust Unit Capital", it is proposed that the Trust Indenture
will be amended as set forth below.
In addition to such amendments, the Board of Directors is authorized to revise
the amendments set forth below and to make additional amendments as they
consider necessary or advisable.
AMENDMENTS TO TRUST INDENTURE
1. Section 1.1 of the Trust Indenture will be amended by adding the following
additional definitions:
BOARD OF DIRECTORS means the board of directors of the Corporation;
CERTIFICATED UNITS means Units that pursuant to the
Reclassification, will, until such time as a completed Unitholder's
Declaration and any other required documents are received by the
Transfer Agent, remain certificated in the form of Units in
existence immediately prior to the Effective Time;
CLASS N UNITS means the class N trust units of the Trust, created,
issued and certified hereunder;
CLASS R UNITS means the class R trust units of the Trust, created,
issued and certified hereunder;
DIRECTORS' DETERMINATION and similar expressions mean a
determination made by the Board of Directors in accordance with
Section 10.4 hereof and for purposes of any applicable provisions of
this Indenture, including Schedules "B" and "C";
EFFECTIVE DATE means the date determined by the Board of Directors
for the Reclassification to become effective;
EFFECTIVE TIME means 5:00 p.m. (Calgary time) on the Effective Date;
NON-RESIDENT means a person who is a "non-resident" for purposes of
the Income Tax Act (Canada) (including a partnership that is not a
Canadian partnership for purposes of the Income Tax Act (Canada));
OWNERSHIP RIGHTS means all rights attaching to a Unit of any class,
including the rights to vote at meetings of Unitholders (or
otherwise in respect of the Trust or the Corporation) to receive
distributions declared thereon by the Trust and to receive the
remaining property of the Trust upon liquidation, dissolution or
winding up of the Trust;
OWNERSHIP THRESHOLD means the authorized number of Class N Units
that may be issued and outstanding at any point in time equal to 47%
(or such lesser or greater percentage as may be determined by the
Board of Directors pursuant to Section 3.8 of the Indenture) of the
aggregate
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number of issued and outstanding Class N Units and Class R Units at
such time; provided that for the purposes of determining the number
of Units issued and outstanding at any time, except as the Board of
Directors may otherwise determine from time to time, any and all
rights to acquire, exchange for or convert into Class N Units (other
than pursuant to Section 4.1 of Schedule "C") shall be deemed to
have been exercised and any and all rights to acquire, exchange for
or convert into Class R Units shall be deemed not to have been
exercised and any Certificated Units shall be deemed to be Class N
Units;
RECLASSIFICATION means the reclassification of the trust unit
capital of the Trust which is set forth and described in Sections
19.1 and 19.2, as may be supplemented or amended by the terms of the
Reclassification Guidelines;
RECLASSIFICATION GUIDELINES means the procedures and guidelines
established or to be established by the Board of Directors pursuant
to the authority granted in Section 10.4 hereof to give effect to,
administer and implement the Reclassification;
SCHEDULES means the schedules to this Indenture;
UNITHOLDER'S DECLARATION means a declaration regarding the residency
of a Unitholder, any beneficial owner(s) or any other person in the
form determined by the Board of Directors from time to time in
accordance with Section 3.8(c).
2. Section 1.1 of the Trust Indenture will be amended by deleting the present
definitions of "Unit", "Unitholder or holder of Units" and replacing it
with the following:
UNIT means, collectively, a unit of the Trust created and issued
under the Indenture prior to the Effective Time and, after the
Effective Time, a Class N Unit, a Class R Unit and a Certificated
Unit and for the time being outstanding and entitled to the benefits
hereof, provided that the term "Unit" shall not include the Special
Voting Units except that where the term "Unit" is used in the
definitions of "Ordinary Resolution" and "Special Resolution" and in
Sections 11.1, 12.1, 12.3, 12.6 (which contains the definition of
"Special Resolution") and 12.7, "Unit" shall include those units of
the Trust which are at such time issuable upon the exchange of all
Exchangeable Shares then outstanding for the purposes of determining
the number of Units outstanding at a particular time, the number of
votes to which a particular Unitholder is entitled, and whether or
not specified voting thresholds are attained;
UNITHOLDER OR HOLDER OF UNITS means a person who holds from time to
time one or more Units and, for the purposes of Articles 11, 12 and
16 hereof and the definitions of "Ordinary Resolution" and "Special
Resolution" contained herein only, Unitholders shall also include
the holders from time to time of the Special Voting Units; and
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3. The Trust Indenture will be amended by adding an additional Section 1.5 as
follows:
1.5 SCHEDULES
The following schedules form part of this Indenture:
Schedule "A" - Specimen Unit Certificates
Schedule "B" - Class N Unit Rights, Limitations, Restrictions
and Conditions
Schedule "C" - Class R Unit Rights, Limitations, Restrictions
and Conditions
4. Section 3.1 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
3.1 DESIGNATION AND NUMBER OF UNITS
The beneficial interests in the Trust shall be divided into
interests of one or more classes, collectively described and
designated as Units, which shall be entitled to the rights and
subject to the limitations, restrictions and conditions set out
herein, as supplemented or amended by the rights, limitations,
restrictions and conditions applicable to a given class of Units as
set out in the Schedules to this Indenture.
