AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 2006
REGISTRATION NO. [________]
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM F-10
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
____________________________
PENGROWTH ENERGY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ALBERTA, CANADA 1311 98-0185056
(PROVINCE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.,
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IF APPLICABLE)
____________________________
SUITE 2900, 240 - 4TH AVENUE S.W.
CALGARY, ALBERTA, T2P 4H4, CANADA
(403) 233-0224
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CT CORPORATION SYSTEM
111 - 8TH AVENUE, NEW YORK, NEW YORK 10011
(212) 894-8940
(NAME, ADDRESS AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF AGENT
FOR SERVICE IN THE UNITED STATES)
____________________________
COPIES TO:
BRAD D. MARKEL EDWIN S. MAYNARD
BENNETT JONES LLP PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
4500 BANKERS HALL EAST 1285 AVENUE OF THE AMERICAS
855 - 2ND STREET S.W. NEW YORK, NEW YORK 10019-6064
CALGARY, ALBERTA T2P 4K7 CANADA (212) 373-3000
(403) 298-3100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as possible after this registration statement becomes effective.
PROVINCE OF ALBERTA, CANADA
(PRINCIPAL JURISDICTION REGULATING THIS OFFERING)
It is proposed that this filing shall become effective (check appropriate box
below):
A. |X| upon filing with the Commission, pursuant to Rule 467(a) (if in
connection with an offering being made contemporaneously in the United
States and Canada).
B. |_| at some future date (check appropriate box below)
1. |_| pursuant to Rule 467(b) on ( ) at ( ) (designate a time
not sooner than 7 calendar days after filing).
2. |_| pursuant to Rule 467(b) on ( ) at ( ) (designate a time 7
calendar days or sooner after filing) because the securities
regulatory authority in the review jurisdiction has issued a receipt
or notification of clearance on ( ).
3. |_| pursuant to Rule 467(b) as soon as practicable after notification of
the Commission by the Registrant or the Canadian securities
regulatory authority of the review jurisdiction that a receipt or
notification of clearance has been issued with respect hereto.
4. |_| after the filing of the next amendment to this Form (if preliminary
material is being filed).
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to the home jurisdiction's shelf
prospectus offering procedures, check the following box. |_|
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE REGISTRATION FEE
-------------------------------------------------------------------------------------------------
Trust Units, without nominal or
par value (1) (2) (2)
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Total...................... 77,527,433 US$1,745,609,669 US$186,780.23
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(1) Pengrowth Energy Trust Trust Units to be issued in the United States to
holders of Pengrowth Energy Trust Class A trust units in connection with
the consolidation of Class A trust units and Class B trust units into
Trust Units.
(2) Estimated solely for the purpose of calculating the registration fee, and
based upon the product of Cdn $25.29 (the average of the high and low
prices of Pengrowth Energy Trust Class A trust units on May 19, 2006, on
the Toronto Stock Exchange) times 77,527,433 (the number of outstanding
Class A trust units as of May 5, 2006), divided by 1.1232, the noon buying
rate in New York City on May 19, 2006 for cable transfers in Canadian
dollars as certified by the Federal Reserve Bank of New York.
IF AS A RESULT OF STOCK SPLITS, STOCK DIVIDENDS OR SIMILAR TRANSACTIONS,
THE NUMBER OF SECURITIES PURPORTED TO BE REGISTERED ON THIS REGISTRATION
STATEMENT CHANGES, THE PROVISIONS OF RULE 416 SHALL APPLY TO THIS REGISTRATION
STATEMENT.
PART I
INFORMATION REQUIRED TO BE
DELIVERED TO OFFEREES OR PURCHASERS
===============================================================================
PENGROWTH CORPORATION
PENGROWTH ENERGY TRUST
NOTICES OF MEETINGS
INFORMATION CIRCULAR - PROXY STATEMENT
MAY 16, 2006
===============================================================================
NOTICE TO UNITED STATES HOLDERS
The proposed Consolidation is in respect of the securities of a foreign issuer
that is permitted, under a multijurisdictional disclosure system adopted by
the United States, to prepare the Circular in accordance with the disclosure
requirements of applicable Canadian law. Holders of Trust Units should be
aware that these requirements are different from those of the United States.
The financial statements included herein have been prepared in accordance with
Canadian generally accepted accounting principles and are subject to Canadian
auditing and auditor independence standards. They may not be comparable to
financial statements of United States companies.
The Consolidation of Pengrowth's Trust Units may subject holders of Trust
Units to tax consequences both in the United States and Canada. Such
consequences for holders of Trust Units who are resident in, or citizens of,
the United States may not be described fully herein.
The enforcement by investors of civil liabilities under the United States
federal securities laws may be affected adversely by the fact that Pengrowth
was created under the laws of the Province of Alberta, Canada, that some or
all of the officers, directors and trustees of Pengrowth and its management
companies may be residents of Canada, that some or all of the experts named in
the Circular may be residents of Canada and that all or a substantial portion
of the assets of Pengrowth and of such persons may be located outside the
United States.
No broker, dealer, salesperson or other person has been authorized to give any
information or make any representation other than those contained in this
document and, if given or made, such information or representation must not be
relied upon as having been authorized by Pengrowth.
THE SECURITIES OFFERED BY PENGROWTH PURSUANT TO THE CONSOLIDATION HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR ANY OTHER SECURITIES REGULATORY AUTHORITY NOR HAS THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER SECURITIES REGULATORY
AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[GRAPHIC OMITTED]
[LOGO -- PENGROWTH]
PENGROWTH CORPORATION
2900, 240 - 4th Avenue S.W., Calgary, Alberta T2P 4H4
Tel 403-233-0224 o Fax 403-265-6251 o Toll Free 1-800-223-4122
o website: www.pengrowth.com
May 16, 2006
Dear Pengrowth Unitholder:
The Board of Directors of Pengrowth Corporation is pleased to recommend that
the holders of Class A trust units and the holders of Class B trust units
approve the extraordinary resolution set out in the attached Information
Circular and Proxy Statement to cause the consolidation of our two classes of
trust units into a single class. PENGROWTH IS THE ONLY TRUST WITH THIS CAPITAL
STRUCTURE and once the consolidation is completed Pengrowth will no longer be
at a competitive disadvantage to its peer group.
As you are likely aware, Pengrowth implemented the dual class structure in
2004 in order to maintain its status as a mutual fund trust under the INCOME
TAX ACT (Canada). A number of significant events have occurred since
implementation of the dual class structure which have resulted in the Trust
receiving an opinion from legal and tax counsel in May 2006 that the dual
class structure is no longer required to maintain our status as a mutual fund
trust. Based on this advice, the Board of Directors formed a Special Committee
of independent directors that retained BMO Nesbitt Burns and Merrill Lynch as
financial advisors and Burnet, Duckworth and Palmer LLP and Paul, Weiss,
Rifkind, Wharton & Garrison LLP as legal advisors. The mandate of the Special
Committee included examining the impact of the dual class structure on
Pengrowth and its ability to effectively pursue its business plan and
examining alternatives to that structure, including the removal of the
ownership restriction from the Class B trust units, the merger of the Class A
trust units and the Class B trust units into a single class and any other
alternatives the committee considered appropriate.
In executing its mandate and considering advice received from its legal and
financial advisors, the Special Committee concluded that the dual class
structure was a significant impediment to the implementation of Pengrowth's
business plan, a fundamental component of which is the long-term creation of
unitholder value through accretive acquisitions and related financings, and
recommended that the Board ask the Unitholders to consider and vote on a
resolution to cause the consolidation of the two classes into a single class
of Trust Units.
The Board of Directors believes that approval of the consolidation is
important to facilitate Pengrowth's execution of its business plan. The dual
class structure is an impediment to the execution of Pengrowth's business plan
as it results in:
o An inability to effectively raise capital at the lowest possible
cost;
o A significant impediment to completing mergers or acquisitions using
trust units as consideration;
o Significantly reduced liquidity in the trading of Trust Units;
o An inability to complete efficient equity financings; and
o A diversion of management's time.
If approved by an extraordinary resolution of the holders of Class A trust
units and Class B trust units, voting together as a single class, the
consolidation will become effective as follows:
-2-
o effective as of 5:00 p.m. (Calgary time) on June 27, 2006:
o the restriction on the Class B trust units that provides that
the Class B trust units may only be held by residents of Canada
will be eliminated; and
o effective as of 5:00 p.m. (Calgary time) on July 27, 2006:
o the Class A trust units will be delisted from the Toronto Stock
Exchange;
o the Class B trust units will be renamed "Trust Units";
o all of the issued and outstanding Class A trust units will be
converted into Trust Units on the basis of one Trust Unit for
each whole Class A trust unit previously held (with the
exception of Class A trust units held by residents of Canada who
have provided an election and residency declaration to the
Trustee); and
o the Trust Units will be substitutionally listed in place of the
Class A trust units on the New York Stock Exchange.
Further details concerning the consolidation are contained in the attached
Information Circular and Proxy Statement, including certain risk factors
associated with the consolidation. I urge all unitholders to review the
circular.
I believe the prospects for Pengrowth have never been brighter. During 2005,
Pengrowth Corporation hired three new highly experienced Vice-Presidents in
the Operations Group and appointed two new Senior Officers on the financial
side of our business. We have also retained a new Manager of Business
Development and have augmented our technical and financial expertise in that
area. Pengrowth embarked on a number of exciting initiatives on our existing
properties, including pursuit of an enhanced oil recovery CO(2) pilot at Judy
Creek, development of Pengrowth's coal bed methane properties and various
exploration and development projects.
I believe Pengrowth has the highest quality asset base in our sector. We are
well capitalized and well positioned to grow through internal development and
further acquisitions. Simplifying our capital structure will enable us to move
forward aggressively and to meet the demands of an increasingly competitive
marketplace.
Sincerely,
/s/ James S. Kinnear
James S. Kinnear
Chairman, President and Chief Executive Officer
Pengrowth Corporation
TABLE OF CONTENTS
-----------------
NOTICES OF MEETINGS
NOTICE OF THE ANNUAL AND SPECIAL MEETING OF PENGROWTH CORPORATION
NOTICE OF THE ANNUAL AND SPECIAL MEETING OF PENGROWTH ENERGY TRUST
NOTICE OF A SPECIAL MEETING OF THE ROYALTY UNITHOLDERS OF PENGROWTH
CORPORATION
INFORMATION CIRCULAR - PROXY STATEMENT
PART I - GENERAL INFORMATION FOR ALL
MEETINGS......................................................................1
Solicitation of Proxies....................................................1
Appointment of Proxyholders and Revocation of Proxies......................2
Notice to Beneficial Holders of Trust Units................................2
Persons making the Solicitation............................................3
Exercise of Discretion by Proxy............................................3
Voting Shares and Units and the Principal Holders Thereof..................3
Interests of Certain Persons in Matters Acted Upon.........................4
Executive Compensation.....................................................4
Securities Authorized for Issuance Under Equity Compensation Plans........16
Directors' and Officers' Liability Insurance..............................17
Indebtedness of Directors and Executive Officers..........................17
Interests of Informed Persons in Material Transactions....................17
Management Agreement......................................................17
PART II - CORPORATE GOVERNANCE...............................................20
Mandates of the Trustee, the Manager and the Board of Directors...........20
Board Independence........................................................20
Board Approvals and Structure.............................................21
Board Committees..........................................................21
Statement of Corporate Governance Practices...............................22
PART III - MATTERS TO BE CONSIDERED AT
THE SHAREHOLDER MEETING......................................................23
Appointment of Auditors...................................................23
Election of Directors.....................................................23
Amendments to the Unanimous Shareholder Agreement to Simplify
Voting at the Annual General Meeting......................................24
PART IV - MATTERS TO BE CONSIDERED AT THE TRUST MEETING......................27
Appointment of Auditors...................................................27
Amendments to the Trust Indenture to Provide for the Consolidation
of the Trust's Dual Class Structure.......................................27
Amendments to the Unanimous Shareholder Agreement and the Trust
Indenture to Simplify Voting at the Annual General Meeting................39
Amendments to the DEU Plan................................................39
Amendments to the Trust Indenture Regarding the Distribution of Net
Proceeds from the Sale of Properties......................................40
PART V - MATTERS TO BE CONSIDERED AT THE ROYALTY MEETING.....................41
Amendments to the Royalty Indenture Regarding the Reclassification of
Trust Unit Capital........................................................41
Amendments to the Unanimous Shareholder Agreement and the Royalty
Indenture to Simplify Voting at the Annual General Meeting................42
Amendments to the Royalty Indenture Regarding the Distribution of Net
Proceeds from the Sale of Properties......................................42
Amendments to the Royalty Indenture Regarding Distributions upon a
Liquidation, Winding-up or Dissolution of the Corporation.................43
Amendments to the Royalty Indenture Regarding Certain Expenditures, the
Reserve and Other Revenues................................................44
Miscellaneous Amendments to the Royalty Indenture.........................46
PART VI - ADDITIONAL INFORMATION.............................................47
APPENDICES
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APPENDIX 1 - Statement of Corporation Governance Practices
APPENDIX 1-A - Board of Directors' Mandate
APPENDIX 1-B - Corporate Governance Committee Mandate
APPENDIX 1-C - Compensation Committee Mandate
APPENDIX 2 - Fairness Opinion of BMO Nesbitt Burns
APPENDIX 3 - Fairness Opinion of Merrill Lynch
SCHEDULES
---------
SCHEDULE A-1 - Extraordinary Resolution to Amend the Unanimous Shareholder
Agreement to Simplify Voting Procedures at the Annual General
Meeting
SCHEDULE A-2 - Extraordinary Resolution to Amend the Unanimous Shareholder
Agreement and the Articles of the Corporation to Increase the
Maximum Size of the Board of Directors of the Corporation
SCHEDULE B-1 - Extraordinary Resolution to Amend the Trust Indenture to
provide for the Consolidation of the Trust's Dual Class
Structure
EXHIBIT A TO SCHEDULE B-1 - Revised Schedule C to the Amended
and Restated Trust Indenture
EXHIBIT B TO SCHEDULE B-1 - Revised Schedule A to the Amended
and Restated Trust Indenture
EXHIBIT C TO SCHEDULE B-1 - Revised Schedule B to the Amended
and Restated Trust Indenture
SCHEDULE B-2 - Extraordinary Resolution to Amend the Unanimous Shareholder
Agreement and the Trust Indenture to Simplify Voting Procedures
at the Annual General Meeting
SCHEDULE B-3 - Ordinary Resolution to Amend the Deferred Entitlement Unit Plan
SCHEDULE B-4 - Extraordinary Resolution to Amend the Trust Indenture regarding
the Distribution of Net Proceeds from the Sale of Properties
SCHEDULE B-5 - Extraordinary Resolution to Amend the Unanimous Shareholder
Agreement and the Articles of the Corporation to Increase the
Maximum Size of the Board of Directors of the Corporation
SCHEDULE C-1 - Extraordinary Resolution to Amend the Royalty Indenture to
provide for the Consolidation of the Trust's Dual Class
Structure
SCHEDULE C-2 - Extraordinary Resolution to Amend the Unanimous Shareholder
Agreement and the Royalty Indenture to Simplify Voting
Procedures at the Annual General Meeting
SCHEDULE C-3 - Extraordinary Resolution to Amend the Royalty Indenture
regarding the Distribution of Net Proceeds from the Sale of
Properties
SCHEDULE C-4 - Extraordinary Resolution to Amend the Royalty Indenture
regarding Distributions upon a Liquidation, Winding-up or
Dissolution of the Corporation
SCHEDULE C-5 - Extraordinary Resolution to Amend the Royalty Indenture
regarding Certain Expenditures, the Reserves and Other Revenues
SCHEDULE C-6 - Extraordinary Resolution regarding Miscellaneous Amendments to
the Royalty Indenture
SCHEDULE C-7 - Extraordinary Resolution to Amend the Unanimous Shareholder
Agreement and the Articles of the Corporation to Increase the
Maximum Size of the Board of Directors of the Corporation
PENGROWTH CORPORATION
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NOTICE OF THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TAKE NOTICE that the annual and special meeting (the "Shareholder Meeting") of
the holders of common shares ("Shareholders") of Pengrowth Corporation (the
"Corporation") will be held at the Fairmont Palliser Hotel, Alberta Room, 133
- 9th Avenue S.W., Calgary, Alberta, at 10:00 a.m. (Calgary time) on June 23,
2006 for the following purposes:
1. to appoint auditors;
2. to elect directors of the Corporation;
3. to consider an extraordinary resolution approving amendments to the
Unanimous Shareholder Agreement to simplify voting at the Annual
General Meeting;
4. to consider an extraordinary resolution approving amendments to the
Unanimous Shareholder Agreement and the Articles of the Corporation
to increase the maximum size of the Board of Directors of the
Corporation; and
5. to transact any other business which may properly come before the
Shareholder Meeting or any adjournments thereof.
Dated at Calgary, Alberta as of May 16, 2006.
BY ORDER OF THE BOARD OF DIRECTORS
(Signed) Charles V. Selby
Vice President and Corporate Secretary,
Pengrowth Corporation
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The specific details of the matters proposed to be put before the Shareholder
Meeting and the text of the resolutions are set forth in the Information
Circular-Proxy Statement accompanying this notice.
ROYALTY UNITHOLDERS OF THE CORPORATION AND TRUST UNITHOLDERS OF PENGROWTH
ENERGY TRUST (COLLECTIVELY, "UNITHOLDERS") ARE ENTITLED TO VOTE ON MATTERS
REGARDING THE CORPORATION AS IF THEY WERE SHAREHOLDERS OF THE CORPORATION.
UNITHOLDERS ARE REQUESTED TO DATE AND SIGN THE ENCLOSED FORM OF PROXY AND TO
MAIL IT TO, OR DEPOSIT IT WITH, THE CORPORATE SECRETARY OF THE CORPORATION IN
CARE OF COMPUTERSHARE TRUST COMPANY OF CANADA, 100 UNIVERSITY AVENUE, 9TH
FLOOR, TORONTO, ONTARIO, M5J 2Y1. IN ORDER TO BE VALID AND ACTED UPON AT THE
SHAREHOLDER MEETING, FORMS OF PROXY MUST BE RECEIVED NOT LESS THAN 24 HOURS
(EXCLUDING SATURDAYS, SUNDAYS AND HOLIDAYS) BEFORE THE TIME FOR HOLDING THE
SHAREHOLDER MEETING OR ANY ADJOURNMENTS THEREOF. UNITHOLDERS WHO WISH TO
ATTEND AND VOTE IN PERSON SHOULD APPOINT THEMSELVES AS PROXY.
Unitholders of record at the close of business on May 5, 2006, will be
entitled to notice of, and to attend and vote at, the Shareholder Meeting and
at any adjournments thereof.
PENGROWTH ENERGY TRUST
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NOTICE OF THE ANNUAL AND SPECIAL MEETING OF TRUST UNITHOLDERS
TAKE NOTICE that the annual and special meeting (the "Trust Meeting") of the
holders of trust units ("Trust Unitholders") of Pengrowth Energy Trust (the
"Trust") will be held at the Fairmont Palliser Hotel, Alberta Room, 133 - 9th
Avenue S.W., Calgary, Alberta, at 10:15 a.m. (Calgary time) on June 23, 2006
for the following purposes:
1. to receive and consider the financial statements of the Trust for
the year ended December 31, 2005 and the auditors' report thereon;
2. to appoint auditors;
3. to consider an extraordinary resolution approving the consolidation
of the Trust's dual class structure;
4. to consider an extraordinary resolution approving amendments to the
Unanimous Shareholder Agreement and the Trust Indenture to simplify
voting at the Annual General Meeting;
5. to consider an ordinary resolution approving the amendments to the
Deferred Entitlement Unit Plan;
6. to consider an extraordinary resolution approving the amendments to
the Trust Indenture regarding the distribution of the net proceeds
from the sale of properties;
7. to consider an extraordinary resolution approving amendments to the
Unanimous Shareholder Agreement and the Articles of the Corporation
to increase the maximum size of the Board of Directors of the
Corporation; and
8. to transact any other business which may properly come before the
Trust Meeting or any adjournments thereof.
Dated at Calgary, Alberta as of May 16, 2006.
BY ORDER OF COMPUTERSHARE TRUST COMPANY OF CANADA
AS TRUSTEE
(Signed) Stacie A. Moore
General Manager, Corporate Trust
(Signed) Karen Biscope
Manager, Corporate Trust
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The specific details of the matters proposed to be put before the Trust
Meeting and the text of the resolutions are set forth in the Information
Circular-Proxy Statement accompanying this notice.
TRUST UNITHOLDERS ARE REQUESTED TO DATE AND SIGN THE ENCLOSED FORM OF PROXY
AND TO MAIL IT TO, OR DEPOSIT IT WITH, THE CORPORATE SECRETARY OF PENGROWTH
CORPORATION IN CARE OF COMPUTERSHARE TRUST COMPANY OF CANADA, 100 UNIVERSITY
AVENUE, 9TH FLOOR, TORONTO, ONTARIO, M5J 2Y1. IN ORDER TO BE VALID AND ACTED
UPON AT THE TRUST MEETING, FORMS OF PROXY MUST BE RECEIVED NOT LESS THAN 24
HOURS (EXCLUDING SATURDAYS, SUNDAYS AND HOLIDAYS) BEFORE THE TIME FOR HOLDING
THE TRUST MEETING OR ANY ADJOURNMENTS THEREOF. TRUST UNITHOLDERS WHO WISH TO
ATTEND AND VOTE IN PERSON SHOULD APPOINT THEMSELVES AS PROXY.
Trust Unitholders of record at the close of business on May 5, 2006, will be
entitled to notice of, and to attend and vote at, the Trust Meeting and at any
adjournments thereof.
PENGROWTH CORPORATION
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NOTICE OF A SPECIAL MEETING OF ROYALTY UNITHOLDERS
TAKE NOTICE that a special meeting (the "Royalty Meeting") of the holders of
royalty units (the "Royalty Unitholders") of Pengrowth Corporation (the
"Corporation") will be held at the Fairmont Palliser Hotel, Alberta Room, 133
- 9th Avenue S.W., Calgary, Alberta, at 10:30 a.m. (Calgary time) on June 23,
2006 for the following purposes:
1. to consider an extraordinary resolution approving amendments to the
Royalty Indenture to provide for the consolidation of the Trust's
dual class structure;
2. to consider an extraordinary resolution approving amendments to the
Unanimous Shareholder Agreement and the Royalty Indenture to
simplify voting at the Annual General Meeting;
3. to consider an extraordinary resolution approving amendments to the
Royalty Indenture regarding the distribution of the net proceeds
from the sale of properties;
4. to consider an extraordinary resolution approving amendments to the
Royalty Indenture regarding distributions upon a liquidation,
winding-up or dissolution of the Corporation;
5. to consider an extraordinary resolution approving amendments to the
Royalty Indenture regarding certain expenditures, the reserve and
other revenues;
6. to consider an extraordinary resolution approving miscellaneous
amendments to the Royalty Indenture;
7. to consider an extraordinary resolution approving amendments to the
Unanimous Shareholder Agreement and the Articles of the Corporation
to increase the maximum size of the Board of Directors of the
Corporation; and
8. to transact any other business which may properly come before the
Royalty Meeting or any adjournments thereof.
Dated at Calgary, Alberta as of May 16, 2006.
BY ORDER OF THE BOARD OF DIRECTORS
(Signed) Charles V. Selby
Vice President and Corporate Secretary,
Pengrowth Corporation
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The specific details of the matters proposed to be put before the Royalty
Meeting and the text of the resolutions are set forth in the Information
Circular-Proxy Statement accompanying this notice.
ROYALTY UNITHOLDERS AND TRUST UNITHOLDERS OF PENGROWTH ENERGY TRUST
(COLLECTIVELY, "UNITHOLDERS") ARE ENTITLED TO VOTE ON ALL MATTERS AT THE
ROYALTY MEETING. UNITHOLDERS ARE REQUESTED TO DATE AND SIGN THE ENCLOSED FORM
OF PROXY AND TO MAIL IT TO, OR DEPOSIT IT WITH, THE CORPORATE SECRETARY OF THE
CORPORATION IN CARE OF COMPUTERSHARE TRUST COMPANY OF CANADA, 100 UNIVERSITY
AVENUE, 9TH FLOOR, TORONTO, ONTARIO, M5J 2Y1. IN ORDER TO BE VALID AND ACTED
UPON AT THE ROYALTY MEETING, FORMS OF PROXY MUST BE RECEIVED NOT LESS THAN 24
HOURS (EXCLUDING SATURDAYS, SUNDAYS AND HOLIDAYS) BEFORE THE TIME FOR HOLDING
THE ROYALTY MEETING OR ANY ADJOURNMENTS THEREOF. UNITHOLDERS WHO WISH TO
ATTEND AND VOTE IN PERSON SHOULD APPOINT THEMSELVES AS PROXY.
Unitholders of record at the close of business on May 5, 2006 will be entitled
to notice of, and to attend and vote at, the Royalty Meeting and at any
adjournments thereof.
PENGROWTH CORPORATION
PENGROWTH ENERGY TRUST
INFORMATION CIRCULAR - PROXY STATEMENT
For: Annual and Special Meeting of Shareholders
Annual and Special Meeting of Trust Unitholders
Special Meeting of Royalty Unitholders
PART I - GENERAL INFORMATION FOR ALL MEETINGS
SOLICITATION OF PROXIES
This information circular - proxy statement ("Circular") is provided in
connection with the solicitation of proxies by management for use at the
Annual and Special Meeting of Shareholders (the "Shareholder Meeting") of
Pengrowth Corporation (the "Corporation"), the Annual and Special Meeting of
Trust Unitholders (the "Trust Meeting") of Pengrowth Energy Trust (the "Trust"
and collectively with the Corporation, "Pengrowth") and the Special Meeting of
Royalty Unitholders of the Corporation (the "Royalty Meeting"), (collectively
referred to as the "Meetings") and at any adjournment(s) of the Meetings. The
Meetings are to be held on June 23, 2006 at 10:00 a.m., 10:15 a.m. and 10:30
a.m. (all Calgary times), respectively, at the Fairmont Palliser Hotel,
Alberta Room, 133 - 9th Avenue S.W., Calgary, Alberta. This Circular is
provided for the purposes set forth in the accompanying Notices of Meetings.
Information contained herein is given as of May 1, 2006 unless otherwise
specifically stated. Unless otherwise defined therein, each term that is
defined in this Circular has that same meaning when used in the schedules to
this Circular.
SHAREHOLDER MEETING
Pursuant to the terms of the Amended and Restated Unanimous Shareholder
Agreement dated June 17, 2003 (the "Unanimous Shareholder Agreement") among
Pengrowth Management Limited (the "Manager"), the Trust, the Corporation and
Computershare Trust Company of Canada (the "Trustee"), holders of royalty
units ("Royalty Unitholders") issued by the Corporation (the "Royalty Units")
and holders ("Trust Unitholders") of Class A trust units, Class B trust units
and trust units remaining in the form in existence prior to the
reclassification that occurred on July 27, 2004 (the "Prior Trust Units")
issued by the Trust (collectively, the "Trust Units" and together with the
Royalty Units, the "Units") (collectively, the "Unitholders") are entitled to
notice of, and to attend at, the Shareholder Meeting and to one vote per
Royalty Unit or Trust Unit held on any matter put before the Shareholder
Meeting, and at any adjournments thereof, other than the election of two
directors who may be elected by the Manager. The Manager has agreed to refrain
from exercising its voting rights as a shareholder except in respect of the
election of two directors or as may be necessary or desirable to implement any
resolutions passed by the Unitholders. The Trust will not exercise its voting
rights as a shareholder except as may be necessary or desirable to implement
any resolutions passed by the Unitholders.
TRUST MEETING
Pursuant to the terms of the Amended and Restated Trust Indenture dated July
27, 2004 (the "Trust Indenture") between the Corporation and the Trustee,
Trust Unitholders are entitled to notice of, and to attend at, the Trust
Meeting and to one vote per Trust Unit held on any matter put before the Trust
Meeting, and at any adjournments thereof.
ROYALTY MEETING
Pursuant to the terms of the Amended and Restated Royalty Indenture dated June
17, 2003 (the "Royalty Indenture") between the Corporation and the Trustee,
Unitholders are entitled to notice of, and to attend at, the Royalty Meeting
and to one vote per Unit held on any matter put before the Royalty Meeting,
and at any adjournments thereof, provided that the Trustee is not entitled to
vote in respect of any Royalty Units held in its capacity as Trustee under the
Trust Indenture.
-2-
APPOINTMENT OF PROXYHOLDERS AND REVOCATION OF PROXIES
THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY ARE DIRECTORS OF THE
CORPORATION. A UNITHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
UNITHOLDER) OTHER THAN JAMES S. KINNEAR OR JOHN B. ZAOZIRNY TO REPRESENT THE
UNITHOLDER AT THE MEETINGS. To exercise this right, the Unitholder must either
insert the name of the other person in the blank space provided on the
enclosed form of proxy or submit another appropriate form of proxy.
Non-registered Unitholders (Unitholders who hold their Units through brokerage
accounts or other intermediaries) who wish to appear in person and vote at the
Meetings should be appointed as their own representatives at the Meetings in
accordance with the directions of their intermediaries. See "Notice to
Beneficial Holders of Trust Units".
In order to be used at the Meetings, completed proxies must be addressed to
the Corporate Secretary of the Corporation and must be deposited with
Computershare Trust Company of Canada, 100 University Avenue, 9th Floor,
Toronto, Ontario, M5J 2Y1, not less than 24 hours, excluding Saturdays,
Sundays and holidays, before the time for the holding of the Meetings or any
adjournment(s) of the Meetings. The record date for the Meetings has been
established as the close of business on May 5, 2006. Only Unitholders of
record as at the record date are entitled to receive notice of, and to vote
at, the Meetings.
The instrument appointing a proxyholder shall be in writing and shall be
executed by the registered Unitholder or his attorney authorized in writing
or, if the registered Unitholder is a corporation, under its corporate seal or
by an officer or attorney thereof duly authorized.
A registered Unitholder who has submitted a proxy may revoke it by an
instrument in writing signed by the registered Unitholder or by an authorized
attorney, or, if the registered Unitholder is a corporation, by a duly
authorized officer provided such instrument is deposited either: (i) at the
offices of Computershare Trust Company of Canada, 100 University Avenue, 9th
Floor, Toronto, Ontario, M5J 2Y1, not less than 48 hours, excluding Saturdays,
Sundays and holidays, before the time for the holding of the Meetings or any
adjournment(s) of the Meetings, or (ii) with the Chairman of the Meetings on
the day of the Meetings, or any adjournment(s) of the Meetings. In addition, a
proxy may be revoked: (i) by the registered Unitholder personally attending at
the Meetings and voting the Units represented thereby or, if the Unitholder is
a corporation, by a representative of that corporation attending at the
Meetings and voting such Units; or (ii) in any other manner permitted by law.
Non-registered Unitholders should follow the directions of their
intermediaries with respect to procedures to be followed for revoking a proxy.
NOTICE TO BENEFICIAL HOLDERS OF TRUST UNITS
THE INFORMATION SET FORTH IN THIS SECTION IS OF SIGNIFICANT IMPORTANCE TO MANY
TRUST UNITHOLDERS, AS A SUBSTANTIAL NUMBER OF THE TRUST UNITHOLDERS DO NOT
HOLD TRUST UNITS IN THEIR OWN NAME. TRUST UNITHOLDERS WHO DO NOT HOLD THEIR
TRUST UNITS IN THEIR OWN NAME (REFERRED TO HEREIN AS "BENEFICIAL UNITHOLDERS")
SHOULD NOTE THAT ONLY PROXIES DEPOSITED BY TRUST UNITHOLDERS WHOSE NAMES
APPEAR ON THE RECORDS OF THE TRUST AS THE REGISTERED HOLDERS OF TRUST UNITS
CAN BE RECOGNIZED AND ACTED UPON AT THE MEETINGS. If Trust Units are listed in
an account statement provided to a Beneficial Unitholder by a broker, then in
almost all cases those Trust Units will not be registered in the Beneficial
Unitholder's name on the records of the Trust. Such Trust Units will more
likely be registered under the name of the Beneficial 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). In the United States, the vast majority of such Trust Units
are registered under the name of Cede & Co. (the registration name for The
Depositary Trust Company, which acts as nominee for many U.S. brokerage
firms). Trust Units held by brokers or their nominees can only be voted (for
or against resolutions) upon the instructions of the Beneficial Unitholder.
Without specific instructions, the broker/nominees are prohibited from voting
Trust Units for their clients.
Applicable regulatory policies require intermediaries/brokers to seek voting
instructions from Beneficial Unitholders in advance of securityholder
meetings. Every intermediary/broker has its own mailing procedures and
provides its own return instructions, which should be carefully followed by
Beneficial Unitholders in order to ensure that their Trust Units are voted at
the Meetings. Often, the form of proxy supplied to a Beneficial Unitholder by
its broker is identical to the form of proxy provided to registered Trust
Unitholders; however, its purpose is limited to instructing the registered
Trust Unitholder how to vote on behalf of the Beneficial Unitholder. The
majority of brokers in
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Canada and the United States now delegate responsibility for obtaining
instructions from clients to ADP Investor Communications ("ADP"). In most
cases, ADP mails a scannable voting instruction form in lieu of the form of
proxy provided by the Trust. The Beneficial Unitholder is requested to
complete and return the proxy or voting instruction form to ADP by mail or
facsimile. Alternatively, the Beneficial Unitholder can call a toll-free
telephone number or access ADP's voting web site at www.proxyvotecanada.com to
vote the Trust Units held by the Beneficial Unitholder. ADP then tabulates the
results of all instructions received and provides appropriate instructions
respecting the voting of Trust Units represented at the Meetings. A BENEFICIAL
UNITHOLDER RECEIVING A VOTING INSTRUCTION FORM CANNOT USE THAT VOTING
INSTRUCTION FORM TO VOTE TRUST UNITS DIRECTLY AT THE MEETINGS AS THE VOTING
INSTRUCTION FORM MUST BE RETURNED AS DIRECTED BY ADP WELL IN ADVANCE OF THE
MEETINGS IN ORDER TO HAVE THE TRUST UNITS VOTED.
Although a Beneficial Unitholder may not be recognized directly at the
Meetings for the purposes of voting Trust Units registered in the name of his
or her broker (or an agent of the broker), a Beneficial Unitholder may attend
the Meetings as a proxyholder for the registered Unitholder and vote the Trust
Units in that capacity. A BENEFICIAL UNITHOLDER WHO WISHES TO ATTEND THE
MEETINGS AND INDIRECTLY VOTE HIS OR HER TRUST UNITS AS PROXYHOLDER FOR THE
REGISTERED UNITHOLDER SHOULD ENTER HIS OR HER OWN NAME IN THE BLANK SPACE ON
THE FORM OF PROXY PROVIDED TO HIM OR HER AND RETURN THE SAME TO HIS OR HER
BROKER (OR BROKER'S AGENT) IN ACCORDANCE WITH THE INSTRUCTIONS PROVIDED BY
SUCH BROKER (OR AGENT), WELL IN ADVANCE OF THE MEETINGS.
PERSONS MAKING THE SOLICITATION
This solicitation of proxies is made by management of Pengrowth. The costs
incurred to prepare and mail the Notices of Meetings, this Circular and the
form of proxy will be borne by the Corporation and will be deducted in
computing the royalty payable by the Corporation to the Trust. Proxies are
being solicited by mail and may also be solicited by oral communication,
telephone, telegraph or facsimile by directors, officers and proposed
directors and officers of the Corporation, who will not be remunerated
therefor. While no arrangements have been made to date, Pengrowth may contract
for the solicitation of proxies for the Meetings. Such arrangements would
include customary fees which would be borne by Pengrowth.
EXERCISE OF DISCRETION BY PROXY
The Units represented by a proxy in favour of Mr. Kinnear or Mr. Zaozirny
shall be voted at the Meetings and, where the Unitholder specifies a choice
with respect to any matter to be acted upon, the Units shall be voted in
accordance with the specification so made. IN THE ABSENCE OF SUCH
SPECIFICATION, UNITS WILL BE VOTED IN FAVOUR OF THE PROPOSED RESOLUTIONS. THE
PERSONS APPOINTED BY THE ENCLOSED FORM OF PROXY ARE CONFERRED WITH
DISCRETIONARY AUTHORITY WITH RESPECT TO AMENDMENTS OR VARIATIONS TO THOSE
MATTERS SPECIFIED IN THE NOTICES OF MEETINGS. AT THE TIME OF MAILING OF THIS
CIRCULAR, PENGROWTH IS NOT AWARE OF ANY SUCH AMENDMENT, VARIATION, OR OTHER
MATTER. If any such amendment, variation or other matter properly comes before
the Meetings, the Units represented by proxies in favor of management will be
voted on such matters in accordance with the best judgment of the person
voting the proxy.
VOTING SHARES AND UNITS AND THE PRINCIPAL HOLDERS THEREOF
The Corporation has 1,100 issued and outstanding common shares (the "Common
Shares"). Of the 1,100 outstanding Common Shares, 1,000 are owned by the Trust
and 100 are owned by the Manager. Subject to the Unanimous Shareholder
Agreement, registered holders of Common Shares are entitled to attend and vote
at the Shareholder Meeting on the basis of one vote for each Common Share
held. The Manager has agreed to refrain from exercising its voting rights as a
Shareholder except in respect of the election of two directors or as may be
necessary or desirable to implement any resolutions passed by the Unitholders.
The Trust will not exercise its voting rights as a Shareholder except as may
be necessary or desirable to implement any resolutions passed by the
Unitholders.
As at May 5, 2006, the Trust had an aggregate of 160,564,653 issued and
outstanding Trust Units, comprised of 77,527,433 Class A trust units,
83,003,108 Class B trust units and 34,112 Prior Trust Units. The registered
holders thereof are entitled to attend and vote at the Trust Meeting, the
Royalty Meeting and the Shareholder Meeting on the basis of one vote for each
Trust Unit held.
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As at May 5, 2006, the Corporation had 124,085,961 issued and outstanding
Royalty Units. The registered holders thereof (other than Royalty Units held
by the Trustee in its capacity as Trustee under the Trust Indenture) are
entitled to attend and vote at the Royalty Meeting and the Shareholder Meeting
on the basis of one vote for each Royalty Unit held. Issued and outstanding
Royalty Units held by registered holders other than the Trustee total 18,240.
To the best of the knowledge of the Manager and the directors and executive
officers of the Corporation, as of May 1, 2006 no persons beneficially own,
directly or indirectly, Units carrying more than 10% of the voting rights
attached to the issued and outstanding Units.
INTERESTS OF CERTAIN PERSONS IN MATTERS ACTED UPON
Other than as set forth elsewhere in this Circular, there are no material
interests, direct or indirect, of any director or executive officer of the
Corporation or the Manager or anyone who has held office as such since the
beginning of the Trust's last financial year, or of any associate or affiliate
of any of the foregoing in any matter to be acted on at the Meetings.
EXECUTIVE COMPENSATION
REPORT ON EXECUTIVE COMPENSATION
The compensation policies of the Corporation are designed to recognize and
reward Pengrowth's performance and individual performance as well as to
provide a competitive level of compensation, which in turn enables the
Corporation to attract and retain employees in a highly competitive
marketplace. Long term incentives are an important component of Pengrowth's
total compensation program and have been implemented to encourage ownership of
Trust Units, to maintain a direct link between pay and performance and to
motivate directors, officers, employees and special consultants to improve
Pengrowth's long-term financial success.
