EXHIBIT 99.132
--------------
ADVANTAGE ENERGY INCOME FUND
Information Circular - Proxy Statement
For the Annual and Special Meeting of Unitholders
to be held on Wednesday, May 26th, 2004
SOLICITATION OF PROXIES
This Information Circular - Proxy Statement is furnished in connection
with the solicitation of proxies by Advantage Investment Management Ltd., the
manager (the "Manager") of Advantage Energy Income Fund (the "Trust", the "Fund"
or "Advantage"), for use at the Annual and Special Meeting of the holders (the
"Unitholders") of trust units ("Trust Units") of the Trust (the "Meeting") to be
held on the 26th day of May, 2004 at 3:00 p.m. (Calgary time) in the Devonian
Room at the Calgary Petroleum Club, 319 - 5th Avenue S.W., Calgary, Alberta, and
at any adjournment thereof, for the purposes set forth in the Notice of Annual
and Special Meeting.
Instruments of Proxy must be received by Computershare Trust Company of
Canada, Stock Transfer Department, 100 University Avenue, 9th Floor, Toronto,
Ontario, M5J 2Y1, not less than 24 hours before the time for the holding of the
Meeting or any adjournment thereof. Computershare Trust Company of Canada, the
trustee of the Trust (the "Trustee"), has fixed the record date for the Meeting
at the close of business on April 16, 2004 (the "Record Date"). Only Unitholders
of record as at that date are entitled to receive notice of the Meeting.
Unitholders of record will be entitled to vote those Trust Units included in the
list of Unitholders entitled to vote at the Meeting prepared as at the Record
Date, even though the Unitholder has since that time disposed of his or her
Trust Units. No Unitholder who became a Unitholder after the Record Date shall
be entitled to vote at the Meeting.
The instrument appointing a proxy shall be in writing and shall be
executed by the Unitholder or his/her attorney authorized in writing or, if the
Unitholder is a corporation, under its corporate seal or by an officer or
attorney thereof duly authorized.
The persons named in the enclosed form of proxy are directors and/or
officers of Advantage Oil & Gas Ltd. ("AOG" or the "Corporation") and/or the
Manager. Each Unitholder has the right to appoint a proxyholder other than the
persons designated above, who need not be a Unitholder, to attend and to act for
the Unitholder and on behalf of the Unitholder at the Meeting. To exercise such
right, the names of the nominees of management should be crossed out and the
name of the Unitholder's appointee should be legibly printed in the blank space
provided.
NOTICE TO BENEFICIAL HOLDERS OF TRUST UNITS
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 do not hold Trust Units in their own name. 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 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 The Canadian Depositary for Securities Limited, which acts as nominee
for many Canadian brokerage firms). Trust Units held by brokers or their
nominees can only be voted (for or
2
against resolutions) upon the instructions of the Beneficial Unitholder. Without
specific instructions, the broker/nominees are prohibited from voting Trust
Units for their clients. The Trust does not know for whose benefit the Trust
Units registered in the name of CDS & Co. are held.
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 Investor
Communications ("ADP"). ADP typically mails a scannable Voting Instruction Form
in lieu of the Form of Proxy. Beneficial Unitholders are requested to complete
and return the Voting Instruction Form forwarded to them by mail or facsimile.
Alternatively, Beneficial Unitholders can call a toll-free telephone number or
access ADP's dedicated voting website at www.proxyvotecanada.com to deliver
their voting instructions and vote the Trust Units held by them. 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 voted.
REVOCABILITY OF PROXY
A Unitholder who has submitted a proxy may revoke it at any time prior to
the exercise thereof. If a person who has given a proxy attends at the Meeting
in person at which such proxy is to be voted, such person may revoke the proxy
and vote in person. In addition to revocation in any other manner permitted by
law, a proxy may be revoked by instrument in writing executed by the Unitholder
or his/her officer or attorney authorized in writing or, if the Unitholder is a
corporation, under its corporate seal or by an officer or attorney thereof duly
authorized and deposited either at the head office of the Manager at any time up
to and including the last business day preceding the day of the Meeting, or any
adjournment thereof, at which the proxy is to be used, or with the Chairman of
the Meeting on the day of the Meeting, or any adjournment thereof, and upon
either of such deposits, the proxy is revoked.
PERSONS MAKING THE SOLICITATION
The solicitation is made on behalf of the Manager of the Trust. The costs
incurred in the preparation and mailing of the Instrument of Proxy, Notice of
Annual and Special Meeting and this Information Circular - Proxy Statement will
be borne by the Trust. In addition to solicitation by mail, proxies may be
solicited by personal interviews, telephone or other means of communication and
by directors, officers and employees of the Manager, who will not be
specifically remunerated therefore.
EXERCISE OF DISCRETION BY PROXY
The Trust Units represented by proxy in favour of management nominees
shall be voted on any ballot at the Meeting and, where the Unitholder specifies
a choice with respect to any matter to be acted upon, the Trust Units shall be
voted on any ballot in accordance with the specification so made.
In the absence of such specification, the Trust Units will be voted in
favour of the matters to be acted upon. The persons appointed under the
Instrument of Proxy furnished by the Trust are conferred with discretionary
authority with respect to amendments or variations of those matters
3
specified in the Instrument of Proxy and Notice of Annual and Special Meeting.
At the time of printing this Information Circular - Proxy Statement, management
of the Trust knows of no such amendment, variation or other matter.
VOTING TRUST UNITS AND PRINCIPAL HOLDERS THEREOF
The Trust was formed pursuant to the provisions of the Trust Indenture
dated April 17, 2001, as amended by the First Supplemental Indenture dated as of
May 22, 2001, between the Trustee and Advantage Oil & Gas Ltd. and 687371
Alberta Ltd. as the settlor and as further amended and restated as of June 25,
2002 and May 28, 2003 (collectively, the "Trust Indenture").
The Trust is authorized to issue an unlimited number of Trust Units. As at
March 31, 2004, 38,166,885 Trust Units were issued and outstanding. The
Corporation is also entitled to issue Special Voting Units. As at March 31,
2004, no Special Voting Units had been issued. As at March 31, 2004 the
Corporation also has outstanding $8,365,000 principal amount of 10% convertible
unsecured subordinated debentures (the "10% Debentures"), $29,875,000 principal
amount of 9% convertible unsecured subordinated debentures (the "9% Debentures")
and $56,978,000 principal amount of 8.25% convertible unsecured subordinated
debentures (the "8.25% Debentures"). The 10% Debentures, 9% Debentures and 8.25%
Debentures are convertible into Trust Units at conversion prices of $13.30 per
Trust Unit, $17.00 per Trust Unit and $16.50 per Trust Unit, respectively,
subject to adjustments in certain events. The 10% Debenture, 9% Debenture and
8.25% Debenture are collectively referred to as the "Debentures").
At the Meeting, upon a show of hands, every Unitholder present in person
or represented by proxy and entitled to vote shall have one vote. On a poll or
ballot, every Unitholder present in person or by proxy has one vote for each
Trust Unit of which such Unitholder is the registered holder. All votes on
special resolutions shall be by a ballot and no demand for a ballot shall be
necessary.
When any Trust Unit is held jointly by several persons, any one of them
may vote at the Meeting in person or by proxy in respect of such Trust Unit, but
if more than one of them shall be present at the Meeting in person or by proxy,
and such joint owners of the proxy so present disagree as to any vote to be
cast, the joint owner present or represented whose name appears first in the
register of Unitholders maintained by the Trustee shall be entitled to cast such
vote.
To the best of the knowledge of the Trustee, the Manager, and the
directors of AOG, there is no person or corporation which beneficially owns,
directly or indirectly, or exercises control or direction over Trust Units
carrying more than 10% of the voting rights attached to the issued and
outstanding Trust Units of the Trust which may be voted at the Meeting.
The percentage of Trust Units of the Trust that are owned, directly or
indirectly, by the directors and officers of AOG as a group as at March 31, 2004
is 6.2% (2,375,121 Trust Units). In addition, the directors and officers of AOG
as a group own, directly or indirectly, $69,000 principal amount of Debentures.
QUORUM FOR MEETING
At the Meeting, a quorum shall consist of two or more persons either
present in person or represented by proxy and representing in the aggregate not
less than 10% of the outstanding Trust Units. If a quorum is not present at the
Meeting within one half hour after the time fixed for the holding of the
Meeting, it shall stand adjourned to such day being not less than fourteen (14)
days later and to such place and time as may be determined by the Chairman of
the Meeting. At such Meeting, the Unitholders
4
present either personally or by proxy shall form a quorum. In the case of a
meeting, at which a special resolution is under consideration, such adjournments
are required to be for not less than 21 days and notice is to be given at least
10 days prior to the date of the adjourned meeting.