The Trust shall have one class of Units until the Effective Time
and, from and after the Effective Time, the Trust shall, in addition
to Certificated Units, if any, have two classes of Trust Units,
consisting of Class N Units and Class R Units, each such class
(including Certificated Units) shall be entitled to the rights and
subject to the limitations, restrictions and conditions set out
herein, and, in the case of the Class N Units, as supplemented or
amended by the rights, limitations, restrictions and conditions set
out in Schedule "B" and, in the case of the Class R Units, as
supplemented or amended by the rights, limitations, restrictions and
conditions set out in Schedule "C". At the Effective Time, the
Reclassification Guidelines shall take effect, the existing issued
and outstanding Units in the Trust shall, subject to and pursuant to
Section 19.1, be irrevocably deemed to be reclassified and
immediately following such reclassification, if applicable, shall be
converted into Class N Units pursuant to Section 19.2, all without
any further act or formality. Following the Reclassification, 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 or in the case of
Certificated Units, the rights attaching to such Units as provided
in this Indenture and the Reclassification Guidelines. At and
following the Effective Time, the provisions of Schedules "B" and
"C" and the Reclassification Guidelines shall take precedence over
any provision to the contrary in this Indenture, except for Section
3.8 of this Indenture.
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The aggregate number of Units which may be authorized and issued
hereunder is, subject to Schedule "B" and Section 3.8(b), unlimited.
The Trust is also empowered and hereby authorized to issue an
unlimited number of Special Voting Units, having the rights and
subject to the limitations, restrictions and conditions set forth in
Section 3.9.
5. Section 3.2 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
3.2 ISSUANCE OF UNITS
Subject to the limitations set forth in this Indenture, Units may be
issued at such time or times, to the Persons, for the consideration
and on such terms and conditions as the Board of Directors may
determine from time to time. Subject to the limitations set forth in
this Indenture, the Board of Directors may also from time to time
authorize the creation and issuance from time to time of rights,
warrants or options to subscribe for Units or other securities
convertible or exchangeable into Units, which rights, warrants,
options, or other securities may be created and issued from time to
time on such terms and conditions, exercisable at such subscription
price or prices and at such time or times as the Board of Directors
may determine.
6. Section 3.3 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
3.3 RANKING OF UNITS
Subject to the terms of this Indenture, each Unit represents an
equal fractional undivided beneficial interest in the Trust. Subject
to the terms of this Indenture, all Units outstanding from time to
time shall be entitled to one vote for each Unit held as more
particularly described in Article 12, and shall be entitled to an
equal share in any distributions out of the Trust. Subject to the
terms of this Indenture, in the event of termination of the Trust,
all Units shall rank among themselves equally and rateably without
discrimination, preference or priority whatever may be the actual
date or terms of issue thereof and shall also be entitled to an
equal share in the net assets of the Trust upon the termination of
the Trust.
As regards the Class N Units and the Class R Units, the Board of
Directors shall not authorize or permit to occur any:
a) subdivision or other change of only one such class of Units into
a greater number of Units,
b) consolidation, reduction or combination of Units of only one such
class into a lesser number of Units (other than in connection with a
normal course issuer bid or issuer bid applicable to only one such
class of Units or pursuant to any retraction or redemption rights in
respect of
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only one such class of Units pursuant to this Indenture or the
Reclassification Guidelines),
c) issuance of Units to all or substantially all holders of
outstanding Units of only one such class as a dividend or
distribution,
d) issuance of rights, options or warrants to all or substantially
all of the holders of outstanding Units of only one such class to
purchase Units or other securities convertible into or exchangeable
for Units (other than an issuance to all or substantially all
holders of Class R Units of rights to purchase additional Class R
Units provided that the price payable for Class R Units on the
exercise of such rights is not less than 95% of the weighted average
trading price of the Class R Units on the principal stock exchange
on which the Class R Units are traded over the last 10 trading days
ending on the trading day immediately preceding the date that the
pricing of the rights offering is determined by the Board of
Directors),
e) any other distribution in cash or property or securities of the
Trust to all or substantially all of the holders of outstanding
Units of only one such class; or
f) otherwise effect any similar transaction or change to the Units
of only one such class;
unless an equivalent transaction or change is made to the Units of
the other class so that, except as specifically differentiated
pursuant to the terms of this Indenture, the equal ranking of the
Class N Units and Class R Units described in this Section 3.3 is at
all times maintained.
7. Section 3.5 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
3.5 NO CONVERSION, RETRACTION, REDEMPTION OR PRE-EMPTIVE RIGHTS
There are no conversion, retraction, redemption or pre-emptive
rights attaching to the Units, other than as set forth in this
Indenture.
8. Section 3.8 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
3.8 NON-RESIDENT UNITHOLDERS
(a) Except to the extent permitted under the Income Tax Act
(Canada), the Trust shall endeavour to satisfy the
requirements of Section 132(6) of the Income Tax Act (Canada)
at all times.
(b) The Board of Directors has the power and authority, at any
time and from time to time, to amend the definition of
"Ownership Threshold" contained in this Indenture to reduce
the authorized number of issued
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and outstanding Class N Units at any point in time expressed
as a percent (initially 47.0%) of the aggregate number of
issued and outstanding Class N Units and Class R Units at such
time in order to ensure that the Trust maintains its status as
a mutual fund trust for the purposes of the Income Tax Act
(Canada). In such event the Trust shall make a public
announcement, whether by press release, newspaper
advertisements or otherwise, reasonably expected to inform the
markets in which Class R Units and Class N Units are traded.
(c) The Board of Directors shall have the power and authority to
determine from time to time written guidelines with respect to
the nature of a Unitholder's Declaration, the times at which
any Unitholder's Declarations are to be requested and any
other relevant matters relating to Unitholder's Declarations.
The Trust shall have the power and authority to request from
any and all Unitholders, a Unitholder's Declaration at any
time and from time to time. Notwithstanding the foregoing, the
Corporation, on behalf of the Trust, shall seek Unitholder's
Declarations in respect of Class R Units at least quarterly
during the two year period following the Effective Date.