COMPOSITION OF THE COMPENSATION COMMITTEE
The Compensation Committee is comprised of Messrs. Michael S. Parrett
(Chairman of the Compensation Committee), John B. Zaozirny and Thomas A.
Cumming. None of the members of the Compensation Committee are, or have been,
officers or employees of Pengrowth. Mr. Parrett joined the Compensation
Committee on October 22, 2004 upon the resignation of Michael A. Grandin. Mr.
Zaozirny is also the Vice-Chairman of Canaccord Capital Inc., one of the
underwriters in Pengrowth's equity offerings. See "Interest of Informed
Persons in Material Transactions". Prior to April 26, 2005, compensation
matters were reviewed by the Corporate Governance/Compensation Committee of
the Board of Directors. On April 26, 2005, the Board of Directors determined
that in recognition of the increasingly competitive market place that the
Corporation was operating in, a separate committee of the Board of Directors
should focus exclusively on compensation and related matters.
INDEPENDENT ADVICE
The Compensation Committee engages the services of Towers Perrin to attend
Compensation Committee meetings and provide independent advice, compensation
analysis and other information for compensation recommendations. The analysis
and advice from Towers Perrin include, but is not limited to, executive
compensation policy (such as the choice of comparator groups and compensation
philosophy), design of incentive plans, position evaluation services and
surveys of market data.
COMPENSATION PHILOSOPHY
The Corporation's compensation philosophy is to target salaries (fixed
compensation) at the 50th percentile of the competitive marketplace, and to
provide incentive opportunities at the 50th percentile of the competitive
market when corporate and individual performance is at target or expected
levels. When corporate and individual performance significantly exceeds target
or expected levels, then the incentive programs, including the bonuses paid by
the Manager under the Management Agreement, are designed to bring the total
compensation to the 75th percentile of the competitive market for exceptional
performance.
-5-
Compensation at the Corporation consists of three primary components: base
salary, an annual performance bonus plan and a long-term incentive program.
Base salaries are targeted at the 50th percentile of comparably-sized oil and
gas income trusts and other energy organizations. Positioning of actual
salaries considers the employee's level within the organization, background,
skills and experience, as well as individual performance and the nature of
their contributions to Pengrowth's overall success.
During 2004, Pengrowth retained the services of Towers Perrin to assist with
the design of new annual and long-term incentive awards. This review was
undertaken to ensure that the Corporation's total compensation package was
competitive and reflects key financial, operational and strategic measures of
performance. The plan design reflects a more formal approach, is aligned with
practices within the highly competitive energy sector and provides an
important alignment for employees with total Trust Unitholder returns over a
three year period. The annual performance bonus plan was implemented for the
2004 fiscal year and provided payouts in early 2005. The long-term incentive
program was finalized in early 2005, and was used for grants in early 2005.
The first payout of the Deferred Entitlement Units ("DEUs") pursuant to the
DEU Plan (as defined herein) is anticipated to occur in 2008.
ANNUAL PERFORMANCE BONUS PLAN
The annual performance bonus plan replaced the discretionary approach used in
previous years. It consists of a series of corporate performance measures and
individual performance objectives. The weighting between corporate performance
and individual objectives varies by organization level, with more senior
positions having more weight on corporate performance reflecting the nature
and impact of their contributions. For the NEOs (as defined herein), the
weighting on corporate performance ranges from 70% to 80% of the total award.
Pengrowth's performance is based on three equally weighted measures,
including:
o THREE-YEAR AVERAGE TOTAL TRUST UNITHOLDER RETURN. This measure
reflects the average total return delivered to Trust Unitholders
(change in Trust Unit price plus reinvested distributions) over the
prior three years, and is consistent with the primary measure used
in the Manager's performance fee.
o DISTRIBUTABLE CASH. This measure represents the cash available for
distributions to Trust Unitholders, and is a primary measure of
financial success for income trusts.
o CORPORATE SCORECARD. This measure allows the Compensation Committee
and the Board of Directors to make an overall assessment of
performance, considering the impact of a wide range of other
performance measures including: production levels, reserves,
operating costs, general and administrative costs, new business
activities, environmental and safety performance, and other
corporate initiatives.
Individual performance is based on a series of planned objectives set out at
the beginning of the year for each individual.
For each of the corporate and individual measures three standards of
performance are determined each year, as follows:
o threshold level of performance, below which there is no award paid,
o target level of performance, which delivers the target level of
award; and
o maximum level of performance, which provides for a maximum bonus
equal to two times the target award.
Performance under corporate and individual components is added to arrive at
the final incentive award amount. No awards will be paid under either the
corporate or individual components of the plan if distributable cash is not
above a threshold amount determined each year.
-6-
Leadership team members and other high performance employees are also eligible
for an additional award of Trust Units under the "PML President's Award." This
program provides additional compensation on the recommendation of the
President of the Corporation to high performing employees who make significant
contributions to the Trust's success. The awards are intended to compensate
high performing employees at levels no higher than the 75th percentile of the
Trust's peer group in the petroleum industry. The awards are funded entirely
by the Manager in accordance with the Management Agreement. Awards are paid in
the form of Class B trust units to encourage ownership and provide alignment
with the interest of the Manager and other Trust Unitholders.
LONG-TERM INCENTIVE PROGRAM
Effective for fiscal 2005, Pengrowth's long-term incentive program was
redesigned to incorporate both grants of Trust Unit Rights (as defined herein)
pursuant to the Trust Unit Rights Incentive Plan (the "Rights Incentive Plan")
and DEUs pursuant to the DEU Plan (as defined below). The mix between Trust
Unit Rights and DEUs varies by organization level, with more senior positions
receiving more Trust Unit Rights reflecting the impact of those individuals on
growing the Trust Unit prices over the long-term. For the NEOs (as defined
herein), there is an equal value weight between the Trust Unit Rights and
DEUs. For lower organization levels, long-term incentives consist entirely of
DEUs.
TRUST UNIT RIGHTS INCENTIVE PLAN
The purpose of the Rights Incentive Plan is to encourage equity ownership in
the Trust by directors, officers, special consultants and employees of the
Corporation who contribute to the management and profitable growth of
Pengrowth. It is believed that the Rights Incentive Plan will advance the
interests of the Corporation by providing an additional incentive for superior
performance and will enhance the ability to attract and retain persons of the
highest caliber.
During the annual compensation review, rights ("Trust Unit Rights") are
granted pursuant to the Rights Incentive Plan to directors, officers, certain
consultants and employees of the Corporation. The number of Trust Unit Rights
granted is dependent upon the position level within the Corporation as well as
on individual performance. Under the Rights Incentive Plan, distributions per
Trust Unit to Trust Unitholders in a calendar quarter which represent a return
of more than 2.5 percent of the net book value of property, plant and
equipment at the beginning of such calendar quarter result in a reduction at
the election of the holder in the exercise price at the time of exercise.
Trust Unit Rights vest one-third at time of grant, one-third upon the first
anniversary of the grant and one-third upon the second anniversary of the
grant, and expire five years from the date of grant.
In accordance with the terms of the Rights Incentive Plan, subject to any
written agreement by the Manager or by the Corporation providing otherwise,
Trust Unit Rights, to the extent not validly exercised, will terminate on the
earlier of the following dates:
o in the event of the death of the participant (in which event all
rights granted shall be deemed to immediately vest in the name of
the participant), one year following the death of the participant;
o in the event of the disablement of the participant, which
disablement is for a continuous period of 365 days and which
prevents the participant from continuing in his capacity as an
officer, director, employee, or a special consultant of the
Corporation (in which event all rights granted shall be deemed to
immediately vest in the name of the participant), 60 days following
the expiry of 365 days after an event giving rise to the
disablement;
o a date which is a maximum of two years beyond the permanent
retirement of the participant (where retirement shall be defined in
reference to a minimum age of 55 with a minimum of five years
service as a director, officer, employee or special consultant of
the Corporation);
o a date which is sixty days following termination of a consulting
agreement, termination of employment of an employee or termination
of status as an officer or director other than for cause (provided
that this subclause shall not be triggered if following the event
the participant retains a status as any one of a director, officer,
employee or special consultant of the Corporation); or
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o immediately upon the termination of a consulting agreement,
termination of employment of an employee or termination of status as
an officer or director for cause.
The exercise price of the Trust Unit Rights granted pursuant to the Rights
Incentive Plan is determined as the closing price of the Class B trust units
on the Toronto Stock Exchange on the day immediately preceding the date on
which the granting of the Trust Unit Rights is approved by the Board of
Directors.
DEU PLAN
The Deferred Entitlement Unit Plan (referred to herein as the "DEU Plan") was
approved by Trust Unitholders on April 22, 2004 as an alternative to the
executive long-term incentive plan (the "ELTI Plan"). Under the ELTI Plan, the
Corporation provided bonuses to plan recipients in the form of Trust Units
purchased by the Corporation in the market from time to time.
In accordance with the terms of the DEU Plan, DEUs (referred to in previous
disclosure as "phantom units") may be allocated to employees and, pending
Trust Unitholder approval, officers, certain consultants and directors of the
Corporation. See "Part IV - Matters to be Considered at the Trust Meeting -
Amendments to the DEU Plan". The number of DEUs granted will be based on a
grant value as a percentage of an individual's base salary and an established
weighting of DEUs and/or rights incentive options that is dependent on an
individual's position. The DEUs will fully vest, in respect of officers,
employees, and consultants on the third anniversary year from the date of
grant. The Board of Directors may set performance conditions with respect to
the exercise of the DEUs as appropriate. In respect of officers, employees and
consultants at the end of the three year performance period, the number of
DEUs awarded (including additional DEUs acquired through notional reinvested
distributions) are subject to the following performance scale:
o 25% of the accrued DEUs vest if the Trust's three-year relative
return is at the 25th percentile or less versus the comparator group
as long as the three-year average total return is above 8%;
o 100% of the accrued DEUs vest if the Trust's three-year relative
return is at the 50th percentile versus the comparator group; and
o 150% of the accrued DEUs vest if the Trust's three-year relative
return is at the 75th percentile or more versus the comparator
group.
Intermediate amounts are paid for performance between the various performance
levels. All awards to officers and employees are subject to a minimum absolute
three-year average total Trust Unitholder return for the Trust that is
established for each three-year performance cycle.
Upon vesting, DEUs may currently be exchanged by holders for Class B trust
units to be issued from treasury. Notional distributions will be paid on the
DEUs in the form of the issuance of additional DEUs based upon a deemed
reinvestment formula using a 20-day weighted average closing price of Class B
trust units provided that any notional distributions so paid must vest as
described above.
In accordance with the terms of the DEU Plan, DEUs shall terminate on the
earlier of the following dates:
o if a participant ceases to be an eligible person for any reason
whatsoever including, without limitation, termination of his
employment by his employer, there shall be forfeited as of the
termination date such DEUs as are not vested. No cash shall at any
time be paid in lieu of any such Units as shall have been forfeited
under the plan,
o if a participant dies or ceases to be an employee by reason of:
o retirement from active employment upon reaching the permitted
retirement age set by the Board of Directors (which is
presently defined as age 55 with a minimum of five years of
service),
o total or permanent disability, or
-8-
o for any other reason specified in each case by the Board of
Directors,
all DEUs held in the name of the participant shall be immediately
considered vested DEUs, which may be exercised by the holder or the
holder's estate or designated beneficiary.
Subject to Trust Unitholder approval at the Trust Unitholder Meeting, the DEU
Plan will be amended so that: (i) the aggregate number of Class B trust units
which may be reserved for issuance to "insiders" (as such term is referred to
in the policies of the TSX), under the DEU Plan and all other security-based
compensation arrangements of Pengrowth shall not, in the aggregate, exceed ten
percent (10%) of the issued and outstanding Trust Units at the date of grant,
calculated on a non-diluted basis; and (ii) during any one-year period, the
Board of Directors shall not grant to such insiders, under the DEU Plan and
all other security-based compensation arrangements of Pengrowth, in the
aggregate, a number of Class B trust units exceeding ten percent (10%) of the
issued and outstanding Trust Units, calculated on a non-diluted basis. See
"Part IV - Matters to be Considered at the Trust Meeting - Amendments to the
DEU Plan".
The Trust may add to or amend any of the provisions of the DEU Plan or
terminate the DEU Plan, provided however that, subject to the anti-dilution
provisions contained in the DEU Plan, (i) any approvals required under any
applicable law are obtained, and (ii) unless a participant otherwise agrees,
any such addition, amendment or termination shall apply only in respect of
DEUs granted on or after the date of such addition, amendment or termination.
The interest of any participant under the DEU Plan or in any DEU shall be not
transferable or alienable by him either by pledge, assignment or in any other
manner whatsoever and, during his lifetime, shall be vested only in him, but
shall enure to the benefit of, and be binding upon, such participant or the
designated beneficiary thereof.
If the Class B trust units are consolidated, subdivided or reclassified, or if
any other action of a similar nature affecting the number of Class B trust
units is taken, then in such event the maximum number of Class B trust units
which can be issued under the DEU Plan in accordance with the DEU Plan, and
the number of DEUs granted to each participant, may be correspondingly
adjusted by the Board of Directors.
In the event of a change of control of the Trust, the Board of Directors may,
in their discretion, determine to immediately accelerate the vesting period of
any DEUs granted under the DEU Plan.
OTHER LONG TERM INCENTIVE PLANS
SAVINGS PLAN
The purpose of the savings plan is to encourage employees to have ownership in
the Trust as well as to save for retirement. Effective March 1, 2006, the
Corporation matched employee contributions to the plan to a total of eleven
percent of the employee's base pay. Effective January 1, 2007, the Corporation
will match employee contributions to the plan to a total of twelve percent of
the employee's base pay. The savings plan itself consists of two plans: the
Employee Trust Unit Purchase Plan and the Group Registered Retirement Savings
Plan ("Group RRSP").
EMPLOYEE TRUST UNIT PURCHASE Plan. The Employee Trust Unit Purchase Plan
provides employees with the opportunity to share in the Trust's success and
growth through ownership of Class B trust units. Employees may contribute
annually between one and eleven percent of their base annual salary/wage to
the Employee Trust Unit Purchase Plan after completing their three-month
probation period. For each $1.00 in personal contributions made to the plan,
employees' contributions to the plan are matched by the Corporation less any
matching contribution made by the Corporation to the employees' Group RRSP.
GROUP REGISTERED RETIREMENT SAVINGS PLAN. The Corporation has established
a self-directed Group RRSP to provide eligible participants an opportunity to
save for retirement. Employees are eligible to contribute to the Group RRSP
after they have completed one year of service with the Corporation. Employees
may contribute between one and 18 percent of their base annual salary to the
Group RRSP (not to exceed Canada Revenue Agency guidelines). The Corporation
will match employee's contributions to a maximum of 5.5% of their base annual
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salary/wage. The amount contributed by the Corporation to the Group RRSP (up
to a maximum of 5.5%) will reduce the amount available for matching by
Pengrowth under the Employee Trust Unit Purchase Plan.
TRUST UNIT MARGIN PURCHASE PLAN.
In February 2000, the Corporation instituted a trust unit margin purchase plan
(the "Margin Purchase Plan") which is available to employees and special
consultants of the Corporation. In accordance with the restrictions on
financial assistance in the SARBANES-OXLEY ACT of 2002 ("SOX") the Margin
Purchase Plan is not available to directors and officers. Participants are
permitted to acquire Trust Units of the Trust through individual margin
accounts with a specified Canadian investment dealer which provides
participants with up to 75% margin, supported by a letter of credit by the
Corporation. Participants maintain personal margin accounts with the
investment dealer and are responsible for all interest costs and obligations
in respect to their margin loans. If there is a requirement to draw on the
letter of credit to support the margin requirements of the specified Canadian
investment dealer, each of the participants in the Margin Purchase Plan will
nonetheless remain responsible to reimburse the Corporation and the specified
Canadian investment dealer for all principal and interest associated with
their margin loans. The Margin Purchase Plan is terminable upon two years
notice by the Corporation or by the specified investment dealer. The amount of
the letter of credit (currently $1 million) may vary on the basis of interest
rates, Trust Unit distributions and the trading price of the Trust Units.
Costs of administration of the Margin Purchase Plan are shared equally between
the participants and the Corporation, and participants share costs amongst
themselves on a pro rata basis.
The following summarizes the Trust Units in the Trust Unit Margin Purchase
Plan as at February 28, 2006.
NUMBER OF TRUST UNITS HELD UNDER THE TRUST
PARTICIPANT UNIT MARGIN PURCHASE PLAN
--------------------------------- ------------------------------------------
Directors and Officers(1) nil
Employees and Special Consultants 296,194
------------------------------------------
TOTAL: 296,194
NOTE:
(1) No directors or officers are participating in this plan.
TRUST UNIT OPTION PLAN
Prior to June 29, 2002, options to acquire Trust Units ("Trust Unit Options")
were issuable to directors, officers, special consultants and employees of the
Corporation pursuant to a Trust Unit Option Plan (the "Option Plan") and were
issued from time to time at the discretion of the Board of Directors. The
Trust Units reserved for issuance pursuant to outstanding Trust Unit Options
granted under the Option Plan will continue to be governed by the Option Plan
until such options are exercised or expire at which time the Option Plan will
be terminated. The Trust Unit Options expire seven years from the date of
grant. One third of the options vest on the grant date, one third on the first
anniversary of the date of grant, and the remaining third on the second
anniversary. No Options have been issued since January 28, 2002.
TRUST UNIT AWARDS PLAN
Effective July 13, 2005, Pengrowth established the Trust Unit Awards Plan to
reward and retain employees whereby Class B trust units and cash were awarded
to eligible employees. Employees received one half of the Class B trust units
and cash on or about January 1, 2006 and will receive one half of the Class B
trust units and cash on or about July 1, 2006. Any change in the market value
of the Class B trust units and reinvested distributions over the vesting
period accrues to the eligible employees.
Pengrowth acquired the Class B trust units to be awarded under the Trust Unit
Awards Plan on the open market for $4.3 million and placed the Class B trust
units in a trust account established for the benefit of the eligible
employees. The cost to acquire the Class B trust units has been recorded as
deferred compensation expense and is being charged to net income on a straight
line basis over one year. In addition, the cash portion of the incentive plan
of approximately $1.5 million is being accrued on a straight line basis over
one year. Any unvested Class B trust units will be sold on the open market.
-10-
Effective February 27, 2006, the Trust Unit Award Plan was extended. Eligible
employees will receive Class B trust units and cash on or about July 1, 2007.
Pengrowth acquired the Class B trust units to be awarded under the plan on the
open market for $2.4 million and placed them in a trust account established
for the benefit of the eligible employees. The cost to acquire the Class B
trust units has been recorded as deferred compensation expense and is being
charged to net income on a straight line basis over 16 months. In addition,
the cash portion of the incentive plan of approximately $1.1 million is being
accrued over 16 months.
UNITS ISSUABLE
The aggregate number of Class B trust units reserved for issuance under the
Rights Incentive Plan, the Option Plan and the DEU Plan, is presently limited
to, as approved by Trust Unitholders, a maximum of 18 million Class B trust
units provided that the aggregate authorized number of Trust Units issuable
under both plans shall not at any time exceed 10% of the issued and
outstanding Trust Units, which restricts Pengrowth to a maximum of 16,056,298
Class B trust units as of April 30, 2006.
As of April 30, 2006, the maximum number of Trust Units issuable pursuant to
the Trust Unit Option Plan, the Rights Incentive Plan and the DEU Plan is
4,013,317 which represents 2.5% of the issued and outstanding Trust Units.
As of April 30, 2006, the Class B trust units that remain subject to
outstanding Trust Unit Rights, Options and DEUs, and the aggregate number of
Trust Units issued or issuable pursuant to Trust Unit Rights, Options and DEUs
granted since inception are as follows:
CURRENTLY OUTSTANDING AGGREGATE ISSUED(1)
--------------------- -------------------
Trust Unit Rights 1,591,531 4,259,281
Options 153,783 7,278,914
DEUs(2)(3) 504,786 504,786
--------------------- -------------------
TOTAL 2,250,100 12,042,981
NOTES:
(1) Aggregate Trust Units issued or issuable pursuant to Trust Unit
Rights, Options and DEUs since inception, net of Trust Unit Rights,
Options at DEUs cancelled or expired without exercise.
(2) Including Trust Units earned through the Distribution Reinvestment
Program up to April 30, 2006.
(3) Including DEUs subject to performance criteria.
As of April 30, 2006, the maximum number of Trust Units Rights, Options and
DEUs held by insiders of Pengrowth pursuant to the Rights Incentive Plan, the
DEU Plan and the Option Plan is 679,908 which represents 0.42% of the issued
and outstanding Trust Units. The largest number of Trust Unit Rights, Options
and DEUs held by any one insider of Pengrowth is 181,080 which represents
0.113% of the issued and outstanding Trust Units.
SUMMARY COMPENSATION TABLE
The following table provides a summary of compensation earned during each of
the last three fiscal years ended December 31, 2005 by the Corporation's Chief
Executive Officer, the Chief Financial Officer, the next three most highly
compensated executive officers of the Corporation and two additional executive
officers who were no longer with the Corporation at December 31, 2005
(collectively, the "NEOs").
-11-
LONG-TERM COMPENSATION
----------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ----------------------------- ----------------------
SHARES OR
SECURITIES UNITS
OTHER UNDER SUBJECT TO
ANNUAL OPTIONS/RIGHTS RESALE DEU ALL OTHER
NAME AND PRINCIPAL SALARY(10) BONUS(10) COMP.(11) GRANTED(12) RESTRICTIONS PAYOUTS COMP.(13)
POSITION YEAR $ $ $ # $ $ $
------------------ ---------- --------- --------- ----------- ------------ ------- ---------
James S. Kinnear (1) 2005 nil nil nil nil nil nil nil
President, Chairman and 2004 nil nil nil nil nil nil nil
Chief Executive Officer 2003 nil nil nil nil nil nil nil
Christopher G. Webster(2) 2005 234,282 230,861 nil 41,971 nil nil 23,428
Chief Financial Officer 2004 160,625 161,256 nil 38,280 nil nil 16,063
2003 145,092 80,043 nil nil nil nil 47,386
Gordon M. Anderson(3) 2005 134,811 71,375 nil 13,482 nil nil 13,481
Vice President 2004 130,036 73,830 nil 13,920 nil nil 13,003
2003 129,049 53,010 nil nil nil nil 12,905
Larry Strong(4)(5) 2005 72,820 102,204 nil nil nil nil 201,134
Vice President -
Geosciences
James Causgrove(4)(6) 2005 41,174 102,204 nil nil nil nil 194,817
Vice President -
Production & Operations
Henry D. McKinnon(7)(8) 2005 89,828 nil nil 41,144 nil nil 7,884
Vice President - 2004 204,664 161,202 nil 56,370 nil nil 20,466
Operations 2003 198,703 167,533 nil nil nil nil 80,566
Lynn Kis(7)(8)(9) 2005 145,230 18,000 nil 14,829 nil nil 394,050
Vice President - 2004 162,545 94,132 nil 13,920 nil nil 16,254
Engineering 2003 159,358 65,677 nil nil nil nil 53,028
Charles Selby(14) 2005 nil nil nil 12,507 nil nil nil
Vice President and 2004 nil nil nil 34,800 nil nil nil
Corporate Secretary 2003 nil nil nil nil nil nil nil
NOTES:
(1) Management fees are paid by the Corporation to the Manager. James S. Kinnear, the Chairman, President and Chief
Executive Officer of the Corporation, is also the President and Chief Executive Officer of the Manager and owns,
directly or indirectly, all of the issued and outstanding voting securities of the Manager. See below for a
description of these fees.
(2) Mr. Webster was Interim Chief Financial Officer until his appointment as Chief Financial Officer, effective March
21, 2005.
(3) Mr. Anderson received additional annual compensation from the Manager of $57,884 for services rendered to the
Manager during 2005.
(4) Mr. Causgrove and Mr. Strong received signing bonus Trust Units which vest based on the following schedule: 1/4
on hire, 1/4 on the first anniversary, 1/4 on the second anniversary and the final quarter on the third
anniversary of the date of grant.
(5) Mr. Strong was appointed Vice President, Geosciences, effective August 23, 2005.
(6) Mr. Causgrove was appointed Vice President, Production and Operations, effective October 24, 2005.
(7) 2005 year to date earnings include vacation pay.
(8) Mr. McKinnon and Ms. Kis ceased to be officers of the Corporation on May 13, 2005 and October 20, 2005,
respectively.
(9) All other compensation in respect of Ms. Kis includes retiring allowance and pay-in-lieu of notice of $380,471.
(10) Amounts earned in calendar year, regardless of when paid.
(11) Perquisites and other personal benefits do not exceed the lesser of $50,000 or 10% of the total of the annual
salary and bonuses for any NEO and therefore are not reported.
(12) Trust Unit Rights and Options granted in the calendar year, regardless of when earned.
-12-
(13) "All Other Compensation" includes amounts paid under the ELTI Plan in
2003 and amounts from the Trust Unit Savings Plan.
(14) Legal and consulting fees are paid to the legal and consulting firm
controlled by the Vice President and Corporate Secretary, Charles V.
Selby. See below for a description of these fees.
James S. Kinnear, the Chairman, President and Chief Executive Officer of the
Corporation, is the sole shareholder of the Manager which is the advisor to
the Corporation under the Amended and Restated Management Agreement dated as
of June 17, 2003 (the "Management Agreement") and as such provides management
services to the Corporation (see "Management Agreement"). The management fees
paid to the Manager are pursuant to the Management Agreement which has been
approved by the Trust Unitholders. Mr. Kinnear does not receive any salary or
bonus in his capacity as director and officer of the Corporation and has not
received any new trust unit options since November 2002. The Manager received
$16.0 million for management services provided to the Corporation during 2005.
The base fee paid to the Manager totaled $9.1 million and is calculated as a
fixed percentage of "net operating income". The management fees also included
a performance fee of $6.1 million, which combined with the base fee for the
period is equivalent to the cap of 80% of total fees that would have been
earned by the Manager by 2005 under the previous management agreement. In
accordance with the Management Agreement, in February 2006, the Manager
contributed to the bonuses paid to employees of the Corporation for 2005 of
$1,596,100 in the aggregate. The amount paid to the Manager for management
services includes an amount allocated to provide for expenses related to the
corporate development activities of the Corporation. This amount is capped at
$2 million per annum.
The legal and consulting firm controlled by the Vice President and Corporate
Secretary, Charles V. Selby, earned an aggregate of $0.7 million for legal and
consulting services provided to the Corporation in 2005. In addition, the Vice
President and Corporate Secretary was granted 12,507 Trust Unit Rights in 2005
with an exercise price of $18.14 per Trust Unit Right and 2,085 DEUs. Mr.
Selby does not receive any salary or bonus from the Corporation in his
capacity as Vice President and Corporate Secretary of the Corporation.
Officers of the Corporation also participated in the incentive programs
available to directors, officers, employees and special consultants discussed
elsewhere in this Circular.
LONG TERM INCENTIVE PROGRAM AWARDS DURING THE YEAR ENDED DECEMBER 31, 2005
ESTIMATED FUTURE PAYOUTS
-------------------------------------------
DEU'S GRANTED THRESHOLD (#) TARGET (#) MAXIMUM (#)
NAME INCL. DRIP (#) PAYOUT DATE 25% 100% 150%
-------------------- -------------- ----------- ------------- --------------- -------------
James S. Kinnear nil nil nil nil nil
Christopher Webster 10,905 March 2, 2008 2,726 10,905 16,358
Gordon Anderson 3,503 March 2, 2008 876 3,503 5,255
Larry Strong 3,683 March 2, 2008 921 3,683 5,525
James Causgrove 3,728 March 2, 2008 932 3,728 5,592
Henry McKinnon(1) 10,691 Cancelled nil nil nil
Lynn Kis(2) 3,854 Cancelled nil nil nil
Charles Selby 3,250 March 2, 2008 813 3,250 4,875
Depending on corporate performance, the maximum payout for the DEU Plan would
be 150% of target, whereas the threshold is set at 25% of target as long as
the 3-year average annual total return is above 8%.
NOTES:
(1) Mr. McKinnon ceased to be an officer of the Corporation on May 13, 2005
and his DEUs expired on May 13, 2005 in accordance with their terms.
(2) Ms. Kis ceased to be an officer of the Corporation on October 20, 2005
and her DEUs expired on January 6, 2006.
-13-
TRUST UNIT RIGHTS GRANTED DURING THE YEAR ENDED DECEMBER 31, 2005
TRUST UNITS % OF TOTAL CLOSING MARKET
UNDER RIGHTS RIGHTS GRANTED EXERCISE PRICE ON DATE OF
GRANTED IN FISCAL YEAR PRICE GRANT EXPIRY DATE
------- -------------- ----- ----- -----------
James S. Kinnear nil nil nil nil nil
Christopher G. Webster 41,971 6.8% $18.14 $18.14 March 3, 2010
Gordon Anderson 13,482 2.2% $18.14 $18.14 March 3, 2010
Larry Strong 15,728 2.6% $18.70 $18.70 November 2, 2010
James Causgrove 15,916 2.6% $20.05 $20.05 November 21, 2010
Henry D. McKinnon 41,144 6.1% $18.14 $18.14 Cancelled
Lynn Kis 14,829 2.2% $18.14 $18.14 Cancelled
Charles Selby 12,507 2.0% $18.14 $18.14 March 3, 2010
AGGREGATE OPTION/RIGHT EXERCISES DURING THE YEAR ENDED DECEMBER 31, 2005 AND
YEAR-END OPTION AND RIGHT VALUES
The following table summarizes, for the NEOs, the number of Trust Units
acquired pursuant to the exercise of Trust Unit Rights and Trust Unit Options
during the year ended December 31, 2005, if any, the aggregate value realized
upon exercise, if any, and the number of Trust Units covered by unexercised
Trust Unit Rights and Trust Unit Options under the Rights Plan and Option Plan
as at December 31, 2005. Value realized upon exercise is the difference
between the market value of the Trust Units acquired on the exercise date and
the aggregate exercise price of the Trust Unit Rights and Trust Unit Options.
The value of the unexercised and in the money rights and options is the
difference between the exercise price of the Trust Unit Rights or Trust Unit
Options and the closing stock market price of the Class B trust units on the
Toronto Stock Exchange on December 31, 2005, which was $22.65 per Class B
trust unit.
VALUE OF UNEXERCISED IN
UNEXERCISED OPTIONS/RIGHTS THE MONEY OPTIONS/RIGHTS
SECURITIES AT DECEMBER 31, 2005 AT DECEMBER 31, 2005
ACQUIRED (#) ($)
ON AGGREGATE -------------------------- ------------------------
EXERCISE VALUE REALIZED NOT NOT
NAME (#) ($) VESTED VESTED VESTED VESTED
---------------------- -------- -------------- ------ ------ ------ ------
James S. Kinnear 488,123 2,366,355 nil nil nil nil
Gordon Anderson 13,000 103,340 18,774 13,628 120,106 67,680
Christopher G. Webster nil nil 74,961 40,740 445,537 200,836
Larry Strong nil nil 5,242 10,486 20,706 41,420
James Causgrove nil nil 5,306 10,610 13,796 27,586
Henry D. McKinnon(1) 51,294 107,620 nil nil nil nil
Lynn Kis(2) 57,856 328,041 nil 14,526 nil 71,730
Charles Selby 10,000 125,329 92,369 19,938 730,892 105,464
NOTES:
(1) Mr. McKinnon ceased to be an Officer of the Corporation on May 13, 2005
and his unexercised options and rights expired in accordance with their
terms.
(2) Ms. Kis ceased to be an Officer of the Corporation on October 20, 2005
and her unexercised options and rights expired on January 6, 2006.
-14-
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
Pengrowth has entered into Executive Employment Contracts with three of the
NEOs, namely, Christopher G. Webster, James E. A. Causgrove, and Larry B.
Strong. Each contract is in place for as long as the NEO holds his respective
position. The contracts provide for severance payments to be made to the NEO
where a change of control, as defined in the contract, occurs and, within
ninety (90) calendar days after the change of control occurs, the executive is
terminated without cause or resigns for reasons specified under the contract.
The CFO is entitled to a severance benefit of 2.25 times annual total cash
compensation (salary plus bonus). All other NEOs are entitled to a severance
benefit of 1.75 times annual total cash compensation (salary plus bonus). In
the event of a change of control, all outstanding trust unit rights and DEUs
granted pursuant to the DEU Plan and held by the NEOs as at the effective date
of the change of control shall become fully vested, in accordance with the
terms of the Rights Incentive Plan and the DEU Plan.
PERFORMANCE GRAPH
The following graph and table compares the yearly percentage change in the
cumulative Trust Unitholder return over the last five years (assuming a $100
investment was made on December 31, 2000 on the Trust Units) with the
cumulative total return of the S&P/TSX Composite Index, assuming reinvestment
of distributions.
[GRAPHIC OMITTED -- LINE GRAPH]
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
Pengrowth Energy Trust (B Units) $100 $89 $105 $178 $178 $253
Pengrowth Energy Trust (A Units) $100 $89 $105 $178 $238 $291
S&P/TSX Composite Index $100 $86 $74 $92 $104 $126
S&P/TSX Capped Energy Index $100 $106 $118 $146 $188 $300
COMPENSATION OF DIRECTORS
The following tables set forth the aggregate retainer and attendance fees paid
and Trust Unit Rights and/or DEUs granted pursuant to the Rights Incentive
Plan and the DEU Plan to each director during 2005.
-15-
DIRECTORS COMPENSATION 2005
REGULAR BOARD FEES COMMITTEE PAY
--------------------------------- ------------------------------ -------
LEAD RETAINER MEETING FEES CHAIR RETAINER MEMBER TOTAL
---- -------- ------------ ----- -------- ------ -----
John Zaozirny $20,000 $25,000 $16,500 $8,000 $3,000 $13,500 $86,000
Thomas Cumming nil $25,000 $16,500 $8,000 $7,000 $22,500 $79,000
Kirby Hedrick(1) nil $17,025 $10,500 $1,333 $5,450 $4,500 $38,808
Michael Parrett nil $25,000 $16,500 $6,000 $8,000 $22,500 $78,000
Terence Poole(1) nil $17,025 $9,000 nil $5,450 $7,500 $38,975
William Stedman(2) nil $20,833 $10,500 $6,667 $5,667 $10,500 $54,167
Stanley Wong nil $25,000 $16,500 nil $4,000 $1,500 $47,000
NOTES:
(1) Kirby Hedrick and Terence Poole were appointed to the board, effective
April 26, 2005.
(2) William Stedman resigned from the board, effective October 28, 2005.
TRUST UNIT RIGHTS GRANTED TO DIRECTORS DURING THE YEAR ENDED DECEMBER 31,
2005
TRUST UNITS % OF TOTAL RIGHTS CLOSING MARKET
UNDER GRANTED IN FISCAL PRICE ON DATE OF
RIGHTS GRANTED YEAR EXERCISE PRICE GRANT EXPIRY DATE
-------------- ---- -------------- ----- -----------
John Zaozirny 12,000 1.9% $18.14 $18.14 March 3, 2010
Thomas Cumming 12,000 1.9% $18.14 $18.14 March 3, 2010
Kirby Hedrick nil nil nil nil nil
Michael Parrett nil nil nil nil nil
Terence Poole 15,000 2.4% $18.69 $18.69 July 7, 2010
William Stedman nil nil nil nil nil
Stanley Wong 6,000 1.0% $18.14 $18.14 March 3, 2010
DEUS GRANTED TO DIRECTORS IN THE YEAR ENDED DECEMBER 31, 2005
DEUS(1)
-------
John Zaozirny 2,000
Thomas Cumming nil
Kirby Hedrick 2,500
Michael Parrett 2,000
Terence Poole nil
William Stedman 2,000
Stanley Wong 1,000
NOTE:
(1) Effective for fiscal 2005, the long-term incentive program was redesigned
to incorporate both grants of Trust Unit Rights and DEUs under the Rights
Incentive Plan and the DEU Plan that was approved by the Trust
Unitholders on April 22, 2004. DEUs issued under the DEU Plan may be
exchanged by recipients for Class B trust units, subject to the vesting
and exercise provisions of the plan. The mix between Trust Unit Rights
and DEUs is at the discretion of each individual Director. See "Part IV -
Matters to be Considered at the Trust Meeting - Amendments to the DEU
Plan". At the recommendation of Towers Perrin, it is proposed that the
Director DEUs do not have vesting or performance requirements.
-16-
AGGREGATE OPTION/RIGHT EXERCISES DURING THE YEAR ENDED DECEMBER 31, 2005
AND YEAR END OPTION AND RIGHT VALUES
The following table summarizes, for the Board of Directors, the number of
Trust Units acquired pursuant to the exercise, if any, and the number of Trust
Units covered by unexercised Trust Unit Options and Trust Unit Rights under
the Option Plan and Rights Incentive Plan as of December 31, 2005. Value
realized upon exercise is the difference between the market value of the Class
B trust units acquired on the exercise date and the aggregate exercise price
of the Trust Unit Options. The value of the unexercised and in the money
options and rights is the difference between the exercise price of the Trust
Unit Options or Trust Unit Rights and the closing stock market price of the
Class B trust units on the Toronto Stock Exchange on December 31, 2005, which
was $22.65 per Class B trust unit.
VALUE OF UNEXERCISED IN
SECURITIES UNEXERCISED OPTIONS/RIGHTS THE MONEY OPTIONS/RIGHTS
ACQUIRED AT DECEMBER 31, 2005 (#) AT DECEMBER 31, 2005 ($)
ON AGGREGATE -------------------------- -------------------------
EXERCISE VALUE REALIZED NOT NOT
NAME (#) ($) VESTED VESTED VESTED VESTED
---------------------- -------- -------------- ------ ------ ------ ------
John Zaozirny 38,634 219,618 12,360 12,180 66,946 60,533
Thomas Cumming nil nil 38,360 12,175 260,479 60,504
Kirby Hedrick nil nil nil nil nil nil
Michael Parrett nil nil 10,000 5,000 32,300 16,150
Terence Poole nil nil 5,000 10,000 19,800 39,600
William Stedman(1) 10,000 13,500 nil nil nil nil
Stanley Wong 8,577 70,490 25,950 8,175 127,444 42,464
NOTE:
(1) Mr. Stedman ceased to be a member of the Board of Directors on October
28, 2005 and his unexercised Trust Unit Options and Trust Unit Rights
expired in accordance with their terms.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth information with respect to compensation plans
under which equity securities are authorized for issuance as at December 31,
2005, aggregated for all compensation plans previously approved by
securityholders and all compensation plans not previously approved by
securityholders.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED AVERAGE EXERCISE FUTURE ISSUANCE UNDER EQUITY
ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING COMPENSATION PLANS (EXCLUDING
OUTSTANDING OPTIONS, WARRANTS OPTIONS, WARRANTS AND SECURITIES REFLECTED IN
AND RIGHTS RIGHTS COLUMN (A))(1)
PLAN CATEGORY (A) (B) (C)
------------- ----------------------------- ------------------------- -----------------------------
Equity compensation Options 259,317 $15.22 6,699,545
plans approved by Rights 1,441,737
securityholders DEUs 185,591
Equity compensation none not applicable not applicable
plans not approved by
securityholders
Total 1,886,645 $15.22 6,699,545
NOTE:
(1) This number is available for future issuance under equity compensation
plans but is not currently available for issuance as a result of the
restriction that such number not exceed 10% of the issued and outstanding
trust units. See "- Units Issuable".
