EXHIBIT 99.33
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ADVANTAGE ENERGY INCOME FUND
INFORMATION CIRCULAR - PROXY STATEMENT
DATED MARCH 1, 2005
FOR THE ANNUAL AND SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON WEDNESDAY, APRIL 27TH, 2005
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 27th day of April, 2005 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.
The Trust has outstanding two types of securities that entitle holders to
vote generally at meetings of Unitholders; Trust Units and special voting units
("Special Voting Units"). A Special Voting Unit was issued to Computershare
Trust Company of Canada (the "Exchangeable Shares Trustee") as trustee under a
voting and exchange trust agreement for the benefit of holders of exchangeable
shares ("Exchangeable Shares") issued by the Trust's wholly-owned subsidiary,
Advantage Oil & Gas Ltd. ("AOG" or the "Corporation"). The Trust Units and the
Special Voting Unit vote together as a single class on all matters. Each Trust
Unit outstanding on the Record Date (as defined below) is entitled to one vote.
The Special Voting Unit which is outstanding is entitled to one vote for each
Exchangeable Share outstanding on the Record Date. The Exchangeable Shares
Trustee is required to vote the Special Voting Unit in the manner that holders
of Exchangeable Shares instruct, and to abstain from voting on the Exchangeable
Shares for which the Exchangeable Shares Trustee does not receive instructions.
The procedures for holders of Exchangeable Shares to instruct the Exchangeable
Shares Trustee about voting at the Meeting are explained in the "Voting
Direction for Holders of Exchangeable Shares" (the "Voting Direction") that has
been provided to holders of Exchangeable Shares together with this Information
Circular - Proxy Statement. See also the discussion under "Voting by Holders of
Exchangeable Shares" contained in this Information Circular - Proxy Statement.
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 March 8, 2005 (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.
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THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY ARE DIRECTORS AND/OR
OFFICERS OF AOG 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 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.
The foregoing discussion similarly applies to holders of Exchangeable
Shares who do not hold their Exchangeable Shares in their own name. Only holders
of Exchangeable Shares whose name appears on the records of AOG as the
registered holders of Exchangeable Shares are entitled to instruct the
Exchangeable Shares Trustee as to how to exercise voting rights in respect of
their Exchangeable Shares at the Meeting.
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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.
A holder of Exchangeable Shares who has submitted a Voting Direction may
revoke it at any time prior to the Meeting. In addition to revocation in any
other manner permitted by law a Voting Direction may be revoked by instrument in
writing executed by the holder of Exchangeable Shares or his attorney authorized
in writing or, if the holder is a corporation, under its corporate seal or by an
officer or attorney thereof duly authorized and deposited at the office of the
Exchangeable Shares Trustee at any time up to and including the last business
day preceding the day of the Meeting, or any adjournment thereof, at which the
Voting Direction is to be acted upon, or with a representative of the
Exchangeable Shares Trustee in attendance at the Meeting on the day of the
Meeting or any adjournment thereof, and upon either of such deposits, the Voting
Direction 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 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 BY HOLDERS OF EXCHANGEABLE SHARES
The Exchangeable Shares Trustee holds one Special Voting Unit of the
Trust. The Special Voting Unit is entitled to a number of votes at the Meeting
equal to the aggregate number of outstanding Exchangeable Shares. Each holder of
Exchangeable Shares is entitled to give the Exchangeable Shares Trustee voting
instructions for a number of votes equal to the number of that holder's
Exchangeable Shares. A Voting Direction is the means by which a holder of
Exchangeable Shares may authorize the voting of his or her voting rights at the
Meeting. The Exchangeable Shares Trustee will exercise each
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vote only as directed by the relevant holder on the Voting Direction. In the
absence of instructions from a holder as to voting, the Exchangeable Shares
Trustee will not exercise those votes. A holder of Exchangeable Shares may also
instruct the Exchangeable Shares Trustee to give him or her a proxy entitling
him or her or a designee of the holder to vote personally the relevant number of
votes or to grant to management of the Trust a proxy to vote those votes.
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, May 28, 2003 and May 26, 2004 (collectively, the "Trust Indenture").