A Unitholder's Declaration shall be in the form and substance
from time to time determined by the Board of Directors and,
without limiting the generality of the foregoing, may be
required to be in the form of a declaration in writing sworn
under oath or affirmed in a manner and in a form acceptable to
the Board of Directors. Without limiting the generality of the
foregoing, any Unitholder's Declaration may be required to
contain information with respect to:
i) whether the Unitholder is the beneficial owner of the
applicable Units or whether any other person is the
beneficial owner of those Units; and
ii) whether the Unitholder or any other beneficial owner of
the Units is a Non-Resident.
9. Section 5.2 of the Trust Indenture will be amended by adding to the end of
the second paragraph of such section the following:
Notwithstanding the foregoing, if the retraction by a holder of
Class R Units of all or any part of his Class R Units would result
in the number of issued and outstanding Class N Units exceeding the
Ownership Threshold, then the Board of Directors may in its
discretion defer the Retraction Date to a date which is up to 60
days following the date that would otherwise be the Retraction Date,
provided that the Trust provides notice of the amended Retraction
Date to the affected Unitholder.
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10. The Trust Indenture will be amended by adding a new Section 5.10 as
follows:
5.10 RETRACTION PROVISIONS IN SCHEDULE "B"
The retraction provisions contained in this Article 5 are separate
and distinct from the retraction provisions contained in Section 7
of Schedule "B". Without limiting the generality of the foregoing,
none of the provisions of this Article 5 apply to a retraction
pursuant to Section 7 of Schedule "B".
11. Section 7.1 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
7.1 DISTRIBUTIONS
The Trust shall on each Distribution Date cause the Distributable
Income to be determined in respect of the immediately preceding
Record Date and, subject to any restrictions arising pursuant to
this Indenture, shall distribute all Distributable Income to
Unitholders of record as at the close of business on the applicable
Record Date in accordance with the Pro Rata Share of each Unitholder
on that Record Date (provided that the Trust may deduct or withhold
amounts required by law from any Unitholder's distributions).
12. Section 7.3 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
7.3 REINVESTMENT OF DISTRIBUTIONS
Subject to receipt of all regulatory approvals and subject to any
restrictions arising pursuant to this Indenture, the Trust will make
available to Unitholders the opportunity to reinvest distributions
from the Trust in additional Units by participating in one or more
distribution reinvestment plans approved by the Board of Directors
from time to time. Such plans may, if approved by the board of
directors of the Corporation, provide for, among other things, the
option or right to purchase additional Units for cash.
13. Section 9.10 of the Trust Indenture will be deleted and Section 9.11 will
be renumbered as Section 9.10.
14. Section 10.1 of the Trust Indenture will be amended by adding as an
additional matter which has been delegated by the Trustee to the
Corporation the following:
the responsibility and authority for all matters pertaining to the
Reclassification and including all matters pursuant to Section 3.8,
Article 19, Schedule "B", Schedule "C", and the Reclassification
Guidelines;
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15. The Trust Indenture will be amended by adding a new Section 10.4 as
follows:
10.4 RECLASSIFICATION GUIDELINES, DIRECTORS' DETERMINATIONS AND
OTHER MATTERS
The Board of Directors is authorized to establish and administer the
Reclassification Guidelines.
In administering, on behalf of the Corporation or the Trust, the
provisions of this Indenture and in establishing and administering
the Reclassification Guidelines, including, without limitation, in
making any Directors' Determination, the Board of Directors shall
act in accordance with the duties and standards set forth in Section
10.1. Provided that the Board of Directors so acts, it shall not be
liable to the Trust or the Corporation and neither it nor the Trust
or Corporation shall be liable to any holder or beneficial owner of
Units or any other person for, nor with respect to any matter
arising from or related to, any act or omission to act in relation
to the foregoing.
Any determination by the Board of Directors required or contemplated
by Schedules "B" and "C", including, without limitation, any
Directors' Determination, shall be expressed and conclusively
evidenced by a resolution of the Board of Directors duly adopted.
The Reclassification Guidelines shall be expressed and conclusively
evidenced by a resolution of the Board of Directors duly adopted.
In making a Directors' Determination, the Board of Directors shall
be entitled to rely on relevant Unitholder's Declarations that have
been requested and received by the Corporation, on behalf of the
Trust, or such other information (including, without limitation,
information provided by the Transfer Agent, the Canadian Depository
for Securities Limited, the Depository Trust Company and ADP
Investor Communications or their respective successors, securities
registers of the Trust, the knowledge of any director, officer or
employee of the Trust or the Corporation or any advisor to the Trust
and the opinion of counsel to the Trust) that the Board of Directors
considers it reasonable to rely on in the circumstances provided,
however, that in making such Directors' Determination the Board of
Directors is acting in accordance with the duties and standards set
forth in Section 10.1.
16. Section 12.3 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
12.3 QUORUM
At any meeting of the Unitholders, subject as hereinafter provided,
a quorum shall consist of two or more individuals present in person
either holding personally or representing as proxies, in aggregate,
not less than 10% of the total number of the outstanding Units
entitled to be voted at the meeting. In the event of such quorum not
being present at the
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appointed place on the date for which the meeting is called within
one-half (1/2) hour after the time fixed for the holding of such
meeting, the meeting, if convened on the requisition of Unitholders,
shall be dissolved, but in any other case it shall stand adjourned
to such day being not less than fourteen (14) days later and to such
place and time as may be appointed by the Chairman of the meeting.
If at such adjourned meeting a quorum as above defined is not
present, the Unitholders present either personally or by proxy shall
form a quorum, and any business may be brought before or dealt with
at such an adjourned meeting which might have been brought before or
dealt with at the original meeting in accordance with the notice
calling the same.