APPROVAL REQUIREMENTS
All of the matters to be considered at the Meeting are ordinary
resolutions requiring approval by more than 50% of the votes cast in respect of
the resolution by or on behalf of Unitholders present in person or represented
by proxy at the Meeting except for the Trust Indenture Amendment Resolution,
which requires approval by a special resolution. A special resolution requires
the approval of not less than 66 2/3% of the votes cast in respect of the
resolution by or on behalf of Unitholders present in person or represented by
proxy at the Meeting. In addition, the Toronto Stock Exchange ("TSX") has
requested that disinterested Unitholder approval be obtained in connection with
the resolution authorizing the issuance of Trust Units (in lieu of cash) for
payment of the annual performance fee to or as directed by the Manager and
accordingly the officers of AOG and their associates and the Manager, its
affiliates, officers, directors and their associates will not be entitled to
vote in respect of such ordinary resolution. The amendments to the Trust
Indenture which are proposed for consideration at the Meeting are made subject
to implementation at the discretion of the Board of Directors based upon such
factors as the Board of Directors may consider relevant.
MATTERS TO BE ACTED UPON AT MEETING
1. Appointment of Trustee of the Trust
The Trust Indenture provides that the Unitholders at each annual meeting
shall re-appoint the Trustee or appoint a successor to the Trustee. Accordingly,
Unitholders will consider an ordinary resolution to re-appoint Computershare
Trust Company of Canada ("Computershare") as trustee of the Trust to hold office
until the end of the next annual meeting.
2. Selection of Directors of AOG
Pursuant to the terms of the shareholder agreement dated as of May 24,
2001, between the Manager, AOG and the Trustee, as trustee of the Trust (the
"Shareholder Agreement"), it is provided that the Board of Directors of AOG is
to consist of a minimum of five (5) and a maximum of nine (9) members and was
initially set at seven (7) members and is now being expanded to eight (8)
members. The Shareholder Agreement also provides that as long as the Manager is
the manager of the Trust, it is entitled to designate two (2) of the members of
the Board of Directors of AOG and the balance of the members of the Board of
Directors of AOG are to be selected by a vote of Unitholders at a meeting of
Unitholders held in accordance with the Trust Indenture and that following such
meeting the Trustee shall elect the individuals so selected by the Unitholders
to the Board of Directors of AOG. One of the directors so selected by the
Unitholders will be the Chairman of the Board of Directors of AOG.
The six (6) nominees for selection as directors of AOG by Unitholders are
as follows:
Ronald A. McIntosh
Roderick M. Myers
Steven Sharpe
Lamont C. Tolley
Rodger A. Tourigny
Carol D. Pennycook
5
The names and municipalities of residence of the six (6) persons nominated
for selection as directors of AOG by Unitholders; the number of Trust Units of
the Trust beneficially owned, directly or indirectly, or over which each
exercises control or direction; the offices held by each in AOG, the time served
as director; and the principal occupation of each are as follows:
Number of Trust
Name and Municipality Units Beneficially Offices Held and Time as Principal
of Residence Owned or Controlled Director(6) Occupation
- --------------------------- ------------------- ----------------------------- ----------------------------------
Ronald A. McIntosh(2)(5) 38,811 Director since September 25, Chairman of NAV Energy Trust, a
Calgary, Alberta 1998 publicly traded royalty trust
Roderick M. Myers(2)(3)(5) 286,151 Director since December 31, Independent businessman
Calgary, Alberta 1996
Steven Sharpe(1)(3) 8,225 Director since May 24, 2001 Managing Partner of Blair
Toronto, Ontario Franklin Capital Partners Inc.,
an investment banking firm
Lamont C. Tolley(1) Nil Non-Executive Chairman and Independent businessman and
Calgary, Alberta Director since May 24, 2001 President of Genex Energy Inc.,
a private oil and gas company
Rodger A. Tourigny(1)(2)(5) 35,000 Director since December 31, President of Tourigny Management
Calgary, Alberta 1996 Ltd., a private oil and gas
consulting company
Carol D. Pennycook Nil Nominee Partner at the law firm of
Toronto, Ontario Davies Ward Phillips & Vineberg
LLP
Notes:
(1) Member of Audit Committee.
(2) Member of Independent Reserve Evaluation Committee.
(3) Member of Human Resources, Compensation and Corporate Governance
Committee.
(4) AOG does not have an executive committee of its Board of Directors.
(5) Each of Messrs. McIntosh, Myers and Tourigny owns 35,000 Trust Unit
incentive rights. See "Remuneration of Directors of AOG". In addition, Mr
McIntosh owns $69,000 principal amount of Debentures.
(6) The period of time served as a director of AOG includes the period of time
served, where applicable, as a director of Search Energy Corp. ("Search")
prior to the reorganization of Search into a trust structure and the
change of name of Search to Advantage Oil & Gas Ltd. Each of the directors
were appointed directors of post-reorganization Search on May 24, 2001.
As stated above, pursuant to the Shareholder Agreement, the Manager is
entitled to designate two (2) of the members of the Board of Directors of AOG.
The Manager intends to designate the following persons as members of the Board
of Directors of AOG:
Kelly I. Drader
Gary F. Bourgeois
The names and municipalities of residence of Messrs Bourgeois and Drader;
the number of Trust Units of the Trust beneficially owned, directly or
indirectly, or over which each exercises control or direction; the offices held
by each in AOG, the time served as director and the principal occupation of each
are as follows:
6
Name and Number of Trust Units
Municipality Beneficially Owned or Offices Held and Time as Principal
of Residence Controlled Director Occupation
- ----------------- ---------------------- ------------------------------ --------------------------------------
Kelly I. Drader 688,948 President and Chief Executive President and Chief Executive Officer
Calgary, Alberta Officer and Director since May of AOG and the Manager
24, 2001
Gary F. Bourgeois 517,560 Vice President and Director Vice President, Corporate Development
Toronto, Ontario since May 24, 2001 of AOG and Vice President of the
Manager
3. Appointment of Auditors of the Trust
The Trust Indenture provides that the auditors of the Trust will be
selected at each annual meeting of Unitholders. Accordingly, Unitholders will
consider an ordinary resolution to appoint the firm of KPMG LLP, Chartered
Accountants, Calgary, Alberta, to serve as auditors of the Trust until the next
annual meeting of the Unitholders. KPMG LLP have been the auditors of the Trust
since July 25, 2002.
The Shareholder Agreement provides that the auditors of AOG will be the
same as the auditors of the Trust.
Unitholders are hereby informed that AOG will pass a shareholders
resolution in writing to elect each of the directors selected by the Unitholders
and the Manager as directors of AOG and to appoint the auditors of the Trust as
the auditors of AOG.
4. Trust Indenture Amendment Resolution
Management presented to the Board of Directors of AOG certain proposed
amendments to the Trust Indenture and after considering such amendments the
Board of Directors of AOG determined to place before the Unitholders a special
resolution approving amendments to the Trust Indenture as follows:
Non-Resident Ownership Constraint
On March 23, 2004, the Federal Government announced proposed changes to
the Income Tax Act (Canada) which may require income funds and royalty trusts
such as the Trust to retain majority Canadian ownership in order to maintain
their status as a "mutual fund trust" under the Income Tax Act (Canada). The
proposed amendments to the Trust Indenture described below are intended to
assist the Trust in maintaining the required Canadian ownership levels with a
view to further ensuring that it is "not being maintained primarily for the
benefit of non-residents" and thereby maintain its status as a "mutual fund
trust".
The Trust Indenture is proposed to be amended to provide that the
Corporation shall, from time to time, take reasonable steps under the
circumstances to monitor the number of Trust Units beneficially owned by
non-residents of Canada (within the meaning of the Income Tax Act (Canada)) with
a view to generally determining that the level of non-resident ownership remains
at not more than 45% of the issued and outstanding trust units on a diluted
basis (the "Ownership Threshold"). Upon the Board of Directors of AOG being
advised that the level of non-resident ownership has exceeded the Ownership
Threshold and continues to do so for four consecutive months, the Board of
Directors is required to review strategies to maintain majority ownership of
Trust Units by Canadian residents in order to ensure that the Trust is not being
maintained primarily for the benefit of non-residents of Canada. In addition to
any other strategies to maintain majority Canadian ownership which the Board of
Directors may approve from time
7
to time, the Corporation will be authorized and entitled to implement
non-resident ownership constraints including measures that would allow the
Trust, the Transfer Agent and the Trustee to restrict issuance of units to
non-residents of Canada and in some instances, to require certain non-residents
of Canada to sell their Trust Units.
If for any reason, the Trust was not able to maintain its mutual fund
trust status, certain adverse consequences may arise for the Trust and its
Unitholders, both Canadian and non-resident. Some of the significant
consequences of losing mutual fund trust status are as follows:
o The Trust would be taxed on certain types of income distributed to
Unitholders, including income generated by the royalties held by the
Trust. Payment of this tax may have adverse consequences for some
Unitholders, particularly Unitholders that are not residents of Canada and
residents of Canada that are otherwise exempt from Canadian income tax.
o The Trust would cease to be eligible for the capital gains refund
mechanism available under Canadian tax laws if it ceased to be a mutual
fund trust.
o Trust Units held by Unitholders that are not residents of Canada would
become taxable Canadian property. These non-resident holders would be
subject to Canadian income tax on any gains realized on a disposition of
Trust Units held by them.
o Trust Units would not constitute qualified investments for registered
retirement savings plans ("RRSPs"), registered retirement income funds
("RRIFs"), registered education savings plans ("RESTs") or deferred profit
sharing plans ("DPSPs"). If, at the end of any month, one of these exempt
plans holds Trust Units that are not qualified investments, the plan must
pay a tax equal to 1% of the fair market value of the Trust Units at the
time the Trust Units were acquired by the exempt plan. An RRSP or RRIF
holding non-qualified Trust Units would be subject to taxation on income
attributable to the Trust Units. If an RESP holds non-qualified Trust
Units, it may have its registration revoked by the Canada Customs and
Revenue Agency.