-17-
(2) As of December 31, 2005, the maximum number of Trust Units issuable
pursuant to the Trust Unit Option Plan, the Rights Incentive Plan and the
DEU Plan was 4,597,908, which represented 2.9% of the issued and
outstanding Trust Units.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
The Corporation provides directors' and officers' liability insurance to its
directors and officers, to pay on behalf of each insured person all loss,
subject to the limits of the policy, for which they become legally obligated,
and for which the insured person is not indemnified by the Corporation. The
cost of the insurance is borne entirely by the Corporation.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
Since January 1, 2005, none of the directors, executive officers or associates
of such directors or executive officers of the Corporation have been indebted
to the Corporation or the Trust.
INTERESTS OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
There were no material interests, direct or indirect, of any directors,
executive officers or associates of such directors or executive officers of
the Corporation, any shareholder or Unitholder who beneficially owns more than
10% of the Common Shares or Units of the Corporation or the Trust, or any
known associate or affiliate of these persons in any transaction since January
1, 2005 and in any proposed transaction which has materially affected or would
materially affect the Corporation or the Trust other than the interests of the
Manager under the terms of the Management Agreement.
MANAGEMENT AGREEMENT
At the annual and special meeting of Trust Unitholders and the special meeting
of Royalty Unitholders, both of which were held on June 17, 2003, the Trust
Unitholders and the Royalty Unitholders approved the Management Agreement
which governs both the Trust and the Corporation.
Key elements of the Management Agreement are:
o two distinct 3-year terms with a declining fee structure in the
second 3-year term;
o a base fee determined on a sliding scale:
o in the first three-year contract term:
o 2% of the first $200 million of Income; and
o 1% of the balance of Income over $200 million; and
o in the second three-year contract term:
o 1.5% of the first $200 million of Income; and
o 0.5% of the balance of Income over $200 million.
(For these purposes, "Income" means the aggregate of net production
revenue of the Corporation and any other income earned from
permitted investments of the Trust (excluding interest on cash or
near-cash deposits or similar investments)).
o a performance based fee based on total returns received by Trust
Unitholders which essentially compensates the Manager for total
annual returns which average in excess of 8% over a 3-year period;
o a ceiling on total fees payable determined in reference to a
percentage of the fees paid under the previous management agreement:
80% each year in the first three-year contract term and 60% each
year in the second three-year contract term and subject to a further
ceiling essentially equivalent to $12 million annually during the
second three-year contract term;
-18-
o requirement for the Manager to pay certain expenses of the
Corporation and the Trust of approximately $2 million per year;
o an annual minimum management fee of $3.6 million comprised of $1.6
million of management fees and $2.0 million of expenses;
o key man provisions in respect of James S. Kinnear, the President of
the Manager;
o a bonus structure based on 10% of the Manager's base fee for
employees and special consultants of the Corporation; and
o an optional buyout of the management agreement at the election of
the board of directors of the Corporation on June 30, 2006 with a
termination payment of essentially 2/3 of the management fee paid
during the first three-year contract term plus expenses of
termination.
The responsibilities of the Manager under the Management Agreement include:
o reviewing and negotiating acquisitions for the Corporation and the
Trust;
o providing written reports to the board of directors of the
Corporation to keep the Corporation fully informed about the
acquisition, exploration, development, operation and disposition of
properties, the marketing of petroleum substances, risk management
practices and forecasts as to market conditions;
o supporting the Corporation in connection with its acting as operator
of certain of its properties;
o arranging for, and negotiating on behalf of, and in the name of, the
Corporation all contracts with third parties for the proper
management and operation of the properties of the Corporation;
o supervising, training and providing leadership to the employees and
consultants of the Corporation and assisting in recruitment of key
employees of the Corporation;
o arranging for professional services for the Corporation and the
Trust;
o arranging for borrowings by the Corporation and equity issuances by
the Trust; and
o conducting general unitholder services, including investor
relations, maintaining regulatory compliance, providing information
to Trust Unitholders in respect of material changes in the business
of the Corporation or the Trust and all other reports required by
law, and calling, holding and distributing material in respect of
meetings of Trust Unitholders and Royalty Unitholders.
Despite the broad authority of the Manager, approval of the board of directors
of the Corporation is required on decisions relating to any offerings,
including the issuance of additional Trust Units, acquisitions in excess of $5
million, annual operating and capital expenditure budgets, the establishment
of credit facilities, the determination of cash distributions paid to Trust
Unitholders, the amendment of any of the constating documents of the
Corporation or the Trust and the amount of the assumed expenses of the Manager
which are a portion of the compensation of the Manager.
MANAGEMENT AGREEMENT SECOND TERM
Under the terms of the Management Agreement, the Corporation had the right to
terminate the Management Agreement effective June 30, 2006 on payment to the
Manager of a termination fee and certain other amounts. In the absence of such
termination, the Management Agreement continues in effect for a final three
year term ending June 30, 2009.
An Independent Committee of the Board of Directors of the Corporation was
constituted for the purpose of considering a termination of the Management
Agreement. The Independent Committee retained Scotia Capital Inc.
-19-
as its financial advisor. After considering the anticipated effects to the
Corporation and to the Unitholder value of both a termination of the
Management Agreement and a continuation of the Management Agreement, the
Independent Committee recommended to the full Board of Directors that the
Management Agreement not be terminated at the end of the first term.
The Independent Committee based its recommendation on several factors
including:
o The amount of the termination fee payable to the Manager on
termination of the Management Agreement effective June 30, 2006;
o The estimated cost of internal management to June 30, 2009 in the
event of a termination of the Management Agreement effective June
30, 2006;
o The estimated maximum management fees that would be payable to the
Manager over the final three years of the term of the Management
Agreement;
o The advice of its financial advisor;
o The management fee ceiling applicable during the final three years
of the Management Agreement which will result in lower management
fees in the second term of the Management Agreement ending June 30,
2009 as compared to the first term of the Management Agreement
ending June 30, 2006; and
o The commitment by the Manager to certain key governance standards
relating to the conduct of the affairs of the Trust and a continuing
commitment to overall corporate governance practices (as such
practices would apply to Pengrowth in an internalized management
structure); and a further commitment to assist and work with the
Board in establishing a plan for the orderly transition to a
traditional corporate management structure at the end of the final
term of the Management Agreement on June 30, 2009.
Based on the recommendation of the Independent Committee, the Board of
Directors resolved not to terminate the Management Agreement at the end of the
first term and has therefore resolved to continue the Management Agreement in
accordance with its terms for a second three year term ending on June 30,
2009.
-20-
PART II - CORPORATE GOVERNANCE
MANDATES OF THE TRUSTEE, THE MANAGER AND THE BOARD OF DIRECTORS
The Corporation holds petroleum and natural gas rights and other assets. Under
the Royalty Indenture, a royalty was created representing 99% of the "Royalty
Income", which is payable to Royalty Unitholders. The Trust was created for
the purpose of issuing Trust Units to the public, facilitating an indirect
investment in Royalty Units and other permitted investments under the Trust
Indenture. The Trust holds Royalty Units, interests in certain petroleum and
natural gas facilities, cash and other assets. The Class B trust units and the
Class A trust units of the Trust are listed on the Toronto Stock Exchange (the
"TSX") and the Class A trust units of the Trust are also listed on the New
York Stock Exchange (the "NYSE"). The Trust is therefore subject to the
corporate governance listing requirements of both exchanges.
Under the terms of the Trust Indenture, the Trustee is empowered to exercise
those rights and privileges that could be exercised by a beneficial owner of
the assets of the Trust in respect of the administration and management of the
Trust. The Trustee is permitted to delegate certain of the powers and duties
of the Trustee to any one or more agents, representatives, officers,
employees, independent contractors or other persons. However, specific powers
are delegated to the Corporation as "Administrator" under the Trust Indenture
and the Trustee has granted broad discretion to the Manager to administer and
regulate the day to day operations of the Trust. The powers of the Trustee are
also limited through the voting rights of Trust Unitholders.
Under the Management Agreement, the Manager is empowered to act as agent for
the Trust in respect of various matters, to execute documents on behalf of the
Trustee and to make executive decisions which conform to general policies and
general principles previously established by the Trustee. The Manager is
empowered to undertake, on behalf of the Corporation and the Trust, subject to
the Royalty Indenture, all matters pertaining to the properties of the
Corporation. See "Management Agreement".
Under the Royalty Indenture, the Corporation makes all operating decisions
with respect to the properties of the Corporation. Under the Trust Indenture,
general powers have been delegated to the Corporation as the "Administrator"
of the Trust to perform those functions of the Trustee which are largely
discretionary, subject to the powers and duties of the Manager. Additionally,
specific powers have been delegated to the Corporation in relation to the
offering of securities, the acquisition of facilities and other assets, the
incurring of indebtedness, the granting of security and the determination of
distributable income.
In accordance with the terms of the Unanimous Shareholder Agreement, all
Royalty Unitholders other than the Trustee, and all Trust Unitholders are
entitled to attend at, and vote upon, all resolutions brought before meetings
of the Shareholders of the Corporation on the basis of one vote for each Unit
held. Currently, the Unanimous Shareholder Agreement also provides that the
Board of Directors shall consist of two nominees of the Manager and up to six
directors who are elected by the Trust Unitholders of the Trust. The Board of
Directors meets a minimum of four times each year, once in each fiscal
quarter. In addition, the Board of Directors meets at other times when matters
requiring its approval are raised and the timing is such that it is not
prudent or possible to await a regularly scheduled quarterly meeting. During
2005, 11 regularly constituted Board of Directors meetings were held.
BOARD INDEPENDENCE
The NYSE Listed Company Manual states that a majority of directors must be
independent. An independent director is defined as one who has been determined
by the Board of Directors to have no material relationship with Pengrowth,
other than relationships arising from shareholdings. In addition, a director
is not independent if: (i) the director or an immediate family member is, or
has been within the last three years, an employee or executive officer of
Pengrowth; (ii) the director or an immediate family member has received during
any twelve month period within the last three years, more than $100,000 in
direct compensation from Pengrowth; (iii) the director or an immediate family
member, a partner or employee of a firm that is Pengrowth's internal or
external auditor or the director or an immediate family member has, within the
last three years, been a partner or employee of such firm and worked on
Pengrowth's audit; (iv) the director or an immediate family member is, or has
been within the last three years, employed as an executive officer of another
company where any of Pengrowth's present officers at the same time serves or
served on that company's compensation committee; and (v) the director or an
immediate family member is a current employee of a company that has made
payments to, or received payments from, Pengrowth for a property
-21-
or services in an amount which, in any of the last three fiscal years, exceeds
the greater of $1,000,000, or 2% of such other company's consolidated gross
revenues.
National Instrument 58-101 DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES of the
Canadian Securities Administrators ("NI 58-101") recommends that the board of
directors of every issuer be constituted with a majority of individuals who
qualify as "independent". An independent director is a director that has no
material relationship, direct or indirect, with the issuer, which could, in
the view of the issuer's board of directors, be reasonably expected to
interfere with the exercise of a member's independent judgment.
Six of the eight directors recommended for election to the Board of Directors
qualify as independent directors under the NYSE requirements and NI 58-101.
Mr. James S. Kinnear, who is Chairman, President and Chief Executive Officer
of the Corporation as well as President and Chief Executive Officer of the
Manager, is not independent of either entity and is a related director. Mr.
Stanley H. Wong may be considered not to be independent and is a related
director as he is the Manager's additional appointee to the Board of Directors
pursuant to the terms of the Unanimous Shareholder Agreement. However, Mr.
Wong is neither engaged by the Manager nor by the Corporation and receives
remuneration solely in his capacity as a director of the Corporation. The
remainder of the directors are independent and unrelated in that they have not
worked for the Corporation (or the Manager) nor do they have material
contracts with the Corporation (or the Manager) or receive remuneration from
the Corporation (or the Manager), other than Trust Unit Rights, in excess of
director's fees payable by the Corporation.
BOARD APPROVALS AND STRUCTURE
The Manager makes recommendations to the Board of Directors as to the
strategic direction of the Corporation and the Trust. The Board of Directors
considers these recommendations and assumes overall responsibility for the
strategic direction of the Corporation and the Trust through the annual
consideration of a strategic plan and budget. Criteria are approved by the
Board of Directors for the acquisition and disposition of oil and natural gas
properties and other permitted investments.
The Manager has general power under the Management Agreement to conduct
acquisitions and dispositions and the operation of properties. Because of the
structure created by the Trust Indenture, the Royalty Indenture and the
Unanimous Shareholder Agreement, neither the Manager nor the Board of
Directors has complete authority over the businesses and affairs of the Trust
and the Corporation. The Trustee responds to directions from the Manager and
from the Board of Directors (with respect to the Corporation as administrator
of the Trust) within the scope of the authority of the Trustee and the
Trustee's power to delegate.
The Board of Directors responds to recommendations brought forward by the
Manager to the Board of Directors on material matters impacting the
Corporation and the Trust. Practically, the Manager defers to the Board of
Directors in respect of all matters which may have a material impact upon the
business and undertaking of the Corporation, the Trust, the Royalty
Unitholders or the Trust Unitholders. Reliance is placed upon independent
engineering, legal and accounting consultants where appropriate.
The Board of Directors represents a cross-section of experience in matters of
oil and gas, finance and directors' responsibilities. Three of the eight
nominated members of the Board of Directors have been directors since the
formation of the Corporation and the Trust. Thomas A. Cumming has been a
director since April 2000. Michael S. Parrett has been a director since April
22, 2004. A. Terence Poole and Kirby L. Hedrick have been directors since
April 26, 2005. Wayne Foo is being nominated as a director for the first time
at the Shareholder Meeting.
BOARD COMMITTEES
The Audit Committee of the Board of Directors is currently comprised of four
independent directors. The Board of Directors has also constituted a Corporate
Governance Committee comprised of four independent directors, a Compensation
Committee comprised of three independent directors and a Reserves Committee
comprised of two directors, one of whom is independent. The Reserves Committee
has been established in order to participate in and review the preparation of
independent reserve reports for the oil and gas assets of the Corporation and
the reporting thereof. There are no other committees of the Board of
Directors.
-22-
In respect of matters such as discussions concerning the Management Agreement
or related party transactions, representatives of the Manager disclose their
conflict of interest and absent themselves from discussions and voting.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The Board of Directors, the Manager and senior management consider good
corporate governance to be central to the effective and efficient operation of
the Trust and the Corporation. The Board of Directors has general corporate
authority over the business and affairs of the Corporation and derives its
authority in respect to the Trust by virtue of the delegation of powers by the
Trustee to the Corporation as "Administrator" in accordance with the Trust
Indenture. In accordance with the Royalty Indenture, Trust Indenture and
Unanimous Shareholder Agreement, the Trust Unitholders and Royalty Unitholders
empowered the Trustee and the Corporation to delegate authority to the
Manager. The Manager derives its authority from the Management Agreement with
both the Corporation and the Trust. In practice, the Manager defers to the
Board of Directors on all matters material to the Corporation and the Trust
The Board of Directors and the Manager are aware of their responsibility for
corporate governance and recognize the importance of enhancing the corporate
governance practices of the Trust and the Corporation.
On November 4, 2003, the NYSE adopted a number of changes to the standards for
issuers listed on the NYSE, such as the Trust. The changes to the NYSE listing
standards are not mandatory for the Trust, but any differences in the Trust's
corporate governance practices and the NYSE rules must be disclosed by the
Trust in its annual 40F filing with the Securities and Exchange Commission in
the United States. Certain provisions of SOX and certain rules adopted and
proposed by the United States Securities and Exchange Commission ("SEC")
pursuant to the requirements of SOX, which are applicable to the Trust, also
influence the Trust's approach to corporate governance.
On June 30, 2005, the Canadian Securities Administrators implemented NI 58-101
and National Policy 58-201 CORPORATE GOVERNANCE GUIDELINES, which effectively
replaced the corporate governance guidelines and disclosure policies of the
TSX.
Under NI 58-101, the Corporation is required to disclose certain information
relating to its corporate governance practices. This information is set out in
Appendix "1" to this Circular.
-23-
PART III - MATTERS TO BE CONSIDERED AT THE SHAREHOLDER MEETING
APPOINTMENT OF AUDITORS
The Unitholders will be asked to consider a resolution to appoint the firm of
KPMG LLP, Chartered Accountants, of Calgary, Alberta, as auditors of the
Corporation, to hold office until the next annual meeting of the Shareholders
or until their successor is elected or appointed, at the remuneration to be
fixed by the Board of Directors.
ELECTION OF DIRECTORS
The current directors of the Corporation are James S. Kinnear, John B.
Zaozirny, Stanley H. Wong, Thomas A. Cumming, Michael S. Parrett, A. Terence
Poole and Kirby L. Hedrick. The Corporate Governance Committee has
recommended, and the Board of Directors has nominated, Wayne Foo as a director
of the Corporation.
Pursuant to the Unanimous Shareholder Agreement, the Corporation shall have a
Board of Directors of a minimum of three and a maximum of eight members, two
of whom are to be appointed by the Manager. It is the intention of the Manager
to appoint James S. Kinnear and Stanley H. Wong as directors. The persons
named in the enclosed form of proxy intend to vote for the election of John B.
Zaozirny, Thomas A. Cumming, Michael S. Parrett, A. Terence Poole, Kirby L.
Hedrick and Wayne Foo as directors of the Corporation. Should any of the
nominees be unable to serve as a director for any reason, the persons named in
the enclosed form of proxy reserve the right to vote for another nominee at
their discretion. Each director elected will hold office until the close of
the next annual meeting of Shareholders of the Corporation.
The following table sets forth the names of the nominees together with their
principal occupations, jurisdiction of residence, the year in which they
became directors and the number of Trust Units over which they exercised
control or direction as at May 1, 2006.
CLASS B
TRUST UNITS
NAME, PRINCIPAL CONTROLLED OR
OCCUPATION AND JURISDICTION OF RESIDENCE DIRECTOR SINCE BENEFICIALLY OWNED(1)
------------------------------------------ -------------- ---------------------
James S. Kinnear
Chairman, President and Chief Executive
Officer of Pengrowth Corporation and
President and Chief Executive Officer
of Pengrowth Management Limited 1988 4,051,039(2)
Alberta, Canada
John B. Zaozirny(4)(5)
Counsel, McCarthy Tetrault
(Barristers & Solicitors) 1988 47,362
Alberta, Canada
Stanley H. Wong(6)(7)
President of Carbine Resources Ltd. 1988 46,576
(Private Oil and Gas Company)
Alberta, Canada
Thomas A. Cumming(3)(4)(5)
Businessman 2000 6,678
Alberta, Canada
Michael S. Parrett(3)(4)(5)
Businessman 2004 4,000
Ontario, Canada
-24-
CLASS B
TRUST UNITS
NAME, PRINCIPAL CONTROLLED OR
OCCUPATION AND JURISDICTION OF RESIDENCE DIRECTOR SINCE BENEFICIALLY OWNED(1)
------------------------------------------ -------------- ---------------------
A. Terence Poole(3)(4)
Executive Vice President, Corporate
Strategy and Development of Nova
Chemicals Corporation
(Chemical Manufacturing Company) 2005 10,000
Alberta, Canada
Kirby L. Hedrick(3)(6)
Businessman 2005 nil
Wyoming, United States
Wayne Foo
President, Petro Andina Resources Inc.
(Private Oil and Gas Company) Nominee nil
Alberta, Canada
NOTES:
(1) Does not include Trust Units issuable upon the exercise of outstanding
Trust Unit Options, Trust Unit Rights or DEUs.
(2) In addition, Mr. Kinnear exercises control over 13,152 Royalty Units
which are held by the Manager. Included in Mr. Kinnear's trust units are
an insignificant number of Class A trust units.
(3) Member of the Audit Committee.
(4) Member of the Corporate Governance Committee.
(5) Member of the Compensation Committee.
(6) Member of the Reserves Committee.
(7) In addition, Mr. Wong exercises control over 3,288 Royalty Units held by
Carbine Resources Ltd.
WAYNE FOO
Wayne Foo is a Geologist. He received a Bachelor of Science in Geology from
the University of Calgary in 1977 and a Masters of Science in Geology from
Queen's University in 1979. Mr. Foo has extensive geological and senior
management experience in the oil and gas industry. Mr. Foo has a varied
27-year career in the energy sector, including Geologist at Chevron Canada
Resources (1979-1981), Geologist at Corexcana Ltd. (1981-1983), Geologist,
Supervisor and Manager at Chevron Canada and International (1983-1996),
President, Chief Operating Officer and Vice President of Archer Resources Ltd.
(1996-1998), President and Chief Executive Officer of Dominion Energy Canada
Ltd. (1998-2002). At present, Mr. Foo is President of Petro Andina Resources
Inc. and Chairman of Brigantine Energy Inc. Mr. Foo is a member of APEGGA, the
Canadian Society of Petroleum Geologists and the American Association of
Petroleum Geologists.
AMENDMENTS TO THE UNANIMOUS SHAREHOLDER AGREEMENT TO SIMPLIFY VOTING AT THE
ANNUAL GENERAL MEETING
Unitholders will be asked to consider an extraordinary resolution approving
amendments to the Unanimous Shareholder Agreement to simplify Pengrowth's
annual meeting process.
Pengrowth's current annual general meeting process includes three meetings,
namely, a meeting of the Shareholders, a meeting of the Royalty Unitholders
and a meeting of the Trust Unitholders. These meetings are held in immediate
succession and are required as a result of the provisions of the Unanimous
Shareholder Agreement, the Royalty Agreement and the Trust Indenture.
The Unanimous Shareholder Agreement currently provides for the following with
respect to the voting of the Common Shares of the Corporation:
1. The Shareholders of the Corporation are required to abstain from voting
their Common Shares at any and all meetings of the Shareholders.
2. The Shareholders may vote their Common Shares or exercise rights to pass
a resolution in writing where required to comply with any provision of
the BUSINESS CORPORATIONS ACT (Alberta) and in so doing will vote in
accordance with the majority vote of Unitholders on the same matter.
3. The Unitholders are entitled to notice of, and to attend and vote at, as
if they were Shareholders, any meeting of the Shareholders.
-25-
The Royalty Indenture currently provides for the following with respect to the
voting of the Royalty Units at meetings of the Royalty Unitholders:
1. In respect of a vote by a show of hands, each Royalty Unitholder who is
present and entitled to vote in person or by proxy shall be entitled to
one vote at each meeting of Royalty Unitholders for each Royalty Unit
held.
2. In respect of a vote by poll, each Royalty Unitholder who is present and
entitled to vote in person or by proxy shall be entitled to one vote at
each meeting of Royalty Unitholders for each Royalty Unit held.
The Royalty Indenture further clarifies that the Trustee is not entitled to
vote any Royalty Units held in its capacity as Trustee under the Trust
Indenture.
The Trust Indenture currently provides for the following with respect to the
voting of Royalty Units at all meetings of the Royalty Unitholders or
Shareholders:
1. All Royalty Units held by the Trustee as part of the property of the
Trust shall not be voted by the Trustee but shall be voted by the Trust
Unitholders at all Shareholder meetings and Royalty Unitholder meetings.
2. The Trustee is required to be a party to the Unanimous Shareholder
Agreement and the Royalty Indenture.
The foregoing agreements effectively entitle Trust Unitholders to vote
separately at each Shareholder meeting, Royalty Unitholder meeting and Trust
Unitholder meeting. It is management's view that convening three meetings as
part of each annual general meeting of Trust Unitholders is unduly confusing
to the Trust Unitholders and inconsistent with standard industry practice.
The requirement to have meetings of the Shareholders and Royalty Unitholders
in conjunction with meetings of the Trust Unitholders results in essentially
the same subject matter requiring the approval of Shareholders, Royalty
Unitholders and Trust Unitholders, resulting in repetition between the
meetings, and making the annual general meeting process more cumbersome and
time consuming.
At the Shareholder Meeting, the Trust Meeting and the Royalty Meeting, it is
proposed that an extraordinary resolution of the Shareholders, Trust
Unitholders and Royalty Unitholders be passed to amend the Unanimous
Shareholder Agreement, the Trust Indenture and the Royalty Indenture, as
applicable, to remove the provisions which provide that the Trust Unitholders
are entitled to vote at meetings of the Shareholders and Royalty Unitholders
and to remove the provisions which provide that the Royalty Unitholders are
entitled to vote at meetings of the Shareholders. Should these proposed
amendments be approved and implemented, the business of the Corporation will
be conducted by way of consent resolutions of the Shareholders, acting with
the prior approval of the Trust Unitholders. By removing the requirement to
hold three separate meetings, the Corporation will streamline the annual
meeting procedure, reduce costs and bring the Trust and the Corporation into
conformity with the standard practice of oil and gas income trusts. To ensure
the Trust Unitholders have the ability to pre-approve Shareholder resolutions
pertaining to the Corporation, the Trust Indenture will be amended to require
that the Trustee seek the direction of the Trust Unitholders before voting the
Common Shares or Royalty Units held by the Trustee.
To be approved, the extraordinary resolution approving the foregoing
amendments to the Unanimous Shareholder Agreement, the Trust Indenture and the
Royalty Indenture requires the approval of not less than 66 2/3% of the votes
cast by the Shareholders, Trust Unitholders and Royalty Unitholders at the
Shareholder Meeting, the Trust Meeting and the Royalty Meeting, respectively.
At the Shareholder Meeting, the Shareholders will therefore be asked to
consider and, if thought appropriate, pass the extraordinary resolution
contained in Schedule "A-1" to this Circular.
-26-
AMENDMENTS TO THE UNANIMOUS SHAREHOLDER AGREEMENT AND THE ARTICLES OF THE
CORPORATION TO INCREASE THE MAXIMUM SIZE OF THE BOARD OF DIRECTORS OF THE
CORPORATION
Unitholders will be asked to consider an extraordinary resolution approving
amendments to the Unanimous Shareholder Agreement and the articles of the
Corporation to increase the maximum size of the Board of Directors of the
Corporation.
The Unanimous Shareholder Agreement and the articles of the Corporation
currently provide that the Board of Directors may have no fewer than three
members and no more than eight members. The restrictions on the maximum size
of the Board of Directors of the Corporation as currently contained in the
Unanimous Shareholder Agreement and the articles of the Corporation were
determined when the business and governance of the Trust were significantly
less complex. Due to several factors, including the increased size of the
Trust, an increase in the complexity of the Trust's business and a more
stringent regulatory environment, particularly relating to matters of
corporate governance, it is management's view that the work load of Directors
has significantly increased and increasing the size of the Board of Directors
will be advantageous to Pengrowth. Increasing the number of Directors will
also bring additional skills, experiences and views to the Board of Directors.
In addition, increasing the size of the Board of Directors will provide
flexibility to Pengrowth and the ability to add "high-caliber" directors as
they become available, rather than when a board vacancy arises.
At the Shareholder Meeting, the Trust Meeting and the Royalty Meeting, it is
proposed that an extraordinary resolution of the Shareholders, Trust
Unitholders and Royalty Unitholders be passed to amend the Unanimous
Shareholder Agreement and the articles of the Corporation to increase the
maximum size of the Board of Directors to twelve members.
To be approved, the extraordinary resolution approving the foregoing
amendments to the Unanimous Shareholder Agreement and the articles of the
Corporation requires the approval of not less than 66 2/3% of the votes cast
by the Shareholders, Trust Unitholders and Royalty Unitholders at the
Shareholder Meeting, the Trust Meeting and the Royalty Meeting, respectively.
At the Shareholder Meeting, the Shareholders will therefore be asked to
consider and, if thought appropriate, pass the extraordinary resolution
contained in Schedule "A-2" to this Circular.
-27-
PART IV - MATTERS TO BE CONSIDERED AT THE TRUST MEETING
APPOINTMENT OF AUDITORS
It is the intention of the persons named in the enclosed form of proxy, if not
expressly directed to the contrary in the proxy, to vote in favour of a
resolution to appoint the firm of KPMG LLP, Chartered Accountants, of Calgary,
Alberta, as the auditors of the Trust, to hold office until the next annual
meeting of Unitholders or until their successor is elected or appointed, at
the remuneration to be fixed by the Board of Directors.
AMENDMENTS TO THE TRUST INDENTURE TO PROVIDE FOR THE CONSOLIDATION OF THE
TRUST'S DUAL CLASS STRUCTURE
SUMMARY
Pengrowth implemented the Class A and Class B dual trust unit structure (the
"dual class structure") in July of 2004 so that Pengrowth could control the
level of ownership of Trust Units by non-residents of Canada and thereby
ensure that Pengrowth was a mutual fund trust under the INCOME TAX ACT
(Canada) (the "Tax Act").
Early in 2006, Pengrowth received preliminary advice from Bennett Jones LLP
that, as a result of a number of factors, it may no longer be necessary for
Pengrowth to regulate the level of ownership of Trust Units by non-residents
of Canada to preserve Pengrowth's status as a mutual fund trust under the Tax
Act. Pengrowth also received preliminary advice from its financial advisors
that the dual class structure may be an impediment to Pengrowth in executing
its business plan, a fundamental component of which is the long-term creation
of unitholder value through accretive acquisitions and related financings.
As a result, the Board of Directors considered it appropriate to examine
whether the dual class structure continued to be in the best interests of the
Trust and the Trust Unitholders and formed a Special Committee of independent
directors.
The Special Committee has unanimously recommended to the Board of Directors
that the Class A trust units and the Class B trust units of Pengrowth be
consolidated as follows:
o effective as of 5:00 p.m. (Calgary time) on June 27, 2006:
o the restriction on the Class B trust units that provides that the
Class B trust units may only be held by residents of Canada will be
eliminated; and
o effective as of 5:00 p.m. (Calgary time) on July 27, 2006:
o the Class A trust units will be delisted from the Toronto Stock
Exchange (effective as of the close of markets);
o the Class B trust units will be renamed as "Trust Units" (for
further clarity, defined herein as "Consolidated Trust Units") and
the trading symbol of the Consolidated Trust Units will be changed
from "PGF.B" to "PGF.UN" (subject to the approval of the TSX);
o all of the issued and outstanding Class A trust units will be
converted into Consolidated Trust Units on the basis of one
Consolidated Trust Unit for each whole Class A trust unit previously
held (with the exception of Class A trust units held by residents of
Canada who have provided a residency declaration to the Trustee);
and
o the Consolidated Trust Units will be substitutionally listed in
place of the Class A trust units on the New York Stock Exchange
under the trading symbol "PGH" (subject to the approval of the
NYSE);
(collectively referred to in this Circular as the "Consolidation", as
described in greater detail under "Terms of the Consolidation" below).
-28-
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT TRUST UNITHOLDERS APPROVE
THE CONSOLIDATION. See "Recommendations of the Board of Directors". The form
of the extraordinary resolution to approve the Consolidation is attached as
Schedule "B-1" hereto (the "Consolidation Resolution").
THE BOARD OF DIRECTORS URGES ALL TRUST UNITHOLDERS TO GIVE CAREFUL
CONSIDERATION TO THE FACTORS DESCRIBED BELOW UNDER "BACKGROUND - SIGNIFICANT
CONSIDERATIONS OF THE SPECIAL COMMITTEE".
THE CONVERSION OF CLASS A TRUST UNITS HELD BY RESIDENTS OF CANADA TO
CONSOLIDATED TRUST UNITS PURSUANT TO THE CONSOLIDATION WILL CONSTITUTE A
TAXABLE DISPOSITION. HOLDERS OF CLASS A TRUST UNITS WHO ARE RESIDENTS OF
CANADA AND DO NOT WISH TO HAVE THEIR CLASS A TRUST UNITS CONVERTED INTO
CONSOLIDATED TRUST UNITS MUST DELIVER A DULY COMPLETED ELECTION AND
DECLARATION OF RESIDENCY TO THE TRUSTEE NO LATER THAN 5:00 P.M. (CALGARY TIME)
TUESDAY, JULY 25, 2006. COPIES OF THE ELECTION AND DECLARATION OF RESIDENCY
WILL BE MAILED TO HOLDERS OF CLASS A TRUST UNITS FOLLOWING THE TRUST MEETING.
FOR INFORMATION IN RELATION TO THE TAX CONSIDERATIONS ARISING FROM THE
CONVERSION OF CLASS A TRUST UNITS HELD BY RESIDENTS OF CANADA, SEE "TAX
CONSIDERATIONS".
BACKGROUND
MUTUAL FUND TRUST STATUS OF THE TRUST
Maintaining its status as a mutual fund trust under the Tax Act is of
fundamental importance to the Trust. If the Trust ceases to qualify as a
mutual fund trust it will significantly adversely affect the value of
Pengrowth's Trust Units.
Generally speaking, in addition to several other requirements, in order for a
trust such as Pengrowth to be a mutual fund trust under the Tax Act, either:
(i) the trust must not be established or maintained primarily for the benefit
of non-residents of Canada (i.e. a majority of its trust units must be owned
by residents of Canada) (the "Benefit Test") or (ii) at all times after
February 21, 1990, all or substantially all of the property of the trust must
consist of property other than taxable Canadian property (the "Property
Exception").
Early in 2004, it had become apparent that the level of non-resident ownership
of the Trust had risen from approximately 8% at the time of listing on the
NYSE in April 2002 to a level approaching 50%. As a result of certain
legislative proposals announced by the Minister of Finance on March 23, 2004
and uncertainty as to whether or not Pengrowth satisfied the Property
Exception, it was considered prudent for Pengrowth to rely upon the Benefit
Test and, on July 27, 2004, Pengrowth implemented the dual class structure to
ensure that, after the implementation period, residents of Canada, through the
ownership of Class B trust units, would own a majority of the outstanding
Trust Units.
On November 26, 2004, the Trust received a comfort letter from the Department
of Finance (Canada) (the "2004 Finance Letter") stating that the Department of
Finance would recommend to the Minister of Finance that an amendment be made
to the Tax Act that would clarify the Trust's ability to rely upon the
Property Exception. However, various announcements by the Federal Government
relating to the residency requirements for mutual fund trusts during 2004 and
2005 resulted in considerable uncertainty regarding Pengrowth's long-term
ability to rely upon the Property Exception and as a result, Pengrowth
considered it prudent to maintain the dual class structure.
In early 2006, the Corporation and Bennett Jones LLP held discussions with the
Tax Legislation Division of the Department of Finance and with the Canada
Revenue Agency. These discussions provided comfort to Pengrowth that it was
unlikely that the Department of Finance would impose additional obligations on
mutual fund trusts in respect of non-resident ownership and that the
Department of Finance would also implement the changes to the Tax Act
contemplated by the 2004 Finance Letter.
On March 23, 2006, Pengrowth received a letter from the Department of Finance
(the "2006 Finance Letter") confirming that it remains the intention of the
department to recommend to the Minister of Finance the changes to the Tax Act
contained in the 2004 Finance Letter. Bennett Jones LLP advised that, as a
result of a number of
-29-
factors, including receipt by the Corporation of confirmations from the Canada
Revenue Agency and the Department of Finance (including the 2004 Finance
Letter and the 2006 Finance Letter), it was no longer necessary to regulate
the level of ownership of Trust Units by persons who are not Canadian
residents in order to preserve Pengrowth's status as a mutual fund trust under
the Tax Act.
For further information concerning the mutual fund trust status of the Trust
see "Trust Units - Trust Unit Reclassification" in the Trust's annual
information form dated March 29, 2006, which section is hereby incorporated by
reference.
APPOINTMENT AND MANDATE OF THE SPECIAL COMMITTEE
In light of these developments, the Board of Directors considered it
appropriate to examine whether the dual class structure continued to be in the
best interests of the Trust and the Trust Unitholders and the extent to which
the structure may be an impediment to the execution by Pengrowth of its
business plan. On March 27, 2006, the Board of Directors formed a special
committee of the Board of Directors consisting of A. Terence Poole, Thomas A.
Cumming, Kirby L. Hedrick and Michael S. Parrett, all of whom are independent
directors, to make recommendations to the Board of Directors. The mandate of
the Special Committee included examining the impact of the dual class
structure on Pengrowth and its ability to effectively pursue its business plan
and examining alternatives to that structure, including the removal of the
ownership restriction from the Class B trust units, the merger of the Class A
trust units and the Class B trust units into a single class of trust units or
any other alternatives the Special Committee considered appropriate, together
with the impact of any course of action on Pengrowth and both the Class A
unitholders and Class B unitholders and the methods of implementation thereof.
For information in relation to the holdings of the members of the Special
Committee of Class B trust units, see "Part III - Matters to be Considered at
the Shareholders Meeting - Election of Directors" and see also "Part I -
General Information for all Meetings - Compensation of Directors".
PROCESS AND MEETINGS OF THE SPECIAL COMMITTEE
The process that resulted in the recommendation by the Special Committee to
the Board of Directors to proceed with the Consolidation involved nine
meetings of the Special Committee held over the course of seven weeks.
Meetings of the Special Committee occurred on March 29, 2006, April 3, 2006,
April 7, 2006, April 19, 2006, May 2, 2006, May 8, 2006, May 11, 2006, May 14,
2006 and May 16, 2006. The Special Committee retained Burnet, Duckworth &
Palmer LLP, Calgary, Alberta ("BDP") and Paul, Weiss, Rifkind, Wharton &
Garrison LLP, New York, New York ("Paul Weiss") as its legal advisors and BMO
Nesbitt Burns Inc. ("BMO Nesbitt Burns") and Merrill Lynch Canada Inc.
("Merrill Lynch") as its financial advisors. Each meeting of the Special
Committee included an IN-CAMERA session where the Special Committee met solely
with its legal advisors. In addition to the advice of its legal and financial
advisors, the Special Committee considered the advice of Bennett Jones, legal
advisors to the Corporation, RBC Capital Markets ("RBC"), financial advisor to
the Corporation, and the information provided by management of the
Corporation.
SIGNIFICANT CONSIDERATIONS OF THE SPECIAL COMMITTEE
In concluding that the dual class structure is a significant impediment to
Pengrowth in executing its business plan, and therefore determining to
recommend the Consolidation, the Special Committee considered the advice of
its financial advisors, BMO Nesbitt Burns and Merrill Lynch, that the dual
class structure results in:
o AN INABILITY TO EFFECTIVELY RAISE CAPITAL AT THE LOWEST POSSIBLE COST.
The dual class structure requires that at least 50.25% of any equity
financing consist of Class B trust units. Although the Class A trust
units and Class B trust units have identical economic entitlements, the
trading price of the Class B trust units has, since inception of the dual
class structure, traded at a discount to the trading price of the Class A
trust units. The requirement to issue at least as many Class B trust
units as Class A trust units increases Pengrowth's cost of capital making
it more difficult and expensive for Pengrowth to effectively raise
capital.
o A SIGNIFICANT IMPEDIMENT TO COMPLETING MERGERS OR ACQUISITIONS USING
TRUST UNITS AS CONSIDERATION. There have been in excess of $22 billion of
mergers and acquisitions in the Canadian royalty trust sector since
Pengrowth implemented the dual class structure, with 6 of the 7 largest
transactions being royalty trust mergers completed primarily through
exchanges of trust units. As the Class
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A trust units and Class B trust units have traded at significantly
different prices, the dual class structure makes valuing Pengrowth's
Trust Units more challenging and thereby makes it difficult for Pengrowth
to complete mergers or acquisitions through an issuance of Trust Units.
o SIGNIFICANTLY REDUCED LIQUIDITY IN THE TRADING OF TRUST UNITS. The dual
class structure results in Pengrowth's market capitalization being split
between two classes of Trust Units with the same economic entitlements,
with each class of Trust Units being less liquid than would be the case
if all trust units of the Trust comprised one class. Increasing liquidity
in the Trust Units will enhance market efficiencies and will facilitate
participation by different categories of investors in the ownership of
the Trust Units.
o AN INABILITY TO COMPLETE EFFICIENT EQUITY FINANCINGS. As the Class A
trust units have, since inception of the dual class structure, traded at
a premium to the Class B trust units, for Pengrowth to raise equity
capital at the lowest cost, any equity financing must include the maximum
permitted number of Class A trust units. The most common form of equity
financing in Canada for trusts like the Trust is the "bought deal" short
form prospectus financing. As Pengrowth cannot effectively issue Class A
trust units through a "bought deal" financing, Pengrowth cannot raise
capital at the lowest cost through this form of financing and must use
more complicated and expensive and less efficient forms of equity
financings. This puts the Trust at a competitive disadvantage to its
peers, particularly when competing for value enhancing acquisition
opportunities.
o A DIVERSION OF MANAGEMENT'S TIME. The dual class structure diverts
Pengrowth's resources, including management time and attention, from the
pursuit of Pengrowth's business plan.