17. Section 12.4 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
12.4 VOTING RIGHTS OF UNITHOLDERS
Subject to the other provisions of this Indenture, only Unitholders
of record shall be entitled to vote and each Unit shall entitle the
holder or holders of that Unit to one vote. At any meeting of
Unitholders, any holder of Units entitled to vote thereat may vote
by proxy and a proxy need not be a Unitholder, provided that no
proxy shall be voted at any meeting unless it shall have been placed
on file with the Trustee, or with such agent of the Trustee as the
Trustee may direct, for verification twenty-four (24) hours prior to
the commencement of such meeting. If approved by the Trustee,
proxies may be solicited in the name of the Trustee. When any Unit
is held jointly by several persons, any one of them may vote at any
meeting in person or by proxy in respect of such Unit, but if more
than one of them shall be present at such meeting in person or by
proxy, and such joint owners of their proxies so present disagree as
to any vote to be cast, such vote shall not be received in respect
of such Unit.
18. Section 12.6 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
12.6 MEANING OF "SPECIAL RESOLUTION"
(a) The expression "Special Resolution" when used in this
Indenture means, subject as hereinafter in this Article
provided, a resolution approved in writing by Unitholders
holding not less than 66-2/3% of the outstanding Units
entitled to vote on such resolution or a resolution passed as
a special resolution at a meeting of Unitholders (including an
adjourned meeting) duly convened for the purpose and held in
accordance with the provisions of this Article and passed by
the affirmative votes either in person or by proxy of the
holders of not less than 66-2/3% of the Units entitled to vote
on such resolution represented at the meeting and voted on a
poll upon such resolution.
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(b) Votes on a Special Resolution at a meeting shall always be
given on a poll and no demand for a poll on any Special
Resolution shall be necessary.
19. Section 13.1 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
13.1 CERTIFICATES
The forms of Certificates for Class N Units and Class R Units shall
be substantially as set out in Schedule "A" hereto or such other
form as is authorized from time to time by the Trustee. The form of
Certificates for Certificated Units shall be substantially in the
form of certificates for Units immediately prior to the Effective
Date. Each Certificate shall bear an identifying serial number and
shall be certified manually on behalf of the Trustee. Any additional
signature required by the Trustee to appear on such Certificates 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. The Certificates
may be engraved, printed or lithographed, or partly in one form and
partly in another, as the Trustee may determine.
20. Sections 13.3(a) and 13.3(b) of the Trust Indenture will be amended by
deleting them and replacing them with the following:
(a) Subject to the provisions of this Article 13, Schedules "B"
and "C" and the Reclassification Guidelines, the Units shall
be fully transferable without charge as between persons, but
no transfer of Units shall be effective as against the Trustee
or shall be in any way binding upon the Trustee until the
transfer has been recorded on the appropriate register or one
of the branch registers of transfer maintained by the Trustee
or Transfer Agent.
No transfer of a Unit shall be recognized unless such transfer
is of a whole Unit.
(b) Subject to the provisions of this Article 13 and Schedules "B"
and "C", Units shall be transferable on the register or one of
the branch registers of Unitholders of the Trust only upon
delivery to the Trustee or to a Transfer Agent of the Trust if
appointed, of the Certificate therefor, properly endorsed or
accompanied by a duly executed instrument of transfer and
accompanied by all necessary transfer or other taxes imposed
by law, together with such evidence of the genuineness of such
endorsement, execution and authorization and other matters
that may reasonably be required by the Trustee. Upon such
delivery the transfer shall be recorded on the registers of
Unitholders and a
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new Certificate for the residue thereof (if any) shall be
issued to the transferor.
21. Section 13.9 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
13.9 EXCHANGE OF CERTIFICATES
Certificates representing any number of Units may be exchanged
without charge for Certificates representing any equivalent number
of Units of the same class in the aggregate. Any exchange of
Certificates may be made at the offices of the Trustee or at the
offices of any Transfer Agent where registers are maintained for the
Certificates pursuant to the provisions of this Article 13. Any
Certificates tendered for exchange shall be surrendered to the
Trustee or appropriate Transfer Agent and shall be cancelled.
22. Section 18.5(a) of the Trust Indenture will be amended by deleting it and
replacing it with the following:
(a) Each Unitholder shall have the right to inspect during normal
business hours at the head office of the Corporation and the
right to obtain, on demand and on payment of reasonable
reproduction costs, a copy of this Indenture and the
Reclassification Guidelines adopted by the Board of Directors
if any, and any indenture supplemental hereto and the Royalty
Agreements.
23. The Trust Indenture will be amended by adding an additional Article as
follows, such Article to be numbered Article 19 and the existing Article
19 is to be renumbered as Article 20:
ARTICLE 19 - RECLASSIFICATION
19.1 RECLASSIFICATION OF EXISTING UNITS
(a) Subject to Section 19.2 and the Reclassification Guidelines,
at the Effective Time, all issued and outstanding Units of the
Trust other than Certificated Units shall be deemed to be
reclassified as Class R Units.
(b) Upon completion of the reclassification referred to in Section
19.1(a), each holder of Units immediately prior to the
Effective Time that has had such Units deemed to be
reclassified as Class R Units shall cease to be such a holder
of Units and shall, if a registered holder, have such
Unitholder's name removed from the register of holders of
Units and shall be deemed to be a holder of a number of Class
R Units equal to the number of Units held by such Unitholder
immediately prior to the Effective Time and, if a registered
holder, such holder's name shall be added to the register of
holders of Class R Units accordingly.