Miscellaneous
The Trust Indenture is also proposed to be amended to: (i) reflect the
issuance of the 9 3/8% and 8.5% unsecured subordinated promissory notes of AOG
and the note indentures with respect to same, which notes were issued in
connection with the debenture financings completed on July 8, 2003 and December
2, 2003; (ii) indicate that the Trust's financial statements are to be mailed to
Unitholders requesting same within 90 days of the applicable year end and 45
days of the applicable quarter end under the recently introduced National Policy
51-102 - Continuous Disclosure Obligations published by the Canadian Securities
Administrators; and (iii) delegate from the Trustee to AOG, matters relating to
the Trust's continuing qualification as a "mutual fund trust" under the Income
Tax Act (Canada) including the implementation of non-resident ownership
constraints as discussed above and set forth in Schedule "A" hereto.
Special Resolution
At the Meeting, Unitholders will be asked to consider, and if deemed
advisable, to approve the special resolution set forth in Schedule "A" (the
"Trust Indenture Amendment Resolution") amending the Trust Indenture in the
manner described above and as set forth in Schedule "A". The Board of Directors
of AOG recommends that Unitholders approve the Trust Indenture Amendment
Resolution.
8
5. Advance Unitholder Approval for Private Placements
The Trust from time to time investigates opportunities to raise financing
on advantageous terms. While the Trust has no specific plans at this time, it
may undertake one or more financings over the next year that may be structured
as private placements. Under the rules of the TSX, the aggregate number of Trust
Units of a listed issuer which are issued or made subject to issuance (i.e.,
issuable under a purchase warrant or option or other convertible security) by
way of one or more private placement transactions during any particular
six-month period must not exceed 25% of the number of Trust Units outstanding
(on a non-diluted basis) prior to giving effect to such transactions (the "TSX
25% Rule"), unless Unitholder approval has been obtained for such transactions.
The application of the TSX 25% Rule may restrict the availability to the
Trust of funds which it may wish to raise in the future by private placement of
its securities.
The TSX will accept advance approval by Unitholders in anticipation of
private placements that may exceed the TSX 25% Rule, provided such private
placements are completed within 12 months of the date such advance Unitholder
approval is given. Accordingly, the Trust wishes to present to Unitholders a
proposal to proceed with additional private placements over the next twelve
months in excess of the TSX 25% Rule.
As at March 31, 2004 the Trust had 38,166,885 Trust Units issued and
outstanding. Accordingly, the Trust proposes that the maximum number of Trust
Units which either would be issued or made subject to issuance under one or more
private placements in the 12-month period commencing May 26, 2004 not exceed
15,000,000 Trust Units in the aggregate, or approximately 39%, of the Trust's
issued and outstanding Trust Units.
Any private placement proceeded with by the Trust under the advance
approval being sought at the Meeting will be subject to the following additional
restrictions:
(a) it must be substantially with parties at arm's length to the Trust;
(b) it cannot materially affect the control of the Trust;
(c) it must be completed within a 12-month period following the date the
Unitholder approval is given; and
(d) it must comply with the private placement pricing rules of the TSX,
which currently require that the issue price per Trust Unit must not
be lower than the closing market price of the Trust Units on the TSX
on the trading day prior to the date notice of the Private Placement
is given to the TSX (the "Market Price"), less the applicable
discount, as follows:
Market Price Maximum Discount
---------------- ----------------
$0.50 or less 25%
$0.51 to $2.00 20%
$2.00 and above 15%
(for these purposes, a private placement of unlisted convertible
securities is deemed to be a private placement of the underlying
listed securities at an issue price equal to the lowest price at
which the securities are convertible by the holders thereof).
9
In any event, the TSX retains the discretion to decide whether or not a
particular placement is "substantially" at arm's length or will materially
affect control, in which case specific Unitholder approval may be required.
At the Meeting, Unitholders will be asked to consider the following
ordinary resolution (the "Private Placement Resolution"):
"BE IT RESOLVED THAT the issuance by the Trust in one or more
private placements during the 12-month period commencing May 26,
2004 of up to 15,000,000 Trust Units, as more particularly described
in and subject to the restrictions described in the Trust's
Information Circular - Proxy Statement dated April 16, 2004, be and
is hereby approved."
In order to approve the ordinary resolution, a majority of the votes cast,
in person or by proxy, at the Meeting on the Private Placement Resolution must
be voted in favour thereof. In the event that the resolution is not passed, the
TSX will not approve any private placements that result in the issuance or
possible issuance of the number of Trust Units which exceed the TSX 25% Rule,
without specific Unitholder approval. Such restriction could impede the Trust's
timely access to required funds on favourable terms and thus affect the ability
of the Trust to capitalize on opportunities that may arise.
6. Issuance of Trust Units (in lieu of cash) for Payment of Annual
Performance Fee
As set forth under the heading "The Manager - Management Fees", in
accordance with Section 3.1 of the management agreement (the "Management
Agreement") entered into by the Manager, AOG and the Trustee, as trustee for and
on behalf of the Trust, dated May 24, 2001, the Manager is entitled to an annual
fee (the "Performance Fee") equal to 10% of the Total Return Amount (as defined
in the Management Agreement) for the Return Period (in this case being January
1, 2004 to December 31, 2004). Pursuant to the Management Agreement, the Manager
has the option of receiving all or part of its Performance Fee in Trust Units at
the "Unit Market Price" which is defined in the Management Agreement as "the
weighted average trading price per trust unit for such Trust Units for the 10
consecutive trading days immediately preceding such date (in the present case
being December 31, 2003) and the 10 consecutive trading days from and including
such date on the Toronto Stock Exchange...".
For the year ended December 31, 2003, the Performance Fee was $19,592,085
and the Manager elected, pursuant to the Management Agreement, that 100% of the
Performance Fee be payable in Trust Units, resulting in the issuance of
1,099,104 Trust Units of which 732,736 were allocated to the Manager and 366,368
were allocated to employees of AOG.
The policies of the TSX dictate that the payment of the Performance Fee in
Trust Units is considered to be a "share compensation arrangement" and,
accordingly, the TSX has required that the payment in Trust Units of any
Performance Fee earned by the Manager be approved by a majority of the
disinterested unitholders of the Trust.
The TSX has also required that a fixed number of trust units be approved
pursuant to such resolution. In that regard, the Board of Directors of AOG has
determined to fix the number of Trust Units that may be issued pursuant to the
Performance Fee for the 2004 year to not exceed 1,500,000 Trust Units. This
figure represents an upper limit, and the actual number of Trust Units that may
be issued will be dependent upon the aggregate Performance Fee earned and the
Unit Market Price. In addition, the Manager will have had to have elected to
receive its Performance Fee in Trust Units. AOG has encouraged the Manager to
elect to receive its Performance Fees in Trust Units as the Board of Directors
10
of AOG believes that payment of such Performance Fees in Trust Units (as
opposed to cash) better aligns the interests of the Manager with the interest of
the unitholders.
Accordingly, the Board of Directors of AOG have reserved an aggregate of
up to 1,500,000 Trust Units for issuance to the Manager as payment for the
Performance Fee, subject to regulatory and unitholder approval. The conditional
approval of the TSX for the listing and issuance of up to 1,500,000 Trust Units
to or as directed by the Manager was expressly given on the basis that the
issuance of the Trust Units would be approved by a disinterested vote of
unitholders. A disinterested vote of unitholders requires the approval of the
majority of votes cast, in person or by proxy, at the Meeting, by other than the
Manager, its officers, directors and their affiliates and associates and
officers of AOG and their associates (the "Interested Persons"). As at March 31,
2004, Interested Persons had direct or indirect beneficial ownership of, or
control or direction over 2,002,934 Trust Units. As a result, the Trust Units
held by the Interested Persons will not be voted at the Meeting in relation to
this matter.
At the Meeting, unitholders other than the Interested Persons will be
asked to consider, and, if thought fit, to pass an ordinary resolution as
follows:
"BE IT RESOLVED THAT the issuance of up to 1,500,000 Trust Units to
or as directed by Advantage Investment Management Ltd. (the
"Manager") in satisfaction of the annual performance fee earned or
to be earned by the Manager pursuant to the terms of the Management
Agreement, be approved."
The principal reason for the issuance of Trust Units to the Manager is to
align the economic interests of the Manager with the interests of the
unitholders. If the issuance of the Trust Units is not approved, the Trust and
AOG will have to satisfy payment of any annual Performance Fee earned in 2004 by
a cash payment to or as directed by the Manager, which may result in a reduction
of the aggregate sum of distributions to unitholders or an increase in the debt
of the Trust.