A significant factor in the determination of the Special Committee was the
opinion of Bennett Jones LLP to the effect that, in reliance on the
certificate provided by management of the Corporation as to the relative value
of Pengrowth's assets, and subject to the assumptions and qualifications
contained therein, Pengrowth would satisfy the requirements of the TAX ACT to
be a mutual fund trust even if non-residents of Canada owned a majority of the
outstanding Trust Units. In providing the certificate, management relied upon
a valuation of certain assets of the Trust dated May 10, 2006 prepared by GLJ
& Associates Ltd.
During the course of its deliberations, the Special Committee also considered,
among other things:
o the independence, qualifications and expertise of the financial and legal
advisors to the Special Committee;
o the advice of Bennett Jones regarding the applicable legal duties of the
members of the Special Committee and the Board of Directors and the
advice of Paul Weiss regarding the legal duties that would apply to the
members of the Special Committee if Pengrowth was a Delaware corporation;
o the mandate of the Special Committee, and on the advice of BDP,
amendments that should be made to the mandate;
o various alternatives to effect the removal of the dual class structure,
the required amendments to Pengrowth's trust indenture and the
implementation of such alternatives;
o the advice of BMO Nesbitt Burns, Merrill Lynch and the Corporation's
financial advisor, RBC, that the removal of the dual class structure will
assist Pengrowth in executing its business plan, a fundamental component
of which is the long-term creation of unitholder value through accretive
acquisitions and related financings;
o the advice of BMO Nesbitt Burns and Merrill Lynch regarding factors that
may have influenced the spread between the trading prices of the Class A
trust units and Class B trust units and recent narrowing of the spread
and the potential impact on the trading prices of the Class A trust units
and Class B trust units of unwinding the dual class structure and the
available mechanisms for maintaining an orderly market throughout the
process including the potential impact of trading by professional market
traders;
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o the historical trading patterns of the Class A trust units and Class B
trust units and the risk that the Class A trust units or Class B trust
units or resulting Consolidated Trust Units may trade at reduced prices
after the Trust Meeting as a result of the Consolidation;
o provisions of the Trust Indenture providing for the equality of the Class
A trust units and Class B trust units for all economic entitlements and
voting;
o the Consolidation will not result in a change to the economic
entitlements and voting rights of holders of the Class A trust units or
the Class B trust units;
o the fairness opinions delivered by BMO Nesbitt Burns and Merrill Lynch;
o the provisions of the Trust Indenture stipulating that: (i) the Trust
Indenture may only be amended by the affirmative vote of the holders of
not less than 66 2/3% of the votes attaching to the Trust Units
represented at a meeting of Trust Unitholders and voted upon the
resolution, with Class A unitholders and Class B unitholders voting
together as a single class; and (ii) the Trust Indenture does not
contemplate class votes; and
o the factors set forth under "Risk Factors" herein.
RECOMMENDATION OF THE SPECIAL COMMITTEE
After considering the terms of the Consolidation, the financial advice and
fairness opinions, the legal advice and mutual fund trust opinion and other
relevant factors, including those factors described above, on Tuesday, May 16,
2006 the Special Committee unanimously resolved to recommend to the Board of
Directors that: (i) the Consolidation was in the best interests of Pengrowth
and the Trust Unitholders; (ii) the Trust Unitholders should be given an
opportunity to consider the Consolidation Resolution at the Trust Meeting; and
(iii) the Board of Directors should recommend to the Trust Unitholders that
they approve the Consolidation.
FAIRNESS OPINIONS OF FINANCIAL ADVISORS TO THE SPECIAL COMMITTEE
The Special Committee received fairness opinions regarding the Consolidation
from its financial advisors, BMO Nesbitt Burns and Merrill Lynch. Copies of
these fairness opinions are attached as Appendix "2" and Appendix "3",
respectively, to this Circular.
See "Risk Factors - Effect on Trading Prices."
RECOMMENDATION OF THE BOARD OF DIRECTORS
On Tuesday, May 16, 2006, the Board of Directors, having considered the terms
of the Consolidation, the financial advice received from RBC, the legal advice
received from Bennett Jones (including an opinion regarding Pengrowth's mutual
fund trust status), the financial advice and fairness opinions received by the
Special Committee from BMO Nesbitt Burns and Merrill Lynch, the legal advice
received by the Special Committee from BDP and Paul Weiss, the recommendation
of the Special Committee and the factors considered by the Special Committee,
unanimously determined that: (i) the dual class structure is no longer
required for the Trust to maintain its status as a mutual fund trust under the
Tax Act; (ii) the dual class structure is a significant impediment to
Pengrowth in executing its business plan; (iii) the Consolidation is in the
best interests of Pengrowth and the Trust Unitholders; (iv) the Trust
Unitholders should be given an opportunity to consider the Consolidation at
the Trust Meeting; and (v) the Board of Directors should recommend to the
Trust Unitholders that they approve the Consolidation.
For information relating to various risk factors, see "Risk Factors".
TERMS OF THE CONSOLIDATION
The proposed amendments to the Trust Indenture involve two distinct stages.
The first stage would occur two business days following the approval of the
Consolidation Resolution by the Trust Unitholders at the Trust Meeting,
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while the second stage would occur 30 days following the implementation of the
first stage. The following is a summary of the stages of the proposed
amendments to the Trust Indenture.
STAGE ONE - ELIMINATION OF THE FOREIGN OWNERSHIP RESTRICTION AND
ANCILLARY AMENDMENTS
Subject to the approval of the Consolidation Resolution by Trust Unitholders
at the Trust Meeting, the following amendments to the Trust Indenture and
other related matters will occur at 5:00 p.m. (Calgary time) on June 27, 2006:
o the Trust Indenture currently restricts registered and beneficial
ownership of the Class B trust units to residents of Canada and requires
any person that acquires Class B trust units provide the Corporation, at
the Corporation's request, with a declaration setting out the residency
of such person. These restrictions on the foreign ownership of Class B
trust units, as set out in Schedule "B" of the Trust Indenture, will be
removed. Additional minor revisions will be made to the Trust Indenture
to give effect to this change, including revisions which will permit the
holders of Class A trust units to convert such units to Class B trust
units without providing a residency declaration;
o the Trust Indenture currently requires that the Class B trust units be
listed and posted for trading only on the facilities of the TSX, any
successor to the TSX or on any other stock exchange in Canada. This
restriction will be removed and the Class B trust units will be permitted
to be listed and posted for trading on the NYSE or any other stock
exchange as determined by the directors of the Corporation, although it
is not proposed that the Class B trust units would be listed on the NYSE
until stage two of the Consolidation; and
o Schedule "C" of the Trust Indenture currently provides the mechanism for
the reclassification or conversion, as the case may be, of the trust
units existing before the July 27, 2004 reclassification into Class A
trust units or Class B trust units. This Schedule "C" was utilized upon
the creation and implementation of the dual class structure in July of
2004. Schedule "C" is no longer required and will be replaced with a new
Schedule "C". The new Schedule "C" will set out the timing and procedure
for the second stage of the amendments to the Trust Indenture, a
description of which is set out below.
No amendment will be made at this time to the ownership threshold that
restricts the Class A trust units to 49.75% of the Trust Units and accordingly
the Class B trust units will not be exchangeable for Class A trust units upon
completion of this stage, except subject to the 49.75% restriction.
Holders of Class A trust units who are residents of Canada will be invited to
submit residency declarations should they wish to exclude their Class A trust
units from the conversion into Class B trust units in stage two. The Class A
trust units held by such holders after the consolidation will not be listed on
any stock exchange and will not be transferable. Such persons will be required
to convert the Class A trust units they hold after the Consolidation into
Trust Units prior to disposing of such Class A trust units. See "Trust Unit
Certificates".
STAGE TWO - CONSOLIDATION OF ISSUED AND OUTSTANDING CLASS A TRUST UNITS,
CLASS B TRUST UNITS AND PRIOR TRUST UNITS
Schedule "C" to the Trust Indenture, as amended pursuant to the Consolidation
Resolution, will set out the timing and procedures for the second stage of the
amendments to the Trust Indenture. The following amendments and related events
will occur at 5:00 p.m. (Calgary time) on Thursday, July 27, 2006 (the
"Consolidation Date"):
o the Class A trust units will be delisted from the TSX (effective as of
the close of markets);
o all of the issued and outstanding Class B trust units will be renamed as
"Trust Units" (for further clarity, defined herein as Consolidated Trust
Units) and the trading symbol of the Consolidated Trust Units will be
changed from "PGF.B" to "PGF.UN", subject to TSX approval;
o all of the issued and outstanding Class A trust units and Prior Trust
Units will be converted to Consolidated Trust Units (with the exception
of Class A trust units held by residents of Canada who have provided an
election and residency declaration to the Trustee); and
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o the Consolidated Trust Units will be substitutionally listed in place of
the Class A trust units on the NYSE and will maintain the trading symbol
"PGH", subject to NYSE approval.
Residents of Canada who provide a residency declaration shall retain Class A
trust units, which may be converted to Consolidated Trust Units in accordance
with the terms thereof.
After these changes are made to the Trust Indenture, the economic
entitlements, including as to voting rights and rights to receive
distributions, will be the same for the Consolidated Trust Units as the
economic entitlements that holders of Class A trust units and Class B trust
units now have prior to the Consolidation.
THE CONVERSION OF CLASS A TRUST UNITS HELD BY RESIDENTS OF CANADA TO
CONSOLIDATED TRUST UNITS PURSUANT TO THE CONSOLIDATION WILL CONSTITUTE A
TAXABLE DISPOSITION. HOLDERS OF CLASS A TRUST UNITS WHO ARE RESIDENTS OF
CANADA AND DO NOT WISH TO CONVERT THEIR TRUST UNITS TO CONSOLIDATED TRUST
UNITS MUST DELIVER A DULY COMPLETED ELECTION AND DECLARATION OF RESIDENCY TO
THE TRUSTEE NO LATER THAN 5:00 P.M. (CALGARY TIME) TUESDAY, JULY 25, 2006.
COPIES OF THE ELECTION AND DECLARATION OF RESIDENCY WILL BE MAILED TO THE
HOLDERS OF CLASS A TRUST UNITS BY PENGROWTH FOLLOWING THE TRUST MEETING. FOR
INFORMATION IN RELATION TO THE TAX CONSIDERATIONS ARISING FROM THE CONVERSION
OF CLASS A TRUST UNITS HELD BY RESIDENTS OF CANADA, SEE "TAX CONSIDERATIONS".
UNITHOLDER APPROVAL
For the Consolidation to be approved by the Trust Unitholders, the
Consolidation Resolution must be passed by the affirmative vote of the holders
of not less than 66 2/3% of the votes attaching to the Class A trust units and
Class B trust units represented at the Trust Meeting in person or by proxy and
voted upon the Consolidation Resolution, with the holders of Class A trust
units and Class B trust units voting together as a single class as required by
the Trust Indenture. The text of the Consolidation Resolution is set forth as
Schedule "B-1" to this Circular.
UNLESS OTHERWISE SPECIFIED BY THE TRUST UNITHOLDER EXECUTING SUCH PROXY, THE
PERSONS NAMED AS PROXIES IN THE ENCLOSED FORM OF PROXY WILL VOTE THE CLASS A
TRUST UNITS OR CLASS B TRUST UNITS REPRESENTED BY SUCH PROXY FOR THE
CONSOLIDATION RESOLUTION.
EXPENSES OF THE CONSOLIDATION
The Corporation will pay all costs incurred in connection with the
Consolidation, including legal, financial, filing and printing costs, and the
preparation of this Circular. Such costs are expected to aggregate
approximately $2.5 million.
TRUST UNIT CERTIFICATES
Registered holders of Class A trust units or Class B trust units will not be
required to exchange their Trust Unit certificates following completion of the
Consolidation to continue to receive distributions. After approval of the
Consolidation, Trust Unitholders who desire to exchange their current
certificates which represent either Class A trust units or Class B trust units
for Consolidated Trust Unit certificates may do so. Holders of Class A trust
units who wish to receive a Consolidated Trust Unit certificate following the
Consolidation must complete a letter of transmittal and deliver it to the
Trustee with their original Class A trust unit certificate. The form of the
letter of transmittal will be mailed to Class A trust unitholders following
approval of the Consolidation. Holders of Class B trust units must simply
deliver their original Trust Unit certificates to the Trustee with
instructions to issue a new certificate.
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TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes, as at the date hereof, the principal Canadian
federal income tax considerations generally applicable to a Trust Unitholder
who holds Class A trust units, Class B trust units or Prior Trust Units at the
effective time of the Consolidation Resolution and who, for the purposes of
the Tax Act and at all relevant times, holds such Trust Units as capital
property and deals at arm's length with the Trust. Generally, the Class A
trust units, Class B trust units and Prior Trust Units will be considered to
be capital property to a Trust Unitholder provided the Trust Unitholder does
not hold such Trust Units in the course of carrying on a business and has not
acquired them in one or more transactions considered to be an adventure or
concern in the nature of trade.
Certain Trust Unitholders who are resident in Canada who might not otherwise
be considered to hold their Class A trust units, Class B trust units or Prior
Trust Units as capital property may, in certain circumstances, be entitled to
have them treated as capital property by making the irrevocable election
permitted by subsection 39(4) of the Tax Act. This summary is not applicable
to: (i) a Trust Unitholder that is a "financial institution", as defined in
the Tax Act for purposes of the "mark-to-market" rules; (ii) a Trust
Unitholder an interest in which would be a "tax shelter" or "tax shelter
investment" as defined in the Tax Act; or (iii) a Trust Unitholder that is a
"specified financial institution" as defined in the Tax Act. Any such Trust
Unitholder should consult its own tax advisor with respect to holding such
Trust Units at the effective time of the Consolidation Resolution.
This summary is based upon the provisions of the Tax Act in force as of the
date hereof, the Income Tax Regulations, all specific proposals to amend the
Tax Act and the Income Tax Regulations that have been publicly announced prior
to the date hereof, including the 2004 Finance Letter, and the current
published administrative and assessing policies of the Canada Revenue Agency
("CRA"), including previous advance income tax rulings obtained by the Trust
from the CRA.
This summary is not exhaustive of all possible Canadian federal income tax
considerations and does not take into account any changes in the law, whether
by legislative, governmental or judicial action. This summary does not take
into account provincial, territorial or foreign tax considerations, which may
differ significantly from those discussed herein.
This summary is of a general nature only and is not intended to be legal or
tax advice to any particular Trust Unitholder. Consequently, Trust Unitholders
should consult their own tax advisors with respect to their own particular
circumstances.
This summary assumes that the Trust qualifies as a "unit trust" and a "mutual
fund trust" within the meaning of the Tax Act as at the effective time of the
Consolidation Resolution, and will continue to qualify thereafter, as a mutual
fund trust for the duration of its existence. See "Background - Mutual Fund
Trust Status of the Trust". In order to qualify as a mutual fund trust, (i)
the Trust, cannot, and may not at any time, reasonably be considered to be
established or maintained primarily for the benefit of non-resident persons,
or (ii) at all times after February 21, 1990, "all or substantially all" of
the Trust's property must consist of property other than taxable Canadian
property (as defined in the Tax Act). The 2004 Finance Letter would, if
enacted, modify the Property Exception such that, at all times after December
31, 2003, the Property Exception would only be required to be met at the time
the Benefit Test was not met. Based on the 2004 Finance Letter obtained from
the Department of Finance and the Trust's limited holding of taxable Canadian
property, Bennett Jones LLP has advised that the Trust should be able to
maintain its mutual fund trust status even if it cannot meet the Benefit Test.
This summary assumes that these requirements will be satisfied so that the
Trust will qualify as a mutual fund trust at all relevant times. In the event
that the Trust were not to qualify as a mutual fund trust, the income tax
considerations would, in some respects, be materially different from those
described below. See "Background - Mutual Fund Trust Status of the Trust".
THIS SUMMARY ASSUMES THAT THE RECOMMENDATIONS IN THE 2004 FINANCE LETTER
RECEIVED BY THE TRUST ARE ACCEPTED BY THE MINISTER OF FINANCE AND PARLIAMENT
SO THAT THE TRUST WILL QUALIFY AS A MUTUAL FUND TRUST AT ALL RELEVANT TIMES.
NO ASSURANCE CAN BE PROVIDED THAT THE 2004 FINANCE LETTER WILL BE ACCEPTED BY
THE MINISTER OF FINANCE OR PARLIAMENT. SEE "RISK FACTORS". IN THE EVENT THAT
THE TRUST WERE NOT TO QUALIFY AS A MUTUAL FUND TRUST, THE INCOME TAX
CONSIDERATIONS WOULD, IN SOME RESPECTS, BE MATERIALLY DIFFERENT FROM THOSE
DESCRIBED BELOW. SEE "RISK FACTORS".
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TAXATION OF TRUST UNITHOLDERS RESIDENT IN CANADA
This portion of the summary applies only to a Trust Unitholder who, for the
purposes of the Tax Act and any applicable income tax treaty or convention, is
resident or deemed to be resident in Canada at all relevant times.
ELIMINATION OF THE FOREIGN OWNERSHIP RESTRICTION ON CLASS B TRUST UNITS
AND ANCILLARY AMENDMENTS. As at 5:00 p.m. (Calgary time) on June 27, 2006, the
restriction on the foreign ownership of Class B trust units will be removed,
along with the ancillary amendments thereto. The removal of the foreign
ownership restriction and ancillary amendments should not result in a
disposition of any Trust Unit for the purposes of the Tax Act.
RECLASSIFYING OF THE CLASS B TRUST UNITS AS CONSOLIDATED TRUST UNITS. As
at 5:00 p.m. (Calgary time) on July 27, 2006, the Class B trust units will be
renamed as Consolidated Trust Units. The renaming of Class B trust units as
Consolidated Trust Units should not result in a disposition of any Trust Unit
for the purposes of the Tax Act.
CONVERSION OF CLASS A TRUST UNITS AND PRIOR TRUST UNITS TO CONSOLIDATED
TRUST UNITS. A conversion of Class A trust units or Prior Trust Units into
Consolidated Trust Units will constitute a disposition for the purposes of the
Tax Act that will generally result in a Trust Unitholder realizing a capital
gain (or a capital loss) equal to the amount by which the fair market value of
the Consolidated Trust Units received are greater (or less) than the aggregate
of the Trust Unitholder's adjusted cost base of the Class A trust units or
Prior Trust Units being converted, as the case may be, and any reasonable
costs associated with the disposition.
A Trust Unitholder will generally be required to include in income one-half of
the amount of any resulting capital gain (a "taxable capital gain") and will
generally be required to deduct one-half of the amount of any resulting
capital loss (an "allowable capital loss") against taxable capital gains
realized by a Trust Unitholder in the same taxation year. Allowable capital
losses not deducted in the taxation year in which they are realized may be
carried back and deducted in any of the three preceding years or carried
forward and deducted in any following years against capital gains realized in
such years, to the extent and in the circumstances described in the Tax Act.
Taxable capital gains realized by a Trust Unitholder that is an individual or
a trust, other than certain types of trusts, may give rise to alternative
minimum tax depending on the Trust Unitholder's circumstances.
A Trust Unitholder that is a "Canadian-controlled private corporation" (as
defined in the Tax Act) may be liable to pay an additional refundable tax of 6
2/3% on certain investment income, including taxable capital gains. The 6 2/3%
refundable tax is to be added to the Canadian-controlled private corporation's
refundable dividend tax on hand account and will be eligible for refund at a
rate of $1 for every $3 of dividends paid by the Canadian-controlled private
corporation.
TAXATION OF TRUST UNITHOLDERS NOT RESIDENT IN CANADA
This portion of the summary applies only to a holder of Class A trust units or
Prior Trust Units who, for the purposes of the Tax Act and any applicable
income tax treaty or convention, is neither resident nor deemed to be resident
in Canada at any time and does not use or hold, and is not deemed to use or
hold, such Units in connection with a trade or business that the holder
carries on, or is deemed to carry on, in Canada at any time. Special rules
which are not discussed in this summary may apply to a non-resident holder
that is an insurer carrying on business in Canada and elsewhere.
CONVERSION OF CLASS A TRUST UNITS AND PRIOR TRUST UNITS TO CONSOLIDATED
TRUST UNITS. For the purposes of the Tax Act, a conversion of Class A trust
units or Prior Trust Units into Consolidated Trust Units will constitute a
disposition for the purposes of the Tax Act. The disposition of a Class A
trust unit or Prior Trust Unit on conversion will not give rise to any capital
gains subject to tax under the Tax Act provided that such Class A trust units
or Prior Trust Units are not "taxable Canadian property" of the Trust
Unitholder for the purposes of the Tax Act. Class A trust units or Prior Trust
Units will not generally be considered taxable Canadian property to such a
Trust Unitholder unless: (i) the Trust Unitholder holds or uses, or is deemed
to hold or use such Class A trust units or Prior Trust Units in the course of
carrying on business in Canada; (ii) at any time during the 60 month period
immediately preceding the disposition of the Class A trust units or Prior
Trust Units the Trust Unitholder or persons with whom the Trust Unitholder did
not deal at arm's length or any combination thereof, held 25% or more of the
Class A trust
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units or Prior Trust Units, as the case may be; or (iii) the Trust is not a
mutual fund trust for the purposes of the Tax Act on the date of disposition
of the Class A trust units or Prior Trust Units.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain United States federal income
tax consequences of the conversion of Class A trust units into Consolidated
Trust Units pursuant to the Consolidation. This discussion is based on the
Internal Revenue Code of 1986, as amended (the "Code"), administrative
pronouncements, judicial decisions, existing and proposed Treasury
regulations, and interpretations of the foregoing, all as of the date hereof.
All of the foregoing authorities are subject to change (possibly with
retroactive effect), and any such change may result in United States federal
income tax consequences to a holder that are materially different from those
described below. No rulings from the United States Internal Revenue Service
(the "IRS") have been or will be sought with respect to the matters described
below, and consequently, the IRS may not take a similar view of the
consequences described below.
The following discussion does not purport to be a full description of all
United States federal income tax considerations that may be relevant to a
United States holder (as defined below) in light of such holder's particular
circumstances and only addresses holders who hold Class A trust units as
capital assets within the meaning of Section 1221 of the Code, and will hold
Consolidated Trust Units as capital assets. Furthermore, this discussion does
not address the United States federal income tax considerations applicable to
holders subject to special rules, such as persons that are not United States
holders, certain financial institutions, tax-exempt entities, real estate
investment trusts, regulated investment companies, insurance companies,
persons subject to the alternative minimum tax, traders in securities that
elect to use a mark-to-market method of accounting, individual retirement
accounts or tax-deferred accounts, dealers in securities or currencies,
persons holding notes in connection with a hedging transaction, "straddle",
conversion transaction or a synthetic security or other integrated transaction
and holders whose "functional currency" is not the United States dollar. In
addition, except as otherwise indicated, this discussion does not include any
description of any estate and gift tax consequences, or the tax laws of any
state, local or foreign government that may be applicable.
As used herein, the term "United States holder" means a beneficial owner of a
Trust Unit that is (i) an individual citizen or resident of the United States,
(ii) a corporation or other entity taxable as a corporation organized in or
under the laws of the United States or any political subdivision thereof,
(iii) a partnership or other entity taxable as a partnership organized in or
under the laws of the United States or any political subdivision thereof, (iv)
an estate the income of which is subject to United States federal income
taxation without regard to the source or (v) a trust if a United States court
has primary supervision over its administration and one or more United States
persons have the authority to control all substantial decisions of the trust,
or if the trust has a valid election in effect under applicable Treasury
Regulations to be treated as a United States person.
UNITED STATES HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH REGARD TO THE
APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
TAX CONSEQUENCES OF THE CONSOLIDATION TO UNITED STATES HOLDERS
The conversion of Class A trust units into Consolidated Trust Units pursuant
to the Consolidation will not be a taxable transaction for United States
federal income tax purposes. Consequently, a United States holder will not be
required to recognize any gain, and will not be permitted to recognize any
loss, upon receipt of a Consolidated Trust Unit. A United States holder's
holding period for a Consolidated Trust Unit will include the holding period
for the Class A trust unit converted pursuant to the Consolidation. A United
States holder's tax basis in a Consolidated Trust Unit will be the same as the
adjusted basis of such holder in the Class A trust unit at the time of the
conversion. The United States federal income tax consequences of holding and
disposing of a Consolidated Trust Unit generally will be the same as the
United States federal income tax consequences of holding and disposing of a
Class A trust unit. For a description of such consequences, see the "Risk
Factors" in the Trust's annual information form dated March 29, 2006, and go
to www.pengrowth.com and click on the link for "Investor Information -
Taxation - US Tax Information."
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RISK FACTORS
EFFECT ON TRADING PRICES
THERE CAN BE NO ASSURANCE REGARDING THE EFFECT OF THE CONSOLIDATION ON THE
TRADING PRICE OF THE CLASS A TRUST UNITS OR THE CLASS B TRUST UNITS, WHICH
EFFECT MAY BE SIGNIFICANTLY DIFFERENT AS BETWEEN THE CLASS A TRUST UNITS AND
THE CLASS B TRUST UNITS AND WHICH MAY RESULT IN A DECLINE IN THE TRADING PRICE
OF THE CLASS A TRUST UNITS, THE CLASS B TRUST UNITS OR THE CONSOLIDATED TRUST
UNITS. THE FAIRNESS OPINIONS OF BMO NESBITT BURNS AND MERRILL LYNCH REFERRED
TO ABOVE UNDER "FAIRNESS OPINIONS OF FINANCIAL ADVISORS TO THE SPECIAL
COMMITTEE" DO NOT OPINE AS THE TO THE IMPACT ON THE TRADING PRICES OF THE
CLASS A TRUST UNITS, THE CLASS B TRUST UNITS OR THE CONSOLIDATED TRUST UNITS
AS A RESULT OF THE APPROVAL OF THE CONSOLIDATION RESOLUTION OR THE
IMPLEMENTATION OF THE CONSOLIDATION. The Board of Directors has determined,
based upon the advice, opinions and other factors described herein, that the
Consolidation is in the best interests of Unitholders, but such determination
was based in part upon the Consolidation enhancing Pengrowth's ability to
execute its business plan over the longer term, which may not be reflected in
the short-term trading prices of the Class A trust units and the Class B trust
units. The trading prices of the Class A trust units and the Class B trust
units are sensitive to a variety of market-based factors, including, but not
limited to, interest rates, foreign exchange rates and the comparability of
Pengrowth's Trust Units to other yield-oriented securities, as well as
sector-based factors such as commodity prices for crude oil and natural gas
and announcements regarding sector consolidation. Any changes in these factors
may adversely affect the trading prices of the Class A trust units and Class B
trust units which may offset the benefits of the Consolidation, even over the
longer term.
FAILURE TO ACHIEVE THE ANTICIPATED BENEFITS OF THE CONSOLIDATION
The anticipated benefits of the Consolidation to Pengrowth and its Trust
Unitholders are in part due to the expectation that the Consolidation will
facilitate acquisitions or mergers by Pengrowth in the future to strengthen
its position in the oil and gas industry. The oil and gas industry is highly
competitive and there is no assurance that any acquisitions or mergers will be
available to Pengrowth. Achieving the benefits of future acquisitions or
mergers depends in part on successfully consolidating functions and
integrating operations, procedures and personnel of Pengrowth and the acquired
business in a timely and efficient manner, as well as Pengrowth's ability to
realize the anticipated growth opportunities and synergies from combining the
acquired businesses and operations. The integration of acquired businesses
requires the dedication of substantial management effort, time and resources,
which might avert management's focus, and resources from other strategic
opportunities and from operational matters. The integration process may result
in the loss of key employees and the disruption of ongoing business, supplier,
customer and employee relationships that may adversely affect Pengrowth's
ability to achieve the anticipated benefits of future acquisitions.
ADVERSE CONSEQUENCES OF A FAILURE TO QUALIFY AS A MUTUAL FUND TRUST
While the Trust has received an opinion from Bennett Jones LLP to the effect
that Pengrowth may rely on the Property Exception in order to maintain its
status as a mutual fund trust, this opinion is subject to certain
qualifications and assumptions including the assumption that the Department of
Finance will amend the provisions of the Tax Act in the manner contemplated in
the 2004 and 2006 Finance Letters. While the Board of Directors believes these
assumptions and qualifications to be reasonable, as a result of the
Consolidation the Trust may no longer satisfy the Benefit Test and will have
no practical ability to control ownership of Trust Units by non-residents. As
a result, the Trust will be relying solely on the Property Exception in order
to maintain its status as a mutual fund trust under the Tax Act. If the
provisions of the Tax Act are not amended as contemplated in the 2004 and 2006
Finance Letters, or if the Canada Revenue Agency were to challenge the Trust's
satisfaction of and reliance on the Property Exception, and if such a
challenge was ultimately successful, the Trust would permanently lose mutual
fund trust status under the Tax Act. The consequences of a loss of mutual fund
trust status would have a material adverse effect on the Trust and its
unitholders.
ADDITIONAL RISKS
THE RISK FACTORS CONTAINED IN THE TRUST'S ANNUAL INFORMATION FORM DATED MARCH
29, 2006 UNDER THE HEADINGS "RISK FACTORS - IF THE TRUST CEASES TO QUALIFY AS
A MUTUAL FUND TRUST IT WOULD ADVERSELY AFFECT THE VALUE OF OUR TRUST UNITS",
"CHANGES IN CANADIAN LEGISLATION COULD ADVERSELY AFFECT THE VALUE OF OUR TRUST
UNITS" AND
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"CHANGES TO THE TERMS OF THE CLASS A TRUST UNITS OR TO THE CLASS B TRUST UNITS
COULD ADVERSELY AFFECT THE MARKET VALUE OF EITHER CLASS OF TRUST UNITS" ARE
INCORPORATED BY REFERENCE IN THIS CIRCULAR.
CAUTION REGARDING FORWARD LOOKING INFORMATION
This Circular contains forward-looking statements within the meaning of
securities laws, including the "safe harbour" provisions of the Ontario
SECURITIES ACT and the United States PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. Forward-looking information is often, but not always, identified by
the use of words such as "anticipate", "believe", "expect", "plan", "intend",
"forecast", "target", "project", "may", "will", "should", "could", "estimate",
"predict" or similar words suggesting future outcomes or language suggesting
an outlook. Forward-looking statements in this Circular include, but are not
limited to, statements with respect to: business strategy and strengths,
goals, focus and the effects thereof, the benefits of the Consolidation,
including, a reduction in the cost of raising capital, an improved ability to
complete mergers and acquisitions, an increase in liquidity in the trading of
Trust Units, an ability to efficiently complete equity financings and a
reduction in the diversion of Pengrowth's resources, including management time
and attention, from the pursuit of Pengrowth's business plan, the
implementation of changes to the Tax Act contemplated by the 2004 Finance
Letter and the 2006 Finance Letter, the policy of the federal government
regarding the taxation of mutual fund trusts, the policy of the federal
government regarding non-resident ownership of mutual fund trusts and the
impact of acquisitions and related financings on Unitholder value.
Forward-looking statements and information are based on Pengrowth's current
beliefs as well as assumptions made by and information currently available to
Pengrowth concerning anticipated financial performance, business prospects,
strategies and regulatory developments. Although management considers these
assumptions to be reasonable based on information currently available to it,
they may prove to be incorrect.
By their very nature, forward-looking statements involve inherent risks and
uncertainties, both general and specific, and risks that predictions,
forecasts, projections and other forward-looking statements will not be
achieved. We caution readers not to place undue reliance on these statements
as a number of important factors could cause the actual results to differ
materially from the beliefs, plans, objectives, expectations and
anticipations, estimates and intentions expressed in such forward-looking
statements. These factors include, but are not limited to: the volatility of
oil and gas prices; production and development costs and capital expenditures;
the imprecision of reserve estimates and estimates of recoverable quantities
of oil, natural gas and liquids; Pengrowth's ability to replace and expand oil
and gas reserves; environmental claims and liabilities; incorrect assessments
of value when making acquisitions; increases in debt service charges; the loss
of key personnel; the marketability of production; defaults by third party
operators; unforeseen title defects; fluctuations in foreign currency and
exchange rates; inadequate insurance coverage; compliance with environmental
laws and regulations; changes in tax laws; the failure to qualify as a mutual
fund trust; and Pengrowth's ability to access external sources of debt and
equity capital. Further information regarding these factors may be found under
the heading "Business Risks" in our management's discussion and analysis for
the year ended December 31, 2005 and under "Risk Factors" in the Trust's
Annual Information Form dated March 29, 2006.
Pengrowth cautions that the foregoing list of factors that may affect future
results is not exhaustive. When relying on our forward-looking statements to
make decisions with respect to Pengrowth, investors and others should
carefully consider the foregoing factors and other uncertainties and potential
events. The forward-looking statements contained in this Circular are
expressly qualified by this cautionary statement.
INFORMATION FOR UNITED STATES HOLDERS
The Consolidated Trust Units to be issued to United States holders of Class A
trust units pursuant to the Consolidation will be registered under the
Securities Act of 1933 (the "1933 Act") and such securities will be freely
tradeable under applicable United States securities laws except for any
securities acquired by an affiliate of Pengrowth.
Trust Unitholders are urged to consult their legal advisers to determine the
extent of all applicable resale provisions.
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DOCUMENTS FILED AS PART OF PENGROWTH'S U.S. REGISTRATION STATEMENT
A registration statement on Form F-10 has been filed by the Trust with the SEC
under the 1933 Act relating to the Consolidation. The following documents have
been or will be filed with the SEC as part of the registration statement of
which this Circular is a part, insofar as called for by the SEC's Form F-10:
(i) the form of proxy accompanying this Circular; (ii) selected sections of
the Trust's Annual Information Form dated March 29, 2006; (iii) consent of
counsel, and (iv) powers of attorney pursuant to which the amendments to the
registration statement may be signed.
AVAILABILITY OF DISCLOSURE DOCUMENTS
In the United States, the Trust is subject to the informational requirements
of the United States Securities Exchange Act of 1934, as amended, and in
accordance therewith must file reports and other information with the SEC.
Under a multijurisdictional disclosure system adopted by the SEC, such reports
and other information may be prepared in accordance with the disclosure
requirements of Canada, which requirements are different from those in the
United States. Such reports and other information filed by the Trust are
available for inspection and copying at the public reference facilities
maintained by the SEC at Room 1580, 100 F Street N.E., Washington, DC 20549.
AMENDMENTS TO THE UNANIMOUS SHAREHOLDER AGREEMENT AND THE TRUST INDENTURE TO
SIMPLIFY VOTING AT THE ANNUAL GENERAL MEETING
Trust Unitholders will be asked to consider an extraordinary resolution
approving amendments to the Unanimous Shareholder Agreement and the Trust
Indenture to simplify Pengrowth's annual meeting process. The reasons for this
amendment are set out in, and reference should be made to, "Part III - Matters
to be Acted Upon at the Shareholder Meeting - Amendments to the Unanimous
Shareholder Agreement to Simplify Voting at the Annual General Meeting".
At the Trust Meeting, the Trust Unitholders will therefore be asked to
consider and, if thought appropriate, pass the extraordinary resolution
contained in Schedule "B-2" to this Circular.
AMENDMENTS TO THE DEU PLAN
Trust Unitholders will be asked to consider and approve an ordinary resolution
in the form set out in Schedule B-3 to amend the long-term incentive plan.
Pengrowth has retained the services of Towers Perrin to assist it in reviewing
Pengrowth's annual and long-term incentive awards to ensure that Pengrowth's
total compensation package is competitive and reflects key financial,
operational and strategic measures of performance, aligned with practices
within the highly competitive energy sector. Pengrowth's long-term incentive
philosophy incorporates the grant of both Trust Unit Rights and DEUs, with the
proportion of Trust Unit Rights and DEUs varying by organizational level.
The long-term incentive plan was approved by Trust Unitholders on April 22,
2004. However, the DEU Plan limits the persons to whom DEUs may be issued to
under the plan to full-time employees of Pengrowth excluding officers,
directors and consultants to Pengrowth who also contribute to Pengrowth's
success and to the creation of Trust Unitholder value. The Board of Directors
therefor resolved to issue DEUs to officers, directors and consultants to
Pengrowth subject to ratification of amendments to the plan by Trust
Unitholders.
At the recommendation of Towers Perrin, in extending the plan to the members
of the Board of Directors of the Corporation, it is proposed that the vesting
and performance criteria of the plan will not apply.
The DEU Plan will also be amended to conform the DEU Plan with the regulatory
requirements of the TSX by restricting the number of Trust Unit Rights and
DEUs available to be issued to insiders of the Trust and the Corporation.
Accordingly, the approval of Trust Unitholders is being sought to amend the
plan to:
o change the name of the plan to the "Deferred Entitlement Unit Plan";
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o change all references to "Phantom Unit" in the plan to references to
"Deferred Entitlement Unit";
o amend all references to the persons entitled to participate in the
plan to "employees, officers and directors of Pengrowth and
consultants to Pengrowth designated by the Board of Directors",
including in Sections 1, 2.1(p) and 3.1 of the DEU Plan;
o amend the plan to provide that DEUs granted to directors will not be
subject to the vesting or performance criteria provided for by the
plan, including the provisions of Sections 4.4 and 4.5 of the DEU
Plan; and
o amend the DEU Plan so that (i) the aggregate number of Class B trust
units which may be reserved for issuance to "insiders" (as such term
is referred to in the policies of the TSX), under the DEU Plan and
all other security-based compensation arrangements of Pengrowth
shall not, in the aggregate, exceed ten percent (10%) of the issued
and outstanding Trust Units at the date of grant, calculated on a
non-diluted basis; and (ii) during any one-year period, the Board of
Directors shall not grant to such insiders, under the DEU Plan and
all other security-based compensation arrangements of Pengrowth, in
the aggregate, a number of Class B trust units exceeding ten percent
(10%) of the issued and outstanding Trust Units, calculated on a
non-diluted basis.
For further information regarding the DEU Plan, see "Executive Compensation -
Long-term Incentive Program - DEU Plan" and "Executive Compensation - Units
Issuable". As at April 30, 2006, the maximum number of DEUs outstanding
pursuant to the DEU Plan is 504,786, of which 94,866 have been issued to
officers, directors and consultants designated by the Board of Directors,
subject to Trust Unitholder approval. Accordingly, the approval of Trust
Unitholders is being requested retroactive to January 1, 2005.
AMENDMENTS TO THE TRUST INDENTURE REGARDING THE DISTRIBUTION OF NET PROCEEDS
FROM THE SALE OF PROPERTIES
Trust Unitholders will be asked to consider an extraordinary resolution
approving amendments to the Trust Indenture to provide that the mandatory
requirement to distribute any net proceeds from the sale of properties that
are not used to acquire replacement properties within the same calendar year
be amended to make such distribution voluntary and at the discretion of the
Corporation. The reasons for this amendment are set out in, and reference
should be made to, "Part V - Matters to be Considered at the Royalty Meeting -
Amendments to the Royalty Indenture Regarding the Distribution of Net Proceeds
from the Sale of Properties".