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19.2 UNITHOLDER'S DECLARATIONS AND CERTIFICATED UNITS
In connection with the reclassification referred to in Section
19.1(a), the Board of Directors shall request a Unitholder's
Declaration from each Unitholder or from such Unitholders as may be
determined by the Board of Directors. If any Unitholder fails to
return a completed Unitholder's Declaration (and any other required
documents) in accordance with such request, the Units held by such
Unitholder (unless deemed to be Class N Units under Section 19.3)
for which a Unitholder's Declaration is not received shall remain as
Certificated Units for the purposes of this Indenture and the Board
of Directors shall have the authority to determine:
(a) whether distributions will be declared in respect of any
Certificated Units and if so declared, as to the manner in
which the payment of such distributions are dealt with, which
payment arrangements may include the withholding of such
distributions until the Transfer Agent has received a
completed Unitholder's Declaration (and any other required
documents) and which payment arrangements may also include the
Trust remitting withholding taxes on such distributions at the
highest rate required by the Income Tax Act (Canada) on
payments to Non-Residents; and
(b) the other rights, if any, which attach to Certificated Units
pursuant to this Indenture, which rights may include the right
to vote (including being counted towards quorum) and the right
to receive the distribution of proceeds upon the termination
of the Trust.
The Corporation, on behalf of the Trust, by Directors'
Determination, has the power and authority to suspend any or all
Ownership Rights of holders of Certificated Units.
19.3 CONVERSION OF CLASS R UNITS HELD BY NON-RESIDENTS
Immediately following the reclassification provided for in Section
19.1(a), all Class R Units held by a Unitholder who is, or is deemed
to be pursuant to the Reclassification Guidelines, a Non-Resident,
shall be deemed to be converted into Class N Units on the basis of
one Class N Unit for each Class R Unit held without any further act
or formality. Such Unitholder's name shall be removed from the
register of holders of Class R Units, such Unitholder shall be
deemed to be a holder of Class N Units and such holder's name shall
be added to the register of Class N Units accordingly.
19.4 REDEMPTION
(a) The Board of Directors may, at any time following the
Effective Time, determine that the Trust shall, subject to
applicable law
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and to any required regulatory approval, repurchase or redeem
all or any part of the outstanding Certificated Units.
(b) In case only a part of the then outstanding Certificated Units
are at any time to be repurchased or redeemed, the
Certificated Units so repurchased or redeemed shall be
repurchased or redeemed on the basis that only the holders of
Certificated Units who hold less than a specified number of
Certificated Units will have their Certificated Units redeemed
or on a pro rata basis from the holdings of all holders of
Certificated Units or in such other manner as the Board of
Directors determines is practicable and equitable, such basis
to be determined by the Board of Directors in its sole
discretion.
(c) The price to be paid by the Trust to repurchase or redeem any
Certificated Units (the "Redemption Price") shall be:
(i) the weighted average trading price per unit of the Class
R Units on the principal stock exchange on which the
Class R Units are traded over the last 10 trading days
(or, if there is no principal stock exchange, such stock
exchange or such other organized market as the Board of
Directors shall determine) in the period ending on the
trading day immediately preceding the date that the
Trust provides the Redemption Notice (as defined below);
or
(ii) if the Class R Units are not listed and posted for
trading on any stock exchange or other organized market,
at their fair market value as of the date of repurchase
or redemption as the Board of Directors shall determine.
The price paid to a Unitholder pursuant to a redemption as
aforesaid shall be decreased by any amount required to be
deducted and withheld on account of tax.
(d) On any repurchase or redemption of Certificated Units
under this Section 19.4, the Corporation, on behalf of
the Trust, shall give at least 30 days before the date
fixed for repurchase or redemption, a notice in writing
of the intention of the Trust to repurchase or redeem to
each person who at the date of giving of such notice is
a registered holder of Certificated Units (a "Redemption
Notice"). Such Redemption Notice shall set out the
Redemption Price, the date fixed for repurchase or
redemption (the "Redemption Date") and, unless all the
Certificated Units held by the holder to whom it is
addressed are to be repurchased or redeemed, the number
of such units so held which are to be repurchased or
redeemed.
(e) On redemption of any Certificated Units in accordance
with the provisions hereof, any accrued and unpaid
distributions of
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Distributable Income, net of any withholding tax (the
"Withheld Distribution") that have not yet been paid on
the Redemption Date shall be paid together with the
Redemption Price in accordance with the provisions
hereof.
(f) In the event of any repurchase or redemption of
Certificated Units, the Corporation, on behalf of the
Trust, shall, not later than the Redemption Date,
deposit an amount (the "Net Redemption Amount") equal to
the Redemption Price and the Withheld Distributions,
less any amounts withheld on account of tax required to
be deducted and withheld therefrom (the "Withholdings")
in a segregated account in any bank or trust company in
Canada or the United States selected by it, which bank
or trust company shall be specified in the Redemption
Notice. The Net Redemption Amount, less the reasonable
costs of administration of the segregated account, shall
be payable to the registered holder of the Certificated
Units repurchased or redeemed on presentation and
surrender by the registered holder to that bank or trust
company of the Certificate or Certificates representing
the Certificated Units. Any interest earned on the Net
Redemption Amount shall accrue to the benefit of the
Trust. The Trust shall remit the Withholdings to the
appropriate taxing authority.
(g) From and after any deposit made pursuant to Sections
19.4(e) and 19.4(f) the registered holder shall not be
entitled to any of the remaining rights of a registered
holder in respect of the Certificated Units repurchased
or redeemed, other than the right to receive the funds
so deposited on presentation and surrender of the
Certificate or Certificates representing the
Certificated Units sold or repurchased or redeemed.
(h) Certificated Units which are repurchased or redeemed in
accordance with Section 19.4 shall be and be deemed to
be cancelled.
(i) Any money deposited pursuant to Sections 19.4(e) and
19.4(f) and not claimed within 6 years after the date of
repurchase or redemption shall be repaid to the Trust by
the bank or trust company on demand and thereupon the
bank or trust company shall be released from all further
liability with respect to such monies and in either case
thereafter the registered holder of the Certificated
Units shall have no rights in respect thereof except to
obtain payment of the monies due from the Trust against
delivery of Certificates for the Certificated Units
repurchased or redeemed, subject to any defence the
Trust may have.