7. Amendment to the Trust Unit Rights Incentive Plan
On April 8, 2004, the Board of Directors of AOG approved an amendment to
the Trust Unit Rights Incentive Plan (the "Incentive Plan") to increase the
number of rights ("Rights") to purchase Trust Units authorized under the
Incentive Plan from 250,000 to 500,000. The purpose of the Incentive Plan is to
provide effective long term incentives to the independent directors of AOG and
to reward them on the basis of the long term Trust Unit trading price
performance and income of the Trust, thereby: (i) reflecting the total returns
to holders of Trust Units; and (ii) aligning their interest with the holders of
Trust Units. Only independent directors of AOG are eligible to receive Rights
under the Incentive Plan.
The Incentive Plan previously permitted the granting of rights to purchase
up to a maximum of 250,000 Trust Units, representing approximately 0.65% of the
issued and outstanding number of Trust Units as at March 31, 2004. Of the
250,000 Trust Units previously authorized under the Incentive Plan, 175,000 have
been issued and 70,000 have been exercised. The Board of Directors of AOG has
approved an increase in the number of Rights authorized under the Incentive Plan
to 500,000 Trust Units (being approximately 1.3% of the issued and outstanding
number of Trust Units) with Rights to purchase 325,000 Trust Units (being 0.85%
of the issued and outstanding Trust Units) available for grant. The approval by
the Board of Directors of AOG is required for any grant of Rights under the
Incentive Plan.
The number of Rights and the exercise price thereof is set by the Board of
Directors of AOG at the time of grant provided that the exercise price shall not
be less than the closing market price of the Trust Units on the day immediately
preceding the date of grant. Rights granted under the Incentive Plan
11
may be exercised during a period not exceeding ten years, subject to earlier
termination upon a holder of Rights ceasing to be a director of AOG or upon the
death of a holder. The Rights are non-transferable and non-assignable. Rights
granted under the Incentive Plan to date have vested at the time of being
granted and been exercisable for a period of four years.
Because the objective of the Trust is to maximize distributable income and
long term value growth in order to maximize benefit to Unitholders, fixed price
options or rights only reflect the benefit from the growth value objective,
which is not expected to be material, given the Trust's policy of distributing
cash flow as opposed to reinvesting cash flow and, accordingly, do not reflect
any benefit to fixed price option or rights holders from achieving the
distribution objective. Accordingly, the Incentive Plan allows for a decrease in
the exercise price of the Rights over time based upon distributions made by the
Trust to Unitholders.
For example, if Rights had been granted on April 6, 2004, the initial
exercise price of such rights could not have been less than $19.00, being the
closing market price of the Trust Units on the day immediately preceding such
date (the "Initial Exercise Price"). While Rights are still outstanding, the
holder of such Rights would be entitled to receive the benefit of distributions
made during the period the Rights were held by way of a decreased exercise price
in amounts equal to distributions made during such period (such decreased price
being referred to as the "Revised Exercise Price"). The Incentive Plan provides
that the holder of the Rights may elect to exercise the Rights at either the
Initial Exercise Price or the Revised Exercise Price.
The Board of Directors has reviewed the amendment to the Incentive Plan
and, based on this review and is satisfied that the increase in Rights
authorized under the Incentive Plan is appropriate. Shareholder approval of the
amendment to the Incentive Plan is not required by law, but the TSX has
requested Unitholder approval of the Incentive Plan by a majority of the votes
cast at the Meeting, other than votes attaching to Trust Units held by the
independent directors of AOG and their associates. The form of Trust Unit Rights
Incentive Plan Resolution is as follows:
BE IT RESOLVED THAT:
1. The amendment to the Trust Unit Rights Incentive Plan to increase
the number of Rights authorized for granting under the Incentive
Plan from 250,000 Rights to 500,000 Rights, as described in the
Information Circular-Proxy Circular dated April 16, 2004, be and it
is hereby confirmed, ratified and approved; and
2. Any director or officer of Advantage Oil & Gas Ltd. be and is hereby
authorized, for and on behalf of the Trust, to execute and deliver
such documents and instruments and take such other actions as such
director or officer may determine to be necessary or advisable to
implement this resolution and the matters authorized hereby, such
determination to be conclusively evidenced by the execution and
delivery of any such documents or instruments and the taking of any
such actions.
Implementation of the amendment to the Incentive Plan is also subject to
receipt of all necessary regulatory approvals, including the approval of the
TSX.
12
EXECUTIVE COMPENSATION
Cash and Other Compensation
The information provided below relates to remuneration paid to the
Corporation's Chief Executive Officer and each of the Corporation's five most
highly compensated executive officers during the financial period from May 24,
2001 to December 31, 2001 and for the years ended December 31, 2002 and December
31, 2003 (the "Named Executive Officers"). All figures are in Canadian dollars
unless indicated otherwise.
Summary Compensation Table
- -------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
------------------------------------------------
Annual Compensation Awards Payouts
- -------------------------------------------------------------------------------------------------------------------------
Securities Restricted
Under Shares or
Period or Options/ Restricted
Year Other SARs Share LTIP All Other
Name and Principal Ended Salary Bonus Annual Granted Units Payouts Compensation
Position Dec. 31 ($) ($) Compensation (#) ($) ($) ($)
- -------------------------------------------------------------------------------------------------------------------------
Kelly I. Drader(4) 2003 206,000 Nil Nil Nil Nil Nil Nil
President and Chief 2002 202,140 Nil Nil Nil Nil Nil Nil
Executive Officer 2001 105,000 Nil Nil Nil Nil Nil Nil
- -------------------------------------------------------------------------------------------------------------------------
Patrick J. Cairns(4) 2003 177,500 Nil Nil Nil Nil Nil Nil
Senior Vice President 2002 174,065 Nil Nil Nil Nil Nil Nil
2001 90,417 Nil Nil Nil Nil Nil Nil
- -------------------------------------------------------------------------------------------------------------------------
Peter Hanrahan 2003 125,000 36,164(1) Nil Nil Nil Nil Nil
Chief Financial 2002 105,000 16,813(1) Nil Nil Nil Nil Nil
Officer 2001 61,693 18,360(2) Nil Nil Nil Nil Nil
- -------------------------------------------------------------------------------------------------------------------------
Gary Bourgeois(4) 2003 143,300 Nil Nil Nil Nil Nil Nil
Vice President, 2002 140,375 Nil Nil Nil Nil Nil Nil
Corporate Development 2001 72,917 Nil Nil Nil Nil Nil Nil
- -------------------------------------------------------------------------------------------------------------------------
Toshiyuko Takahashi(4) 2003 143,300 Nil Nil Nil Nil Nil Nil
Vice President, 2002 140,375 Nil Nil Nil Nil Nil Nil
Exploitation 2001 72,917 Nil Nil Nil Nil Nil Nil
- -------------------------------------------------------------------------------------------------------------------------
Rick Mazurkewich 2003 143,300 60,273(1) Nil Nil Nil Nil Nil
Vice President, 2002 140,375 35,026(1) Nil Nil Nil Nil Nil
Operations 2001 70,417 36,000(2) Nil Nil Nil Nil Nil
- -------------------------------------------------------------------------------------------------------------------------
Notes:
(1) Represents amounts allocated to Messrs. Hanrahan and Mazurkewich pursuant
to the quarterly Operating Fee payable to the Manager as further
distributed to the employees of AOG. See "Management Agreement -
Management Fees". Messrs. Hanrahan and Mazurkewich also received a
percentage of the Performance Fee allocated to employees of AOG. For
services rendered during 2002, Messrs. Hanrahan and Mazurkewich were
allocated $340,055 and $775,250, respectively, which amounts were paid in
Trust Units after reduction for the applicable statutory withholdings. For
services rendered during 2003, Messrs. Hanrahan and Mazurkewich were
allocated $561,737 and $936,228, respectively, which amounts were paid in
Trust Units.
(2) $19,500 of the bonus amount paid to Mr. Mazurkewich and $9,360 of the
bonus amount paid to Mr. Hanrahan was funded by Management Fees allocated
by the Manager to employees of AOG for such purpose. See "Management
Agreement - Management Fees".
(3) During 2003 there were six executive officers of AOG. In respect of the
financial period ended December 31, 2003, the six executive officers
received, in the aggregate, cash remuneration of $938,400, exclusive of
amounts received as management fees. See Notes (1) and (2) above and
"Management Agreement - Management Fees".
(4) These officers hold economic interests in the Manager and, accordingly,
receive an indirect compensation through amounts paid to the Manager. See
"Management Agreement - Management Fees".
13
Management Agreement
The Trustee, as trustee for and on behalf of the Trust, the Manager and
AOG entered into the Management Agreement, pursuant to which AOG and the Trust
engaged Advantage Investment Management Ltd. as manager of the Trust and AOG.