The Trust is authorized to issue an unlimited number of Trust Units. As
at March 1, 2005, 56,945,363 Trust Units were issued and outstanding. The
Corporation is also entitled to issue Special Voting Units. As at March 1, 2005,
one Special Voting Unit had been issued. As at March 1, 2005 the Corporation
also has outstanding $3,610,000 principal amount of 10% convertible unsecured
subordinated debentures (the "10% Debentures"), $10,013,000 principal amount of
9% convertible unsecured subordinated debentures (the "9% Debentures"),
$12,261,000 principal amount of 8.25% convertible unsecured subordinated
debentures (the "8.25% Debentures") $49,842,000 principal amount of 7.75%
convertible unsecured subordinated debentures (the "7.75% Debentures") and
$69,853,000 principal amount of 7.50% convertible subordinated debentures (the
"7.50% Debentures"). The 10% Debentures, 9% Debentures, 8.25% Debentures, 7.75%
Debentures and 7.50% Debentures are convertible into Trust Units at conversion
prices of $13.30 per Trust Unit, $17.00 per Trust Unit, $16.50 per Trust Unit,
$21.00 per Trust Unit and $20.25 per Trust Unit respectively, subject to
adjustments in certain events. The 10% Debenture, 9% Debenture, 8.25% Debenture,
7.75% Debentures and 7.50% Debentures, 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 1, 2005
is 3.6% (2,039,588 Trust Units). In addition, the directors and officers of AOG
as a group own, directly or indirectly, $804,000 principal amount of Debentures.
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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 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. 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 it is
proposed that the Board of Directors be comprised of 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
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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 Occupation
- -------------------------------------------------------------------------------------------------------------------------------
Ronald A. McIntosh(2) (3) (5) 38,811 Director since September 25, Chairman of NAV Energy Trust, a
Calgary, Alberta 1998(6) publicly traded royalty trust
Roderick M. Myers(2)(3)(5) 316,101 Director since December 31, Independent businessman
Victoria, British Columbia 1996(6)
Steven Sharpe(1)(3)(5) 8,225 Non-Executive Chairman and Managing Partner of Blair Franklin
Toronto, Ontario Director since May 24, 2001 Capital Partners Inc., an investment
banking firm
Lamont C. Tolley(1)(2)(5) Nil Director since May 24, 2001 Chief Executive Officer of Rally
Calgary, Alberta Energy Ltd. and President of Genex
Energy Inc., a private oil and gas
company
Rodger A. Tourigny(1)(5)(7) Nil Director since December 31, President of Tourigny Management
Calgary, Alberta 1996(6) Ltd., a private oil and gas
consulting company
Carol D. Pennycook(3)(5) 3,000 Director since May 26, 2004 Partner at the law firm of Daview
Toronto, Ontario 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 and Myers owns 72,500 Trust Unit incentive
rights. Each of Messrs. Sharpe and Tolley and Ms. Pennycook owns 37,500
Trust Unit incentive rights. Mr. Tourigny owns 52,500 Trust Unit
incentive rights. See "Remuneration of Directors of AOG". In addition, Mr
McIntosh owns $69,000 principal amount of Debentures, Mr. Myers owns
$500,000 principal amount of Debentures and Mr. Tolley owns $200,000
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.
(7) Mr. Tourigny was a director of Shenandoah Resources Ltd. ("Shenandoah")
prior to it being placed into receivership on September 17, 2002 and
prior to the issuance of cease trade orders in respect of Shenandoah's
securities by the Alberta Securities Commission and the British Columbia
Securities Commission on November 8, 2002 and October 23, 2002,
respectively. Cease trade orders were issued because Shenandoah failed to
file certain required financial statements. As of the date hereof, the
cease trade orders remain outstanding. Shenandoah's common shares were
suspended from trading on the TSX Venture Exchange on April 24, 2002. Mr.
Tourigny resigned his directorship with Shenandoah effective September
17, 2002. Mr. Tourigny was also a director of Probe Exploration Inc.
("Probe") prior to its receivership and prior to the issuance of cease
trade orders in respect of Probe's securities by the Alberta Securities
Commission and the Ontario Securities Commission on July 7, 2000 and July
17, 2000, respectively. The cease trade orders were issued because Probe
failed to file certain required financial statements. As at the date
hereof, the cease trade orders remain outstanding. Probe's common shares
were suspended from trading on the TSX on March 17, 2000, and were
subsequently delisted from the TSX at the close of business on March 16,
2001. Mr. Tourigny resigned his directorship with Probe effective April
14, 2000.