(j) If a part only of the Certificated Units represented by
any certificate are repurchased or redeemed in
accordance with Section 19.4, the Trust or the Transfer
Agent shall, on presentation and surrender of such
Certificate and at the expense
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of the registered holder, issue a new Certificate
representing the balance of the Certificated Units.
24. The existing Section 19.1 of the Trust Indenture will be amended by
deleting it and replacing it with the following:
20.1 CONTINUED LISTING
For the purposes of this Section 20.1, the Trustee hereby appoints
the Corporation as its agent and the Corporation hereby covenants to
the Trustee and agrees that it shall, at the cost and expense of the
Trust, take all steps and actions and do all things that may be
required to maintain the listing and posting for trading of the
Class R Units and the Class N Units on the Toronto Stock Exchange
and to maintain its status as a "reporting issuer" not in default of
the securities legislation and regulations of each of the provinces
of Canada, where applicable.
SCHEDULE "A" TO THE TRUST INDENTURE
The Trust Indenture will be amended by replacing the present form of certificate
representing Trust Units with certificates, in the form approved by the Board of
Directors, representing Class N Units and Class R Units.
SCHEDULE "B" TO TRUST INDENTURE
The Trust Indenture will be amended by adding a Schedule "B" which will provide
that the Class N Units will have the rights and be subject to the rights,
limitation, restrictions and conditions set out in the Trust Indenture as
supplemented by the rights, limitations, restrictions and conditions attaching
to the Class N Units which are set out in such Schedule "B" and which rights,
limitations, restrictions and conditions are summarized in the Information
Circular of Petrofund Energy Trust dated October 18, 2004 under "Special Meeting
Matters - Proposed Reclassification of Trust Unit Capital - Class N Units".
In addition to the summarized amendments, the Board of Directors is authorized
to revise the summarized amendments and to make additional amendments as they
consider necessary or advisable.
SCHEDULE "C" TO TRUST INDENTURE
The Trust Indenture will be amended by adding a Schedule "C" which will provide
that the Class R Units will have the rights and be subject to the rights,
limitation, restrictions and conditions set out in the Trust Indenture as
supplemented by the rights, limitations, restrictions and conditions attaching
to the Class R Units which are set out in such Schedule "C" and which rights,
limitations, restrictions and conditions are summarized in the Information
Circular of Petrofund Energy Trust dated October 18, 2004, under "Special
Meeting Matters - Proposed Reclassification of Trust Unit Capital - Class R
Units".
In addition to the summarized amendments, the Board of Directors is authorized
to revise the summarized amendments and to make additional amendments as they
consider necessary or advisable.
SCHEDULE "C"
SPECIAL RESOLUTION OF UNITHOLDERS TO AMEND
THE TRUST INDENTURE AND THE ROYALTY AGREEMENT
BE IT RESOLVED AS A SPECIAL RESOLUTION OF THE UNITHOLDERS OF PETROFUND ENERGY
TRUST THAT:
1. the Trust Indenture and the Royalty Agreement be amended substantially in
the manner set forth in Schedule "D" to the Information Circular - Proxy
Statement of Petrofund Energy Trust dated October 18, 2004, with such
changes as the Board of Directors may deem necessary or advisable to give
effect to such amendments;
2. notwithstanding the passing of this resolution by Unitholders, the Board
of Directors, without further notice to or approval of Unitholders, may
decide not to implement any or all the matters provided for in this
Special Resolution at any time prior to the implementation thereof;
3. the Trustee is hereby authorized, for and on behalf of Petrofund Energy
Trust, to enter into, execute and deliver an amending agreement to the
Trust Indenture, or an amended and restated trust indenture, and an
amending agreement to the Royalty Agreement, or an amended and restated
royalty agreement, to give effect to the amendments approved by the
Special Resolution and the agreements so executed shall conclusively be
deemed to be the agreements authorized and approved by this Special
Resolution; and
4. the Trustee is hereby authorized, for and in the name of Petrofund Energy
Trust, and any officer or director of the Corporation is hereby
authorized, for and in the name of the Corporation, to execute all
documents and to do all things as deemed necessary or advisable to
implement this Special Resolution.
SCHEDULE "D"
In order to give effect to the proposed amendments to the Trust Indenture and
the Royalty Agreement described in the Information Circular under "Special
Meeting Matters - Other Proposed Amendments to Trust Indenture and Proposed
Amendments to Royalty Agreement", it is proposed that the Trust Indenture and
the Royalty Agreement will be amended as set forth below.
AMENDMENT TO ROYALTY AGREEMENT
1. Section 3.01 of the Royalty Agreement will be deleted.
AMENDMENTS TO TRUST INDENTURE
1. Section 1.1 of the Trust Indenture will be amended by deleting the present
definition of "Exchangeable Shares" and replacing it with the following:
EXCHANGEABLE SHARES means shares in the capital of the Corporation
or an Affiliate of the Corporation or interest in a partnership in
which the Corporation or an Affiliate of the Corporation is the
managing partner or interest in a limited partnership in which the
Corporation or an Affiliate of the Corporation is the general
partner which are, by their terms, exchangeable into one or more
classes of Units.
2. Section 1.1 of the Trust Indenture will be amended by deleting the present
definitions of "Royalties" and "Royalty Agreement" and by inserting a new
definition of "Royalty Agreements" as follows:
ROYALTY AGREEMENTS means agreements providing for the creation of
royalties on properties acquired or to be acquired by the
Corporation or other Affiliates of the Trust;
and references to "Royalty Agreement" in the Indenture shall be replaced
with a reference to "Royalty Agreements".