The Manager
The offices of the Manager are located at Suite 3100, 150 - 6th Avenue
S.W., Calgary, Alberta, T2P 3Y7. The name, municipality of residence, positions
held and principal occupation of each director and senior officer of the Manager
are set forth below:
Name and Municipality
of Residence Position with AOG and/or the Manager Principal Occupation
- --------------------- ------------------------------------ --------------------------------------------
Kelly I. Drader Director, President and Chief President and Chief Executive Officer of AOG
Calgary, Alberta Executive Officer of AOG and the
Manager
Gary Bourgeois Director, Vice President, Corporate Vice President, Corporate Development of AOG
Toronto, Ontario Development of AOG and Director and
Vice President of the Manager
Patrick J. Cairns Senior Vice President of AOG and Senior Vice President of AOG
Calgary, Alberta Director and Vice President of the
Manager
Toshiyuki Takahashi Vice President, Exploitation of AOG Vice President, Exploitation of AOG
Calgary, Alberta and Director and Vice President of
the Manager
In addition to salaries received in their capacities as executive officers
of AOG, Messrs Drader, Bourgeois, Cairns and Takahashi also indirectly receive
management fees in their capacities as shareholders of the Manager.
Management Fees
In its role under the Management Agreement as manager and administrator of
AOG and the Trust, the Manager receives the following fees:
(a) a fee (the "Operating Fee") in an amount equal to 1.5% of Operating
Cash Flow (as defined in the Management Agreement), such amount to
be calculated as at the end of each calendar quarter or portion
thereof if applicable and paid on the 15th day following any such
calendar quarter or if such day is not a business day, on the next
business day; and
(b) a Performance Fee equal to 10% of the Total Return Amount (which
means in respect of any Return Period an amount equal to the Total
Return Percentage (as defined in the Management Agreement) minus 8%
if the Return Period (as defined in the Management Agreement) is a
full calendar year and adjusted appropriately should the Return
Period be less than a full calendar year, multiplied by the Market
Capitalization (as defined in the Management Agreement) for that
Return Period), such amount to be calculated as at the
14
end of each Return Period and paid on the 15th day following the end
of each such Return Period or if such day is not a business day, on
the next business day.
In addition, the Manager has the option (subject to any necessary
regulatory approval) to elect to receive all or part of the Performance Fee in
Trust Units at the Unit Market Price calculated as at the end of the relevant
period. For the year ended December 31, 2003, the Performance Fee payable to the
Manager and employees of AOG totalled an aggregate of $19,592,085 and the
Operating Fee totalled $1,679,492. In respect of the Performance Fee, the
Manager elected that 100% of the Performance Fee be payable in Trust Units,
resulting in the issuance of 1,099,104 Trust Units to the Manager and the
employees of AOG. In accordance with the terms of the Management Agreement,
$6,530,695 (paid with 366,368 Trust Units) of the $19,592,085 Performance Fee
and $559,831 of the $1,679,492 Operating Fee was allocated to the employees of
AOG with the balance allocated to the Manager.
The Manager's representatives who act as employees or officers of AOG are
entitled to participate in any benefit plans put in place for AOG employees
(including under any incentive plan) by AOG, and are entitled to industry
competitive salaries (as approved by the Board of Directors of AOG) for acting
in such capacity. For the period ended December 31, 2003, representatives of the
Manager who acted as employees or officers of AOG received an aggregate of
$670,100 in salary.
The Manager does not receive any acquisition or disposition fees.
The Operating Fee and Performance Fee referred to in (a) and (b) above
(collectively, the "Management Fees") have funded all employee bonuses and
incentive plans and have, to date (including fees earned in 2003), been
allocated by the Manager on the following basis:
the Manager's Shareholders 66 2/3%
Employees of AOG 33 1/3%
The allocation of the Management Fees and the Termination Fees (as defined
below) amongst the employees of AOG have been distributed based upon the
recommendations of the Manager as approved by the Board of Directors of AOG.
Term and Termination
The initial term (the "Initial Term") of the Management Agreement is 3
years, and on each anniversary date of the Management Agreement it automatically
renews on an "evergreen" basis for additional one-year periods, provided that
the Board of Directors of AOG has not given notice to the Manager prior to any
such renewal that such renewal shall not occur. In all instances of termination
(except where the Management Agreement terminates at the end of the Initial
Term), a termination fee (the "Initial Termination Fee") equal to the Management
Fees paid for the immediately-prior two years shall be payable. Upon completion
of the Initial Term, in all instances of termination (except where the
Management Agreement terminates at the end of a Renewal Term), a termination fee
("Subsequent Termination Fee") equal to the Management Fees paid for the
immediately-prior 2 1/2 years shall be payable. In no instance shall the Manager
be entitled to both the Initial Termination Fee and the Subsequent Termination
Fee (collectively referred to herein as the "Termination Fees"). Notwithstanding
the foregoing, if, during the Initial Term, Kelly Drader (or an alternative
individual with comparable skill and experience who is acceptable to the Board
of Directors of AOG) no longer provides all or substantially all of his work
time to AOG and the Trust, the Management Agreement can be terminated by AOG and
the Trust and the Manager will not be entitled to any Termination Fees.
15
In addition, the Manager will be entitled to receive any unpaid fees that
have accrued prior to termination and to reimbursement by the Trust and AOG of
general and administrative costs and expenses related to the Manager's
performance under the Management Agreement, other than costs related solely to
the Manager and costs related to employee bonuses and incentive plans.
Report on Executive Compensation
The Human Resources, Compensation and Corporate Governance Committee is
comprised of Messrs Sharpe (Chair) and Myers and is charged with, among other
things, a periodic review and recommendation of compensation of the executive
officers of the Corporation.
The compensation paid to the Manager in respect of the management and
administration of Advantage and the Corporation is fixed by contract. The
Management Agreement also requires that certain employees of the Manager become
employees and executive officers of AOG and receive equivalent employee benefits
to those received by AOG's executive officers and receive industry-competitive
salaries as approved by the Board of Directors, from time to time, while they
hold such positions during the term of the Management Agreement.
To date, the Corporation's current compensation plan for its executive
officers has consisted of a base salary and bonuses. As the Management Agreement
requires that those employees of the Manager who also serve as executive
officers of the Corporation receive industry-competitive salaries, the Human
Resources, Compensation and Corporate Governance Committee, when making such
salary determinations, takes into consideration individual salaries paid to
executives of other issuers of comparable size within the oil and gas industry.
Such information is obtained from independent consultants who regularly review
compensation practices in Canada.
Advantage has not adopted a formal bonus plan. Bonuses paid to executive
officers to date have been based upon recommendations made by the Corporation's
Chief Executive Officer to the Human Resources, Compensation and Corporate
Governance Committee which, after review and consideration, makes a further
recommendation to the Board of Directors for approval. Bonuses paid to executive
officers will be paid out of the Management Fees otherwise payable to the
Manager. Under the Management Agreement, the Manager is entitled to receive
reimbursement for its general and administrative costs, however, employee
bonuses and other amounts paid to employees under incentive plans are not
reimbursable.
The foregoing report is respectfully submitted to Unitholders by the Human
Resources, Compensation and Corporate Governance Committee:
Steven Sharpe (Chair)
Roderick M. Myers
16
PERFORMANCE CHART
The closing price of the Trust Units on the TSX on their first day of
trading on May 29, 2001 was $12.50. The closing price of the Trust Units on the
TSX on December 31, 2001 was $8.12, on December 31, 2002 was $13.00 and on
December 31, 2003 was $17.83. During 2001, 2002 and 2003, monthly cash
distributions were paid to Unitholders of record in the following amounts:
For the 2001 Period Ended Distributions per Unit Payment Date
------------------------- ---------------------- ------------------
June 30 $ 0.28 July 16, 2001
July 31 0.28 August 15, 2001
August 31 0.22 September 17, 2001
September 30 0.22 October 15, 2001
October 31 0.15 November 15, 2001
November 30 0.15 December 17, 2001
December 31 0.15 January 15, 2002
-------
Total: $ 1.45
For the 2002 Period Ended Distributions per Unit Payment Date
------------------------- ---------------------- ------------------
January 31 $ 0.15 February 15, 2002
February 28 0.13 March 15, 2002
March 31 0.13 April 15, 2002
April 30 0.13 May 15, 2002
May 31 0.13 June 17, 2002
June 30 0.13 July 15, 2002
July 31 0.13 August 15, 2002
August 31 0.13 September 16, 2002
September 30 0.13 October 15, 2002
October 31 0.18 November 15, 2002
November 30 0.18 December 16, 2002
December 31 0.18 January 15, 2003
-------
Total: $ 1.73
For the 2003 Period Ended Distributions per Unit Payment Date
------------------------- ---------------------- ------------------
January 31 $ 0.18 February 18, 2003
February 28 0.23 March 17, 2003
March 31 0.23 April 15, 2003
April 30 0.23 May 15, 2003
May 31 0.23 June 16, 2003
June 30 0.23 July 15, 2003
July 31 0.23 August 15, 2003
August 31 0.23 September 15, 2003
September 30 0.23 October 15, 2003
October 31 0.23 November 17, 2003
November 30 0.23 December 15, 2003
December 31 0.23 January 15, 2004
-------
Total: $ 2.71
17
The following graph illustrates changes from May 29, 2001 to December 31,
2003, in cumulative Unitholder return, assuming an initial investment of $100 in
Trust Units with all cash distributions reinvested, compared to the S&P/TSX
Composite Index, the TSX Oil & Gas Producers Index and the S&P/TSX Capped Energy
Trust Index, with all dividends and distributions reinvested.(1)
[LINE GRAPH]
---------------------------------------------------
2001/05/29 2001/12/31 2002/12/31 2003/12/31
- ------------------------------------------------------------------------------------------------------------------
Advantage Energy Income Fund Unitholder Total Return 100 77 129 168
- ------------------------------------------------------------------------------------------------------------------
S&P/TSX Composite Index 100 94 82 104
- ------------------------------------------------------------------------------------------------------------------
TSX Oil & Gas Producers Index 100 91 105 127
- ------------------------------------------------------------------------------------------------------------------
S&P/TSX Capped Energy Trust Index 100 88 105 154
- ------------------------------------------------------------------------------------------------------------------
Note:
(1) The Advantage Energy Income Fund Unitholder Return incorporates the actual
cash distributions declared prior to December 31, 2001, 2002 and 2003,
respectively.