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
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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:
- -------------------------------------------------------------------------------------------------------------------------------
Number of Trust
Name and Municipality Units Beneficially Offices Held and Time as Principal
of Residence Owned or Controlled Director Occupation
- -------------------------------------------------------------------------------------------------------------------------------
Kelly I. Drader 582,375 President and Chief Executive President and Chief Executive Officer
Calgary, Alberta Officer and Director since of AOG and the Manager
May 24, 2001
Gary F. Bourgeois 373,774 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.
Certain information regarding the audit committee, including the fees
paid to the Trust's auditors in the last fiscal year, that is required to be
disclosed in accordance with Multilateral Instrument 52-110 of the Canadian
Securities Administrators will be contained in the Trust's renewal annual
information form for the year ended December 31, 2004, an electronic copy of
which is available on the internet on the Trust's SEDAR profile at
WWW.SEDAR.COM.
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 (the
"Proposed Changes") to the INCOME TAX ACT (Canada) which may have required
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). At the Annual and Special Meeting of Unitholders held
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on May 26, 2004, the Unitholders of the Trust approved amendments to the Trust
Indenture intended to address the Proposed Changes.
On December 16, 2004, the Federal Government announced that the Proposed
Changes would not be enacted. Accordingly, at the Meeting, Unitholders will be
asked to approve a special resolution authorizing a deletion of the non-resident
ownership constraints that the Trust put into place on May 26, 2004 and replace
them with the language set forth in Schedule "A" attached hereto.
On February 23, 2005, the Federal Government published the 2005 Federal
Budget (the "Budget"). The Budget provided that the Government will undertake
consultations on tax issues related to business income trusts and that the
Department of Finance intends to release a paper for consultation shortly. The
Budget indicated that future initiatives, if any, will be taken following these
consultations and in full consideration of the costs and benefits related to
business income trusts and other flow-through entities.
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: (a) reflect the
consolidation of the previously outstanding note indentures into (i) the Note
Indenture dated September 30, 2004 providing for the issue of long term
unsecured subordinated promissory notes; and (ii) the Note Indenture dated
September 30, 2004 providing for the issuance of medium term unsecured
subordinated notes and to redefine "Notes" in the indenture to include any
unsecured, subordinated promissory notes of AOG issued to the Trust from time to
time under the aforementioned Note Indentures; (b) clarify certain items which
the Trustee under the Trust Indenture may not delegate to AOG or the Manager;
and (c) other miscellaneous changes including confirmation of the delegation to
AOG (through its Board of Directors) of responsibility for all matters relating
to Swap Arrangements (as defined in the Trust Indenture).
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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.
5. 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 amended and restated management agreement
(the "Management Agreement") entered into by the Manager, AOG and the Trustee,
as trustee for and on behalf of the Trust, dated October 4, 2004, 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, 2005 to December 31, 2005). 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, 2005) and the 10 consecutive
trading days from and including such date on the Toronto Stock Exchange...".
For the year ended December 31, 2004, the Performance Fee was $21,632,128
and the Manager elected, pursuant to the Management Agreement, that 77% of the
Performance Fee be payable in Trust Units, resulting in the issuance of 763,373
Trust Units of which 364,742 were allocated to the Manager and 398,631 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 "security based compensation arrangement"
and, accordingly, the TSX requires that the payment in Trust Units of any
Performance Fee earned by the Manager be approved by a majority of the Trust
Units voted at the Meeting by unitholders of the Trust.
The TSX requires 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 2005 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 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. A vote of
unitholders requires the approval of the majority of votes cast, in person or by
proxy, at the Meeting.
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:
10
"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 2005 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.
EXECUTIVE COMPENSATION
CASH AND OTHER COMPENSATION
The information provided below relates to remuneration paid to the
Corporation's Chief Executive Officer, Chief Financial Officer and each of the
Corporation's four most highly compensated executive officers during for the
years ended December 31, 2002 to December 31, 2004 (the "Named Executive
Officers"). All figures are in Canadian dollars unless indicated otherwise.