3. Section 5.3 through 5.6 of the Trust Indenture will be amended by deleting
them and replacing them with the following:
5.3 CALCULATION OF RETRACTION PRICE BASED ON MARKET PRICE
Subject to Section 5.5, upon receipt by the Trustee of the notice to
retract Units in accordance with Section 5.2, the holder of the
Units tendered for retraction shall be entitled to receive a price
per Unit (hereinafter called the "Retraction Price") equal to the
lesser of:
(a) 95% of the market price of the Units on the principal market
on which the applicable class of Units are listed for trading
during the ten trading day period commencing immediately after
the Retraction Date; and
(b) the closing market price on the principal market on which the
applicable class of Units are listed for trading, on the
Retraction Date.
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For purposes of subsection 5.3(a), the "market price" shall be the
amount equal to the simple average of the closing price of the
applicable class of Units for each of the trading days on which
there was a closing price; provided that if the applicable exchange
or market does not provide a closing price but only provides the
highest and lowest prices of the applicable class of Units traded on
a particular day, the "market price" shall be an amount equal to the
simple average of the highest and lowest prices for each of the
trading days on which there was a trade; and provided further that
if there was trading on the applicable exchange or market for fewer
than five of the ten trading days, the "market price" shall be the
simple average of the following prices established for each of the
ten trading days: the average of the bid and ask prices of the
applicable class of Units for each day on which there was no
trading; the closing price of the applicable class of Units for each
day that there was trading if the exchange or market provides a
closing price; and the average of the highest and lowest prices of
the applicable class of Units for each day that there was trading if
the market provides only the highest and lowest closing prices of
the applicable class of Units traded on a particular day.
For purposes of subsection 5.3(b), the "closing market price" shall
be the amount equal to the closing price of the applicable class of
Units if there was a trade on the date and the exchange or market
provides a closing price; an amount equal to the average of the
highest and lowest prices of the applicable class of Units if there
was trading and the exchange or other market provides only the
highest and lowest prices of the applicable class of Units traded on
a particular day; and the average of the last bid and last ask
prices of the applicable class of Units if there was no trading on
the date.
5.4 CASH RETRACTION
Subject to Section 5.5, the Retraction Price payable in respect of
the Units tendered for retraction during any month shall be paid by
cheque, drawn on a Canadian chartered bank or trust company in
lawful money of Canada, payable at par to or to the order of the
Unitholder who exercised the right of retraction on the last day of
the calendar month following the month in which the Units were
tendered for retraction. Payments out of the Trust of the Retraction
Price are conclusively deemed to have been made upon the mailing of
a cheque in a postage prepaid envelope addressed to the former
Unitholder unless such cheque is dishonoured upon presentation. Upon
such payment, the Trustee shall be discharged from all liability to
the former Unitholder in respect of the Units so retracted.
5.5 NO CASH RETRACTION IN CERTAIN CIRCUMSTANCES
Section 5.4 shall not be applicable to Units tendered for retraction
by a Unitholder, if the total amount payable in respect of such
Units and all other Units tendered for retraction in the same
calendar month exceeds $100,000, provided that the Trustee may, in
its sole discretion, waive such limitation in respect of any
calendar month.
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5.6 IN SPECIE RETRACTION
If, pursuant to Section 5.5, Section 5.4 is not applicable to Units
tendered for retraction by a Unitholder, the Retraction Price per
Unit specified in Section 5.3, shall, subject to all necessary
regulatory approvals, be paid and satisfied by way of a distribution
in specie to such Unitholder of debt securities of the Corporation
having a term determined by the Board of Directors ending not more
than five (5) years after the date of issue and a rate of interest
which is not less than the then highest rate of interest charged by
the Trust to the Corporation (the "PC Notes") in a principal amount
equal to such Retraction Price. If the Trust does not hold PC Notes
having a sufficient principal amount outstanding to effect such
payment, the Trust will be entitled to create and, subject to any
applicable regulatory approvals, issue in satisfaction of the
Retraction Price its own debt securities (the "Trust Retraction
Notes") having a term determined by the Board of Directors ending
not more than five (5) years after the date of issue and a rate of
interest which is not less than the highest rate of interest charged
by the Trust to the Corporation and having such other terms and
conditions as the Trustee may determine and with recourse of the
holder limited to the assets of the Trust. The in specie Retraction
Price payable in respect of Units tendered for retraction during any
calendar month shall be paid by transfer, to or to the order of the
Unitholder who exercised the right of retraction on the last day
(the "Transfer Date") of the calendar month following the calendar
month in which the Units were tendered for retraction, of PC Notes
(or, as applicable, the issuance and delivery of Trust Retraction
Notes) determined as aforesaid. The Trust shall be entitled to all
interest paid or accrued and unpaid on the PC Notes being
transferred to and including the Transfer Date. Payments by the
Trust of the applicable Retraction Price are conclusively deemed to
have been made upon the mailing of the applicable PC Notes or Trust
Retraction Notes, as the case may be, by mail in a postage pre-paid
envelope addressed to the former Unitholder. Upon such payment, the
Trust shall be discharged from all liability to the former
Unitholder in respect of the Units so retracted.