CORPORATE GOVERNANCE
General
In 1995, the TSX adopted a set of guidelines which were revised in 1999
(the "Guidelines") relating to corporate governance matters. The Guidelines
address such matters as the constitution and independence of boards of
directors, the functions to be performed by boards and their committees, and the
relationship among a corporation's board, management and shareholders. The TSX
has prescribed that all issuers listed on the TSX must annually disclose their
approach to corporate governance with specific reference to each of the
Guidelines. During 2002, the TSX issued further proposed guidelines (the
"Proposed Guidelines") and encouraged listed companies to review and consider
voluntarily providing the suggested information in order to enhance the quality
of their disclosure. The Trust reviewed the Proposed Guidelines and, where
deemed appropriate, amended its internal policies, mandates and terms of
reference of its committees to comply with the Proposed Guidelines.
More recently, the Trust has considered recent legislative changes,
proposals and recommendations of the applicable regulatory authorities and the
Canadian Securities Administrators.
18
The impact of Multilateral Instrument 52-110 in respect of audit committees,
Multilateral Instrument 52-109 in respect of certification of disclosure on
issuer's annual interim filings, National Instrument 51-101 in respect of
standards of disclosure for oil and gas activities, National Policy 51-102 in
respect of continuous disclosure obligations and proposed Multilateral
Instrument 58-201 on effective corporate governance have been considered and, in
respect of such instruments which have yet to come into force, will continue to
be considered by the Trust.
Set out in Schedule "B" attached hereto is a description of the Trust's
corporate governance practices, which have been established with reference to
the terms of the Trust Indenture, Shareholder Agreement and Management
Agreement. As a result of these contractual obligations and the structure of the
Trust, in some cases compliance with the Guidelines and Proposed Guidelines is
or could be inconsistent with the terms of the Trust Indenture, Shareholders
Agreement and Management Agreement. However, management and the Board of
Directors of AOG believe that, where practical, their approach to corporate
governance is substantially consistent with the Guidelines and Proposed
Guidelines.
REMUNERATION OF DIRECTORS OF AOG
The Chairman of AOG was paid an annual retainer of $15,000 and $1,000 per
meeting or committee meeting attended ($750 per conference call meeting), plus
expenses of attending such meetings during 2003. Each of the other directors of
AOG, with the exception of those who are employees of AOG and the Manager,
received an annual retainer of $10,000 and $1,000 per meeting or committee
meeting attended ($750 per conference call meeting), plus expenses of attending
such meetings. In addition, during 2003 the Chairman of the Human Resources,
Compensation and Corporate Governance Committee received a $20,000 payment and
each of the other independent directors received a $5,000 payment in connection
with deliberations which occurred regarding the possible internalization of
management of the Trust. In the fiscal period of the Trust ended December 31,
2003, a total of $189,000 in fees were paid to the independent directors of AOG.
In addition to the aforementioned fees, the five independent directors of
AOG each received 35,000 Trust Unit incentive rights (the "Rights") on August
16, 2002. The Rights were granted pursuant to the Trust's Trust Unit Rights
Incentive Plan (the "Plan") and are exercisable for a period of four years from
the date of grant at an initial exercise price (the "Initial Exercise Price") of
$11.38 per Trust Unit (being the closing market price of the Trust Units on the
TSX on the day prior to grant). The Plan allows for decrease in the exercise
price of the Rights over time based upon distributions made by the Trust to
unitholders. While Rights are outstanding, the holder of the Rights is entitled
to receive the benefit of such distributions by way of a decreased exercise
price in amounts equal to the distributions made during such period (such
decrease price being referred to as the "Revised Exercise Price"). The Plan
provides that the holder of the Rights may elect to exercise the Rights at
either the Initial Exercise Price or the Revised Exercise Price. A maximum of
250,000 Trust Units may be issued under the Plan, of which 175,000 Rights have
been issued to date and 70,000 of which have been exercised.
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS AND OTHERS
There is not, and has not been, any indebtedness outstanding from
directors or officers of AOG or directors or senior officers of the Manager or,
in each case, their respective known associates and affiliates, or the Trustee
or its affiliates to the Trust or AOG at any time since January 1, 2003.
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS
There were no other material interests, direct or indirect, of directors
of AOG or directors and senior officers of the Manager, nominees for director of
AOG, any Unitholder who beneficially owns
19
more than 10% of the Trust Units of the Trust, or any known associate or
affiliate of such persons in any transaction during 2003 or in any proposed
transaction which has materially affected or would materially affect the Trust
or AOG other than (i) certain insiders purchasing Trust Units or Debentures
under the public offerings of such securities completed during 2003, and (ii) as
disclosed herein.
INTEREST OF CERTAIN PERSONS AND COMPANIES IN MATTERS TO BE ACTED UPON
The Manager is not aware of any material interest of any director or
nominee for director of AOG or of any director or officer of the Manager, or of
any associate or affiliate of any of the foregoing in respect of any matter to
be acted on at the Meeting, except as disclosed herein.
OTHER MATTERS
The Manager knows of no amendment, variation or other matter to come
before the Meeting other than the matters referred to in the Notice of Annual
and Special Meeting; however, if any other matter properly comes before the
Meeting, the accompanying proxy will be voted on such matter in accordance with
the best judgment of the person or persons voting the proxy.
ADDITIONAL INFORMATION
The Trust will provide, without charge to a unitholder, a copy of the
latest annual information form and any documents incorporated therein by
reference, the 2003 annual report to unitholders containing comparative
financial statements for 2003 together with the auditors' report thereon and
management's discussion and analysis, interim financial statements for
subsequent periods, and this information circular, upon request to the Chief
Financial Officer, Advantage Energy Income Fund, 3100, 150 - 6th Avenue S.W.,
Calgary, Alberta, T2P 3Y7. If you wish, this information may also be accessed on
our website (www.advantageincome.com).
APPROVAL AND CERTIFICATION
The contents and sending of this Information Circular - Proxy Statement
has been approved by the Board of Directors of AOG on behalf of the Trust.
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 light of the circumstances in which it was
made.
DATED April 16, 2004.
ADVANTAGE ENERGY INCOME FUND
By: Advantage Oil & Gas Ltd.
(signed) Kelly I. Drader (signed) Peter Hanrahan
President and Chief Financial Officer
Chief Executive Officer
SCHEDULE "A"
"TRUST INDENTURE AMENDMENT RESOLUTION"
BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. the Trust Indenture be amended as follows:
(a) by adding the following as Section 3.08 of the Trust Indenture:
3.8 Non-Resident Ownership Constraint
(a) From time to time, the Corporation, shall take reasonable
steps under the circumstances to monitor the number of Trust
Units beneficially owned by non residents of Canada (within
the meaning of the Income Tax Act) with a view to generally
determining that the level of non resident ownership remains
at not more than 45% of the issued and outstanding units on a
diluted basis (the "Ownership Threshold"). Upon the Board of
Directors being advised that the level of non-resident
ownership has exceeded the Ownership Threshold and continues
to do so for four consecutive months, the Board of Directors
shall review strategies to maintain majority ownership of
Trust Units by Canadian residents in order to ensure that the
Trust is not being maintained primarily for the benefit of non
residents of Canada. In addition to other strategies to
maintain majority Canadian ownership which the Board of
Directors may approve from time to time, the Corporation be
authorized hereunder and entitled to implement non-resident
ownership constraints, including the following measures:
(i) the Corporation may advise the Trustee and the Transfer
Agent, and the Trust may make a public announcement
advising that the Ownership Threshold has been exceeded
and:
(A) neither the Corporation, on behalf of the Trust,
nor the Transfer Agent shall accept a subscription
for Trust Units from or issue or register a
transfer of Trust Units to a person unless (i) the
person provides a declaration that the person is
not a non resident of Canada; or (ii) the person
provides a declaration from the transferor that
the transferor of the Trust Units is a non
resident of Canada; and
(B) the Transfer Agent shall (upon receiving a
direction from the Corporation and a suitable
indemnity from the Trust) send a notice to non
resident holders of Trust Units, chosen in inverse
order to the order of acquisition or registration
or in such manner as the Corporation may consider
equitable and practicable, requiring them to sell
their Trust Units or a portion thereof within a
specified period of not less than 60 days. If the
Unitholders receiving such notice have not sold
the specified number of Trust Units or provided
the Corporation with satisfactory evidence that
they are not non residents of Canada within such
period, the Corporation may on behalf of such
A-2
Unitholders sell such Trust Units and, in the
interim, shall suspend the voting and distribution
rights attached to such Trust Units. Upon such
sale the Unitholders thereby affected shall cease
to be holders of Trust Units and their rights
shall be limited to receiving the net proceeds of
sale of such Trust Units.