At the Trust Meeting, the Trust Unitholders will therefore be asked to
consider and, if thought appropriate, pass the extraordinary resolution
contained in Schedule "B-4" to this Circular.
AMENDMENTS TO THE UNANIMOUS SHAREHOLDER AGREEMENT AND THE ARTICLES OF THE
CORPORATION TO INCREASE THE MAXIMUM SIZE OF THE BOARD OF DIRECTORS OF THE
CORPORATION
Trust Unitholders will be asked to consider an extraordinary resolution
approving amendments to the Unanimous Shareholder Agreement and the articles
of the Corporation to increase the maximum size of the Board of Directors of
the Corporation. The reasons for this amendment are set out in, and reference
should be made to, "Part III - Matters to be Acted Upon at the Shareholder
Meeting - Amendments to the Unanimous Shareholder Agreement and the Articles
of the Corporation to Increase the Maximum Size of the Board of Directors of
the Corporation".
At the Trust Meeting, the Trust Unitholders will therefore be asked to
consider and, if thought appropriate, pass the extraordinary resolution
contained in Schedule "B-5" to this Circular.
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PART V - MATTERS TO BE CONSIDERED AT THE ROYALTY MEETING
AMENDMENTS TO THE ROYALTY INDENTURE REGARDING THE RECLASSIFICATION OF TRUST
UNIT CAPITAL
At the Special Meeting of Royalty Unitholders held on April 22, 2004,
amendments (the "2004 Amendments") were approved to the provisions of the
Royalty Indenture relating to the exchange of Royalty Units for Trust Units as
a consequence of amendments made to the Trust Indenture at the Annual and
Special Meeting of Trust Unitholders held on the same date, to provide that
non-residents of Canada could receive only Class A trust units for their
Royalty Units, subject to certain limitations, and that Canadian residents
could exchange their Royalty Units for either Class A trust units or Class B
trust units.
If the Extraordinary Resolution in Schedule "B-1" (the "Consolidation
Resolution") hereto approving the amendments to the Trust Indenture described
in "Part IV - Matters to be Considered at the Trust Meeting - Amendments to
the Trust Indenture to Provide for the Consolidation of the Trust's Dual Class
Structure" of this Circular is approved by the requisite majority, Royalty
Unitholders will be asked to consider and approve an Extraordinary Resolution
in the form attached as Schedule "C-1" to this Circular approving of the
removal of the 2004 Amendments from the Royalty Indenture. To be approved, the
Extraordinary Resolution in Schedule "C-1" requires the affirmative vote of
not less than 66 2/3% of the votes cast by Royalty Unitholders present in
person or by proxy at the Royalty Meeting.
The 2004 Amendments will, upon the approval of the Consolidation Resolution,
be inapplicable because there will be no residency restrictions on the
Consolidated Trust Units and the existing Class A trust units will cease to be
listed on a stock exchange. As a practical matter, the proposed amendments
affect only the Royalty Units held by Royalty Unitholders other than the Trust
because the Trust cannot hold Trust Units and derives a substantial part of
its Distributable Cash from the Royalty Units that it holds. There are
presently 124,088,369 Royalty Units issued and outstanding, of which
124,070,129 or 99.99% are held by the Trust.
The 2004 Amendments are summarized as follows:
1. Definitions of "Class A Unit", "Class B Unit", "Non-Resident", "Ownership
Threshold" and "Unitholder's Declaration" (corresponding to those in the
Trust Indenture) were added to Article I and conforming changes were made
to the definition of "Trust Unit".
2. Section 4.01 was amended to provide that a holder of Royalty Units who is
a Non-Resident may exchange Royalty Units only for Class A trust units
and not Class B trust units and that a holder of Royalty Units who is not
a non-resident was able to exchange Royalty Units for Class A trust units
or Class B trust units, subject in both cases to the terms, conditions
and limitations in Article IV, including without limitation those set
forth below.
3. Section 4.02 was amended to provide that a holder of Royalty Units
wishing to exchange any or all of his Royalty Units for Class A trust
units would be able to do so only if and to the extent that the number of
Class A trust units issued and outstanding at the particular time is not
greater than the ownership threshold on the Class A trust units provided
for in the Trust Indenture (the "Ownership Threshold").
4. Section 4.02 was amended to require that a holder of Royalty Units
wishing to exercise his right to exchange any or all of his Royalty Units
for Class B trust units shall submit a declaration of residency stating
that the beneficial owner of the Royalty Units is not a non-resident.
5. Article IV was amended to provide that a holder of Royalty Units applying
to exchange Royalty Units for Trust Units is required to elect and
indicate irrevocably at that time:
a) how many Royalty Units he wishes to exchange;
b) how many Class A trust units and Class B trust units respectively he
wishes to receive upon the exchange;
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c) whether, if having regard to the Ownership Threshold fewer Class A
trust units are available than the number that he has requested to
receive upon the exchange, he wishes to receive the smaller number
and to retain the balance of his Royalty Units; and
d) whether, if Class A trust units are not available, he elects and is
entitled by virtue of not being a non-resident to receive Class B
trust units instead.
6. The exchange form to be used in connection with a conversion was modified
to reflect the foregoing amendments and the form thereof was appended to
the Royalty Indenture. Subsection 4.02(a) was amended accordingly to
refer to this new form and to require that it be completed and submitted
to the Trustee by a holder of Royalty Units applying to exercise his
right of exchange.
7. Article IV was amended to provide that if it appears that a proposed
exchange of Royalty Units for Class A trust units would result in the
number of Class A trust units issued and outstanding exceeding the
Ownership Threshold, the Trust and its transfer agent may refuse to
accept any request to exchange Royalty Units for Class A trust units.
8. Article IV was amended to provide that the Trust, together with its
transfer agent, may from time to time establish procedures for
recognizing the priorities of requested exchanges of Royalty Units for
Class A trust units and requests for conversions of Class B trust units
into Class A trust units, which procedures may, but are not required to,
apply a reservation or waiting list system to holders of Royalty Units
and Class B trust units whose requests to exchange Royalty Units for
Class A trust units and to convert Class B trust units into Class A trust
units are refused due to the approach of the number of Class A trust
units issued and outstanding to the Ownership Threshold.
AMENDMENTS TO THE UNANIMOUS SHAREHOLDER AGREEMENT AND THE ROYALTY INDENTURE TO
SIMPLIFY VOTING AT THE ANNUAL GENERAL MEETING
Royalty Unitholders will be asked to consider an Extraordinary Resolution
approving amendments to the Unanimous Shareholder Agreement and the Royalty
Indenture to simplify Pengrowth's annual meeting process. The reasons for this
amendment are set out in, and reference should be made to, "Part III - Matters
to be Acted Upon at the Shareholder Meeting - Amendments to the Unanimous
Shareholder Agreement to Simplify Voting at the Annual General Meeting".
At the Royalty Meeting, the Royalty Unitholders will therefore be asked to
consider and, if thought appropriate, pass the extraordinary resolution
contained in Schedule "C-2" to this Circular. To be approved, the
Extraordinary Resolution in Schedule "C-2" requires the affirmative vote of
not less than 66 2/3% of the votes cast by Royalty Unitholders present in
person or by proxy at the Royalty Meeting.
AMENDMENTS TO THE ROYALTY INDENTURE REGARDING THE DISTRIBUTION OF NET PROCEEDS
FROM THE SALE OF PROPERTIES
The Royalty Indenture currently provides that the Corporation may sell its
interests in its properties, up to a maximum of 25% of the Corporation's
assets in any given year (determined at the date of disposition and based upon
an independent engineering appraisal), and release the royalty therefrom,
without the requirement of obtaining the approval of the Trust Unitholders.
Any disposition exceeding this 25% threshold must be approved by an
extraordinary resolution of the Trust Unitholders.
The Royalty Indenture also provides that if properties subject to the royalty
are sold and the Corporation does not reinvest the entire net proceeds in
replacement properties within the same calendar year, then the remaining net
proceeds must be distributed to Royalty Unitholders. This obligation of the
Corporation is subject to the rights of the Corporation's lenders under the
Corporation's credit facility and operating line of credit.
At the Special Meeting of Royalty Unitholders, it is proposed that an
extraordinary resolution of the Royalty Unitholders be passed to amend the
Royalty Indenture to provide that the mandatory requirement to distribute any
net proceeds from the sale of properties that are not used to acquire
replacement properties within the same calendar year be amended to make such
distribution voluntary and at the discretion of the Corporation.
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While management of the Corporation does not foresee any significant
dispositions of properties by the Corporation, it is management's view that
the mandatory nature of this requirement is unduly restrictive in that it
requires the reinvestment of the net proceeds in properties, and within the
same calendar year. Requiring the reinvestment and the restrictive timing
place artificial constraints on the Corporation. These artificial constraints
may require the Corporation to acquire replacement properties, and in very
short time frame, even though the best interests of the Corporation at that
time may require that the net proceeds be retained and used for capital
expenditures or debt repayment rather than the purchase of replacement
properties or distributions to the Trust. The proposed amendment will provide
the Corporation with greater financial flexibility while preserving the
discretion of the Board of Directors to declare a special distribution of the
net proceeds from the disposition of the Corporation's properties where it is
appropriate and desirable to do so.
At the Royalty Meeting, the Royalty Unitholders will therefore be asked to
consider and, if thought appropriate, pass the Extraordinary Resolution set
forth in Schedule "C-3". To be approved, the Extraordinary Resolution in
Schedule "C-3" requires the affirmative vote of not less than 66 2/3% of the
votes cast by Royalty Unitholders present in person or by proxy at the Royalty
Meeting.
AMENDMENTS TO THE ROYALTY INDENTURE REGARDING DISTRIBUTIONS UPON A
LIQUIDATION, WINDING-UP OR DISSOLUTION OF THE CORPORATION
The Royalty Unitholders will be asked to consider and approve an extraordinary
resolution amending the Royalty Indenture to make technical amendments
clarifying amendments made at the Special Meeting of Royalty Unitholders held
on April 26, 2005, regarding the distribution of assets of the Corporation in
the event of a winding-up, liquidation or dissolution of the Corporation. The
text of this Extraordinary Resolution is set forth in Schedule "C-4" to this
Circular. To be approved, the Extraordinary Resolution in Schedule "C-4"
requires the affirmative vote of not less than 66 2/3% of the votes cast by
Royalty Unitholders present in person or by proxy at the Royalty Meeting.
The first of these amendments relates to subsection 3.12(b) of the Royalty
Indenture and provides that to the extent that entities that are controlled by
the Corporation are liquidated, dissolved or wound-up as contemplated in
Section 3.12(b), the assets of those entities that are Canadian resource
properties shall become subject to the Royalty granted in the Royalty
Indenture and otherwise subject to the Royalty Indenture. The purpose of this
amendment is to make it clear that all such Canadian resource properties of
the Corporation will come within the ambit of the Royalty Indenture and that
the Royalty Unitholders will receive the benefit of them.
There are presently 124,085,961 Royalty Units issued and outstanding under the
Royalty Indenture, 124,067,691 of which (or 99.99%) are owned by the Trust.
Therefore, the Trust Unitholders will receive substantially all of the benefit
of the income from those Canadian resource properties.
The second proposed amendment affects Section 3.12(c), which provides that all
of the Canadian resource properties of the Corporation will be sold or
otherwise liquidated in the course of the liquidation, dissolution or
winding-up of the Corporation and that the proceeds thereof would be used to
pay the indebtedness of the Corporation remaining after the application of the
proceeds of the sale of all other property and assets of the Corporation to
the payment of its indebtedness. Firstly, the amendment will provide that the
Canadian resource properties acquired by the Corporation on a liquidation or
winding-up of controlled entities as described above will be liquidated and
that the proceeds will be applied to reduce indebtedness borrowed or incurred
by the Corporation to acquire investments that are not Canadian resource
properties; the remainder of those proceeds would be paid into the Reserve.
Secondly, the amendment will provide that the proceeds of the sale or
liquidation of the Corporation's other Canadian resource properties would be
distributed as a distribution to the Royalty Unitholders. The purposes of this
amendment are to maximize the portion of the proceeds of sale of the
Corporation's Canadian resource properties that would accrue to the Royalty
Unitholders on a liquidation of the Corporation and to preserve the Royalty's
status as a Canadian resource property.
The third proposed amendment to Section 3.12 of the Royalty Indenture amends
Section 3.12(d) to provide that the holders of Common Shares and exchangeable
shares of the Corporation will not be entitled to any of the proceeds of the
sale of the Corporation's Canadian resource properties and associated
tangibles. Again, the purpose is to maximize the portion of those proceeds
available to the Royalty Unitholders.
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The fourth and final proposed amendment affects Sections 3.12(d) and 3.12(e)
and clarifies that holders exchangeable Shares share in any remaining proceeds
of liquidation only to the extent that the class and series provisions
applicable to the exchangeable Shares so provide.
AMENDMENTS TO THE ROYALTY INDENTURE REGARDING CERTAIN EXPENDITURES, THE
RESERVE AND OTHER REVENUES
At the Special Meeting of Royalty Unitholders held on March 14, 2005,
amendments to the Royalty Indenture were approved in relation to the treatment
of income other than income derived from Canadian resource properties held
directly or beneficially by the Corporation. Unitholders will be asked to
consider an Extraordinary Resolution approving additional amendments to the
Royalty Indenture clarifying the amendments approved in 2005. The text of this
Extraordinary Resolution is set forth in Schedule "C-5" to this Circular. To
be approved, the Extraordinary Resolution in Schedule "C-5" requires the
affirmative vote of not less than 66 2/3% of the votes cast by Royalty
Unitholders present in person or by proxy at the Royalty Meeting.
In the 2005 meeting, the Royalty Unitholders approved an Extraordinary
Resolution to amend the definition of "Debt Service Charges". The purpose of
this amendment was to clarify the ability of the Corporation to apply, in the
calculation of the Royalty, interest and other income earned by the
Corporation otherwise than from properties that are subject to the royalty
against interest expenses incurred in respect of indebtedness borrowed for the
purchase of such properties, and to apply royalty income against interest
expenses for all indebtedness of the Corporation, regardless whether the
indebtedness was borrowed to buy such properties. The implementation of the
amendment was subject to the confirmatory advice of counsel. Counsel is of the
view that the latter application of royalty income is not optimal having
regard to the preservation of the status of the royalty as a Canadian resource
property and that the relevant provision should therefore be removed from the
definitions and that the issue is best addressed in other amendments described
below.
The Corporation also wishes to match more precisely the categories of its
income to the expenses to which that income is applied. In particular, the
Corporation wishes to apply income from investments ("Other Investments") that
are not Canadian resource properties and therefore not subject to the royalty
provided for in the Royalty Indenture, to principal repayments and interest
related to indebtedness incurred to acquire those Other Investments. Secondly,
because those Other Investments are not themselves Canadian resource
properties, the Corporation wishes to ensure that the income from Other
Investments that is applied to pay expenses incurred in connection with the
Corporation's gross revenue from its Canadian resource properties does not
constitute more than 10% of the royalty income of the Corporation for the
period. Thirdly, the Corporation proposes to amend Section 13.04, which
relates to the use of the reserve after there are no Canadian resource
properties that are any longer subject to the royalty, to make it clear that
income from Other Investments that has been paid into the reserve is to be
applied to any remaining indebtedness (and interest thereon) incurred or
borrowed in respect of those Other Investments, and that the remainder if any
will, along with any other amounts in the reserve, be paid to the grantor for
distribution to the Royalty Unitholders. The purpose of these limitations is
to ensure that the royalty constitutes a "Canadian resource property" as that
term is defined the Tax Act, which provides that, among other things at least
90% of the royalty must be paid from income or the proceeds of disposition in
respect of properties that are subject to the royalty.
To this end, the Extraordinary Resolution set forth in Schedule "C-5"
contemplates the following amendments to the Royalty Indenture:
(a) the addition of a definition of "Other Investments" to refer to the
Other Investments described above;
(b) the addition of a definition of "Investment Income", to refer to net
income from those investments;
(c) the amendment of the definition of "Debt Service Charges" to exclude
specifically the reference to indebtedness related to "Other
Investments";
(d) the amendments of the definition of "Other Revenues" to mean 99% of
all revenues accruing to the Corporation during a particular month
so that it includes:
-45-
(i) fees and similar payments made by third parties for the
processing, transportation, gathering, storage or treatment
of petroleum substances intangibles that are related to or
associated with the properties;
(ii) proceeds from the sale of interest intangibles or
miscellaneous interests that relate to or are associated with
the properties;
(iii) insurance proceeds that relate to the properties;
(iv) income investing from incentives, rebates and credits in
respect of production costs relating to the properties, other
than ARC;
(v) royalty and similar income, if any, which is not included in
the definition of "Properties";
(vi) overhead recoveries received from third parties in respect of
their working interest relating to the properties operated by
the grantor;
(vii) trust distributions; and
(viii) income from Other Investments that is not applied to
principal repayments and interest related to indebtedness
incurred to acquire those Other Investments; and
(e) the amendment of the definition of "Properties" by the addition of a
reference to natural accumulations of petroleum or natural gas to
conform the definition more closely with the relevant provisions of
the Tax Act; and
(f) the amendment of Section 13.04 to provide that income from Other
Investments that has been paid into the reserve is to be applied to
any remaining indebtedness incurred or borrowed in respect of those
Other Investments, and that the remainder if any will, along with
any other amounts in the reserve, be paid to the grantor for
distribution to the Royalty Unitholders.
The Extraordinary Resolution set forth in Schedule "C-5" also provides for
clarification as to how capital expenditures and the purchase of Canadian
resource properties may be financed. Firstly, as to capital expenditures, it
proposes amendments to the Royalty Indenture that make it clear that capital
expenditures may be paid out of Royalty Income and the reserve as well as from
borrowings, farmouts or the issuance of Royalty Units. Secondly, it proposes
an amendment to the effect that acquisitions of Canadian resource properties
may be financed in any manner that the Corporation in its discretion sees fit.
These amendments will give the Corporation flexibility to finance these
expenditures in the best and most efficient way available at the particular
time. Conforming amendments to Sections 13.01 and 13.03 are also proposed to
make them consistent in their references to the purposes for which the reserve
can be used as those purposes are described in various provisions of the
indenture, namely to pay, among other things, capital expenditures and royalty
income.
The Extraordinary Resolution in Schedule "C-5" also proposes amendments to
Sections 11.12 and 12.01 of the Royalty Indenture that give the Trustee and
the Corporation the authority in their discretion to make such future
amendments to the Royalty Indenture as they consider necessary or expedient to
preserve the status of a royalty as a Canadian resource property, so that the
Trustee and the Corporation will have the ability to make changes that they
consider appropriate without requiring that a meeting of Unitholders be held,
which involves considerable expense.
Finally, the Extraordinary Resolution in Schedule "C-5" proposes an amendment
to the definition of "Operating Income" to clarify that Crown obligations
(which are Crown lessor royalties paid on the production of petroleum
substances from the properties) are not operating costs, except to the extent
the Corporation waives its right to reimbursement.
-46-
MISCELLANEOUS AMENDMENTS TO THE ROYALTY INDENTURE
The Royalty Unitholders will be asked to consider and approve an Extraordinary
Resolution, the text of which is set forth in Schedule "C-6", to make
miscellaneous amendments to the Royalty Indenture, as follows:
(a) to delete the definition of "Acquisition Fee" and all other
references to it, as the Management Agreement no longer provides for
the payment thereof; and
(b) to replace "Canada Customs and Revenue Agency" with "Canada Revenue
Agency" in all instances, to reflect the change in the name of that
agency.
To be approved, the Extraordinary Resolution in Schedule "C-6" requires the
affirmative vote of not less than 66 2/3% of the votes cast by Royalty
Unitholders present in person or by proxy at the Royalty Meeting.
AMENDMENTS TO THE UNANIMOUS SHAREHOLDER AGREEMENT AND THE ARTICLES OF THE
CORPORATION TO INCREASE THE MAXIMUM SIZE OF THE BOARD OF DIRECTORS OF THE
CORPORATION
Royalty Unitholders will be asked to consider an extraordinary resolution
approving amendments to the Unanimous Shareholder Agreement and the articles
of the Corporation to increase the maximum size of the Board of Directors of
the Corporation. The reasons for this amendment are set out in, and reference
should be made to, "Part III - Matters to be Acted Upon at the Shareholder
Meeting - Amendments to the Unanimous Shareholder Agreement and the Articles
of the Corporation to Increase the Maximum Size of the Board of Directors of
the Corporation".
At the Royalty Meeting, the Royalty Unitholders will therefore be asked to
consider and, if thought appropriate, pass the extraordinary resolution
contained in Schedule "C-7" to this Circular.
-47-
PART VI - ADDITIONAL INFORMATION
Additional information regarding the business of Pengrowth is contained in the
Trust's Annual Information Form for the year ended December 31, 2005.
Additional financial information is provided in the Trust's consolidated
financial statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations for the financial year ended December 31,
2005. Copies of those documents and additional copies of this Information
Circular - Proxy Statement may be obtained upon request from Investor
Relations at 2900, 240 - 4th Avenue S.W., Calgary, AB T2P 4H4, (403) 233-0224
or 1-800-223-4122 and at Scotia Plaza, 40 King Street West, Suite 3006, Box
106, Toronto, Ontario, M5H 3Y2, (416) 362-1748 or 1-888-744-1111. In addition,
copies of the documents incorporated herein by reference may be obtained by
accessing the disclosure documents available through the Internet on the
Canadian System for Electronic Document Analysis and Retrieval (SEDAR) website
at www.sedar.com.
APPENDIX 1
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The following discussion is required by NI 58-101. Each of the requirements of
NI 58-101 are set out below and Pengrowth's response follows immediately
thereafter.
1. BOARD OF DIRECTORS
(a) DISCLOSE THE IDENTITY OF DIRECTORS WHO ARE INDEPENDENT.
The Board of Directors has determined that the following members
are "independent" of the Trust and the Corporation, within the
meaning of NI 58-101:
o Thomas A. Cumming o A. Terence Poole
o Michael S. Parrett o Kirby L. Hedrick
o John B. Zaozirny
(b) DISCLOSE THE IDENTITY OF DIRECTORS WHO ARE NOT INDEPENDENT, AND
DESCRIBE THE BASIS FOR THAT DETERMINATION.
The Board of Directors has determined that the following members of
the Board of Directors are not independent: Mr. James S. Kinnear,
the Chairman, President and Chief Executive Officer of the
Corporation as well as the President and Chief Executive Officer of
the Manager and Mr. Stanley H. Wong, the Manager's additional
appointee to the Board of Directors pursuant to the terms of the
Unanimous Shareholder Agreement.
(c) DISCLOSE WHETHER OR NOT A MAJORITY OF DIRECTORS ARE INDEPENDENT. IF
A MAJORITY OF DIRECTORS ARE NOT INDEPENDENT, DESCRIBE WHAT THE
BOARD OF DIRECTORS DOES TO FACILITATE ITS EXERCISE OF INDEPENDENT
JUDGMENT IN CARRYING OUT ITS RESPONSIBILITIES
The Board of Directors has determined that five of seven members of
the Board of Directors are "independent" within the meaning of NI
58-101.
(d) IF A DIRECTOR IS PRESENTLY A DIRECTOR OF ANY OTHER ISSUER THAT IS A
REPORTING ISSUER (OR THE EQUIVALENT) IN A JURISDICTION OR A FOREIGN
JURISDICTION, IDENTIFY BOTH THE DIRECTOR AND THE OTHER ISSUER.
The members of the Board of Directors that currently serve on the
board of any other issuer that is a reporting issuer (or
equivalent) are set out below:
-2-
DIRECTOR DIRECTORSHIPS
-------- -------------
Thomas A. Cumming Western Lakota Energy Services Inc.
Kirby L. Hedrick N/A
James S. Kinnear N/A
Michael S. Parrett Fording Canadian Coal Trust
Gabriel Resources Ltd.
A. Terence Poole Methanex Corporation
Stanley H. Wong N/A
John B. Zaozirny Bankers Petroleum Ltd.
Canaccord Capital Inc.
Canadian Oil Sands Trust
Candax Energy Inc.
Computer Modeling Group
Fording Canadian Coal Trust
High Arctic Energy Services Trust
IPSCO Inc.
Petroworld Corp.
Provident Energy Ltd.
Terravest Income Fund
(e) DISCLOSE WHETHER OR NOT THE INDEPENDENT DIRECTORS HOLD REGULARLY
SCHEDULED MEETINGS AT WHICH MEMBERS OF MANAGEMENT ARE NOT IN
ATTENDANCE. IF THE INDEPENDENT DIRECTORS HOLD SUCH MEETINGS,
DISCLOSE THE NUMBER OF MEETINGS HELD SINCE THE BEGINNING OF THE
ISSUER'S MOST RECENTLY COMPLETED FINANCIAL YEAR. IF THE INDEPENDENT
DIRECTORS DO NOT HOLD SUCH MEETINGS, DESCRIBE WHAT THE BOARD DOES
TO FACILITATE OPEN AND CANDID DISCUSSION AMONG ITS INDEPENDENT
DIRECTORS.
A meeting of the independent members of the Board of Directors is
held in conjunction with every regular meeting of the Board of
Directors.
During the financial year ended December 31, 2005, there were 11
meetings of the independent members of the Board of Directors.
The independent members of the Board of Directors are authorized to
retain independent financial, legal and other experts as required
whenever, in their opinion, matters come before the Board of
Directors which require an independent analysis by the independent
members of the Board of Directors.
(f) DISCLOSE WHETHER OR NOT THE CHAIR OF THE BOARD IS INDEPENDENT. IF
THE BOARD HAS A CHAIR OR LEAD DIRECTOR WHO IS INDEPENDENT, DISCLOSE
THE IDENTITY OF THE INDEPENDENT CHAIR OR LEAD DIRECTOR, AND
DESCRIBE HIS OR HER ROLE AND RESPONSIBILITIES. IF THE BOARD HAS
NEITHER A CHAIR THAT IS INDEPENDENT NOR A LEAD DIRECTOR THAT IS
INDEPENDENT, DESCRIBE WHAT THE BOARD DOES TO PROVIDE LEADERSHIP FOR
ITS INDEPENDENT DIRECTORS.
Mr. James S. Kinnear is the Chairman of the Board of Directors and
is not independent as he is the President and Chief Executive
Officer of the Corporation and the President and Chief Executive
Officer of the Manager.
In order to provide leadership for the independent members of the
Board of Directors, the Board of Directors has appointed John B.
Zaozirny as the Lead Director.
-3-
(g) DISCLOSE THE ATTENDANCE RECORD OF EACH DIRECTOR FOR ALL BOARD
MEETINGS HELD SINCE THE BEGINNING OF THE ISSUER'S MOST RECENTLY
COMPLETED FINANCIAL YEAR.
The following table discloses the attendance of the members of the
Board of Directors at meetings of the Board of Directors and its
committees:
SUBCOMMITTEE
CORPORATE OF THE
BOARD OF AUDIT GOVERNANCE COMPENSATION COMPENSATION RESERVES
DIRECTORS COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE
DIRECTOR (11 MEETINGS) (6 MEETINGS) (4 MEETINGS) (2 MEETINGS) (3 MEETINGS) (1 MEETING)
-------- ------------- ------------ ------------ ------------ ------------ -----------
Thomas A. Cumming 11/11 6/6 4/4 2/2 3/3 N/A
Kirby L. Hedrick(1) 8/8 2/2 N/A N/A 1/3 N/A
James S. Kinnear 11/11 6/6 4/4 2/2 N/A N/A
Michael S. Parrett 11/11 6/6 4/4 2/2 3/3 N/A
A. Terence Poole(2) 7/8 2/2 1/1 N/A 2/3 N/A
Stanley H. Wong 11/11 N/A N/A N/A N/A 1/1
John B. Zaozirny 11/11 N/A 4/4 2/2 3/3 N/A
William R. Stedman(3) 7/11 5/6 N/A 1/2 N/A 1/1
NOTES:
(1) Three Board of Directors, four Audit Committee, three Corporate
Governance Committee and one Reserves Committee meetings were held
before the election of Mr. Hedrick as a member of the Board of Directors
on April 26, 2005.
(2) Three Board of Directors, four Audit Committee, three Corporate
Governance Committee and one Reserves Committee meetings were held
before the election of Mr. Poole as a member of the Board of Directors
on April 26, 2005.
(3) William R. Stedman resigned effective October 28, 2005.
2. MANDATE OF THE BOARD OF DIRECTORS
(a) DISCLOSE THE TEXT OF THE BOARD'S WRITTEN MANDATE. IF THE BOARD DOES
NOT HAVE A WRITTEN MANDATE, DESCRIBE HOW THE BOARD DELINEATES ITS
ROLE AND RESPONSIBILITIES.
The Board of Directors is responsible for the stewardship and
affairs of the Trust and the Corporation. The Board of Directors
has established administrative procedures which prescribe the rules
governing the approval of transactions carried out in the course of
the Corporation's operations, the delegation of authority and the
execution of documents on behalf of the Corporation. The Board of
Directors reviews and approves various matters, including the
appointment of corporate officers, as well as the annual capital
and operating budgets and authorization of unbudgeted investments
and divestitures above a specified dollar threshold. The Board of
Directors' expectations of management of the Corporation are
communicated directly to management and through committees of the
Board of Directors.
The responsibilities and obligations of the Board of Directors are
set forth in a written mandate of the Board of Directors, a copy of
which is attached hereto as Appendix "1-A". The Board of Directors
annually reviews its mandate and considers changes as appropriate.
-4-
3. POSITION DESCRIPTIONS
(a) DISCLOSE WHETHER OR NOT THE BOARD HAS DEVELOPED WRITTEN POSITION
DESCRIPTIONS FOR THE CHAIR AND THE CHAIR OF EACH BOARD COMMITTEE.
IF THE BOARD HAS NOT DEVELOPED WRITTEN POSITION DESCRIPTIONS FOR
THE CHAIR AND/OR THE CHAIR OF EACH BOARD COMMITTEE, BRIEFLY
DESCRIBE HOW THE BOARD DELINEATES THE ROLE AND RESPONSIBILITIES OF
EACH SUCH POSITION.
The Board has developed but has not yet approved written position
descriptions for the chairman of the Board and the chair of each of
the Audit Committee, the Corporate Governance Committee, the
Compensation Committee and the Reserves Committee. The primary role
of the chair of each such committee is managing the affairs of the
committee, including ensuring the committee is organized properly,
functions effectively and meets its obligations and
responsibilities.
The chair of the Audit Committee also maintains on-going
communications with the Trust's external auditors in order to lead
the Audit Committee in performing its oversight and other
audit-related functions. For further information regarding the
Corporation's Audit Committee, including the relevant education and
experience of the Audit Committee members, see page 60 of the
Trust's Annual Information Form for the financial year ended
December 31, 2005.
(b) DISCLOSE WHETHER OR NOT THE BOARD AND CEO HAVE DEVELOPED A WRITTEN
POSITION DESCRIPTION FOR THE CEO. IF THE BOARD AND CEO HAVE NOT
DEVELOPED SUCH A POSITION DESCRIPTION, BRIEFLY DESCRIBE HOW THE
BOARD DELINEATES THE ROLE AND RESPONSIBILITIES OF THE CEO.
The Board of Directors has developed but has not yet approved a
written position description for the Chief Executive Officer of the
Corporation.
4. ORIENTATION AND CONTINUING EDUCATION
(a) BRIEFLY DESCRIBE WHAT MEASURES THE BOARD TAKES TO ORIENT NEW
DIRECTORS REGARDING (I) THE ROLE OF THE BOARD, ITS COMMITTEES AND
ITS DIRECTORS, AND (II) THE NATURE AND OPERATION OF THE ISSUER'S
BUSINESS.
The Corporate Governance Committee is responsible for procedures
relating to the orientation and education of new members of the
Board of Directors and for the continued development of existing
directors. Materials have been prepared for review by new members
of the Board of Directors in respect of the structure, business and
results of the Trust, the Corporation and its subsidiaries. New
members of the Board of Directors are also provided with the
opportunity to have meetings and discussions with senior management
and other members of the Board of Directors. The details of the
orientation of each new member are tailored to that member's
individual needs, requests and areas of interest.
(b) BRIEFLY DESCRIBE WHAT MEASURES, IF ANY, THE BOARD TAKES TO PROVIDE
CONTINUING EDUCATION FOR ITS DIRECTORS. IF THE BOARD DOES NOT
PROVIDE CONTINUING EDUCATION, DESCRIBE HOW THE BOARD ENSURES THAT
ITS DIRECTORS MAINTAIN THE SKILL AND KNOWLEDGE NECESSARY TO MEET
THEIR OBLIGATIONS AS DIRECTORS
The Corporation undertakes ongoing education efforts that include
meetings with management of the Corporation and regular industry
updates with the Board of Directors to discuss developments in the
industry and market conditions. Continuing education opportunities
are directed at enabling individual members of the Board of
Directors to maintain or enhance their skills and abilities, as
well as ensuring that their knowledge and understanding of the
Trust's and the Corporation's affairs remains current.
-5-
5. ETHICAL BUSINESS CONDUCT
(a) DISCLOSE WHETHER OR NOT THE BOARD HAS ADOPTED A WRITTEN CODE FOR
THE DIRECTORS, OFFICERS AND EMPLOYEES. IF THE BOARD HAS ADOPTED A
WRITTEN CODE: (I) DISCLOSE HOW A PERSON OR COMPANY MAY OBTAIN A
COPY OF THE CODE; (II) DESCRIBE HOW THE BOARD MONITORS COMPLIANCE
WITH ITS CODE, OR IF THE BOARD DOES NOT MONITOR COMPLIANCE, EXPLAIN
WHETHER AND HOW THE BOARD SATISFIES ITSELF REGARDING COMPLIANCE
WITH ITS CODE; AND (III) PROVIDE A CROSS-REFERENCE TO ANY MATERIAL
CHANGE REPORT FILED SINCE THE BEGINNING OF THE ISSUER'S MOST
RECENTLY COMPLETED FINANCIAL YEAR THAT PERTAINS TO ANY CONDUCT OF A
DIRECTOR OR EXECUTIVE OFFICER THAT CONSTITUTES A DEPARTURE FROM THE
CODE.
The Board of Directors has adopted a Code of Business Conduct for
the Trust and the Corporation (the "Code"). The Code has been filed
on, and is accessible through, SEDAR at WWW.SEDAR.COM. A copy of
the Code may be obtained, upon request, from the Corporation at
2900, 240 - 4th Avenue S.W., Calgary, AB T2P 4H4.
The Board of Directors expects directors, officers and employees to
act ethically at all times and to acknowledge their adherence to
the policies comprising the Code. Any material issues regarding
compliance with the Code are brought forward by management at
either the Board or appropriate committee meetings, or are referred
to the senior executive officers of the Corporation, as may be
appropriate in the circumstances. The Board of Directors and/or
appropriate committee or senior executive officers determine what
remedial steps, if any, are required. Any waivers from the Code
that are granted for the benefit of a director, officer or employee
may be granted only by the Board of Directors. The Board of
Directors has not granted any such waivers since the beginning of
the financial year ended December 31, 2005.
(b) DESCRIBE ANY STEPS THE BOARD TAKES TO ENSURE DIRECTORS EXERCISE
INDEPENDENT JUDGMENT IN CONSIDERING TRANSACTIONS AND AGREEMENTS IN
RESPECT OF WHICH A DIRECTOR OR EXECUTIVE OFFICER HAS A MATERIAL
INTEREST.
Each member of the Board of Directors must disclose all actual or
potential conflicts of interest and refrain from voting on matters
in which such director has a conflict of interest. In addition, the
director must excuse himself or herself from any discussion or
decision on any matter in which the director is precluded from
voting as a result of a conflict of interest.
(c) DESCRIBE ANY OTHER STEPS THE BOARD TAKES TO ENCOURAGE AND PROMOTE A
CULTURE OF ETHICAL BUSINESS CONDUCT.
Pengrowth's Board of Directors adopted a new Code of Business
Conduct and Ethics ("Code") on November 3, 2005. The new Code does
not detract from any of the requirements of the prior code and is
more encompassing than the old code. In addition, the Board of
Directors determined to request that all employees accept the new
Code in writing.
6. NOMINATION OF DIRECTORS
(a) DESCRIBE THE PROCESS BY WHICH THE BOARD IDENTIFIES NEW CANDIDATES
FOR BOARD NOMINATION.
The Corporate Governance Committee serves as the nominating
committee of the Board of Directors. The Corporate Governance
Committee identifies potential candidates and reviews the
qualifications of potential candidates for the Board of Directors.
In particular, the Corporate Governance Committee assesses, among
other factors, industry experience, functional expertise, financial
literacy and expertise, board experience and diversity of
background, and considers potential conflicts arising in connection
with potential candidates for the Board of Directors. Upon such
review, and after conducting appropriate due diligence, the
Corporate Governance Committee makes recommendations on candidates
to the Board of Directors.
-6-
(b) DISCLOSE WHETHER OR NOT THE BOARD HAS A NOMINATING COMMITTEE
COMPOSED ENTIRELY OF INDEPENDENT DIRECTORS. IF THE BOARD DOES NOT
HAVE A NOMINATING COMMITTEE COMPOSED ENTIRELY OF INDEPENDENT
DIRECTORS, DESCRIBE WHAT STEPS THE BOARD TAKES TO ENCOURAGE AN
OBJECTIVE NOMINATION PROCESS.
The Corporate Governance Committee of the Board of Directors serves
as the nominating committee of the Board of Directors and is
composed of three independent directors.
(c) IF THE BOARD HAS A NOMINATING COMMITTEE, DESCRIBE THE
RESPONSIBILITIES, POWERS AND OPERATION OF THE NOMINATING COMMITTEE.
The Corporate Governance Committee has been established to assist
the Board of Directors in reviewing and making recommendations to
the Board of Directors in respect of, among other things, the
nomination of candidates for election to the Board of Directors.
For further information concerning the responsibilities, powers and
operations of the Corporate Governance Committee, see the text of
the mandate of the Corporate Governance Committee attached as
Appendix "1-B" to this Circular.
7. COMPENSATION
(a) DESCRIBE THE PROCESS BY WHICH THE BOARD DETERMINES THE COMPENSATION
FOR THE ISSUER'S DIRECTORS AND OFFICERS.
The Board of Directors has established the Corporate Governance
Committee and delegated to it the responsibility of annually
reviewing and approving the compensation paid by the Corporation to
the directors of the Corporation. The Board of Directors has
established the Compensation Committee and delegated to it the
responsibility of annually reviewing and approving the compensation
paid by the Corporation to the officers and employees of the
Corporation. The Corporate Governance Committee's review of
compensation to directors, and the Compensation Committee's review
of compensation to officers and employees include a consideration
of all forms of compensation paid, both with regards to the
expertise and experience of each individual and in relation to
industry peers.
(b) DISCLOSE WHETHER OR NOT THE BOARD HAS A COMPENSATION COMMITTEE
COMPOSED ENTIRELY OF INDEPENDENT DIRECTORS. IF THE BOARD DOES NOT
HAVE A COMPENSATION COMMITTEE COMPOSED ENTIRELY OF INDEPENDENT
DIRECTORS, DESCRIBE WHAT STEPS THE BOARD TAKES TO ENSURE AN
OBJECTIVE PROCESS FOR DETERMINING SUCH COMPENSATION.
The Compensation Committee is composed of three independent members
of the Board of Directors.