4. The Trust Indenture will be amended by inserting a new Section 5.7 as
follows and renumbering the existing Sections 5.7 and 5.8 as 5.8 and 5.9,
respectively:
5.7 CALCULATION OF RETRACTION PRICE IN CERTAIN OTHER CIRCUMSTANCES
Section 5.3 shall not be applicable to Units tendered for retraction
by a Unitholder, if:
(a) at the time the Units are tendered for retraction, the
outstanding class of Units tendered for retraction are not
listed for trading on a Canadian stock exchange and are not
traded or quoted on any other stock exchange or market which
the Board of Directors, on behalf of the Corporation,
considers, in its sole discretion, provides representative
fair market value prices for the applicable class of Units
provided, however, that any Units which are tendered for
retraction after the Effective Date which are Certificated
Units shall, for the purpose of the foregoing, be considered
to be Class N Units; or
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(b) the normal trading of the outstanding class of Units tendered
for retraction is suspended or halted on any stock exchange or
market on which the applicable class of Units are listed for
trading or, if not so listed, on any market on which the
applicable class of Units are quoted for trading, on the
Redemption Date or for more than five trading days during the
ten day trading period commencing immediately after the
Retraction Date;
and in either such case, such Unitholder shall, instead of the
Retraction Price, be entitled to receive a price per Unit (herein
referred to as the "Appraised Retraction Price") equal to 95% of the
fair market value thereof as determined by the Board of Directors as
at the Retraction Date. The Appraised Retraction Price payable in
respect of Units tendered for retraction in any calendar month shall
be paid on the last day of the third calendar month following the
month in which the Retraction Date occurred, at the option of the
Trust:
(i) a cash payment, in which case the provisions of Section
5.4 shall apply mutatis mutandis; or
(ii) in the manner provided for in Section 5.5, in which case
the provisions of Section 5.5 shall apply mutatis
mutandis.
5. Section 6.2 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
6.2 ADDITIONAL RESOURCE ASSETS
The Trust and/or the Corporation, may acquire Properties and may
invest in or acquire Additional Resource Assets, directly or
indirectly, including, without limitation, through the acquisition
of securities of other resource issuers, such as public or private
resource royalty or income trusts or resource companies, takeover
bid or merger transactions, private placements or other equity
transactions or direct asset acquisitions or other property
transactions. Notwithstanding anything contained herein, the Trust
may not, directly or indirectly, acquire any property which would
cause the Trust to carry on any business for the purposes of the
Income Tax Act (Canada).
6. Section 10.1 of the Trust Indenture will be amended by adding as an
additional matter which has been delegated by the Trustee to the
Corporation the following:
the responsibility and authority for approving the entering into and
the amendment of the provisions of Royalty Agreements;
7. Section 11.1 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
11.1 AMENDMENT
Except where specifically provided, the amendment of the provisions
of this Indenture may only be agreed to by the Trustee with the
consent of the Unitholders by Special Resolution.
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The amendment of the provisions of this Indenture may be agreed to
by the Trustee without the consent, approval or ratification of any
of the Unitholders or any other person, at any time for the purpose
of:
(a) ensuring, based on the advice of Counsel, that the Trust will
comply with any applicable laws or requirements of any
governmental agency or authority having jurisdiction;
(b) ensuring, based on the advice of Counsel, that the Trust will
satisfy the provisions of each of subsections 108(2) and
132(6) of the Income Tax Act (Canada) as from time to time
amended or replaced;
(c) ensuring that such additional protection is provided for the
interests of Unitholders as the Trustee, based on the advice
of Counsel, may consider expedient;
(d) removing any conflicts or inconsistencies between the
provisions of this Indenture or any supplemental indenture and
any prospectus filed with any regulatory or governmental body
with respect to the Trust, or any applicable law or regulation
of any jurisdiction, if, in the opinion of the Trustee, based
on the advice of Counsel, such an amendment will not be
detrimental to the interests of the Unitholders; or
(e) making changes for any other purpose not inconsistent with the
terms of this Indenture, including the correction or
rectification of any ambiguities, defective or inconsistent
provisions, errors, mistakes or omissions, provided that in
the opinion of the Trustee, based on the advice of Counsel,
the rights of the Trustee and of the Unitholders are not
prejudiced thereby.
Notwithstanding the foregoing, no amendment shall reduce the
percentage of votes required to be cast at a meeting of the
Unitholders for the purpose of amending this Section 11.1 without
the consent of the holders of all of the Units then outstanding.
8. Section 12.5 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
12.5 RESOLUTIONS
Unitholders shall be entitled to pass Special Resolutions for the
following purposes and the Trustee shall not act in connection with
such matters without such Special Resolution:
(a) removing or appointing the Trustee as provided in Section 8.2
or 8.3;
(b) subject to Section 11.1, consenting to any amendments to this
Indenture;
(c) subject to Section 3.3, approving subdivisions or
consolidations of Units;
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(d) approving any resolution to terminate the Trust as provided in
Section 14.2;
(e) approving the sale of the property of the Trust Fund as an
entirety or substantially as an entirety;
(f) directing or authorizing the Trustee to exercise any power,
right, remedy or authority given to it by this Indenture in
any manner specified in any such resolution or to refrain from
exercising any such power, right, remedy or authority;
(g) authorizing and directing the Trustee to commence, defend,
adjust or settle suits or legal proceedings in connection with
the Trust and to represent the Trust in any such suits or
legal proceedings (provided that the Trustee shall be obliged
to comply with such authority and requirements only in the
event that the Trustee has been provided with reasonable
security for the payment of all costs which may be incurred in
connection therewith); and
(h) subject to Article 14, approving the disposition of Properties
having a value in excess of 35% of the Asset Value of the
Properties and determining whether or not replacement
properties are to be acquired or the net proceeds of sale are
to be distributed in whole or in part.
9. Section 18.3 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
18.3 QUARTERLY REPORTING TO UNITHOLDERS
The Trustee will mail to each Unitholder, within 45 days after the
end of each Quarter unaudited financial statements of the Trust for
such Quarter.
10. Section 18.4 of the Trust Indenture will be amended by deleting it and
replacing it with the following:
18.4 ANNUAL REPORTING TO UNITHOLDERS
The Trustee will mail:
(a) to each Unitholder, within 90 days after the end of each
calendar year, the audited financial statements of the Trust
for such year, together with the report of the Auditors
thereon; and
(b) to each person who received a distribution from the Trust
during a calendar year, within 90 days after the end (of such
calendar year), tax reporting information relating to such
year for the purpose of enabling such persons to report the
income tax consequences of their respective investments in
Units in their respective Canadian income tax returns.