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
- ---------------------------------------------------------------------------------------------------------------------
Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------
Securities Shares or
Under Units
Options/ Subject to
Year Other SARs Resale LTIP All Other
Name and Principal Ended Salary Bonus Annual Granted Restrictions Payouts Compensation
Position Dec. 31 ($) ($) Compensation (#) ($) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------
Kelly I. Drader(3) 2004 206,000 Nil Nil Nil Nil Nil Nil
President and Chief 2003 206,000 Nil Nil Nil Nil Nil Nil
Executive Officer 2002 202,140 Nil Nil Nil Nil Nil Nil
- ---------------------------------------------------------------------------------------------------------------------
Patrick J. Cairns(3) 2004 177,500 Nil Nil Nil Nil Nil Nil
Senior Vice President 2003 177,500 Nil Nil Nil Nil Nil Nil
2002 174,065 Nil Nil Nil Nil Nil Nil
- ---------------------------------------------------------------------------------------------------------------------
Peter Hanrahan, Vice 2004 143,750 43,700(1) Nil Nil Nil Nil Nil
President, Finance and 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
- ---------------------------------------------------------------------------------------------------------------------
Gary Bourgeois(3) 2004 143,300 Nil Nil Nil Nil Nil Nil
Vice President, 2003 143,300 Nil Nil Nil Nil Nil Nil
Corporate Development 2002 140,375 Nil Nil Nil Nil Nil Nil
- ---------------------------------------------------------------------------------------------------------------------
Rick Mazurkewich 2004 149,032 61,899(1) Nil Nil Nil Nil Nil
Vice President, 2003 143,300 60,273(1) Nil Nil Nil Nil Nil
Operations 2002 140,375 35,026(1) Nil Nil Nil Nil Nil
- ---------------------------------------------------------------------------------------------------------------------
Weldon Kary 2004 136,316 45,393(1) Nil Nil Nil Nil Nil
Vice President, 2003 127,500 44,200(1) Nil Nil Nil Nil Nil
Exploitation 2002 125,000 25,219(1) Nil Nil Nil Nil Nil
- ---------------------------------------------------------------------------------------------------------------------
11
Notes:
(1) Represents amounts allocated to Messrs. Hanrahan, Mazurkewich and Kary
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, Mazurkewich and Kary also received a
percentage of the Performance Fee allocated to employees of AOG. For
services rendered during 2002, Messrs. Hanrahan, Mazurkewich and Kary
were allocated $340,055, $775,250 and $510,083, respectively, which
amounts were paid in Trust Units after reduction for the applicable
statutory withholdings. For services rendered during 2003, Messrs.
Hanrahan, Mazurkewich and Kary were allocated $561,737, $936,228 and
$749,978, respectively, which amounts were paid in Trust Units after
reductions for the applicable statutory withholdings. For services
rendered during 2004, Messrs. Hanrahan, Mazurkewich and Kary were
allocated $823,462, $1,024,640 and $823,462, respectively, which amounts
were paid in Trust Units after reduction for the applicable statutory
withholdings.
(2) During 2004 there were six executive officers of AOG. In respect of the
financial period ended December 31, 2004, the six executive officers
received, in the aggregate, cash remuneration of $955,898, exclusive of
amounts received as management fees. See Notes (1) and (2) above and
"Management Agreement - Management Fees".
(3) 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".
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 Executive President and Chief Executive Officer of AOG
Calgary, Alberta Officer of AOG and the Manager
Gary Bourgeois Director, Vice President, Corporate Development Vice President, Corporate Development of AOG
Toronto, Ontario of AOG and Director and Vice President of the
Manager
Patrick J. Cairns Senior Vice President of AOG and Director and Senior Vice President of AOG
Calgary, Alberta Vice President and Secretary of the Manager
In addition to salaries received in their capacities as executive
officers of AOG, Messrs Drader, Bourgeois and Cairns 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
12
portion thereof if applicable and paid on the 45th 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 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, 2004, the Performance Fee payable to the
Manager and employees of AOG totalled an aggregate of $21,632,128 and the
Operating Fee totalled $2,622,672. In respect of the 2004 Performance Fee, the
Manager elected that 77% of the fee be payable in Trust Units, resulting in the
issuance of 763,373 Trust Units to the Manager and the employees of AOG. In
accordance with the terms of the Management Agreement, $8,652,851 (paid with
398,631 Trust Units) of the $21,632,128 Performance Fee for 2004 and $929,068 of
the $2,322,670 Operating Fee for 2004 was allocated to the employees of AOG with
the balance allocated to the Manager.
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 2003 Performance Fee, the
Manager elected that 100% of the 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 for 2003 and $559,831 of
the $1,679,492 Operating Fee for 2003 was allocated to the employees of AOG with
the balance allocated to the Manager.