(c) IF THE BOARD HAS A COMPENSATION COMMITTEE, DESCRIBE THE
RESPONSIBILITIES, POWERS AND OPERATION OF THE COMPENSATION
COMMITTEE.
For further information concerning the responsibilities, powers and
operations of the Compensation Committee, see the text of the
mandate of the Compensation Committee attached as Appendix "1-C" to
this Circular.
-7-
(d) IF A COMPENSATION CONSULTANT OR ADVISOR HAS, AT ANY TIME SINCE THE
BEGINNING OF THE ISSUER'S MOST RECENTLY COMPLETED FINANCIAL YEAR,
BEEN RETAINED TO ASSIST IN DETERMINING COMPENSATION FOR ANY OF THE
ISSUER'S DIRECTORS AND OFFICERS, DISCLOSE THE IDENTITY OF THE
CONSULTANT OR ADVISOR AND BRIEFLY SUMMARIZE THE MANDATE FOR WHICH
THEY HAVE BEEN RETAINED. IF THE CONSULTANT OR ADVISOR HAS BEEN
RETAINED TO PERFORM ANY OTHER WORK FOR THE ISSUER, STATE THAT FACT
AND BRIEFLY DESCRIBE THE NATURE OF THE WORK.
The Compensation Committee has retained Towers Perrin to attend
committee meetings and provide independent advice, compensation
analysis and other information for compensation recommendations.
The analysis and advice from Towers Perrin include, but is not
limited to, executive compensation policy (such as the choice of
comparator groups and compensation philosophy), design of incentive
plans, position evaluation services and surveys of market data.
8. OTHER BOARD COMMITTEES
If the board has standing committees other than the audit, compensation
and nominating committees, identify the committees and describe their
function.
In addition to the Audit Committee, the Corporate Governance Committee
and the Compensation Committee, the Board of Directors has established
the Reserves Committee, which is responsible for assisting the Board of
Directors in respect of its annual independent and/or internal review of
the Corporation's petroleum and natural gas reserves.
9. ASSESSMENTS
Disclose whether or not the board, its committees and individual
directors are regularly assessed with respect to their effectiveness and
contribution. If assessments are regularly conducted, describe the
process used for the assessments. If assessments are not regularly
conducted, describe how the board satisfies itself that the board, its
committees, and its individual directors are performing effectively.
The Corporate Governance Committee is responsible for making regular
assessments of the overall performance, effectiveness and contribution of
the Board of Directors, the chairman of the Board of Directors, each
committee of the Board of Directors, each committee chair and each
director, and reporting on such assessments to the Board of Directors.
The objective of the assessments is to ensure the continued effectiveness
of the Board of Directors in the execution of its responsibilities and to
contribute to a process of continuing improvement. In addition to any
other matters the Corporate Governance Committee deems relevant, the
assessments will consider in the case of the board or a committee, the
applicable mandate or charter, and in the case of individual directors,
the applicable position descriptions, as well as the competencies and
skills each individual director is expected to bring to the Board of
Directors.
The Corporate Governance Committee has developed an annual effectiveness
survey, which includes and evaluation of board responsibility, board
operations and board effectiveness. The survey is completed by each
director and submitted anonymously. The results are reviewed by the
Chairman and Lead Director.
APPENDIX "1-A"
BOARD OF DIRECTORS' MANDATE
CORPORATE GOVERNANCE POLICY
PENGROWTH CORPORATION
PENGROWTH ENERGY TRUST
(collectively "Pengrowth")
BOARD OF DIRECTORS
CORPORATE GOVERNANCE POLICY
In accordance with the recommendation of the Corporate Governance Committee
(the "Committee") the Board of Directors (the "Board") of Pengrowth
Corporation (the "Corporation") wishes to formalize the guidelines pursuant to
which the Board fulfills its obligations to the Corporation and ensures that
the Corporation performs its duties as administrator of Pengrowth Energy Trust
("Energy Trust"). The Board acknowledges the formal guidelines on "Corporate
Governance in Canada" issued by the Toronto Stock Exchange and the overriding
objective of promoting appropriate behaviour with respect to all aspects of
Pengrowth's business. In consultation with the Committee, the Board will
continuously review and modify its terms of reference with regard to the
applicable business environment, industry standards on matters of corporate
governance, additional standards which the Board believes may be applicable to
Pengrowth's business, the location of Pengrowth's business and its Unitholders
and the application of laws and policies.
The Board of Directors will fulfill its duties in cooperation with the Manager
which acts as Manager both to the Corporation and to Energy Trust. The Board
of Directors also acknowledges the elements which distinguish Pengrowth from
corporate structures and the shared responsibility and cooperation between the
Corporation and the Manager in respect of Energy Trust. Although overall
responsibilities are shared between the Corporation and the Manager, in
practice, the Manager defers to the Board on all matters material to the
Corporation and to Energy Trust. The guidelines are intended to be flexible
and are intended to provide direction to the Board in conjunction with its
legal obligations and mandate from the Unitholders to oversee and direct the
affairs of the Corporation.
BOARD RESPONSIBILITIES
As mandated by the Toronto Stock Exchange ("TSE") guidelines and the
provisions of National Policy 58-201 with respect to Corporate Governance
Guidelines that came into force on June 30th, 2005, the Board should
explicitly assume responsibility for the stewardship of the Corporation (in
cooperation with the Manager) and specifically should be responsible for the
following:
1. to the extent feasible, satisfying itself as to the integrity of the
Chief Executive Officer ("CEO") and other executive officers and that the
CEO and other executive officers create a culture of integrity throughout
the organization;
2. in consultation with the Manager, adoption of a strategic planning
process for both the Corporation and Energy Trust and approving, on at
least an annual basis, a strategic plan which takes into account, among
other things, the opportunities and risks of that business and monitoring
performance against those plans. (The Board will seek recommendations
from the Manager and will direct the Manager with respect to the
execution of strategic plans adopted by the Board.);
3. the identification of the principal risks of the Corporation's business
and Energy Trust's business and ensuring the implementation of
appropriate risk management systems. Adopt policies and processes to
identify business risks to address what risks are acceptable to the
Corporation and Energy Trust and to ensure that systems and actions are
put in place to manage them;
-2-
4. succession planning, including making recommendations to the Unitholders
of Energy Trust on the appointment of the Manager and any amendments to
the Management Contract. Monitoring the Manager and, in conjunction with
the Manager, senior management;
5 approve the Corporation's communication policy and other relevant
policies, including insider trading, environmental, health and safety
matters;
6 require the Manager to ensure the integrity of the internal control and
management information systems;
7 approve annual capital and operating plans recommended by the Manager and
monitoring performance against those plans (the Audit Committee will
review and recommend these plans to the Board of Directors); and
8. developing an approach to corporate governance, including developing a
set of corporate governance principles and guidelines that are
specifically applicable to the issuer.
9. developing measures for receiving feedback from unitholders and other
stakeholders on the business of Pengrowth and other matters whether
through Investor Relations, the CEO or other mechanics independent of
management; and
10. developing guidelines with respect to expectations and responsibilities
of directors, including basic duties and responsibilities with respect to
attendance at Board meetings and advance review of meeting materials,
either directly or through recommendations from the Corporate Governance
Committee.
COMPOSITION OF THE BOARD
1. Criteria for the Board of Directors
The majority of the Board shall be "unrelated" (independent of management
and free from conflicting interest) to the Corporation and Energy Trust.
The Manager is presently entitled to appoint two members to the Board and
the unitholders of Energy Trust are entitled to appoint the remaining
directors, who must be a majority of at least three additional directors.
The Board is responsible for making the determination of whether a
director is unrelated. It will be the responsibility of the Committee to
implement a process for assessing the effectiveness of the Board, its
committees and each individual Board member and shall review with the
Board, on an annual basis, the results of their assessment.
2. Size of the Board
The size of the Board shall enable its members to effectively and
responsibly discharge their responsibilities to the Corporation and to
the Unitholders of the Corporation and Energy Trust. The demands upon the
Board will likely evolve with the future growth and development of
Pengrowth. The size of the Board should be considered over time and
within the context of the development of the business of Pengrowth, the
formation of committees, the workload and responsibilities of the Board
and the required expertise and experience of members of the Board.
BOARD COMMITTEES
o The Board shall, at this time, have the following standing committees:
1. Audit Committee;
2. Corporate Governance Committee;
3. Compensation Committee; and
4. Reserves Committee.
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o The responsibilities of the foregoing committees shall be as set forth in
the mandates for these committees as prescribed from time to time by the
Board.
o The Board Committees shall be comprised of a sufficient number of
"independent" directors so as to comply with applicable laws.
o Appointment of members to standing committees shall be the responsibility
of the Board, having received the recommendation of the Committee, based
upon consultations with the members of the Board and the Manager. In this
regard, consideration should be given to rotating committee members from
time to time and to the special skills of particular directors. Committee
chairs will be selected by the Committee's members in each case. The
Committee chairs will be responsible for determining the agenda of
meetings of their respective committees and determining the frequency and
length of meetings, provided that the Committee must meet at least
semi-annually (with recommended meetings three to four times per year).
o The Board shall regularly assess the effectiveness of each of the
standing committees. An assessment should consider, among other things,
the mandate of each standing committee and the contribution of each
member thereof.
o The Board may constitute additional standing committees or special
committees with special mandates as may be required or appropriate from
time to time. In appropriate circumstances, the committees of the Board
shall be authorized to engage independent advisors as may be necessary in
the circumstances.
o In discharging his or her obligations, an individual director may engage
outside advisors, at the expense of the Corporation, in appropriate
circumstances and subject to the approval of the Committee.
SELECTION OF NEW DIRECTORS & CHAIRMAN OF THE BOARD
o The Board will ultimately be responsible for nominating and appointing
new directors and for the selection of its chairman. However, initial
responsibility for identifying and nominating Board members shall reside
with the Corporate Governance Committee.
o The process of identifying and recommending new directors shall be the
responsibility of the Committee, following consultation with members of
the Board at large.
o Invitations to join the Board should be extended by the "Lead Director"
or by its Chairman as appropriate.
o New members of the Board shall be provided with an orientation and
education program as to the nature of the business of Pengrowth current
issues, strategies and responsibilities of directors.
BOARD EXPECTATIONS OF SENIOR MANAGEMENT AND ACCESS TO SENIOR MANAGEMENT
o The Manager is responsible for the day to day operation of the
Corporation.
o The Board shall determine the specific or general terms and levels of
authority for the Manager subject to the terms of the Management
Agreement and shall review and recommend to the Unitholders any changes
to the terms of the Management Agreement from time to time in the best
interests of the Unitholders.
o The Manager is encouraged, upon invitation of the Board only, to bring
appropriate management members to Board meetings in order to expose
directors to key members of the management team; to provide reports in
their specific areas of expertise and provide additional insight into
matters being considered by the Board. However, the Board will ordinarily
conduct business with only members of the Board present, with the
addition of the Corporate Secretary and Assistant Corporate Secretary to
ensure that the Board is acting independently of management. Outside
Directors should also meet at every meeting, without representatives of
the Manager and management present, under the chairmanship of the Lead
Director to
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fully discuss any procedural or substantive issues which they wish.
Results of these meetings should be communicated to the CEO as
appropriate. The Board will typically schedule a portion of each meeting
as a meeting solely of the independent directors under the direction and
chairmanship of the Lead Director.
MEETING PROCEDURES
o The Board should be supported in its work by a Corporate Secretary who
has a position description approved by the Board. The Corporate Secretary
in his/her capacity as Corporate Secretary should report to the Chief
Executive Officer and Chairman of the Board.
o The members of the Board, the Corporate Secretary and a secretary to the
meeting should be invited to any regularly constituted meeting of the
Board. Officers or other persons shall attend by invitation only and for
those elements of the meetings where their input is sought by the
Directors.
APPENDIX "1-B"
CORPORATE GOVERNANCE COMMITTEE MANDATE
TERMS OF REFERENCE
CORPORATE GOVERNANCE COMMITTEE
PENGROWTH CORPORATION
PENGROWTH ENERGY TRUST
(COLLECTIVELY "PENGROWTH")
The Corporate Governance Committee (the "Committee") of the Board of Directors
(the "Board") of Pengrowth Corporation (the "Corporation") acknowledges the
formal guidelines relating to corporate governance in Canada as provided for
by National Instrument 58-101 DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES and
National Policy 58-201 CORPORATE GOVERNANCE GUIDELINES, both of the Canadian
Securities Administrators and the overriding objective of promoting
appropriate behaviour with respect to all aspects of Pengrowth's business. The
primary function of the Committee is to assist the Board in carrying out its
responsibilities by reviewing corporate governance and nomination issues and
making recommendations to the Board as appropriate. The Committee will
continuously review and modify its terms of reference with regard to
applicable business environment, industry standards on matters of corporate
governance, additional standards which the Board believes may be applicable to
Pengrowth's business, the location of Pengrowth's business and its unitholders
and the application of laws and policies.
I. ORGANIZATION OF THE CORPORATE GOVERNANCE COMMITTEE
The Board has constituted and established the Committee to be composed of
not less than three and not more than six directors, one of whom shall
serve as Chair of the Committee, as determined by the Board from time to
time. Each member of the Committee shall be "independent" of the
Corporation as that term is defined in Multilateral Instrument 52-110
AUDIT COMMITTEES. An "independent" director is a director who has no
direct or indirect material relationship with the Corporation, which, in
the view of the Board of Directors, could reasonably interfere with the
exercise of a member's independent judgment. Each member of the Committee
shall be elected annually to one year terms by a majority vote of the
Board. Vacancies on the Committee shall be filled by majority vote of the
Board at the next meeting of the Board following occurrence of the
vacancy. The members of the Committee may be removed by a majority vote
of the related directors of the Board then in office. The Committee may
form and delegate authority to subcommittees as appropriate and in
accordance with applicable laws, regulations and listing requirements.
II. PURPOSE OF THE CORPORATE GOVERNANCE COMMITTEE
The purpose of the Committee is (a) to review and report to the Board on
matters of corporate governance and Board composition and (b) to provide
oversight review of the Corporation's systems for achieving compliance
with legal and regulatory requirements. The Committee's oversight role
regarding compliance systems shall not include responsibility for the
Corporation's actual compliance with applicable laws and regulations.
III. DUTIES AND RESPONSIBILITIES OF THE CORPORATE GOVERNANCE COMMITTEE
The Committee shall have the following duties and responsibilities:
A. GOVERNANCE
1. To bring to the attention of the Board such corporate
governance issues necessary for the proper governance of
Pengrowth and to develop the approach of the Corporation in
matters of corporate governance, including the written
statement of corporate governance principles applicable to the
Corporation, as set forth in the Corporation's annual
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management proxy circular and to make recommendations to the
Board with respect to all such matters.
2. To assess and report to the Board in respect of matters
relating to the ongoing composition of the Board, including:
(a) to consider the appropriate size of the Board;
(b) to recommend to the Board criteria for the composition of
the Board and the selection of directors;
(c) to identify, either directly or with the assistance of a
search firm, candidates for membership on the Board and
review their qualifications;
(d) to review succession planning issues with respect to the
members of the Board and, upon the retirement of the
Chair, make a recommendation to the Board with respect to
the appointment of a new Chair;
(e) to monitor the individual performance of members of the
Board; and
(f) to recommend to the Board candidates to fill vacancies
occurring between annual meetings and to recommend
nominees for election at annual meetings.
3. To oversee the evaluation of, and report to the Board on, the
performance of the Board as a whole, its committees and, in
conjunction with the Compensation Committee, the management of
the Corporation.
4. To consider the mandates of the committees of the Board,
selection and rotation of Committee members and the Chair, and
make recommendations to the Board in connection with the same.
5. To consider the adequacy and the nature of the compensation to
be paid to the members of the Board, whether it reflects the
risks and responsibilities of an effective director and make
recommendations to the Board in connection with the same.
6. To assess and report to the Board with respect to the new
directors familiarization program of the Corporation.
7. Monitoring the appropriate sharing of duties and
responsibilities between the Manager and the Corporation.
8. In conjunction with the Manager, within the context of an
overall corporate budget approved by the Board of Directors,
recommend to the Board the appointment of officers on behalf of
the Corporation and other key employees.
9. In consultation with the Manager, develop a succession plan for
senior management of the Corporation.
10. Establish structures and procedures to permit the Board to
function independently of the management and the Manager,
relying in part upon a Lead Director to be appointed by the
Board at an additional remuneration approved by the Board to
perform those duties set out in Schedule A.
11. Develop a position description for the Chairman of the Board.
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B. COMPLIANCE
1. To review the policies, programs and practices of the
Corporation and monitor the adequacy of compliance systems in
the following areas:
(a) environmental law;
(b) health and safety law;
(c) corporate and securities law (including insider trading
and self dealing);
(d) anti-trust and competition law;
(e) regulation of employment practices;
(f) code of business conduct and ethics;
(g) corporate policy on conflicts of interest;
(h) corporate policy with respect to communications and
disclosure;
(i) such other areas of regulatory law and corporate policy
statements as the Committee considers appropriate from
time to time.
2. To report and make recommendations to the Board on such areas
of regulatory and corporate compliance as are considered
appropriate from time to time.
IV. MEETINGS AND REPORTS OF THE CORPORATE GOVERNANCE COMMITTEE
The Committee will meet as often as necessary to carry out its
responsibilities. Notice of time and place of every meeting shall be
given in writing to each member of the Committee, unless waived by all
members entitled to attend, at least two (2) clear business days prior to
the time fixed for such meeting. Attendance of a member of the Committee
at a meeting shall constitute waiver of notice of the meeting except
where a member attends a meeting for the express purpose of objecting to
the transaction of any business on the grounds that the meeting was not
lawfully called. A quorum for meetings shall be not less than a majority
of its members present in person or by telephone. Reports of meetings of
the Committee shall be made to the Board at its next regularly scheduled
meeting following the Committee meeting, accompanied by any
recommendations to the Board approved by the Committee. The Corporate
Secretary of the Corporation or an alternative secretary designated by
the Committee shall act as Secretary of the Committee. If the Chairman of
the Committee is not present at any meeting of the Committee, one of the
other members of the Committee present at the meeting shall be chosen to
preside by a majority of the members of the Committee present at such
meeting. The President of the Corporation shall ordinarily be invited to
attend meetings or those portions thereof which do not have to be
addressed separately by the independent directors. The Committee may, by
specific invitation, have other resource persons in attendance.
V. OUTSIDE ADVISORS
The Committee is given sole authority to engage and compensate any
outside advisor that it determined to be necessary to permit it to carry
out its duties. The Committee has sole authority to retain and terminate
any search firm to be used to identify director candidates. The Committee
also has sole authority to negotiate contracts with the search firm and
to establish the fees payable to the search firm.
APPENDIX "1-C"
COMPENSATION COMMITTEE MANDATE
TERMS OF REFERENCE
COMPENSATION COMMITTEE
PENGROWTH CORPORATION
PENGROWTH ENERGY TRUST
(collectively "Pengrowth")
OBJECTIVES
The Compensation Committee (the "Committee") of the Board of Directors
acknowledges the formal guidelines on "Corporate Governance in Canada" issued
by the Toronto Stock Exchange, the guidelines of the New York Stock Exchange
and other regulatory provisions as they pertain to compensation matters. The
objective of the Committee is to enable the Corporation to recruit, retain and
motivate employees and ensure conformity between compensation and other
corporate objectives. The Committee will assist the Board in fulfilling its
oversight responsibilities with respect to executive management compensation,
human resources policies and compensation of the Manager and will make
recommendations to the Board as appropriate. The Committee will continuously
review and modify its terms of reference with regard to the applicable
business environment, industry standards, matters of Corporate Governance,
additional standards which the Committee believes may be applicable to
Pengrowth's business, the location of Pengrowth's business and its Unitholders
and the application of laws and policies.
CONSTITUTION
o The Committee shall consist of not less than three or more than six
Directors, a majority of who shall be "independent" of the
Corporation as that term is defined in Multilateral Instrument
52-110 AUDIT COMMITTEES. An "independent director" is a Director who
has no direct or indirect material relationship with Pengrowth ,
which, in the view of the Board of Directors, could reasonably
interfere with the exercise of a member's independent judgment.
o The members of the Committee shall be appointed or re-appointed at
the organizational meeting of the Board immediately following each
Annual Meeting of the shareholders of Pengrowth Corporation (the
"Corporation") and shall continue as members of the Committee until
their successors are appointed or they cease to be directors of the
Corporation. Where a vacancy occurs at any time in the membership of
the Committee, the Board may fill it.
o The members of the Committee shall appoint a Chairman from amongst
their number. The Corporate Secretary of the Corporation, or an
alternative secretary designated by the Committee, shall act as
Secretary of the Committee. If the Chairman of the Committee is not
present at any meeting of the Committee, one of the other members of
the Committee present at the meeting shall be chosen to preside by a
majority of the members of the Committee present at such meeting.
MEETINGS AND MINUTES
o The time and place of meetings of the Committee and the procedures
at such meetings shall be determined from time to time by the
members, provided that:
(a) a quorum for meetings shall not be less than a majority of its
members present in person or by telephone;
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(b) the Committee shall meet as often as necessary, likely at least
on a quarterly basis. Matters to be considered at the meetings
will include:
- matters related to compensation in the annual budget
excluding the compensation of directors which is a matter
within the scope of authority of the Corporate Governance
Committee.
- matters related to annual bonus and advance bonus
payments.
- matters relating to incentive payments and programs.
- compensation issues in the annual report
- compensation disclosure in the information circular and
proxy statement
- Matters pertaining to the Manager including:
- review of KPMG reports on Manager's compensation
- consideration of "Assumed Expenses"
- consideration of extension or termination of the
Management Agreement
(c) notice of time and place of every meeting shall be given in
writing to each member of the Committee, unless waived by all
members entitled to attend, at least two (2) clear business
days prior to the time fixed for such meeting. Attendance of a
member of the Committee at a meeting shall constitute waiver of
notice of the meeting except where a member attends a meeting
for the express purpose of objecting to the transaction of any
business on the grounds that the meeting was not lawfully
called;
(d) A meeting may be called by the Chairman of the Committee, the
Chief Executive Officer or any member of the Committee;
(e) The President of Pengrowth Corporation would ordinarily be
invited to attend meetings or those portions thereof which do
not have to be addressed separately by the independent
directors. The Committee may, by specific invitation, have
other resource persons in attendance; and
(f) The Chairman of the Committee shall provide updates to the
Board, as appropriate, as to the matters considered by the
Committee at the next Board meeting following a Committee
meeting.
SCOPE, DUTIES AND RESPONSIBILITIES
o The Committee's responsibilities shall include the following
(provided that some of the following functions, such as the function
of determining compensation, might be assumed from time to time by
other committees of the Board as Board priorities and resources
permit):
(a) act in an advisory capacity to the Board;
(b) in consultation with Pengrowth Management Limited (the
"Manager"), set general compensation guidelines for employees
of Pengrowth Corporation and recommend for approval by the
Board specific compensation guidelines for senior employees,
officers and consultants of Pengrowth Corporation in the form
of stock options, cash compensation and bonuses to be paid
within the context of an overall corporate budget approved by
the Board of Directors. Consideration will be given to:
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(i) amendment of the Option Plan, the Trust Unit Rights
Incentive Plan; the Long Term Incentive Plan and The
Trust Unit Awards Plan
(ii) implementation of or changes to compensation and benefits
policies; and
(iii) number and level of total incentive awards.
As the Manager is accountable for performance, retaining and
compensating appropriate personnel will also be a key
responsibility of the Manager.
(c) Review Pengrowth Corporation's key Human Resources policies.
(d) Review and recommend to the Board any significant changes to
the overall compensation program and Pengrowth Corporation's
objectives related to executive compensation.
(e) Review and approve a report on executive compensation for
inclusion in Pengrowth Corporation's proxy statement and
information circular.
(f) With regard to the Manager:
(i) consideration of matters related to the performance and
compensation of the Manager, including receiving reports
from the auditors with respect to Management
compensation;
(ii) discussions with the Manager with respect to the strategy
and objectives for Pengrowth Corporation and Pengrowth
Trust, the performance of the Manager in accordance with
the Management Agreement and matters in relation to the
extension or termination of the Management Agreement; and
(iii) review and recommendation to the Board for approval of
"Assumed Expenses" under the Management Agreement.
(g) Review annually and report to the Board on the adequacy of the
Committee's terms of reference.
(h) Perform any other activities consistent with this Mandate, the
Corporation's By-Laws and applicable law as the Committee or
the Board deems necessary or appropriate.
o The Committee shall make regular reports to the Directors.
o The Committee shall have the authority to engage independent counsel
and other advisors as it deems necessary to carry out its duties.
THE DUTIES AND RESPONSIBILITIES OF A MEMBER OF THE COMMITTEE ARE IN ADDITION
TO THOSE DUTIES SET OUT FOR A MEMBER OF THE BOARD OF DIRECTORS.
APPENDIX "2"
FAIRNESS OPINION OF BMO NESBITT BURNS
[GRAPHIC OMITTED]
[LOGO -- BMO Nesbitt Burns] INVESTMENT & CORPORATE BANKING
2200, 333 - 7th Avenue S.W.
Calgary, AB T2P 2Z1
Tel.: (403) 515-1500
Fax: (403) 515-1535
May 16, 2006
Special Committee of the Board of Directors of Pengrowth Corporation
c/o Pengrowth Corporation
2900, 240 - 4 Avenue SW
Calgary, Alberta
T2P 4H4
To the Members of the Special Committee:
BMO Nesbitt Burns Inc. ("BMO Nesbitt Burns") understands that the Special
Committee of the Board of Directors of Pengrowth Corporation (the
"Corporation") has unanimously recommended to the Board of Directors of the
Corporation that the Class A trust units and the Class B trust units of
Pengrowth Energy Trust (the "Trust") be consolidated as follows:
o effective as of 5:00 p.m. (Calgary time) on June 27, 2006:
the restriction on the Class B trust units that provides that the
Class B trust units may only be held by residents of Canada will be
eliminated; and
o effective as of 5:00 p.m. (Calgary time) on July 27, 2006:
the Class A trust units will be de-listed from the Toronto Stock
Exchange (the "TSX") (effective as of the close of markets);
the Class B trust units will be renamed as "Trust Units" (for further
clarity, defined herein as "Consolidated Trust Units") and the
trading symbol of the Consolidated Trust Units will be changed from
"PGF.B" to "PGF.UN" (subject to the approval of the TSX);
all of the issued and outstanding Class A trust units will be
converted into Consolidated Trust Units on the basis of one
Consolidated Trust Unit for each whole Class A trust unit previously
held (with the exception of Class A trust units held by residents of
Canada who have provided a residency declaration to Computershare
Trust Company of Canada); and
the Consolidated Trust Units will be substitutionally listed in place
of the Class A trust units on the New York Stock Exchange (the
"NYSE") under the trading symbol "PGH" (subject to the approval of
the NYSE);
(the foregoing collectively referred to herein as the "Consolidation"). We
understand that, pursuant to the Consolidation, the Amended and Restated Trust
Indenture (the "Trust Indenture") dated July 27, 2004 between the Corporation
and Computershare Trust Company of Canada by which the Trust is constituted
will be amended to give effect to the Consolidation.
The terms and conditions of the Consolidation will be more fully
described in the information circular - proxy statement of the Trust and the
Corporation to be dated May 16, 2006 (the "Information
Circular") and which is to be prepared in connection with the annual and
special meeting (the "AGM") of holders (the "Unitholders") of Class A trust
units and Class B trust units of the Trust to be held in Calgary, Alberta on
June 23, 2006. We understand that the Consolidation will be conditional upon
among other things, approval by a minimum of 66 2/3% of the votes cast by
Unitholders at the AGM.
BMO Nesbitt Burns understands that the economic entitlement to receive
distributions, including as to the amount and timing thereof, and the economic
entitlement to receive distributions on termination of the Trust are identical
as between the Class A trust units and Class B trust units. BMO Nesbitt Burns
further understands that there are no preferential voting rights attached to
either the Class A trust units or Class B trust units and that under the Trust
Indenture in every circumstance the holders of Class A trust units and Class B
trust units vote as one group. BMO Nesbitt Burns understands that, other than
as necessary to provide for reciprocal rights as between the holders of Class
A trust units and the holders of Class B trust units, the rights and
entitlements of Class A trust units and the Class B trust units are the same
in all material respects except that the Class B trust units can only be owned
by Canadian residents whereas the Class A trust units have no restrictions on
ownership.
ENGAGEMENT OF BMO NESBITT BURNS
BMO Nesbitt Burns was engaged by the Corporation pursuant to an agreement
dated April 19, 2006 (the "Engagement Agreement") to act as financial advisor
to the Special Committee in respect of the Consolidation and, if requested, to
provide a fairness opinion to the Special Committee as to whether the
Consolidation is fair from a financial point of view to the Unitholders.
For its services under the Engagement Agreement, BMO Nesbitt Burns will
receive a fee regardless of the result of the vote on a resolution to approve
the Consolidation at the AGM. In addition, BMO Nesbitt Burns is to be
reimbursed for its reasonable out-of-pocket expenses and be indemnified by the
Coiporation in respect of certain liabilities which may be incurred by BMO
Nesbitt Burns in connection with the provision of its services.
BMO Nesbitt Burns is not an insider, associate or affiliate of the Trust
or the Corporation, BMO Nesbitt Burns acts as a trader and dealer, both as
principal and agent, in major financial markets and, as such, may have had and
may in the future have positions in the securities of Pengrowth. BMO Nesbitt
Burns may have executed or may execute transactions for clients from whom it
received or may receive compensation. BMO Nesbitt Burns, as an investment
dealer, conducts research on securities and may, in the ordinary course of its
business, provide research reports and investment advice to its clients on
investment matters, including with respect to the Consolidation, the Trust or
the Corporation. BMO Nesbitt Burns' controlling shareholder, Bank of Montreal,
is a lender to the Corporation in the ordinary course of business.
Other than as set forth above, there are no understandings, agreements or
commitments between BMO Nesbitt Burns and the Trust or the Corporation with
respect to any future business dealings. BMO Nesbitt Burns may in the future,
in the ordinary course of its business, perform financial advisory or
investment banking services for, and Bank of Montreal may provide banking
services to, the Trust or the Corporation.
BMO Nesbitt Burns understands that this opinion and a summary of this
opinion will be included in the Information Circular, and, subject to the
terms of the Engagement Agreement, BMO Nesbitt Burns consents to the inclusion
of this opinion in its entirely, together with a summary thereof, in a form
acceptable to BMO Nesbitt Burns, in the Information Circular and to the filing
thereof with the TSX, the NYSE and securities commissions or similar
regulatory authorities in each province of Canada and in the United States
where such filing is required.
2
CREDENTIALS OF BMO NESBITT BURNS
BMO Nesbitt Burns is one of Canada's largest investment banking firms
with operations in all facets of corporate and government finance, mergers and
acquisitions, equity and fixed income sales and trading and investment
research. BMO Nesbitt Burns has participated in a significant number of
transactions involving public and private companies, income funds and royalty
trusts and has extensive experience in preparing valuations and fairness
opinions.
The opinion expressed herein is the opinion of BMO Nesbitt Burns, the
form and content of which have been approved for release by a committee of
directors and other professionals of BMO Nesbitt Burns, each of whom is
experienced in merger, acquisition, divestiture, valuation and fairness
opinion matters.
SCOPE OF REVIEW
In preparing this opinion, BMO Nesbitt Burns has reviewed and/or relied
upon, among other things, the following (without attempting to verify the
accuracy or completeness thereof):
(a) The Information Circular:
(b) The Trust Indenture;
(c) Legal advice in respect of the Consolidation and available
alternatives provided by Bennett Jones LLP, the Corporation's external
legal counsel, and Burnet, Duckworth & Palmer LLP, the Special
Committee's external legal counsel;
(d) Legal opinion in respect of the Trust's status as a "mutual fund
trust" as defined by the INCOME TAX ACT (Canada) after the
Consolidation provided by Bennett Jones LLP, the Corporation's
external legal counsel;
(e) Public information related to the business, operations, financial
performance and trading histories of the Trust and other selected oil
and gas royalty trusts, as we considered relevant.
(f) Discussions with senior officers of the Corporation regarding
financial results, business strategy and plans and historical and
prospective business development initiatives:
(g) A certificate of senior officers of the Corporation addressed to us
and dated the date hereof, as to matters of fact relevant to the
Consolidation and as to the completeness and accuracy of the
information upon which this opinion is based (the "Certificate");
(h) Such other financial, market, corporate and industry information,
research reports, investigations, discussions and analysis, research
and testing of assumptions as we considered necessary or appropriate
in the circumstances.
In addition to the information described above, BMO Nesbitt Burns also
participated in certain discussions regarding the Consolidation with the
Special Committee, the Board of Directors, and senior officers of the
Corporation and with Burnet, Duckworth & Palmer LLP and Paul, Weiss, Rifkind,
Wharton & Garrison LLP, the Special Committee's external legal counsel,
Bennett Jones LLP, the Corporation's external legal counsel, and other
parties.
3
ASSUMPTIONS AND LIMITATIONS
BMO Nesbitt Burns has relied, without independent verification, upon all
financial and other information that was obtained by us from public sources or
that was provided to us by or on behalf of the Trust or the Corporation and
their advisors or otherwise. We have assumed that all such information was
complete and accurate and did not omit to state any material fact or any fact
necessary to be stated to make that information not misleading. Our opinion is
conditional upon such completeness and accuracy and non-omission of facts. We
have not conducted any independent investigation to verify the completeness or
accuracy of any of such information. Senior management of the Corporation have
represented to us, in the Certificate, that, to the best of their knowledge,
information and belief, among other things (i) the information, data and other
material (the "Information") provided to BMO Nesbitt Burns is complete, true
and correct and did not and does not contain any untrue statement of a
material fact in respect of the Trust or the Corporation and the
Consolidation; (ii) the Information does not omit to state a material fact in
relation to the Trust, the Corporation and the Consolidation necessary to make
the Information not misleading in light of the circumstances under which the
Information was presented; (iii) the legal and economic entitlements of
Unitholders is unchanged upon completion of the Consolidation; (iv) since the
dates on which the Information was provided to BMO Nesbitt Burns, there has
been no material change in the business or affairs of the Trust or the
Corporation and no material change has occurred in the Information or any part
thereof which would have or which would reasonably be expected to have a
material effect on the Opinion.
With respect to all legal and tax matters relating to the Consolidation
and the implementation thereof, we have relied upon the Trust's and the
Corporation's legal and tax counsel and have assumed the accuracy of the
disclosure, including the validity and efficacy of the procedures being
followed to implement the Consolidation, set forth in the Information Circular
that we have reviewed and we do not express any opinion thereon. We do not
express any opinion with respect to the tax consequences to the Trust or the
Corporation that may arise as a result of the Consolidation and have assumed
that no negative tax consequences to any such party will arise as a result of
the Consolidation. We have not considered the income tax impact of the
Consolidation for any of the Unitholders. The Consolidation is subject to a
number of conditions outside of the control of the Trust and we have assumed
that all conditions precedent to the completion of the Consolidation will be
satisfied in due course and all consents, permissions, exemptions or orders of
relevant regulatory authorities will be obtained, without adverse conditions
or qualifications. In rendering this opinion we express no view as to the
likelihood that the conditions to the Consolidation will be satisfied or
waived or that the Consolidation will be implemented within the timeframe
indicated in the Information Circular. We have assumed that the Consolidation
will be implemented as set out in the Information Circular.
We have also assumed that the Trust will continue to qualify as a "unit
trust" and as a "mutual fund trust" as defined by the INCOME TAX ACT (Canada),
and that the Units will continue to be qualified investments under the INCOME
TAX ACT (Canada) for trusts governed by registered retirement savings plans,
registered education savings plans, registered retirement income funds and
deferred profit sharing plans.
This opinion is based on the securities markets, economic, general,
business and financial conditions prevailing as of the date of this opinion
and the conditions and prospects, financial and otherwise, of the Trust as
they were reflected in the information reviewed by us. In our analysis and in
preparing this opinion, BMO Nesbitt Burns has made numerous assumptions with
respect to general business and economic conditions and other matters, many of
which are beyond the control of any party involved in the Consolidation. BMO
Nesbitt Burns believes that the analyses described in this opinion must be
considered as a whole and that selecting portions of such analyses or the
factors considered by BMO Nesbitt Burns, without considering all factors and
analyses together, may create a misleading view of the process underlying this
opinion. The preparation of a fairness opinion is a
4
complex process and is not necessarily susceptible to partial analysis or
summary description. Any attempt to do so may lead to undue emphasis on any
particular factor or analysis.
This opinion is provided to the Special Committee for its use only and
may not be relied upon by any other person. BMO Nesbitt Burns disclaims any
undertaking or obligation to advise any person of any change in any fact or
matter affecting the opinion, which may come, or be brought, to the attention
of BMO Nesbitt Burns after the date hereof. Without limiting the foregoing, in
the event that there is any material change in any fact or matter affecting
this opinion after the date hereof, BMO Nesbitt Burns reserves the right to
change, modify or withdraw the opinion.
BMO Nesbitt Burns is not expressing herein any opinion as to the price at
which any class of trust units of the Trust will trade before or after
completion of the Consolidation. This opinion should not be construed as a
recommendation to vote in favour of the Consolidation.
FAIRNESS CONCLUSION
Based upon and subject to the foregoing and such other matters as we
consider relevant, BMO Nesbitt Burns is of the opinion that, as of the date
hereof, the Consolidation is fair, from a financial point of view, to the
Unitholders.
Yours very truly,
/s/ BMO Nesbitt Burns Inc.
BMO Nesbitt Burns Inc.
5
APPENDIX "3"
FAIRNESS OPINION OF MERRILL LYNCH
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Global Markets & Investment Banking Group
May 16, 2006
Special Committee of the Board of Directors of Pengrowth Corporation
c/o Mr. Terence Poole
Chairman of the Special Committee
1550 Coraopolis Heights Road
Moon Township, PA 15108
Members of the Special Committee:
The Special Committee (the "Special Committee") of the Board of Directors
of Pengrowth Corporation (the "Corporation") proposes to recommend to the
Board of Directors of the Corporation that the Class A trust units and the
Class B trust units of Pengrowth Energy Trust (the "Trust") be consolidated as
follows:
o effective as of 5:00 p.m. (Calgary time) on June 27, 2006:
o the restriction on the Class B trust units that provides that the
Class B trust units may only be held by residents of Canada will
be eliminated; and
o effective as of 5:00 p.m. (Calgary time) on July 27, 2006:
o the Class A trust units will be delisted from the Toronto Stock
Exchange (the "TSX") (effective as of the close of markets);
o the Class B trust units will be renamed as "Trust Units" (for
further clarity, defined herein as "Consolidated Trust Units")
and the trading symbol of the Consolidated Trust Units will be
changed from "PGF.B" to "FGF.UN" (subject to the approval of the
TSX);
o all of the issued and outstanding Class A trust units will be
converted into Consolidated Trust Units on the basis of one
Consolidated Trust Unit for each whole Class A trust unit
previously held (with the exception of Class A trust units held
by residents of Canada who have provided a residency declaration
to Computershare Trust Company of Canada); and
o the Consolidated Trust Units will be substitutionally listed in
place of the Class A trust units on the New York Stock Exchange
(the "NYSE") under the trading symbol "PGH" (subject to the
approval of the NYSE).
(the foregoing collectively referred to herein as the "Consolidation"). We
understand that, pursuant to the Consolidation, the Amended and Restated Trust
Indenture (the "Trust Indenture") dated July 27, 2004 between the Corporation
and Computershare Trust Company of Canada by which the Trust is constituted
will be amended to give effect to the Consolidation.