The Corporation shall inform the Transfer Agent of the
provisions of this subsection 3.8(a), and the Corporation or
the Transfer Agent may require declarations as to the
jurisdictions in which beneficial owners of Trust Units are
resident in order to effect this subsection 3.8(a).
(b) It is acknowledged that the Corporation will not be able to
definitively determine the number and percentage of Trust
Units held by non residents of Canada. Accordingly, the
Corporation may exercise its discretion in determining whether
or not such Trust Units are held by non residents of Canada,
and any reasonable and bona fide exercise by the Corporation
of its discretion shall be binding for the purpose of this
Section 3.8 and shall not subject any of the Trustee, the
Transfer Agent or the Corporation or their respective
directors, officers, employees or agents to any liability for
any violation of the non resident ownership restrictions which
may occur during the term of the Trust.
(c) Notwithstanding any other provision of this Indenture, non
residents of Canada shall not be entitled to vote in respect
of any Special Resolution to amend this Section 3.8.
(b) by adding the following terms to the definitions set forth in
Section 1.1 of the Trust Indenture:
(i) "9 3/8% Notes" means the 9 3/8% unsecured subordinated
promissory notes of AOG issued on July 8, 2003 to the Trust;
(ii) "9 3/8% Note Indenture" means the trust indenture providing
for the issuance of the 9 3/8% Notes dated July 8, 2003;
(iii) "8.5% Notes" means the 8.5% unsecured subordinated promissory
notes of AOG issued on December 2, 2003 to the Trust;
(iv) "8.5% Note Indenture" means the trust indenture providing for
the issuance of the 8.5% Notes dated December 2, 2003;
(c) by amending the definition of "Distributable Income" to specifically
reference the 9 3/8% Notes and the 8.5% Notes;
(d) by amending the definition of "Material Contracts" in the Trust
Indenture to include a reference to the 9 3/8% Note Indenture and
the 8.5% Note Indenture;
(e) by otherwise amending the Trust Indenture to make reference to the
9 3/8% Notes, 8.5% Notes, the 9 3/8% Note Indenture and the 8.5%
Note Indenture where appropriate and by deleting, amending or adding
any consequential language;
A-3
(f) by amending Section 8.2 to include, as an item delegated from the
Trustee to AOG, any matters related to the Trust's continuing
qualification as a "mutual fund trust" under the Income Tax Act
(Canada), including the implementation of non-resident ownership
constraints pursuant to Section 3.8 of the Trust Indenture;
(g) by amending Section 17.2 of the Trust Indenture to change the date
within which unaudited quarterly financial statements of the Trust
are required to be mailed from "60 days" to "45 days" and to clarify
that the mailing requirement only applies to Unitholders who request
copies of such financial statements; and
(h) by amending Section 17.3(a) of the Trust Indenture to change the
date within which audited consolidated financial statements of the
Trust are required to be mailed from "140 days" to "90 days" and to
clarify that the mailing requirement only applies to Unitholders who
request copies of such financial statements.
2. Subject to the implementation of this special resolution as set forth in
paragraph no. 3 below, this special resolution shall be effective as of
the date of its approval by the Unitholders.
3. The proper officers of Advantage Oil & Gas Ltd. ("AOG") and/or the
Trustee, on behalf of the Trust, be and they are hereby authorized and
directed to execute, deliver and file all such documents and other
instruments and to otherwise do and perform all such acts and things as
they determine to be necessary or desirable for the implementation of this
special resolution, at such times as they may determine, provided that the
directors of AOG may, in their discretion and without further approval of
the Unitholders, revoke and rescind this special resolution or any of the
amendments to the Trust Indenture contemplated therein before it is acted
upon.
SCHEDULE "B "
Advantage TSX Corporate Governance Guidelines Compliance Table
- ---------------------------------------------------------------------------------------------------------------------
GUIDELINES COMPLIANCE COMMENTS
- ---------------------------------------------------------------------------------------------------------------------
1. The Board should explicitly assume
responsibility for the stewardship of
Advantage, including:
- ---------------------------------------------------------------------------------------------------------------------
(a) the adoption of a strategic planning Yes The Board has adopted a formal mandate (the "Mandate")
process; which sets out its stewardship responsibilities,
including matters related to strategic planning.
Historically, strategic planning has occurred at the
Board level through the annual budget process,
quarterly updates and review of acquisitions and other
opportunities that arise from time to time where the
Board considers the suitability of such opportunities
and the long term strategy for Advantage.
- ---------------------------------------------------------------------------------------------------------------------
(b) the identification of the principal Yes Directly and through the Audit Committee, the Board
risks of Advantage's business and monitors and receives, at minimum, annual reports
the implementation of appropriate respecting operations, internal controls and business
systems to manage these risks; risks from management and the external auditors. The
Mandate of the Board calls for the review of the
principal strategic and operational opportunities and
risks of Advantage's business and the taking of
reasonable steps to review systems implemented by
management to manage such risks. In addition, the
Independent Reserve Evaluation Committee reviews the
Corporation's environmental, health and safety
management system, and through the Corporation's Vice
President, Operations, monitors its operation. The
same committee reviews the reserve evaluation report
prepared by an independent reservoir engineering firm,
meets with both the independent engineer and
management and is to be apprised of any major changes
or potential future changes to reserves. Furthermore,
the Board as a whole has implemented a revenue
protection program with management regularly reporting
to the Board with respect to hedging and other revenue
protection strategies.
- ---------------------------------------------------------------------------------------------------------------------
(c) succession planning, including Yes The Board is responsible for the stewardship of
appointing, training and monitoring Advantage through consultation with management of AOG
senior management; and the Manager. The President and Chief Executive
Officer is instrumental in succession planning,
including the training, monitoring and appointing of
senior management. In addition, the Human Resources,
Compensation and Corporate Governance Committee
reviews the compensation paid to management at least
annually and, when required makes recommendations to
the Board regarding appointments of corporate officers
and senior management.
- ---------------------------------------------------------------------------------------------------------------------
(d) Advantage's communications policy; Yes Advantage has adopted a disclosure, confidentiality
and and trading policy (the "Disclosure Policy") which is
intended to, among other things, establish procedures
which (i) permit disclosure of information about
Advantage to the public in a timely manner; (ii)
ensure
- ---------------------------------------------------------------------------------------------------------------------
B-2
- ---------------------------------------------------------------------------------------------------------------------
GUIDELINES COMPLIANCE COMMENTS
- ---------------------------------------------------------------------------------------------------------------------
that non-publicly disclosed information remains
confidential; (iii) address how Advantage interacts
with analysts and the public; and (iv) contains
measures for Advantage to avoid selective disclosure.
The adoption of such Disclosure Policy and procedures
was implemented for the purposes of requiring sound
disclosure practices and maintaining investor
confidence as well as complying with National Policy
51-201 "Disclosure Standards", securities laws and the
Toronto Stock Exchange's rules on disclosure and
trading. The Disclosure Policy provides that such
policy is to be reviewed annually and based on the
results of the review may be revised accordingly.
Furthermore, Advantage is required to send annual and
quarterly disclosure documents and financial
statements to registered unitholders and, as well,
issue press releases with respect to material events
for the Trust. The Board or individual members
generally approve all of Advantage's major compliance
and communication documents, including annual and
quarterly reports, financing documents, press
releases, and other disclosure documents. In addition,
Advantage has delegated the responsibility for direct
shareholder communications to the Corporation's Vice
President, Corporate Development, who is available to
unitholders and the investment community to discuss
Advantage's business and operations. Inquiries may be
directed to Advantage's investors' relations line at
(416) 945-6636.
- ---------------------------------------------------------------------------------------------------------------------
(e) the integrity of Advantage's Yes The Board, through its committees, has established a
internal control and management system for monitoring internal controls and management
information systems. information systems. The following committees are
responsible for reviewing and advising the Board in
the noted areas:
Human Resources, Compensation and Corporate Governance
Committee:
Board committee mandates, engagement of
special advisors, annual statement of
corporate commercial practices, Board
composition and independence, Board size and
nomination of candidates, orientation and
education programs for new directors,
appointments of senior management,
amendments to the management agreement,
employment, remuneration and incentive plans
Audit Committee:
financial reporting, disclosure, compliance
with GAAP, internal/external audit
functions, oversight of financing plans and
internal control systems and review of tax
pools; approval of non-audit services by
external auditors
Independent Reserve Evaluation Committee:
reviews reserves and National Instrument
51-101 reports, compliance with
environmental and safety regulation,
environment and safety policies and
emergency response plans.
In addition, the Board has adopted a revenue
protection
- ---------------------------------------------------------------------------------------------------------------------
B-3
- ---------------------------------------------------------------------------------------------------------------------
GUIDELINES COMPLIANCE COMMENTS
- ---------------------------------------------------------------------------------------------------------------------
plan to review and implement hedging and derivatives
policies and transactions. Advantage is considering
the implementation of an overall formal code of
business ethics to govern the behaviour of its
directors, officers, employees and other service
providers. It is intended that the formal code will
incorporate and enhance a number of existing Advantage
policies that deal with such matters.