For the year ended December 31, 2002, the Performance Fee payable to the
Manager and employees of AOG totalled an aggregate of $16,477,882 and the
Operating Fee totalled $930,115. In respect of the 2002 Performance Fee, the
Manager elected that $14,409,238 of the fee be payable in Trust Units, resulting
in the issuance of 1,102,163 Trust Units to the Manager and the employees of
AOG. In accordance with the terms of the Management Agreement, $5,492,078 of the
$16,477,882 Performance Fee for 2002 and $325,999 of the $930,115 Operating Fee
for 2002 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 years ended December 31, 2004, 2003 and 2002
representatives of the Manager who acted as employees or officers of AOG
received an aggregate of $526,800, $670,000 and $656,955, in salary,
respectively.
The Manager does not receive any acquisition or disposition fees.
The Operating Fee and Performance Fee referred to in paragraphs (a) and
(b) above (collectively, the "Management Fees") have funded all employee bonuses
and incentive plans and have historically been allocated such that the Manager
receives 66 2/3% of the Management Fees and the employees of AOG receive 33 1/2%
of the Management Fees. As a result of amendments to the Management Agreement,
effective October 4, 2004 the Performance Fee will, unless otherwise determined,
be allocated by the Manager on the following basis:
the Manager 60%
Employees of AOG 40%
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 original Management
Agreement ran from May 21, 2001 to May 21, 2004, 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 a Renewal Term), a termination fee equal to
the Management Fees paid for the immediately-prior 2 1/2 years shall be payable.
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 Steven Sharpe (Chair), Ronald McIntosh, Roderick Myers and Carol
Pennycook 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, including the Chief Executive Officer of AOG,
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. The Chief Executive Officer's salary level was within the lower end of
the median range for oil and gas issuers of the size of the Corporation. The
process undertaken by the Human Resources, Compensation and Corporate Governance
Committee to determine the Chief Executive Officer's salary is consistent with
14
the terms of the Management Agreement, which requires that the Chief Executive
Officer receive an industry competitive salary, as approved by the Board of
Directors.
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 responsibility of the Corporation's Chief Executive Officer is to
provide direction and leadership in setting and achieving goals which will
create value for the Trust's unitholders. The combination of base salary,
coupled with the Chief Executive Officers beneficial interest in the Manager
provides incentive to the Chief Executive Officer and the Corporation's other
executive officers to strategically grow the Trust, with such growth to be
reflected in the market price of the units of the Trust, thereby benefiting the
executive officers and the unitholders of the Trust.
The foregoing report is respectfully submitted to Unitholders by the
Human Resources, Compensation and Corporate Governance Committee:
Steven Sharpe (Chair)
Ronald A. McIntosh
Roderick M. Myers
Carol D. Pennycook
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following sets forth information in respect of securities authorized
for issuance under the Corporation's equity compensation plans as at December
31, 2004. The only such plan in existence in the Trust Unit Rights Incentive
Plan described under the heading "Remuneration of Directors of AOG".
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
NUMBER OF SECURITIES REMAINING AVAILABLE FOR
TO BE ISSUED UPON WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
- ------------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by 310,000 Trust Units $13.54 100,000 Trust Units
securityholders
- ------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved by N/A N/A N/A
securityholders
- ------------------------------------------------------------------------------------------------------------------------
Total 310,000 Trust Units $13.54 100,000 Trust Units
- ------------------------------------------------------------------------------------------------------------------------
15
PERFORMANCE CHART
The closing price of the Trust Units on the TSX on December 31, 2001 was
$8.12, on December 31, 2002 was $13.00, on December 31, 2003 was $17.94 and on
December 31, 2004, was $22.01. During 2002, 2003 and 2004 monthly cash
distributions were paid to Unitholders of record in the following amounts:
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 14, 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
For the 2004 Period Ended Distributions per Unit Payment Date
- ------------------------- ---------------------- ------------------
January 31 $0.23 February 17, 2004
February 29 0.23 March 15, 2004
March 31 0.23 April 15, 2004
April 30 0.23 May 17, 2004
May 31 0.23 June 15, 2004
June 30 0.23 July 15, 2004
July 31 0.23 August 16, 2004
August 31 0.23 September 15, 2004
September 30 0.23 October 15, 2004
October 31 0.25 November 15, 2004
November 30 0.25 December 15, 2004
December 31 0.25 January 17, 2005
----
TOTAL: $2.82
16
The following graph illustrates changes from December 31, 2001 to
December 31, 2004, 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 CHART OMITTED]
-----------------------------------------------------
2001/12/31 2002/12/31 2003/12/31 2004/12/31
- ------------------------------------------------------------------------------------------------------------
Advantage Energy Income Fund Unitholder Total Return 100 181 254 306
- ------------------------------------------------------------------------------------------------------------
S&P/TSX Composite Index 100 88 111 127
- ------------------------------------------------------------------------------------------------------------
TSX Oil & Gas Exploration and Production Index 100 116 140 196
- ------------------------------------------------------------------------------------------------------------
S&P/TSX Energy Trust Index 100 119 174 228
- ------------------------------------------------------------------------------------------------------------
Note:
(1) The Advantage Energy Income Fund Unitholder Return incorporates the
actual cash distributions declared prior to December 31, 2001, 2002, 2003
and 2004, 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.