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Global Markets & Investment Banking Group
The terms and conditions of the Consolidation are more fully described in
the information circular - proxy statement of the Trust and the Corporation to
be dated May 16, 2006 (the "Information Circular") being prepared in
connection with the annual and special meeting (the "AGM") of holders (the
"Unitholders") of Class A trust units and Class B trust units of the Trust to
be held in Calgary, Alberta on June 23, 2006.
We understand that the economic entitlement to receive distributions,
including as to the amount and timing thereof, and the economic entitlement to
receive distributions on termination of the Trust are identical as between the
Class A and Class B trust units. We further understand that there are no
preferential voting rights attached to either the Class A or Class B trust
units and that under the Trust Indenture, in every circumstance the holders of
Class A trust units and Class B trust units vote as one group. We understand
that, other than as necessary to provide for reciprocal rights as between the
holders of Class A trust units and the holders of Class B trust units, the
rights and entitlements of the Class A trust units and the Class B trust units
are the same in all material respects except that the Class B trust units can
only be owned by Canadian residents whereas the Class A trust units have no
restrictions on ownership.
You have asked us whether, in our opinion, the Consolidation is fair from
a financial point of view to the holders of Class A trust units and the
holders of Class B trust units. At your request, we have considered the effect
of the Consolidation on the holders of Class A trust units.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed a draft of the Information Circular;
(2) Reviewed the Trust Indenture;
(3) Relied upon the legal advice furnished by Bennett Jones LLP,
counsel to the Corporation, and Burnet, Duckworth & Palmer LLP,
counsel to the Special Committee, in respect of the
Consolidation and available alternatives;
(4) Relied upon the legal opinion furnished by Bennett Jones LLP in
respect of the ability of the Trust to retain its status as a
mutual fund trust under the INCOME TAX ACT (Canada) after the
Consolidation has been implemented;
(5) Compared the Consolidation as contemplated herein with other
available alternatives from the perspective of the Unitholders;
(6) Reviewed certain publicly available business, financial and
other information relating to the Corporation and the Trust that
we deemed to be relevant;
(7) Participated in certain discussions regarding the Consolidation
with the Special Committee and senior officers of the
Corporation and with Burnet, Duckworth & Palmer LLP, Bennett
Jones LLP and Paul, Weiss, Rifkind Wharton & Garrison LLP, U.S.
counsel to the Special Committee, and other parties;
2
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Global Markets & Investment Banking Group
(8) Reviewed and relied upon a certificate of senior officers of the
Corporation addressed to us, as to matters of fact relevant to
the Consolidation and as to the completeness and accuracy of the
information upon which this opinion is based; and
(9) Reviewed such other studies, analyses and other information and
took into account such other matters as we deemed necessary,
including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Corporation or the Trust, nor have we evaluated the
solvency or fair value of the Corporation or the Trust under any provincial or
federal laws relating to bankruptcy, insolvency or similar matters. We have
not considered the income tax impact of the Consolidation for any of the
Unitholders. We have also assumed that the final form of the Information
Circular will be substantially similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on, and on the information made
available to us as of, the date hereof. We have assumed that in the course of
obtaining the necessary regulatory or other consents or approvals (contractual
or otherwise) for the Consolidation, no restrictions, amendments or
modifications will be imposed that will have a material adverse effect on the
contemplated benefits of the Consolidation.
We are acting as financial advisor to the Special Committee in connection
with the Consolidation and will receive a fee from the Corporation for our
services, a portion of which is contingent upon the delivery by us of our
opinion letter, but which is not contingent on the outcome of the vote to
approve the Consolidation at the AGM. In addition, the Special Committee on
behalf of the Trust has agreed to indemnify us for certain liabilities arising
out of our engagement. We may provide financial advisory and/or financing
services to the Special Committee, the Board of Directors of the Corporation,
the Corporation or the Trust and/or their respective affiliates in the future
and may receive fees for the rendering of such services. In addition, in the
ordinary course of our business, we may actively trade securities of the Trust
for our own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
This opinion is solely for the use and benefit of the Special Committee
in its evaluation of the Consolidation and shall not be used for any other
purpose. This opinion is not intended to be relied upon or confer any rights
or remedies upon any employee, creditor, shareholder or other equity holder of
the Corporation or Trust, or any other party. In addition, you have not asked
us to address, and this opinion does not address, the fairness to, or any
other consideration of, the holders of any class of securities, creditors or
other constituencies of the Corporation or the Trust. This opinion shall not
be reproduced, disseminated, quoted, summarized or referred to at any time, in
any manner or for any purpose, nor shall any public references to Merrill
Lynch Canada Inc. ("Merrill Lynch") or any of its affiliates be made by the
Special Committee or the Corporation, without the prior written consent of
Merrill Lynch.
3
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Global Markets & Investment Banking Group
We are not expressing any opinion herein as to the prices at which the
units of the Trust will trade following the announcement, implementation or
completion of the Consolidation.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consolidation is fair from a financial point of
view to the holders of Class A trust units and the holders of Class B trust
units.
Very truly yours,
/s/ Merrill Lynch Canada Inc.
MERRILL LYNCH CANADA INC.
4
SCHEDULE "A-1"
EXTRAORDINARY RESOLUTION TO AMEND THE UNANIMOUS SHAREHOLDER AGREEMENT TO
SIMPLIFY VOTING PROCEDURES AT THE ANNUAL GENERAL MEETING
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. The Unanimous Shareholder Agreement be amended by:
(a) Clarifying that only holders of common shares of the Corporation
("Shares") shall be entitled to notice of, to attend and to vote at,
any meeting of, and in respect of any matter put before, the holders
of Shares.
(b) Deleting Sections 4.01 through 4.07, inclusive.
(c) Making such supplemental and ancillary amendments as are deemed
necessary or expedient to give effect to the foregoing.
2. Any officer or director of the Corporation is hereby authorized, for and
in the name of the Corporation, to execute and deliver an amending
agreement to the Unanimous Shareholder Agreement, or an amended and
restated Unanimous Shareholder Agreement, and execution thereof shall
evidence approval of the said amendments and the amending agreement or
the amended and restated Unanimous Shareholder Agreement pursuant to this
Extraordinary Resolution.
3. Any officer or director of the Corporation, is hereby authorized and
directed, for and in the name of the Corporation, to execute all
documents and to do all things as deemed necessary or desirable to
implement this Extraordinary Resolution.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006, have the same meanings in this Extraordinary Resolution
when used herein.
SCHEDULE "A-2"
EXTRAORDINARY RESOLUTION TO AMEND THE UNANIMOUS SHAREHOLDER AGREEMENT
AND THE ARTICLES OF THE CORPORATION TO INCREASE THE MAXIMUM
SIZE OF THE BOARD OF DIRECTORS OF THE CORPORATION
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. The Unanimous Shareholder Agreement be amended to increase the maximum
size of the Board of Directors of the Corporation by:
(a) amending Section 3.01 to read as follows:
The Board of Directors of the Corporation shall consist of a minimum
of three (3) members and a maximum of twelve (12) members, two (2)
of whom shall be appointed by the Manager and the balance of whom
shall be appointed by the Trust Unitholders. If the appointment of
two (2) members by the Manager would result in the Trust
Unitholders, not having appointed a majority of the Board of
Directors, then the Manager shall appoint only one (1) member of the
Board of Directors.
(b) Making such supplemental and ancillary amendments as are deemed
necessary or expedient to give effect to the foregoing.
2. The articles of the Corporation be amended to increase the maximum size
of the Board of Directors of the Corporation from eight (8) members to
twelve (12) members.
3. Any officer or director of the Corporation is hereby authorized, for and
in the name of the Corporation, to execute and deliver an amending
agreement to the Unanimous Shareholder Agreement, or an amended and
restated Unanimous Shareholder Agreement, and execution thereof shall
evidence approval of the said amendments and the amending agreement or
the amended and restated Unanimous Shareholder Agreement pursuant to this
Extraordinary Resolution.
4. Any officer or director of the Corporation is hereby authorized, for and
in the name of the Corporation, to execute and deliver articles of
amendment with the Alberta Registrar of Corporations, and execution
thereof shall evidence approval of the said articles of amendment
pursuant to this Extraordinary Resolution.
5. Any officer or director of the Corporation, is hereby authorized and
directed, for and in the name of the Corporation, to execute all
documents and to do all things as deemed necessary or desirable to
implement this Extraordinary Resolution.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006, have the same meanings in this Extraordinary Resolution
when used herein.
SCHEDULE "B-1"
EXTRAORDINARY RESOLUTION TO AMEND THE TRUST INDENTURE
TO PROVIDE FOR THE CONSOLIDATION OF THE TRUST'S DUAL CLASS STRUCTURE
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. Effective as at 5:00 p.m. (Calgary time) on June 27, 2006, the Trust
Indenture shall be amended and restated to give effect to the following
changes:
(a) Delete the residency restrictions on the ownership of Class B trust
units and permit the Class B trust units to be listed on the New
York Stock Exchange and any other exchange or exchanges as may be
determined by the Board of Directors, which amendments may include,
without limitation:
(i) Deleting the definitions of "Prohibited Class B Units" and
"Valid Offer".
(ii) Deleting Section 3.12.
(iii) Amending Section 13.05 by deleting the phrase:
Notwithstanding the above, any Person becoming entitled to
any Trust Units shall not be recorded as the holder of such
Trust Units if such registrations would conflict with or
violate any of the provisions of Schedule "A" or Schedule
"B" hereto.
(iv) Deleting Section B.2.
(v) Amending Section B.3 to read as follows:
The Class B Units may be listed and posted for trading on
either or both of the Toronto Stock Exchange and the New
York Stock Exchange and any other exchange or exchanges as
may be determined by the Directors of the Corporation.
(vi) Deleting Sections B.6 and B.7.
(vii) Amending Schedule "E" by deleting the phrase:
provided that no Class B Trust Units may be held by a person
who is a "non-resident" for the purpose of the INCOME TAX
ACT (Canada).
(viii) Amending the Transfer Form set out in Schedule "E" to delete
the paragraph entitled "Residency Declaration of Transferee"
and the legend immediately following such paragraph.
(b) Provide an unrestricted right of the holders of Class A trust units
to convert those units to Class B trust units, including making such
amendments to the Trust Indenture as the Board of Directors deems
necessary or advisable, which amendments may include, without
limitation:
(i) Amending Section A.5(a) by deleting the phrase:
provided that each holder of such Class A Units is not a
Non-Resident and provides a Unitholder's Declaration
addressed to the Fund and the transfer agent of the Fund
effective at the time of conversion declaring that each such
holder is not a Non-Resident.
(ii) Amending Section A.5(b) by deleting the phrase:
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accompanied by a Unitholder's Declaration satisfactory to
the Corporation, on behalf of the Fund, declaring that the
holder, and any beneficial owner(s) are not Non-Residents.
(iii) Deleting Section A.5(d).
(iv) Deleting Section A.5(e).
(c) Amend the provisions of the Trust Indenture relating to the exchange
of Royalty Units in order to give effect to the foregoing amendments
by:
(i) Amending Section 6.01 to read:
A holder of Royalty Units (other than the Trustee) shall
have the right, at his option, to exchange any or all such
Royalty Units for a number of Class B Units or, after the
Reorganization Date, Trust Units having a value on the date
of exchange equal to the value of such Royalty Units as
conclusively determined by the Corporation. Such exchange
may be made at any time so long as there are Class B Units
or, after the Reorganization Date, Trust Units outstanding,
and subject to the foregoing, such exchange shall occur on
the terms and conditions set forth below and in the Royalty
Indenture.
(ii) Deleting Section 6.02(a).
(iii) Deleting Section 6.02(b).
(iv) Amending Section 6.02(c) to read:
The Corporation, on behalf of the Fund, may establish a form
of Royalty Unit exchange form (a "Royalty Unit Exchange
Form") to be submitted to the Fund and to the transfer agent
of the Fund by any holder of Royalty Units that wishes to
exchange such Royalty Units for Class B Units or, after the
Reorganization Date, Trust Units, which Royalty Exchange
Form shall require the holder to elect and indicate
irrevocably:
(i) the number of Royalty Units the holder wishes to
exchange;
(ii) the number of Class B Units or, after the
Reorganization Date, Trust Units the holder wishes to
receive upon the exchange;
(v) Deleting Section 6.02(c)(iii).
(vi) Deleting Section 6.02(c)(iv).
(vii) Amending Section 6.02(d) by replacing the word "Trust Units"
and replacing it with the phrase "Class B Units or, after
the Reorganization Date, Trust Units" and by deleting the
phrase:
and, if the holder wishes to receive Class B Units, together
with a completed Unitholder's Declaration stating that such
holder is not at the time of exchange a Non-Resident.
(viii) Amending Sections 6.02(d)(i) and (ii), Section 6.02(e) and
Section 6.03 by replacing the word "Trust Units" and
replacing each occurrence with the phrase "Class B Units or
Trust Units, as applicable".
(ix) Deleting Section 6.02(f).
(x) Deleting Section 6.02(g).
-3-
(d) Amend the Indenture to provide for a mechanism to reclassify or
convert, as the case may be, the issued and outstanding Class A
trust units, Class B trust units and Prior Trust Units of the Fund
to Consolidated Trust Units in accordance with paragraph 2 of this
resolution by:
(i) Deleting the definitions of "Effective Date", "Effective
Time" and "Notice Date".
(ii) Amending the definition of "Class A Units" to read as
follows:
"Class A Units" means the Class A Trust Units of the Fund,
created, issued and certified hereunder which, at the
Reorganization Date, shall be converted to Trust Units in
accordance with, and subject to the exceptions set out in,
Schedule "C" hereof;
(iii) Amending the definition of "Class B Units" to read as
follows:
"Class B Units" means the Class B Trust Units of the Fund,
created, issued and certified hereunder which, at the
Reorganization Date, shall be reclassified as Trust Units in
accordance with Schedule "C" hereof;
(iv) Adding the definition of "Prior Trust Units" to read as
follows:
"Prior Trust Units" means the trust units of the Fund not
comprising Class A Units or Class B Units currently issued
and outstanding, which, at the Reorganization Date, will be
converted to Trust Units in accordance with Schedule "C"
hereof;
(v) Adding the definition of "Reorganization Date" to read as
follows:
"Reorganization Date" shall be July 27, 2006, being the date
that is 30 days from the date of this Amended and Restated
Trust Indenture;
(vi) Adding the definition of "Reorganization Time" to read as
follows:
"Reorganization Time" means 5:00 p.m. (Calgary time) on the
Reorganization Date.
(vii) Deleting the definition of "Trust Units" and replacing it
with:
"Trust Units" means the trust units of the Fund created,
issued and certified hereunder, which, at the Reorganization
Date, shall be outstanding upon the renaming of the Class B
Units and issued upon the conversion of Prior Trust Units
and the Class A Units, all in accordance with Schedule "C"
hereof;
(viii) Adding the definition of "Units" to read as follows:
"Units" means the units of the Fund created, issued and
certified hereunder, including, but not limited to, the
Prior Trust Units, the Class A Units, the Class B Units and,
after the Reorganization Date, the Class A Units and the
Trust Units, provided that the term "Unit" shall not include
the Special Voting Unit except where the term "Trust Unit"
is used in the definitions of "Ordinary Resolution" and
"Extraordinary Resolution" and in Sections 14.02, 14.03,
14.08 and 16.05 hereof and Articles XI and XII hereof;
(ix) Replacing all instances of the word "Trust Unitholders" with
"Unitholders", all instances of the word "Trust Unit
Certificate" with "Unit Certificate", all instances of the
word "Special Voting Trust Units" with "Special Voting
Units", and all instances of the word "Special Voting Trust
Unitholder" with the phrase "Special Voting Unitholder".
(x) Deleting the second paragraph of Section 3.01 and replacing
it with:
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The Fund shall have three classes of Units until the
Reorganization Date, consisting of the Prior Trust Units,
the Class A Units and the Class B Units, each such class
shall be entitled to the rights and subject to the
limitations, restrictions and conditions set out herein,
and, in the case of the Class A Units, as supplemented or
amended by the rights, limitations, restrictions and
conditions set out in Schedule "A" and, in the case of the
Class B Units as supplemented or amended by the rights,
limitations, restrictions and conditions set out in Schedule
"B". At the Reorganization Date, the existing issued and
outstanding Units in the Fund shall be irrevocably deemed to
be reclassified and, if applicable, converted for all
purposes in accordance with, and subject to the exceptions
set out in, Schedule "C", and all other provisions of
Schedule "C" shall take effect, without any further act or
formality and following such reclassification and, if
applicable, conversion all existing issued and outstanding
Units shall possess those rights attaching to the applicable
class of Units into which such Units were ultimately
reclassified or converted. The provisions of Schedule "A"
and "B" shall take precedence over any provision to the
contrary in this Indenture. At and following the
Reorganization Date, the provisions of Schedule "C" shall
take precedence over any provision to the contrary in this
Indenture.
(xi) Amending the first paragraph of Section 3.05 to read as
follows:
Each Unit represents an equal fractional undivided
beneficial interest in the Trust Fund provided however that
the Directors of the Corporation may cause the issuance of
classes of Units in addition to the Class A Units, Class B
Units and Trust Units and set priorities in respect of
capital and income for such classes as among the Class A
Units, the Class B Units, the Trust Units and such
additional class or classes.
(xiii) Deleting existing Schedule "C" in its entirety.
(xiv) Amending the Trust Indenture to add a revised Schedule "C",
a copy of which is attached as Exhibit "A" to this Schedule
"B-1".
2. Effective as at 5:00 p.m. (Calgary time) on July 27, 2006 (the
"Reorganization Date"), the Trust Indenture will be further amended and
restated as necessary to give effect to the following events, the purpose
of which is to consolidate the Class A trust units, the Class B trust
units and the Prior Trust Units into a single class of Consolidated Trust
Units, other than Class A trust units for which a declaration of
residency is provided:
(a) Reclassify the Class B trust units as Consolidated Trust Units by:
(i) Deleting existing Schedule "B" in its entirety.
(ii) Amending the Trust Indenture to add a revised Schedule "B",
which Schedule shall contain the terms and conditions of the
Trust Units after the Reorganization Date (as defined
herein), a copy of which is attached as Exhibit "C" to this
Schedule "B-1".
(iii) Deleting existing Schedule "E" in its entirety.
(iv) Amending the Trust Indenture to add a revised Schedule "E",
which Schedule shall contain the form of certificate for the
Trust Units after the Reorganization Date (as defined
herein).
(b) Converting the Prior Trust Units and Class A trust units, subject to
the exceptions set out in Schedule "C" of the Trust Indenture, to
Consolidated Trust Units by:
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(i) Deleting existing Schedule "A" in its entirety.
(ii) Amending the Trust Indenture to add a revised Schedule "A",
which Schedule shall contain the terms and conditions of the
Class A Units after the Reorganization Date (as defined
herein), a copy of which is attached as Exhibit "B" to this
Schedule "B-1".
(iii) Deleting existing Schedule "D" in its entirety.
(iv) Amending the Trust Indenture to add a revised Schedule "D",
which Schedule shall contain the form of certificate for the
Class A Units after the Reorganization Date (as defined
herein), including an amendment to the terms of the Class A
Units to prohibit the transfer of such Class A Units by
replacing the phrase in existing Schedule "D":
The Class A Trust Units represented by this certificate are
transferable.
with the phrase:
The Class A Trust Units represented by this certificate are
not transferable.
by deleting the paragraph entitled "Exercise of Transfer"
and by deleting the Transfer Form from existing Schedule
"D".
(c) Amend the Indenture to give effect to the reclassification of Class
B trust units as set out in paragraph 2(a) and the conversion of the
Prior Trust Units and the Class A trust units, subject to the
exceptions set out in Schedule "C" of the Trust Indenture, as set
out in paragraph 2(b) hereof by:
(i) Deleting the definitions of "CDS", "Conversion Period",
"Converted Units", "Directors' Determination", "Disposition
Notice", "DTC", "Enforcement Date", "Excess Class A Units",
"Exclusionary Offer", "Expiry Date", "Offeror", "Offer
Date", "Ownership Rights", "Ownership Threshold",
"Unitholder Default" and "Unitholder's Declaration".
(ii) Deleting the second paragraph of Section 3.01 and replacing
it with:
The Fund shall have two classes of Units, consisting of the
Class A Units and the Trust Units, each such class shall be
entitled to the rights and subject to the limitations,
restrictions and conditions set out herein, and, in the case
of the Class A Units, as supplemented or amended by the
rights, limitations, restrictions and conditions set out in
Schedule "A" and, in the case of the Trust Units as
supplemented or amended by the rights, limitations,
restrictions and conditions set out in Schedule "B". The
provisions of Schedules "A", "B" and "C" shall take
precedence over any provision to the contrary in this
Indenture.
(iii) Amending the first paragraph of Section 3.05 to read as
follows:
Each Unit represents an equal fractional undivided
beneficial interest in the Trust Fund provided however that
the Directors of the Corporation may cause the issuance of
classes of Units in addition to the Class A Units and Trust
Units and set priorities in respect of capital and income
for such classes as among the Class A Units, the Trust Units
and such additional class or classes.
(iv) Amending the second paragraph of Section 3.05 by:
(i) deleting the phrase "Prior to the Reorganization
Date" and;
(ii) replacing the term "Class B Units" with the term
"Trust Units".
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(v) Deleting Section 6.04.
(vi) Deleting the references to "Class B Units" in Section 12.04.
(vii) Amending Section 13.02 to read as follows:
The forms of certificates representing the classes of Units,
other than the form of certificate representing the Class A
Units which is set out in Schedule "D" hereto and the form
of certificate representing the Trust Units which is set out
in Schedule "E" hereto, shall be such as is from time to
time authorized by the Trustee. Each such certificate shall
be signed manually on behalf of the Trustee. Any additional
signature required to appear on such certificate by the
Trustee may be printed, lithographed or otherwise
mechanically reproduced thereon and, in such event,
certificates so signed are as valid as if they had been
signed manually. Any certificate which has one manual
signature as hereinbefore provided shall be valid
notwithstanding that one or more of the persons whose
signature is printed, lithographed or mechanically
reproduced no longer holds office at the date of issuance of
such certificate.
(d) Amend the provisions of the Trust Indenture relating to the
exchange of Royalty Units in order to give effect to the
foregoing amendments by:
(i) Amending Section 6.01 to read:
A holder of Royalty Units (other than the Trustee) shall
have the right, at his option, to exchange any or all such
Royalty Units for a number of Trust Units having a value on
the date of exchange equal to the value of such Royalty
Units as conclusively determined by the Corporation. Such
exchange may be made at any time so long as there are Trust
Units outstanding, and subject to the foregoing, such
exchange shall occur on the terms and conditions set forth
below and in the Royalty Indenture.
(ii) Amending Section 6.02(a) to read:
The Corporation, on behalf of the Fund, may establish a form
of Royalty Unit exchange form (a "Royalty Unit Exchange
Form") to be submitted to the Fund and to the transfer agent
of the Fund by any holder of Royalty Units that wishes to
exchange such Royalty Units for Trust Units which Royalty
Exchange Form shall require the holder to elect and indicate
irrevocably:
(i) the number of Royalty Units the holders wishes to
obtain; and
(ii) the number of Trust Units the holder wishes to
receive upon the exchange.
(iii) Amending Section 6.02(b) by replacing the phrase "Class B
Units or, after the Reorganization Date, Trust Units" and
replacing it with the word "Trust Units".
(iv) Amending Section 6.02(b)(i) and (ii) Section 6.03 by
replacing the phrase "Class B Units or Trust Units, as
applicable" with the word "Trust Units".
3. The amendment of all incentive plans of the Trust which presently
contemplate issuance of Class A trust units or Class B trust units to
contemplate the issuance of Trust Units be and it is hereby approved.
4. Making such further amendments or revisions to the Trust Indenture, any
incentive plans of the Trust, the "DRIP" and any other document of the
Trust or any subsidiary entity of the Trust as the Board of Directors may
deem necessary or advisable, and such mechanical, incidental and other
amendments or revisions as
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the Board of Directors may deem necessary or advisable, to give effect to
the amendments described above and in the Circular.
5. The Trustee is hereby authorized, for and on behalf of the Trust, and any
officer or director of the Corporation is hereby authorized, for and in
the name of the Corporation, from time to time, to execute and deliver
such amending agreements to the Trust Indenture, or amended and restated
versions of the Trust Indenture in respect of any amendments approved by
the Board of Directors pursuant to this Extraordinary Resolution, and the
execution thereof by the Corporation shall evidence approval of the said
amendments by the Board of Directors and the amending agreements or the
amended and restated trust indentures pursuant to this Extraordinary
Resolution.
6. Any officer or director of the Corporation is hereby authorized, for and
in the name of the Trust, to make application to the NYSE to have the
Trust Units substitutionally listed for the Class A Units and to take all
reasonable and necessary steps to satisfy such conditions of listing as
the NYSE may impose.
7. Any officer or director of the Corporation is hereby authorized, for and
in the name of the Trust, to make application to the TSX to have the
Class A Units de-listed from the facilities of the TSX, to change the
trading symbol of the Trust Units from "PGF.B" to "PGF.UN" and to take
all reasonable and necessary steps to satisfy such conditions of listing
as the TSX may impose.
8. Any officer or director of the Corporation is hereby authorized, for and
in the name of the Corporation or the Trust as administrator thereof, to
execute all documents and to do all things as deemed necessary or
desirable, from time to time, to implement this Extraordinary Resolution.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006, have the same meanings in this Extraordinary Resolution
when used herein.
EXHIBIT "A"
TO SCHEDULE "B-1"
REVISED SCHEDULE "C" TO THE AMENDED AND RESTATED TRUST INDENTURE
SCHEDULE "C"
To the annexed amended and restated trust indenture (the "Indenture")
dated as of June 27, 2006 and made between PENGROWTH CORPORATION and
COMPUTERSHARE TRUST COMPANY OF CANADA.
C.1 DEFINITIONS
In this Schedule "C", unless the context otherwise requires,
capitalized terms shall have the meaning set out in the Indenture.
C.2 RENAMING OF CLASS B UNITS
a) At the Reorganization Time, all issued and outstanding Class B Units
shall be renamed as Trust Units, and the register of holders of such
Class B Units shall be renamed as the register of holders of Trust
Units.
C.3 CONVERSION OF PRIOR TRUST UNITS AND CLASS A UNITS
a) At the Reorganization Time: (i) all issued and outstanding Prior Trust
Units; and (ii) all existing and outstanding Class A Units (other than
Class A Units held by a Unitholder who provides a duly completed
Unitholder's Declaration) shall be converted into Trust Units on the
basis of one Trust Unit for each Prior Trust Unit or Class A Unit, as
applicable, held, without any further act or formality.
b) Upon completion of the conversion referred to in Section C.3(a), each
holder of Prior Trust Units or Class A Units, as the case may be,
immediately prior to the Reorganization Time that has had such Units
converted to Trust Units shall cease to be a holder of such Prior
Trust Units or Class A Units, shall, if a registered holder, have such
Unitholder's name removed from the register of holders of such Units
and shall be deemed to be a holder of a number of Trust Units equal to
the number of Prior Trust Units or Class A Units, as applicable, held
by such Unitholder immediately prior to the Reorganization Time and,
if a registered holder, such holder's name shall be added to the
register of holders of Trust Units accordingly.
C.4 REORGANIZATION PROCEDURE
On the date that is two business days following the date of this Amended and
Restated Trust Indenture, the Board of Directors of the Corporation shall
cause the following to occur:
a) send a letter of transmittal to all registered holders of Class A
Units;
b) send a Unitholder's Declaration to all registered holders of Class A
Units;
c) all registered holders of Class A Units who provide a Unitholder's
Declaration to the registrar and transfer agent of the Fund on or
before 5:00 p.m. (Calgary time) on July 25, 2006 which confirms that
such holder is not a Non-Resident, shall not have such Class A Units
converted to Trust Units pursuant to Section C.3(a) hereof;
d) all registered holders of Class A Units who do not provide a duly
completed Unitholder's Declaration to the registrar and transfer agent
of the Fund on or before 5:00 p.m. (Calgary time) on July 25, 2006,
shall have such Class A Units converted to Trust Units pursuant to
Section C.3(a) hereof without further act or formality;
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e) in respect of any registered or beneficial holder of Units, the
Corporation, on behalf of the Fund, may at any time and from time to
time deem the Units held by such registered or beneficial holder to be
reclassified as, or converted into, Trust Units without any further
action on the part of the holder thereof in the sole and absolute
discretion of the Corporation including upon:
i) the receipt by the Fund of a Unitholder's Declaration
acceptable to the Corporation indicating that the holder is a
Non-Resident; or
ii) the passing of the Reorganization Time with the registrar and
transfer agent of the Fund not having received from the
Unitholder a Unitholder's Declaration.
C.6 ISSUANCE OF CERTIFICATES REPRESENTING TRUST UNITS
a) Upon surrender to the Corporation's registrar and transfer agent of a
certificate which prior to the Reorganization Time represented
outstanding Prior Trust Units, Class A Units or Class B Units together
with a letter of transmittal, where applicable, and together with such
additional documents and instruments as the registrar and transfer
agent may reasonably require, the holder of such surrendered
certificate shall be entitled to receive in exchange therefor, and the
transfer agent of the Fund shall deliver to such holder as soon as
practicable, a certificate representing that number of Trust Units to
which such holder's Units have been reclassified or converted and any
certificate representing Units so surrendered shall forthwith be
cancelled.
b) If any certificate which prior to the Effective Time represented
outstanding Prior Trust Units, Class A Units or Class B Units which
were reclassified as, or converted into, Trust Units pursuant to
Section C.2(a) or C.3(a) has been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such
certificate to be lost, stolen or destroyed, and delivery to the
transfer agent of the Fund of a Unitholder's Declaration and such
additional documents and instructions as the transfer agent of the
Fund may reasonably require the transfer agent will issue in exchange
for such lost, stolen or destroyed certificate, certificates
representing the Trust Units to which such Unitholder is entitled.
When seeking such certificate in exchange for any lost, stolen or
destroyed certificate, the person to whom certificates representing
Trust Units are to be issued shall, as a condition precedent to the
issuance thereof, give a bond satisfactory to the Corporation, on
behalf of the Fund, and the transfer agent of the Fund, in such sum as
the Corporation, on behalf of the Fund, and the transfer agent of the
Fund may direct or otherwise indemnify the Fund and its transfer agent
in a manner satisfactory to the Corporation, on behalf of the Fund,
and the transfer agent of the Fund against any claim that may be made
against the Fund or its transfer agent with respect to the certificate
alleged to have been lost, stolen or destroyed.
EXHIBIT "B"
TO SCHEDULE "B-1"
REVISED SCHEDULE "A" TO THE AMENDED AND RESTATED TRUST INDENTURE
SCHEDULE "A"
To the annexed amended and restated trust indenture (the "Indenture")
dated as of July 27, 2006 and made between PENGROWTH CORPORATION and
COMPUTERSHARE TRUST COMPANY OF CANADA.
The Class A Units shall have the rights and be subject to the
limitations, restrictions and conditions set out in the Indenture, as
supplemented or amended by the rights, limitations, restrictions and
conditions applicable to the Class A Units as set out below:
A.1 DEFINITIONS
In this Schedule "A" and in the Class A Units, unless the context
otherwise requires, capitalized terms shall have the meaning set out in the
Indenture.
A.2 PERMITTED STOCK EXCHANGE LISTINGS
The Class A Units may not be listed and posted for trading on any
stock exchange.
A.3 TRANSFER RESTRICTIONS
The Class A Units may not be transferred by the holder thereof.
A.4 CONVERSION
a) At any time, a holder of one or more Class A Units shall have the
right at his or her option to convert, subject to these provisions,
any one or more of such Class A Units into Trust Units, on a one for
one basis.
b) The conversion of one or more Class A Units shall be effected by the
deposit of the certificate or certificates representing the same at
any time during usual business hours at any office of the transfer
agent of the Fund at which the Trust Units are transferable, together
with a written conversion form in form satisfactory to the
Corporation, on behalf of the Fund, duly executed by the registered
holder or his attorney duly authorized in writing, in which instrument
such holder may elect to convert only part of the Class A Units
represented by such certificate or certificates, in which event the
Corporation, on behalf of the Fund, shall issue and deliver or cause
to be delivered to such holder, at the expense of the holder, a new
certificate representing the Class A Units represented by such
certificate or certificates which have not been converted.
c) As promptly as practicable after the deposit of any Class A Units for
conversion, the Corporation, on behalf of the Fund, shall issue and
shall deliver or cause to be delivered to or to the written order of
the holder of the Class A Units so surrendered, a certificate or
certificates issued in the name of such holder representing the number
of Trust Units to which such holder is entitled. Such conversion shall
be deemed to have been made at the close of business on the date such
Class A Units shall have been properly deposited for conversion, so
that the rights of the holder of such Class A Units as the holder
thereof shall cease at such time and the person or persons entitled to
receive Trust Units upon such conversion shall be treated for all
purposes as having become the holder or holders of record of such
Trust Units at such time; provided, however, that no such deposit on
any date when the Fund's register of transfers of Trust Units shall be
properly closed shall be effective to constitute the person or persons
entitled to receive Trust Units upon such conversion as the holder or
holders of record of such Trust Units on such date, but such deposit
shall be effective to constitute the person or persons entitled to
receive such Trust Units as the holder or holders of record thereof
for all purposes when the registers next open. For these purposes the
date of deposit of
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any Class A Units for conversion shall be deemed to be the date when
the certificate representing such Class A Units accompanied by a
satisfactory form of conversion is received by the registrar and
transfer agent of the Fund as provided for herein.
EXHIBIT "C"
TO SCHEDULE "B-1"
REVISED SCHEDULE "B" TO THE AMENDED AND RESTATED TRUST INDENTURE
SCHEDULE "B"
To the annexed amended and restated trust indenture (the "INDENTURE") dated as
of July 27, 2006 and made between PENGROWTH CORPORATION and COMPUTERSHARE
TRUST COMPANY OF CANADA.
The Trust Units shall have the rights and be subject to the
limitations, restrictions and conditions set out in the Indenture, as
supplemented or amended by the rights, limitations, restrictions and
conditions applicable to the Trust Units as set out below:
B.1 DEFINITIONS
In this Schedule "B" and in the Trust Units, as applicable, unless the
context otherwise requires, capitalized terms shall have the meaning set out
in the Indenture.
B.2 PERMITTED STOCK EXCHANGE LISTINGS
The Trust Units may be listed and posted for trading on either or both
of the Toronto Stock Exchange and the New York Stock Exchange and any other
exchange or exchanges as may be determined by the directors of the
Corporation.
SCHEDULE "B-2"
EXTRAORDINARY RESOLUTION TO AMEND THE UNANIMOUS SHAREHOLDER
AGREEMENT AND THE TRUST INDENTURE TO SIMPLIFY VOTING PROCEDURES
AT THE ANNUAL GENERAL MEETING
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. The Unanimous Shareholder Agreement be amended by:
(a) Clarifying that only holders of common shares of the Corporation
("Shares") shall be entitled to notice of, to attend and to vote at,
any meeting of, and in respect of any matter put before, the holders
of Shares.
(b) Deleting Sections 4.01 through 4.07, inclusive.
(c) Making such supplemental and ancillary amendments as are deemed
necessary or expedient to give effect to the foregoing.
2. The Trust Indenture be amended by:
(a) Clarifying that the Shareholders and the Trustee are required to
seek the direction of the Trust Unitholders prior to voting on, or
consenting to, any resolution of the shareholders of the Corporation
whether by vote at a meeting of shareholders of the Corporation or
by written resolution of the shareholders of the Corporation.
(b) Deleting Section 9.04 and replacing it with the following:
9.04 Voting of Royalty Units and Common Shares Held by the Fund
All Royalty Units and Shares held from time to time by the Trustee
as part of the property of the Fund shall be voted by the Trustee at
any and all meetings of the Royalty Unitholders or any and all
meetings of the Shareholders. The Trustee shall seek the direction
of the Unitholders prior to voting such Royalty Units or Shares at
any and all meetings of the Royalty Unitholders or Shareholders.
(c) Adding the definition of "Shareholders" to read as follows:
"Shareholders" means the holders of Shares of the Corporation.
(d) Adding the definition of "Shares" to read as follows:
"Shares" means the shares of the Corporation of any class from time
to time outstanding.
(e) Making such supplemental and ancillary amendments as are deemed
necessary or expedient to give effect to the foregoing.
3. The Trustee is hereby authorized, for and in the name of the Trust, to
execute and deliver an amending agreement to the Unanimous Shareholder
Agreement or to the Amended and Restated Trust Indenture, or an amended
and restated Unanimous Shareholder Agreement or an amended and restated
Trust Indenture, and execution thereof shall evidence approval of the
said amendments and the amending agreements or the amended and restated
Unanimous Shareholder Agreement or amended and restated Trust Indenture,
as applicable, pursuant to this Extraordinary Resolution.
4. The Trustee is hereby authorized and directed for and on behalf of the
Trust Unitholders and any officer or director of the Corporation, is
authorized and directed, for and in the name of the Corporation, to
execute all
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documents and to do all things as deemed necessary or desirable to
implement this Extraordinary Resolution.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006, have the same meanings in this Extraordinary Resolution
when used herein.
SCHEDULE "B-3"
ORDINARY RESOLUTION TO AMEND THE DEFERRED ENTITLEMENT UNIT PLAN
BE IT RESOLVED AS AN ORDINARY RESOLUTION THAT:
1. The DEU Plan be amended by:
o changing the name of the plan to the "Deferred Entitlement Unit
Plan";
o changing all references to "Phantom Unit" in the plan to references
to "Deferred Entitlement Unit";
o amending all references to the persons entitled to participate in
the plan to "employees, officers and directors of Pengrowth and
consultants to Pengrowth designated by the Board of Directors",
including in Sections 1, 2.1(p) and 3.1;
o amending the plan to provide that DEUs granted to directors will not
be subject to the vesting or performance criteria provided for by
the plan, including the provisions of Sections 4.4 and 4.5;
o making such further amendments or revisions as the Board of
Directors may deem necessary or advisable, and such mechanical,
incidental and other amendments or revisions as the Board of
Directors may deem necessary or advisable, to give effect to the
amendments described above and in the Circular; and
o providing that: (i) the aggregate number of Class B trust units
which may be reserved for issuance to "insiders" (as such term is
referred to in the policies of the TSX), under the DEU Plan and all
other security-based compensation arrangements of Pengrowth shall
not, in the aggregate, exceed ten percent (10%) of the issued and
outstanding Trust Units at the date of grant, calculated on a
non-diluted basis; and (ii) during any one-year period, the Board of
Directors shall not grant to such insiders, under the DEU Plan and
all other security-based compensation arrangements of Pengrowth, in
the aggregate, a number of Class B trust units exceeding ten percent
(10%) of the issued and outstanding Trust Units, calculated on a
non-diluted basis.
2. The Corporation and the Trustee are hereby authorized and directed on
behalf of the Trust to execute all documents and do all things as deemed
necessary or desirable to implement this resolution.
All terms defined in the Information Circular - Proxy Statement of the
Corporation and the Trust dated May 16, 2006, have the same respective
meanings in this resolution when used herein.
SCHEDULE "B-4"
EXTRAORDINARY RESOLUTION TO AMEND THE TRUST INDENTURE REGARDING THE
DISTRIBUTION OF NET PROCEEDS FROM THE SALE OF PROPERTIES
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. The board of directors of the Corporation is hereby granted the authority
to direct the Corporation and the Trustee to amend the Trust Indenture by
deleting Section 5.03 thereof and replacing it with the following:
The net proceeds from any sale of the Royalty,
if and when distributed by the Corporation to
and received by the Trustee pursuant to the
Royalty Indenture, shall be included in
Distributable Cash.