- ---------------------------------------------------------------------------------------------------------------------
2. The Board should be constituted with a Yes Six of the eight proposed members of the Board will be
majority of individuals who qualify as unrelated directors.
unrelated directors.
- ---------------------------------------------------------------------------------------------------------------------
3. The analysis of the application of the Yes Of the eight proposed members of the Board, only two
principles supporting the conclusion in are members of management. The remaining six proposed
paragraph 2 above. members of the Board are independent of management and
are free from any interest and any business or other
relationship (other than interests and relationships
arising from unit and debenture holdings, which unit
and debenture holdings are not significant) which
could, or could reasonably be perceived to, materially
interfere with such directors' ability to act in the
best interests of Advantage.
- ---------------------------------------------------------------------------------------------------------------------
4. The Board should appoint a committee of Yes The Human Resources, Compensation and Corporate
directors composed exclusively of Governance Committee is responsible for proposing new
outside, i.e., non-management nominees to the Board and for assessing directors on
directors, a majority of whom are an ongoing basis. Such committee is comprised of
unrelated directors, with the outside, unrelated directors.
responsibility for proposing to the
full Board new nominees to the Board
and for assessing directors on an
ongoing basis.
- ---------------------------------------------------------------------------------------------------------------------
5. The Board should implement a process to Yes The Human Resources, Compensation and Corporate
be carried out by the Nominating Governance Committee has been assigned the
Committee or other appropriate responsibility of assessing the effectiveness of the
committee for assessing the Board as a whole, the committees of the Board and the
effectiveness of the Board as a whole, contribution of individual directors. Furthermore, the
the committees of the Board and the Board monitors the effectiveness of individual
contribution of individual directors. directors and committees of the Boards by addressing
any concerns at Board meetings. Board members are free
to raise effectiveness issues. In addition, the Board
has implemented the use of an annual evaluation
process whereby members of the Board review the
effectiveness of the Board as a whole, its committees
and its individual members.
- ---------------------------------------------------------------------------------------------------------------------
6. The existence of an orientation and See Comments There is no formal education and orientation program
education program for new recruits to for new Board members. All current members of the
the Board. Board have extensive experience serving on boards of
public entities. Management of the Corporation and the
Manager are available to Board members if specific
information is requested. Given that new directors
will be added infrequently, no formal orientation
program is felt to be necessary at this time, however,
if such need does arise, implementation of such a
program for new recruits to the Board is the
responsibility of the Human Resources, Compensation
and Corporate Governance Committee.
- ---------------------------------------------------------------------------------------------------------------------
B-4
- ---------------------------------------------------------------------------------------------------------------------
GUIDELINES COMPLIANCE COMMENTS
- ---------------------------------------------------------------------------------------------------------------------
7. The size of the Board and the impact of Yes The Shareholder Agreement prescribes that the Board
the number of directors upon the shall consist of a minimum of five members and a
Board's effectiveness. maximum of nine members, with the initial number being
set at seven members. The Board is comprised of seven
directors, which the Board believes is large enough to
permit a diversity of views and to staff the various
committees of the Board without being too large to
detract from the Board's efficiency and effectiveness.
Each of the members of the Board has extensive and
diverse business and public company experience with
six of seven directors having substantial experience
in the oil and gas industry. In addition, three of the
seven directors have extensive experience in the
income fund and royalty trust sector. Finally, the
Human Resources, Compensation and Corporate Governance
Committee has the responsibility of assessing the
effectiveness of the Board, including considering the
appropriate size of the Board.
- ---------------------------------------------------------------------------------------------------------------------
8. The adequacy and form of the Yes Outside directors are compensated by fees and trust
compensation of directors should unit rights issued under the Trust Unit Rights
realistically reflect the Incentive Plan. Compensation levels are reviewed
responsibilities and risk involved in periodically by the Human Resources, Compensation and
being an effective director. Corporate Governance Committee (with reference to
compensation surveys and other industry data), which
committee makes recommendations to the Board.
Directors' liability insurance is provided. The Human
Resources, Compensation and Corporate Governance
Committee is currently in the process of conducting
its annual review of directors' compensation with a
view to making a recommendation to the Board in the
coming months.
- ---------------------------------------------------------------------------------------------------------------------
9. Committees of the Board should Yes All committees of the Board are composed of outside,
generally be composed of outside unrelated directors.
directors, a majority of whom are
unrelated directors.
- ---------------------------------------------------------------------------------------------------------------------
10. The Board's responsibility for (or a Yes The Board believes that its approach to corporate
committee of the Board's general governance practices is substantially consistent with
responsibility for) developing the Guidelines. The Human Resources, Compensation and
Advantage's approach to governance Corporate Governance Committee is responsible for
issues. preparing and recommending to the Board annually the
statement of corporate governance practices and for
dealing with other corporate governance matters.
- ---------------------------------------------------------------------------------------------------------------------
11. The Board has developed:
- ---------------------------------------------------------------------------------------------------------------------
(a) position descriptions for the Board and Yes The Board is responsible for the stewardship of
for the CEO, involving the definition Advantage through consultation with management of AOG
of the limits to management's and the Manager, and generally directs the business
responsibilities; and and affairs of the Trust. The Management Agreement,
Trust Indenture and Shareholders' Agreement provide
for specific delegation of certain duties and
responsibilities amongst the Manager, management of
AOG and the Board of Directors, with the Board of
Directors retaining a supervisory role and specific
authority relating to significant operational and
other decisions. In addition, the Management Agreement
provides that the Manager agrees to make
- ---------------------------------------------------------------------------------------------------------------------
B-5
- ---------------------------------------------------------------------------------------------------------------------
GUIDELINES COMPLIANCE COMMENTS
- ---------------------------------------------------------------------------------------------------------------------
Kelly Drader available for performance of the services
to be performed to the Trust and AOG and, Mr. Drader
will, during the Initial Term, commit substantially
all of his work time on an annual basis to the Trust
and AOG in performing the executive functions and
services defined in the Management Agreement and in
acting as AOG's President and Chief Executive Officer.
- ---------------------------------------------------------------------------------------------------------------------
(b) the corporate objectives for which Yes The Chief Executive Officer, together with senior
the CEO is responsible for meeting. management, implements the corporate objectives
developed with the Board while operating within the
parameters of the Trust Indenture, Management
Agreement and Mandate of the Board.
- ---------------------------------------------------------------------------------------------------------------------
12. The appropriate structures and Yes The Shareholder Agreement prescribes that as long as
procedures to ensure that the Board the Manager is a party to the Management Agreement, it
can function independently of is entitled to designate two members to the Board with
management. the balance of the members being selected by a vote of
Unitholders. One of the directors so selected by the
Unitholders must be the Chairman of the Board and a
majority of the Board must not be officers, employees
or consultants of the Corporation, the Manager or any
of their respective affiliates. In addition,
committees of the Board must, in all cases, be
comprised of a majority of directors selected by the
Unitholders. Accordingly, the majority of the Board
and its committees will always be independent of
Management. In addition, Advantage has recently
instituted a practice where the non-management members
of the Board meet independently of management
following scheduled Board meetings.
- ---------------------------------------------------------------------------------------------------------------------
13(a) The Audit Committee of the Board Yes The Audit Committee consists of Messrs. Tourigny
should be composed only of outside (Chair), Tolley and Sharpe, all of whom are outside
directors. directors. Mr. Tourigny is a chartered accountant and
all of the members of the Committee qualify as having
the requisite "financial literacy" suggested by
Multilateral Instrument 52-110.
- ---------------------------------------------------------------------------------------------------------------------
(b) The roles and responsibilities of Yes The Audit Committee has adopted a specific charter
the Audit Committee should be which defines it's role and responsibilities.
specifically defined.
- ---------------------------------------------------------------------------------------------------------------------
(c) The Audit Committee should have Yes The Audit Committee (i) reviews with Advantage's
direct communication channels with auditors and with management Advantage's accounting
the internal and external auditors principles, policies and practices; (ii) reviews
to discuss and review specific Advantage's audited consolidated financial statements
issues as appropriate. with the auditors prior to their submission to the
Board for approval; and (iii) reviews with the
auditors the adequacy of Advantage's accounting,
financial and operating controls.
- ---------------------------------------------------------------------------------------------------------------------
B-6
- ---------------------------------------------------------------------------------------------------------------------
GUIDELINES COMPLIANCE COMMENTS
- ---------------------------------------------------------------------------------------------------------------------
(d) The Audit Committee's duties should Yes The Audit Committee reviews the scope and adequacy of
include oversight responsibility for management's internal controls and reporting.
management reporting on internal
controls and should ensure that
management has designed and
implemented an effective system of
internal controls.
- ---------------------------------------------------------------------------------------------------------------------
14. The existence of a system which enables Yes A director or a group of directors may engage outside
an individual director to engage an advisors at the expense of Advantage, subject to
outside advisor at the expense of approval of the Human Resources, Compensation and
Advantage in appropriate circumstances, Corporate Governance Committee.
subject to the approval of an
appropriate committee of the Board.
- ---------------------------------------------------------------------------------------------------------------------