17
More recently, the Trust has considered recent legislative changes,
proposals and recommendations of the applicable regulatory authorities and the
Canadian Securities Administrators. 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
Prior to July 1, 2004, 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 and each of
the 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. Commencing July 1, 2004, the Chairman of AOG is paid an
annual retainer of $80,000, the Chair of the Audit Committee is paid an annual
retainer of $65,000 and each of the other directors of AOG, with the exception
of those who are employees of AOG and the Manager, receive an annual retainer of
$50,000 plus expenses of attending Board of Directors meetings. In the fiscal
period of the Trust ended December 31, 2004, a total of $336,167 in fees were
paid to the independent directors of AOG.
In addition to the aforementioned fees, the independent directors of AOG
receive Trust Unit incentive rights (the "Rights") pursuant to the Trust Unit
Rights Incentive Plan (the "Plan"). To date, 175,000 Rights were granted on
August 16, 2002 and 225,000 Rights were granted on June 17, 2004 at Initial
Exercise Prices of $11.38 per Trust Unit and $18.42 per Trust Unit,
respectively, being the closing market price of the Trust Units on the TSX on
the day prior to such grants.
The Plan allows for the 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 decreased 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 the Initial Exercise Price or the Revised
Exercise Price. A maximum of 500,000 Trust Units may be issued under the Plan,
of which 400,000 Rights have been issued to date and 90,000 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, 2004.
18
INTEREST OF INFORMED PERSONS 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 more than 10% of the Trust Units of
the Trust, or any other Informed Person (as defined in National Instrument
51-102) or any known associate or affiliate of such persons in any transaction
during 2004 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 2004, 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
Additional information relating to the Trust is available on SEDAR at
WWW.SEDAR.COM. 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 2004 annual report to unitholders containing comparative
financial statements for 2004 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).
SCHEDULE "A"
"TRUST INDENTURE AMENDMENT RESOLUTION"
BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. the Trust Indenture be amended as follows:
(a) by deleting the current text under Section 3.8 titled
"Non-Resident Ownership Constraint" and adding the following as
Section 3.8 of the Trust Indenture:
3.8 MUTUAL FUND TRUST
Except to the extent permitted under the Tax Act, the
Trust shall endeavour to satisfy the requirements of
Section 132(6) of the Tax Act at all times.
(b) by deleting the following definitions set forth in Section 1.1 of
the Trust Indenture:
(i) "10 3/8% Notes" means the 10?% unsecured subordinated
promissory notes of AOG issued on October 18, 2002 to the
Trust;
(ii) "10 3/8% Note Indenture" means the trust indenture providing
for the issuance of the 10?% Notes dated October 18, 2002,
as amended by the First Supplemental Note Indenture dated
as of the same date and made between AOG and Computershare
Trust Company of Canada, as trustee;
(iii) "9 3/8% Notes" means the 9 3/8% unsecured subordinated
promissory notes of AOG issued on July 8, 2003 to the
Trust;
(iv) "9 3/8% Note Indenture" means the trust indenture providing
for the issuance of the 9 3/8% Notes dated July 8, 2003;
(v) "8.5% Notes" means the 8.5% unsecured subordinated
promissory notes of AOG issued on December 2, 2003 to the
Trust;
(vi) "8.5% Note Indenture" means the trust indenture providing
for the issuance of the 8.5% Notes dated December 2, 2003;
(c) by adding the following definitions to Section 1.1 of the Trust
Indenture:
(i) "Long Term Note Indenture" means the note indenture dated
September 30, 2004 between AOG and Computershare Trust
Company of Canada providing for the issue of long term
Notes;
(ii) "Medium Term Note Indenture" means the note indenture dated
September 30, 2004 between AOG and Computershare Trust
Company of Canada providing for the issue of medium term
Notes;
(d) by amending the definition of "Credit Facilities" and "Swap
Arrangements" to include references to indemnities and sureties
and to also provide the Trustee with the power and authority to
indemnify or act as a surety with respect to indebtedness,
obligations and liabilities of AOG or any other wholly owned
Subsidiary of the Trust in section 7.2(s) of the Trust Indenture;
A-2
(e) by deleting the current definitions of "Note Indenture", "Notes"
and "Royalty Agreement" set forth in Section 1.1 of the Trust
Indenture and replacing them with the following definitions:
(i) "Note Indentures" means the Medium Term Note Indenture and
the Long Term Note Indenture;
(ii) "Notes" means the unsecured subordinated promissory notes
of AOG issued to the Trust from time to time under the Note
Indentures and "Note" means any one of them;
(iii) "Royalty Agreement" means the royalty agreement entered
into between AOG and the Trust dated as of December 1, 2003
and providing for the creation of the Trust Royalty;
(f) by amending subsection (iii) of the definition of "Distributable
Income" to specifically reference the "Notes" as newly defined;
(g) by amending the definition of "Material Contracts" in the Trust
Indenture to reference the Note Indentures as newly defined;
(h) by amending the definition of "Properties" to include petroleum
and natural gas properties which may be acquired by any Subsidiary
of the Trust;
(i) to make consequential changes to the Trust Indenture to reflect
the defined terms (in capitalized letters) as appropriate;
(j) by otherwise amending the Trust Indenture to delete references to
the 10 3/8% Notes, 9 3/8% Notes, 8.5% Notes, the 10 3/8% Note
Indenture, the 9 3/8% Note Indenture and the 8.5% Note Indenture
where appropriate and by deleting, amending or adding any
consequential language;
(k) to amend the lead in sentence to Section 4.1 "Purpose of the
Trust" to read "The Trust is a limited purpose Trust and is
created for the following purposes:";
(l) by amending the first sentence of each of Section 7.1(a), Section
7.2 and Section 7.2(v) of the Trust Indenture by deleting the
words "or other contracts or obligations of the Trustee or the
Trust";
(m) by amending the lead in paragraph to Section 8.1 to read "Except
as expressly prohibited by law or as otherwise set out in this
Indenture...";
(n) by amending Section 8.2 to include, as an item delegated from the
Trustee to AOG, any matters relating to establishment or
determination of any Swap Arrangements (as defined in the Trust
Indenture);
(o) by amending Section 8.2 to delete the reference to the
implementation of non-resident ownership constraints in relation
to matters related to the Trust's continuing qualification as a
"mutual fund trust" under the INCOME TAX ACT (Canada); and
(p) by amending Section 8.2 to add the following text:
A-3
Notwithstanding any other provision of this
Indenture, including, without limitation, Sections
8.1 and 8.2 hereof, the duties and obligations of
the Trustee shall not be delegated to the Manager,
AOG or any other person in relation to: (a) without
limiting the duties and obligations of the Transfer
Agent hereunder, the transfer and cancellation of
certificates representing Trust Units and the
maintenance of registers of Unitholders; (b)
terminating this Indenture in accordance with the
provisions hereof; and (c) the Trustee's powers and
authority under subsections 7.2(ii) and 7.2(jj).
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
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GUIDELINES COMPLIANCE COMMENTS
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1. The Board should explicitly assume
responsibility for the stewardship of
Advantage, including:
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(a) the adoption of a strategic planning Yes The Board has adopted a formal mandate (the
process; "Mandate") 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.
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(b) the identification of the principal Yes Directly and through the Audit Committee, the
risks of Advantage's business and the Board monitors and receives, at minimum, annual
implementation of appropriate systems reports respecting operations, internal controls
to manage these risks; and business 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.
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(c) succession planning, including Yes The Board is responsible for the stewardship of
appointing, training and monitoring Advantage through consultation with management of
senior management; AOG 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.
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(d) Advantage's communications policy; and Yes Advantage has adopted a disclosure,
confidentiality 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
that non-publicly disclosed information remains
B-2
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GUIDELINES COMPLIANCE COMMENTS
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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.
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(e) the integrity of Advantage's internal Yes The Board, through its committees, has
control and management information established a system for monitoring internal
systems. controls and management 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
B-3
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GUIDELINES COMPLIANCE COMMENTS
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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 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.
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2. The Board should be constituted with a Yes Six of the eight proposed members of the Board
majority of individuals who qualify as are unrelated directors.
unrelated directors.
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3. The analysis of the application of the Yes Of the eight proposed members of the Board, only
principles supporting the conclusion in two are members of management. The remaining six
paragraph 2 above. proposed 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.
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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
outside, i.e., non-management directors, new nominees to the Board and for assessing
a majority of whom are unrelated directors on an ongoing basis. Such committee is
directors, with the responsibility for comprised of outside, unrelated directors.
proposing to the full Board new nominees
to the Board and for assessing directors
on an ongoing basis.
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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 committee responsibility of assessing the effectiveness of
for assessing the effectiveness of the the Board as a whole, the committees of the Board
Board as a whole, the committees of the and the contribution of individual directors.
Board and the contribution of individual Furthermore, the Board monitors the effectiveness
directors. of individual 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.
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6. The existence of an orientation and See Comments There is no formal education and orientation
education program for new recruits to program for new Board members. All current
the Board. members of the 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
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GUIDELINES COMPLIANCE COMMENTS
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7. The size of the Board and the impact of Yes The Shareholder Agreement prescribes that the
the number of directors upon the Board's Board shall consist of a minimum of five members
effectiveness. and a maximum of nine members, with the initial
number being set at seven members. The Board is
comprised of eight 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 eight directors having substantial
experience in the oil and gas industry. In
addition, three of the eight 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.
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8. The adequacy and form of the compensation Yes Outside directors are compensated by fees and
of directors should realistically reflect trust unit rights issued under the Trust Unit
the responsibilities and risk involved in Rights Incentive Plan. Compensation levels are
being an effective director. reviewed periodically by the Human Resources,
Compensation and Corporate Governance Committee
(with reference to compensation surveys and other
industry data), which committee makes
recommendations to the Board. Director
compensation was most recently revised effective
July 1, 2004. See "Remuneration of Directors of
AOG" in the Information Circular to which this
Schedule "B" is attached. Directors' liability
insurance is also provided.
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9. Committees of the Board should generally Yes All committees of the Board are composed of
be composed of outside directors, a outside, unrelated directors.
majority of whom are unrelated directors.
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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
responsibility for) developing with the Guidelines. The Human Resources,
Advantage's approach to governance issues. Compensation and Corporate Governance Committee
is responsible for preparing and recommending to
the Board annually the statement of corporate
governance practices and for dealing with other
corporate governance matters.
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11. The Board has developed:
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(a) position descriptions for the Board Yes The Board is responsible for the stewardship of
and for the CEO, involving the Advantage through consultation with management of
definition of the limits to AOG and the Manager, and generally directs the
management's responsibilities; and business 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 Kelly Drader available for performance of
the services to be performed to the Trust and AOG.
B-5
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GUIDELINES COMPLIANCE COMMENTS
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(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.
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12. The appropriate structures and procedures Yes The Shareholder Agreement prescribes that as long
to ensure that the Board can function as the Manager is a party to the Management
independently of management. Agreement, it is entitled to designate two
members to the Board with 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 a practice where the
non-management members of the Board meet
independently of management following scheduled
Board meetings.
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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
directors. outside 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.
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(b) The roles and responsibilities of the Yes The Audit Committee has adopted a specific
Audit Committee should be charter which defines it's role and
specifically defined. responsibilities.
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(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
the internal and external auditors to accounting principles, policies and practices;
discuss and review specific issues as (ii) reviews Advantage's audited consolidated
appropriate. financial statements 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.
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(d) The Audit Committee's duties should Yes The Audit Committee reviews the scope and
include oversight responsibility for adequacy of management's internal controls and
management reporting on internal reporting.
controls and should ensure that
management has designed and
implemented an effective system of
internal controls.
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14. The existence of a system which enables Yes A director or a group of directors may engage
an individual director to engage an outside advisors at the expense of Advantage,
outside advisor at the expense of subject to approval of the Human Resources,
Advantage in appropriate circumstances, Compensation and Corporate Governance Committee.
subject to the approval of an appropriate
committee of the Board.
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