2. The Trustee is hereby authorized for and on behalf of the Trust to
execute and deliver an amending agreement to the Trust Indenture, or an
amended and restated Trust Indenture, and the execution thereof shall
evidence approval of the said amendments and of the amending agreement or
the amended and restated Trust Indenture pursuant to this Extraordinary
Resolution; and
3. The Trustee is hereby authorized and directed for and on behalf of the
Trust Unitholders and any officer or director of the Corporation, is
authorized and directed, for and in the name of the Corporation, to
execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006 and the Trust Indenture have the same meanings in this
Extraordinary Resolution when used herein.
SCHEDULE "B-5"
EXTRAORDINARY RESOLUTION TO AMEND THE UNANIMOUS SHAREHOLDER AGREEMENT
AND THE ARTICLES OF THE CORPORATION TO INCREASE THE MAXIMUM SIZE
OF THE BOARD OF DIRECTORS OF THE CORPORATION
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. The Unanimous Shareholder Agreement be amended to increase the maximum
size of the Board of Directors of the Corporation by:
(a) amending Section 3.01 to read as follows:
The Board of Directors of the Corporation shall consist of a minimum
of three (3) members and a maximum of twelve (12) members, two (2)
of whom shall be appointed by the Manager and the balance of whom
shall be appointed by the Trust Unitholders. If the appointment of
two (2) members by the Manager would result in the Trust
Unitholders, not having appointed a majority of the Board of
Directors, then the Manager shall appoint only one (1) member of the
Board of Directors.
(b) Making such supplemental and ancillary amendments as are deemed
necessary or expedient to give effect to the foregoing.
2. The articles of the Corporation be amended to increase the maximum size
of the Board of Directors of the Corporation from eight (8) members to
twelve (12) members.
3. The Trustee is hereby authorized, for and in the name of the Trust, to
execute and deliver an amending agreement to the Unanimous Shareholder
Agreement, or an amended and restated Unanimous Shareholder Agreement,
and execution thereof shall evidence approval of the said amendments and
the amending agreements or the amended and restated Unanimous Shareholder
Agreement pursuant to this Extraordinary Resolution.
4. Any officer or director of the Corporation is hereby authorized, for and
in the name of the Corporation, to execute and deliver articles of
amendment with the Alberta Registrar of Corporations, and execution
thereof shall evidence approval of the said articles of amendment
pursuant to this Extraordinary Resolution.
5. The Trustee is hereby authorized and directed for and on behalf of the
Trust Unitholders and any officer or director of the Corporation, is
authorized and directed, for and in the name of the Corporation, to
execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006, have the same meanings in this Extraordinary Resolution
when used herein.
SCHEDULE "C-1"
EXTRAORDINARY RESOLUTION TO AMEND THE ROYALTY INDENTURE
TO PROVIDE FOR THE CONSOLIDATION OF THE TRUST'S DUAL CLASS STRUCTURE
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. The board of directors of the Corporation is hereby granted the authority
to direct the Corporation and the Trustee to amend the Royalty Indenture
by deleting therefrom the following amendments that were approved by
Extraordinary Resolution at the Special Meeting of Royalty Unitholders on
March 15, 2004:
(a) Definitions of "Class A Unit", "Class B Unit", "Non-Resident",
"Ownership Threshold" and "Unitholder's Declaration" (corresponding
to those in the Trust Indenture) were added to Article I and
conforming changes will be made to the definition of "Trust Unit";
(b) Section 4.01 was amended to provide that a holder of Royalty Units
who is a Non-Resident may exchange Royalty Units only for Class A
Units and not Class B Units and that a holder of Royalty Units who
is not a Non-Resident will be able to exchange Royalty Units for
Class A Units or Class B Units, subject in both cases to the terms,
conditions and limitations in Article IV, including without
limitation those set forth below;
(c) Section 4.02 was amended to provide that a holder of Royalty Units
wishing to exchange any or all of his Royalty Units for Class A
Units would be able to do so only if and to the extent that the
number of Class A Units issued and outstanding at the particular
time is not greater than the Ownership Threshold;
(d) Section 4.02 was also amended to require that a holder of Royalty
Units wishing to exercise his right to exchange any or all of his
Royalty Units for Class B Units shall submit a Unitholder's
Declaration stating that the beneficial owner of the Royalty Units
is not a Non-Resident;
(e) Article IV was amended to provide that a holder of Royalty Units
applying to exchange Royalty Units for Trust Units will be required
to elect and indicate irrevocably at that time:
(i) how many Royalty Units he wishes to exchange;
(ii) how many Class A Units and Class B Units respectively he
wishes to receive upon the exchange;
(iii) whether, if having regard to the Ownership Threshold fewer
Class A Units are available than the number that he has
requested to receive upon the exchange, he wishes to receive
the smaller number and to retain the balance of his Royalty
Units; and
(iv) whether, if Class A Units are not available, he elects and
is entitled by virtue of not being a Non-Resident to receive
Class B Units instead.
(f) Schedule "A" (the form of Royalty Unit certificate) and the exchange
form to be used in connection with a conversion were modified to
reflect the foregoing amendments and the form thereof will be
appended to the Royalty Indenture. Subsection 4.02(a) was amended
accordingly to refer to this new form and to require that it be
completed and submitted to the Trustee by a holder of Royalty Units
applying to exercise his right of exchange;
(g) Article IV was amended to provide that if it appears that a proposed
exchange of Royalty Units for Class A Units would result in the
number of Class A Units issued and outstanding exceeding the
Ownership Threshold, the Fund and its transfer agent may refuse to
accept any request to exchange Royalty Units for Class A Units;
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(h) Article IV was amended to provide that the Fund, together with its
transfer agent, may from time to time establish procedures for
recognizing the priorities of requested exchanges of Royalty Units
for Class A Units and requests for conversions of Class B Units into
Class A Units, which procedures may, but are not required to, apply
a reservation or waiting list system to holders of Royalty Units and
Class B Units whose requests to exchange Royalty Units for Class A
Units and to convert Class B Units into Class A Units are refused
due to the approach of the number of Class A Units issued and
outstanding to the Ownership Threshold;
with the result that Article IV of the Royalty Indenture, Schedule "A"
thereto and the Exchange Form will read as they read immediately prior to
the approval of the said Extraordinary Resolution;
2. Making such further amendments or revisions as the Board of Directors may
deem necessary or advisable, and such mechanical, incidental and other
amendments or revisions as the Board of Directors may deem necessary or
advisable, to give effect to the amendments described above and in the
Circular.
3. The Trustee is hereby authorized for and on behalf of the Trust to
execute and deliver an amending agreement to the Royalty Indenture, or an
amended and restated Royalty Indenture, and the execution thereof by the
Corporation shall evidence approval of the said amendments by the Board
of Directors and of the amending agreement or the amended and restated
Royalty Indenture pursuant to this Extraordinary Resolution; and
4. Any officer or director of the Corporation, is authorized and directed,
for and in the name of the Corporation, to execute all documents and to
do all things as deemed necessary or desirable to implement this
Extraordinary Resolution.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006 and the Royalty Indenture have the same meanings in this
Extraordinary Resolution when used herein.
SCHEDULE "C-2"
EXTRAORDINARY RESOLUTION TO AMEND THE UNANIMOUS SHAREHOLDER
AGREEMENT AND THE ROYALTY INDENTURE TO SIMPLIFY VOTING PROCEDURES
AT THE ANNUAL GENERAL MEETING
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. The Unanimous Shareholder Agreement be amended by:
(a) Clarifying that only holders of common shares of the Corporation
("Shares") shall be entitled to notice of, to attend and to vote at,
any meeting of, and in respect of any matter put before, the holders
of Shares.
(b) Deleting Sections 4.01 through 4.07, inclusive.
(c) Making such supplemental and ancillary amendments as are deemed
necessary or expedient to give effect to the foregoing.
2. The Royalty Indenture be amended by:
(a) Clarifying that only holders of Royalty Units shall be entitled to
notice of, to attend and to vote at, any meeting of, and in respect
of any matter put before, the holders of Royalty Units.
(b) Amending Sections 8.01 through 8.16, inclusive, by replacing all
references to "Unitholders" with a reference to "Royalty
Unitholders" and replacing all references to "Unit" or "Units" with
references to "Royalty Unit" or "Royalty Units", as applicable.
(c) Making such supplemental and ancillary amendments as are deemed
necessary or expedient to give effect to the foregoing.
3. Making such further amendments or revisions as the Board of Directors may
deem necessary or advisable, and such mechanical, incidental and other
amendments or revisions as the Board of Directors may deem necessary or
advisable, to give effect to the amendments described above and in the
Circular.
4. The Trustee is hereby authorized, for and in the name of the Trust, to
execute and deliver an amending agreement to the Unanimous Shareholder
Agreement or to the Amended and Restated Royalty Indenture, or an amended
and restated Unanimous Shareholder Agreement or an amended and restated
Royalty Indenture, and execution thereof shall evidence approval of the
said amendments and the amending agreements or the amended and restated
Unanimous Shareholder Agreement or amended and restated Royalty
Indenture, as applicable, pursuant to this Extraordinary Resolution.
5. The Trustee is hereby authorized and directed for and on behalf of the
Trust Unitholders and any officer or director of the Corporation, is
authorized and directed, for and in the name of the Corporation, to
execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006, have the same meanings in this Extraordinary Resolution
when used herein.
SCHEDULE "C-3"
EXTRAORDINARY RESOLUTION TO AMEND THE ROYALTY INDENTURE REGARDING THE
DISTRIBUTION OF NET PROCEEDS FROM THE SALE OF PROPERTIES
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. The board of directors of the Corporation is hereby granted the authority
to direct the Corporation and the Trustee to amend the Royalty Indenture
by deleting the second sentence of the last paragraph of Section 2.06(c)
thereof and replace it with the following:
The Corporation may in its sole and absolute
discretion distribute all or any of the net
proceeds from the sale of Properties as a
Special Distribution or to acquire Replacement
Properties.
2. Making such further amendments or revisions as the Board of Directors may
deem necessary or advisable, and such mechanical, incidental and other
amendments or revisions as the Board of Directors may deem necessary or
advisable, to give effect to the amendments described above and in the
Circular.
3. The Trustee is hereby authorized for and on behalf of the Trust to
execute and deliver an amending agreement to the Royalty Indenture, or an
amended and restated Royalty Indenture, and the execution thereof shall
evidence approval of the said amendments and of the amending agreement or
the amended and restated Royalty Indenture pursuant to this Extraordinary
Resolution; and
4. The Trustee is hereby authorized and directed for and on behalf of the
Royalty Unitholders and any officer or director of the Corporation, is
authorized and directed, for and in the name of the Corporation, to
execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006 and the Royalty Indenture have the same meanings in this
Extraordinary Resolution when used herein.
SCHEDULE "C-4"
EXTRAORDINARY RESOLUTION TO AMEND THE ROYALTY INDENTURE
REGARDING DISTRIBUTIONS UPON A LIQUIDATION, WINDING-UP OR
DISSOLUTION OF THE CORPORATION
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. The board of directors of the Corporation is hereby granted the authority
to direct the Corporation and the Trustee to amend the Royalty Indenture
as follows:
(a) to delete Section 3.12(a) and replace it with the following:
In the event of the liquidation, dissolution or winding-up of the
Corporation, the following provisions of this Section 3.12 will
apply.
(b) to add the following sentence at the end of Section 3.12(b):
All of the assets of such persons who are liquidated, dissolved or
wound up that are Canadian Resource Properties shall if and to the
extent that such Canadian Resource Properties are conveyed to the
Corporation as a result of the liquidation, dissolution or
winding-up become subject to the Royalty hereby granted and
otherwise subject to this Royalty Indenture in accordance with its
terms.
(c) delete Section 3.12(c) and replace it with the following:
In the event of a liquidation, dissolution or winding-up of the
Corporation, to the extent possible, all property and assets of the
Corporation other than Canadian Resource Properties shall be sold or
otherwise liquidated and the proceeds therefrom used to reduce the
outstanding indebtedness of the Corporation related to or associated
with the Other Investments and the remaining proceeds will
constitute Other Revenues. The Canadian Resource Properties referred
to in the last sentence of Section 3.12(b) hereof shall be sold or
liquidated and the proceeds therefrom used to reduce the outstanding
indebtedness related to or associated with the Other Investments and
the balance of such proceeds if any remaining after reduction shall
be paid into the Reserve. The other Canadian Resource Properties of
the Corporation shall also be sold or otherwise liquidated and the
proceeds therefrom used to pay the remaining indebtedness of the
Corporation if any after the application of the proceeds as
contemplated in the immediately preceding sentences; and the
remaining balance if any of the proceeds from the sale or
liquidation of such Canadian Resource Properties shall be
distributed as a Special Distribution to the Royalty Unitholders.
(d) to delete Section 3.12(d) and replace it with the following:
Notwithstanding any provision of this Agreement, in the event of a
liquidation, dissolution or winding-up of the Corporation, the
holders of Common Shares and Exchangeable Shares shall be entitled
to receive in the aggregate a portion of the net assets of the
Corporation other than its Canadian Resource Properties and the
proceeds therefrom (after the deduction from the said net assets
(including monies or other liquid assets) of the Corporation of an
amount equal to the liabilities and claims of the Corporation) equal
to a fraction, which has as its numerator the sum of the aggregate
number of outstanding Common Shares and Exchangeable Shares and
which has as its denominator the sum of the aggregate number of
outstanding Trust Units, Exchangeable Shares, Common
-2-
Shares and Royalty Units (excluding Royalty Units held by the Fund).
For the purposes hereof, "Exchangeable Shares" shall mean
Exchangeable Shares in respect of which the class or series
provisions provide that such Exchangeable Shares are entitled to
participate in the assets of the Corporation on the liquidation,
dissolution or winding-up of the Corporation, to the extent of the
participation to which such Exchangeable Shares are entitled.
(e) to add the following sentence at the end of Section 3.12(e):
For the purposes hereof, "Exchangeable Shares" shall mean
Exchangeable Shares in respect of which the class or series
provisions provide that such Exchangeable Shares are entitled to
participate in the assets of the Corporation on the liquidation,
dissolution or winding-up of the Corporation, to the extent of the
participation to which such Exchangeable Shares are entitled.
2. Making such further amendments or revisions as the Board of Directors may
deem necessary or advisable, and such mechanical, incidental and other
amendments or revisions as the Board of Directors may deem necessary or
advisable, to give effect to the amendments described above and in the
Circular.
3. The Trustee is hereby authorized for and on behalf of the Trust to
execute and deliver an amending agreement to the Royalty Indenture, or an
amended and restated Royalty Indenture, and the execution thereof shall
evidence approval of the said amendments and of the amending agreement or
the amended and restated Royalty Indenture pursuant to this Extraordinary
Resolution; and
4. The Trustee is hereby authorized and directed for and on behalf of the
Royalty Unitholders and any officer or director of the Corporation, is
authorized and directed, for and in the name of the Corporation, to
execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006 and the Royalty Indenture have the same meanings in this
Extraordinary Resolution when used herein.
SCHEDULE "C-5"
EXTRAORDINARY RESOLUTION TO AMEND THE ROYALTY INDENTURE
REGARDING CERTAIN EXPENDITURES, THE RESERVE AND OTHER REVENUES
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. The board of directors of the Corporation is hereby granted the authority
to direct the Corporation and the Trustee to amend the Royalty Indenture
as follows:
(a) to delete the definition of "Debt Service Charges" and replace it
with the following:
"DEBT SERVICE CHARGES" means all interest and principal repayments
related to the borrowing of funds by the Grantor for all purposes in
connection with its business as contemplated herein, including,
without limitation, the funding of Capital Expenditures and the
acquisition of Canadian Resource Properties where permitted, but
excluding principal repayments and interest relating to the
borrowing of funds in connection with the acquisition of Other
Investments, except to the extent contemplated in the definition of
Royalty Income";.
(b) to delete paragraph (ii) from the definition of "Gross Revenue" and
renumber the subsequent paragraphs of the said definition and to add
a reference to Section 13.02(b) of the indenture immediately before
the reference to Section 13.02(c) in paragraph (vii) of the said
definition;
(c) to add the following after "Crown Obligations" in the definition of
"Operating Costs":
(except to the extent that payment thereof is waived
pursuant to Section 2.01(d) hereof)
(d) to add the following definitions to Section 1.01:
"Investment Income" means net income from Other Investments,
whether in the form of distributions, dividends, interest or
otherwise;
"Other Investments" means shares, units, interests and other
investments of or in property that is not subject to the
Royalty;
(e) to delete the delete the definition of "Other Revenues" and replace
it with the following:
"Other Revenues" means, in respect of a month, 99% of all revenues
which accrue during such month in respect of the Properties or
otherwise (other than Gross Revenues, ARC and proceeds from the sale
of Canadian Resource Properties), including, without limitation:
i) fees and similar payments made by third parties for the
processing, transportation, gathering, storage or treatment
of the Petroleum Substances in Tangibles;
ii) proceeds from the sale of any interest in Tangibles or
miscellaneous assets;
iii) insurance proceeds, including business interruption
insurance, property damage insurance and third party
liability insurance;
-2-
iv) income from investing the incentives, rebates and credits in
respect of production costs, other than ARC;
v) royalty and similar income, if any, which is not included in
the definition of "Properties";
vi) overhead recoveries received from third parties in respect
of their working interests in Properties operated by the
Grantor;
vii) trust distributions; and
viii) Investment Income less principal repayments and interest on
loans and indebtedness incurred in relation to Other
Investments;
provided further that Other Revenues will not include ARC payable to
the Royalty Unitholders in respect of Crown Obligations which the
Royalty Unitholders reimburse to the Grantor;
(f) to delete the definition of ""Property" or "Properties"" and replace
it with the following:
"Property" or "Properties", as the case may be, means those lands,
property, geological zones therein, wells and natural accumulations
of petroleum or natural gas, that the Grantor has an interest in and
that are:
i) Canadian Resource Properties; and
ii) legally or beneficially owned from time to time by the
Grantor, including, without limitation, Petroleum Substances
within, upon or under such lands, together with the right to
explore for and recover same insofar as such rights are
granted by the Leases and any royalty or net profits
interest computed by reference to the production from or
value of Petroleum Substances;
(g) to delete the definition of "Royalty Income" and replace it with the
following:
"Royalty Income" means the aggregate of any Special Distribution and
Gross Revenue less, without duplication, the aggregate of the
following amounts:
i) Operating Costs and Capital Expenditures;
ii) General and Administrative Costs;
iii) Management Fees and Debt Service Charges;
iv) taxes or other similar charges payable by the Grantor; and
v) any amounts paid into the Reserve pursuant to Section
13.02(b) or (c);
provided that:
vi) the deductions for Capital Expenditures, General and
Administrative Costs, Management Fees and Debt Service
Charges shall only be made to the extent such costs, fees
and charges for any quarter or month, as the case may be,
are not paid with funds paid into the Reserve (the
-3-
costs that are thus paid out of the Reserve being referred
to herein as the "Recovered Costs");
vii) in no case shall any payment (in respect of Recovered Costs)
out of the Reserve in a quarter or month that is
attributable to Other Revenues be more than 10% of the
aggregate of the Royalty Income for a quarter or month
(computed without reference to vi) above) and the amount of
the Recovered Costs paid out of the Reserve as contemplated
herein (and any such excess amount of Other Revenues that
therefore cannot be paid out the Reserve in a quarter or
month shall remain in the Reserve and may be applied in a
future time period); and
viii) the deductions referred to in paragraphs (i) to (v) above do
not include amounts paid by the Grantor with funds borrowed
by the Grantor or, in respect of Debt Service Charges, funds
raised by the Grantor through the issuance of additional
Royalty Units;
(h) to delete the last sentence of Section 2.02(o) and replace it with
the following:
Capital Expenditures may be financed by payments from the Reserve or
from Gross Revenue (and therefore deducted in the computation of
Royalty Income as contemplated in the definition thereof), bank
borrowings, farm-outs and the issuance of Royalty Units, or any of
them.
(i) to add the following sentence at the end of Section 2.06(f):
The acquisition of Canadian Resource Properties may be financed in
any manner that the Corporation sees fit in its sole discretion,
including without limitation through proceeds from the sale of
Properties, borrowings from the Fund and other lenders and the
issuance of Royalty Units, Exchangeable Shares, notes, debentures
and other securities and instruments.
(j) to add the following as Section 11.12:
AMENDMENT OF THIS INDENTURE
The Trustee and the Corporation (when authorized by the Board of
Directors) are hereby irrevocably directed and authorized to make
such amendments to this indenture as they may in their sole and
absolute discretion consider necessary or expedient to preserve the
status of the Royalty as a Canadian Resource Property, and to
execute and deliver all such supplemental and amended and restated
indentures and other documents and do such other acts and things as
may be necessary or expedient to give effect to any such amendments.
(k) to add the following at the end of Section 12.01(f):
pursuant to Section 11.12.
(l) to add "Capital Expenditures," after "Operating Costs" and "Royalty
Income," after "Administrative Costs" in Sections 13.01 and 13.03;
(m) to delete Section 13.02(a) and replace it with the following:
Other Revenues for a month within sixty days of the end of that
month;
-4-
(n) to delete Section 13.04 and replace it with the following:
When there are no Canadian Resource Properties subject to the
Royalty, amounts deposited into the Reserve that can reasonably be
attributed to Other Revenues will be used to repay principal and
interest in respect of indebtedness borrowed or incurred to acquire
Other Investments and any excess will be paid to the Grantor. The
remaining amounts in the Reserve will be used to pay, in the
following order: (i) Debt Service Charges; (ii) Operating Costs and
Reclamation Obligations and (iii) General and Administrative Costs
and Management Fees. Ninety-nine percent (99%) of the amounts
remaining in the Reserve after the payment of the costs described
above shall be distributed to the holders of Royalty Units, pro
rata.
2. Making such further amendments or revisions as the Board of Directors may
deem necessary or advisable, and such mechanical, incidental and other
amendments or revisions as the Board of Directors may deem necessary or
advisable, to give effect to the amendments described above and in the
Circular.
3. The Trustee is hereby authorized for and on behalf of the Trust to
execute and deliver an amending agreement to the Royalty Indenture, or an
amended and restated Royalty Indenture, and the execution thereof shall
evidence approval of the said amendments and of the amending agreement or
the amended and restated Royalty Indenture pursuant to this Extraordinary
Resolution; and
4. The Trustee is hereby authorized and directed for and on behalf of the
Royalty Unitholders and any officer or director of the Corporation, is
authorized and directed, for and in the name of the Corporation, to
execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution.
5. Notwithstanding the passing of this resolution by Royalty Unitholders,
the Board of Directors, without further notice to or approval of Royalty
Unitholders, may decide not to implement all, or a portion of, the
matters provided for in this Extraordinary Resolution or may revoke the
resolution at any time prior to the implementation thereof.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006 and the Royalty Indenture have the same meanings in this
Extraordinary Resolution when used herein.
SCHEDULE "C-6"
EXTRAORDINARY RESOLUTION REGARDING MISCELLANEOUS
AMENDMENTS TO THE ROYALTY INDENTURE
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. The board of directors of the Corporation is hereby granted the authority
to direct the Corporation and the Trustee to amend the Royalty Indenture
as follows:
(a) to delete the definition of "Acquisition Fee" and all other
references to it in the Royalty Indenture;
(b) to replace "Canada Customs and Revenue Agency", in all instances
where that term is used, with "Canada Revenue Agency"; and
(c) to replace "mining reclamation trust" with "qualifying environmental
trust", in Section 13.05.
2. Making such further amendments or revisions as the Board of Directors may
deem necessary or advisable, and such mechanical, incidental and other
amendments or revisions as the Board of Directors may deem necessary or
advisable, to give effect to the amendments described above and in the
Circular.
3. The Trustee is hereby authorized for and on behalf of the Trust to
execute and deliver an amending agreement to the Royalty Indenture, or an
amended and restated Royalty Indenture, and the execution thereof shall
evidence approval of the said amendments and of the amending agreement or
the amended and restated Royalty Indenture pursuant to this Extraordinary
Resolution; and
4. The Trustee is hereby authorized and directed for and on behalf of the
Royalty Unitholders and any officer or director of the Corporation, is
authorized and directed, for and in the name of the Corporation, to
execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006 and the Royalty Indenture have the same meanings in this
Extraordinary Resolution when used herein.
SCHEDULE "C-7"
EXTRAORDINARY RESOLUTION TO AMEND THE UNANIMOUS SHAREHOLDER AGREEMENT
AND THE ARTICLES OF THE CORPORATION TO INCREASE THE MAXIMUM SIZE
OF THE BOARD OF DIRECTORS OF THE CORPORATION
BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:
1. The Unanimous Shareholder Agreement be amended to increase the maximum
size of the Board of Directors of the Corporation by:
(a) amending Section 3.01 to read as follows:
The Board of Directors of the Corporation shall consist of a minimum
of three (3) members and a maximum of twelve (12) members, two (2)
of whom shall be appointed by the Manager and the balance of whom
shall be appointed by the Trust Unitholders. If the appointment of
two (2) members by the Manager would result in the Trust
Unitholders, not having appointed a majority of the Board of
Directors, then the Manager shall appoint only one (1) member of the
Board of Directors.
(b) Making such supplemental and ancillary amendments as are deemed
necessary or expedient to give effect to the foregoing.
2. The articles of the Corporation be amended to increase the maximum size
of the Board of Directors of the Corporation from eight (8) members to
twelve (12) members.
3. The Trustee is hereby authorized, for and in the name of the Trust, to
execute and deliver an amending agreement to the Unanimous Shareholder
Agreement, or an amended and restated Unanimous Shareholder Agreement,
and execution thereof shall evidence approval of the said amendments and
the amending agreements or the amended and restated Unanimous Shareholder
Agreement pursuant to this Extraordinary Resolution.
4. Any officer or director of the Corporation is hereby authorized, for and
in the name of the Corporation, to execute and deliver articles of
amendment with the Alberta Registrar of Corporations, and execution
thereof shall evidence approval of the said articles of amendment
pursuant to this Extraordinary Resolution.
5. The Trustee is hereby authorized and directed for and on behalf of the
Trust Unitholders and any officer or director of the Corporation, is
authorized and directed, for and in the name of the Corporation, to
execute all documents and to do all things as deemed necessary or
desirable to implement this Extraordinary Resolution.
All terms defined in the Information Circular - Proxy Statement of the Trust
dated May 16, 2006, have the same meanings in this Extraordinary Resolution
when used herein.
PENGROWTH CORPORATION
PENGROWTH ENERGY TRUST
(HOLDERS OF TRUST UNITS)
GENERAL FORM OF PROXY
The following general form of proxy is provided for use by Trust Unitholders
at the Shareholders Meeting, the Trust Meeting and the Royalty Meeting
(collectively, the "Meetings"), all of which Meetings are to be held on June
23, 2006. The details of the resolutions are set out in the Information
Circular - Proxy Statement dated May 16, 2006 (the "Circular") with respect to
the Meetings. Capitalized terms used in this general form of proxy and not
defined herein shall have the meanings given to them in the Circular. IN ORDER
TO BE VALID AND ACTED UPON AT THE MEETINGS, THIS PROXY MUST BE RETURNED AS
DIRECTED IN THE CIRCULAR AND RECEIVED NOT LESS THAN 24 HOURS (EXCLUDING
SATURDAYS, SUNDAYS AND HOLIDAYS) BEFORE THE TIME FOR HOLDING THE MEETINGS OR
ANY ADJOURNMENT(S) THEREOF.
==============================================================================
PROXY FOR THE SHAREHOLDER MEETING
The undersigned Trust Unitholder of Pengrowth Trust hereby appoints James S.
Kinnear or failing him, John B. Zaozirny, or, instead of either of the
foregoing, _________________________________, as proxyholder of the
undersigned to attend and act on behalf of the undersigned at the Shareholder
Meeting to be held on June 23, 2006 and at any adjournment(s) thereof, and
directs the said proxyholder to vote the Trust Units represented by this proxy
in the following manner:
1. To vote FOR |_| or to WITHHOLD VOTING FOR |_| the ordinary resolution
appointing KPMG LLP, Chartered Accountants, as auditors of the
Corporation, to hold office until the next annual meeting of
shareholders or until their successor is elected or appointed.
2. To vote FOR |_| or to WITHHOLD VOTING FOR |_| the ordinary resolution
electing the nominees named in the Circular as directors of the
Corporation.
3. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving amendments to the Unanimous Shareholder Agreement to
simplify voting procedures at meetings of the shareholders of the
Corporation, as described in the Circular and as set forth in Schedule
A-1 to the Circular.
4. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving amendments to the Unanimous Shareholder Agreement and the
articles of the Corporation to increase the maximum size of the Board
of Directors of the Corporation, as described in the Circular and as
set forth in Schedule A-2 to the Circular.
AT THE DISCRETION OF THE SAID PROXYHOLDER, UPON ANY AMENDMENT OR VARIATION OF
THE ABOVE MATTERS OR ANY OTHER MATTER THAT MAY PROPERLY BE BROUGHT BEFORE THE
SHAREHOLDER MEETING OR ANY ADJOURNMENT(S) THEREOF, IN SUCH MATTER AS SUCH
PROXYHOLDER IN HIS SOLE JUDGEMENT MAY DETERMINE.
==============================================================================
FORM OF PROXY FOR THE TRUST MEETING
The undersigned Trust Unitholder of Pengrowth Trust hereby appoints James S.
Kinnear or, failing him, John B. Zaozirny, or instead of either of the
foregoing, _____________________, as proxyholder of the undersigned to attend
and act on behalf of the undersigned at the Trust Meeting to be held on June
23, 2006, and at any adjournment(s) thereof, and directs the said proxyholder
to vote the Trust Units represented by this proxy in the following manner:
1. To vote FOR |_| or to WITHHOLD VOTING FOR |_| the ordinary resolution
appointing KPMG LLP, Chartered Accountants, as auditors of Pengrowth
Trust, to hold office until the next annual meeting of Unitholders or
until their successor is elected or appointed.
2. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving amendments to the Trust Indenture to provide for the
consolidation of the Trust's dual class structure, as described in the
Circular and as set forth in Schedule B-1 to the Circular.
3. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving amendments to the Unanimous Shareholder Agreement and the
Trust Indenture to simplify voting procedures at meetings of the
shareholders of the Corporation, as described in the Circular and as
set forth in Schedule B-2 to the Circular.
4. To vote FOR |_| or to vote AGAINST |_| the ordinary resolution
approving amendments to the Deferred Entitlement Unit Plan, as
described in the Circular and as set forth in Schedule B-3 to the
Circular.
5. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving amendments to the Trust Indenture regarding the distribution
of net proceeds from the sale of properties, as described in the
Circular and as set forth in Schedule B-4 to the Circular.
6. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving amendments to the Unanimous Shareholder Agreement and the
articles of the Corporation to increase the maximum size of the Board
of Directors of the Corporation, as described in the Circular and as
set forth in Schedule B-5 to the Circular.
AT THE DISCRETION OF THE SAID PROXYHOLDER, TO VOTE UPON ANY AMENDMENT OR
VARIATION OF THE ABOVE MATTERS OR ANY OTHER MATTER THAT MAY PROPERLY BE
BROUGHT BEFORE THE TRUST MEETING OR ANY ADJOURNMENT(S) THEREOF IN SUCH MANNER
AS SUCH PROXYHOLDER IN HIS SOLE JUDGEMENT MAY DETERMINE.
==============================================================================
FORM OF PROXY FOR THE ROYALTY MEETING
The undersigned Trust Unitholder of Pengrowth Trust hereby appoints James S.
Kinnear or, failing him, John B. Zaozirny, or instead of either of the
foregoing, _____________________, as proxyholder of the undersigned to attend
and act on behalf of the undersigned at the Royalty Meeting to be held on June
23, 2006, and at any adjournment(s) thereof, and directs the said proxyholder
to vote the Royalty Units represented by this proxy in the following manner:
1. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving amendments to the Royalty Indenture to provide for the
consolidation of the Trust's dual class structure, as described in the
Circular and as set forth in Schedule C-1 to the Circular.
-2-
2. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving amendments to the Unanimous Shareholder Agreement and the
Royalty Indenture to simplify voting procedures at meetings of the
shareholders of the Corporation, as described in the Circular and as
set forth in Schedule C-2 to the Circular.
3. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving amendments to the Royalty Indenture regarding the
distribution of net proceeds from the sale of properties, as described
in the Circular and as set forth in Schedule C-3 to the Circular.
4. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving amendments to the Royalty Indenture regarding distributions
upon a liquidation, winding-up or dissolution of the Corporation, as
described in the Circular and as set forth in Schedule C-4 to the
Circular.
5. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving amendments to the Royalty Indenture regarding certain
expenditures, the reserve and other revenues, as described in the
Circular and as set forth in Schedule C-5 to the Circular.
6. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving miscellaneous amendments to the Royalty Indenture, as
described in the Circular and as set forth in Schedule C-6 to the
Circular.
7. To vote FOR |_| or to vote AGAINST |_| the extraordinary resolution
approving amendments to the Unanimous Shareholder Agreement and the
articles of the Corporation to increase the maximum size of the Board
of Directors of the Corporation, as described in the Circular and as
set forth in Schedule C-7 to the Circular.
AT THE DISCRETION OF THE SAID PROXYHOLDER, TO VOTE UPON ANY AMENDMENT OR
VARIATION OF THE ABOVE MATTERS OR ANY OTHER MATTER THAT MAY PROPERLY BE
BROUGHT BEFORE THE ROYALTY MEETING OR ANY ADJOURNMENT(S) THEREOF, IN SUCH
MANNER AS SUCH PROXYHOLDER IN HIS SOLE JUDGEMENT MAY DETERMINE.
==============================================================================
I HEREBY REVOKE ANY PROXIES HERETOFORE GIVEN.
THIS PROXY IS SOLICITED ON BEHALF OF PENGROWTH MANAGEMENT LIMITED. THE TRUST
UNITS REPRESENTED BY THIS PROXY SHALL BE VOTED AS DIRECTED IN THE SPACES
PROVIDED ABOVE OR, IF NO DIRECTION IS GIVEN, SHALL BE VOTED IN FAVOUR OF EACH
OF THE ABOVE MATTERS.
THE PERSONS NAMED IN THIS PROXY ARE DIRECTORS AND/OR OFFICERS OF PENGROWTH
CORPORATION. EACH TRUST UNITHOLDER HAS THE RIGHT TO APPOINT A PERSON, WHO NEED
NOT BE A TRUST UNITHOLDER, TO ATTEND AND TO ACT ON HIS BEHALF AT THE MEETINGS,
OTHER THAN THE PERSONS DESIGNATED ABOVE. TO EXERCISE SUCH RIGHT, THE NAMES OF
THE PERSONS DESIGNATED BY PENGROWTH MANAGEMENT LIMITED SHOULD BE CROSSED OUT
AND THE NAME OF THE TRUST UNITHOLDER'S APPOINTEE SHOULD BE LEGIBLY PRINTED IN
THE BLANK SPACE. TRUST UNITHOLDERS WHO HOLD THEIR TRUST UNITS THROUGH
BROKERAGE ACCOUNTS OR OTHER INTERMEDIARIES WHO WISH TO APPEAR IN PERSON AND
VOTE AT THE MEETINGS SHOULD APPOINT THEMSELVES AS THEIR OWN REPRESENTATIVES AT
THE MEETINGS OR OTHERWISE FOLLOW THE DIRECTIONS OF THEIR INTERMEDIARIES.
-3-
TRUST UNITHOLDERS SHOULD COMPLETE THE PROXY AND MAIL IT IN THE
ENVELOPE PROVIDED HEREWITH.
Dated this __________ day of _____________, 2006.
-----------------------------------
Signature of Trust Unitholder
-----------------------------------
Name of Trust Unitholder
(Please Print)
Note:
1. If the appointer is a corporation, its
corporate seal must be affixed or this form of
proxy must be signed by an officer or attorney
thereof duly authorized.
2. Persons signing as executors, administrators,
trustees, etc., should so indicate.
3. THIS FORM OF PROXY MUST BE DATED AND THE
SIGNATURE OF THE TRUST UNITHOLDER SHOULD BE
EXACTLY THE SAME AS THE NAME IN WHICH THE TRUST
UNITS ARE REGISTERED. IF THIS PROXY IS NOT
DATED, IT WILL BE DEEMED TO BE DATED AS OF THE
DATE IT IS RECEIVED BY COMPUTERSHARE TRUST
COMPANY OF CANADA.
-4-
PART II
INFORMATION NOT REQUIRED TO BE
DELIVERED TO OFFEREES OR PURCHASERS
Section 124 of the Business Corporations Act (Alberta) provides as follows:
124(1) Except in respect of an action by or on behalf of the
corporation or body corporate to procure a judgment in its favour, a
corporation may indemnify a director or officer of the corporation, a former
director or officer of the corporation or a person who acts or acted at the
corporation's request as a director or officer of a body corporate of which the
corporation is or was a shareholder or creditor, and the director's or
officer's heirs and legal representatives, against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a judgment,
reasonably incurred by the director or officer in respect of any civil,
criminal or administrative action or proceeding to which the director or
officer is made a party by reason of being or having been a director or officer
of that corporation or body corporate, if
(a) the director or officer acted honestly and in good
faith with a view to the best interests of the
corporation, and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, the
director or officer had reasonable grounds for
believing that the director's or officer's conduct was
lawful.
(2) A corporation may with the approval of the Court indemnify a
person referred to in subsection (1) in respect of an action by or on behalf of
the corporation or body corporate to procure a judgment in its favour, to which
the person is made a party by reason of being or having been a director or an
officer of the corporation or body corporate, against all costs, charges and
expenses reasonably incurred by the person in connection with the action if the
person fulfills the conditions set out in subsection (1)(a) and (b).
(3) Notwithstanding anything in this section, a person referred
to in subsection (1) is entitled to indemnity from the corporation in respect
of all costs, charges and expenses reasonably incurred by the person in
connection with the defence of any civil, criminal or administrative action or
proceeding to which the person is made a party by reason of being or having
been a director or officer of the corporation or body corporate, if the person
seeking indemnity
(a) was substantially successful on the merits in the
person's defence of the action or proceeding,
(b) fulfills the conditions set out in subsection (1)(a)
and (b), and
(c) is fairly and reasonably entitled to indemnity.
(3.1) A corporation may advance funds to a person in order to
defray the costs, charges and expenses of a proceeding
referred to in subsection (1) or (2), but if the person does
not meet the conditions of subsection (3) he or she shall
repay the funds advanced.
(4) A corporation may purchase and maintain insurance for the
benefit of any person referred to in subsection (1) against any liability
incurred by the person
(a) in the person's capacity as a director or officer of
the corporation, except when the liability relates to
the person's failure to act honestly and in good faith
with a view to the best interests of the corporation,
or
(b) in the person's capacity as a director or officer of
another body corporate if the person acts or acted in
that capacity at the corporation's request, except
when the liability relates to the person's failure to
act honestly and in good faith with a view to the best
interests of the body corporate.
II-1
(5) A corporation or a person referred to in subsection (1) may
apply to the Court for an order approving an indemnity under this section and
the Court may so order and make any further order it thinks fit.
(6) On an application under subsection (5), the Court may order
notice to be given to any interested person and that person is entitled to
appear and be heard in person or by counsel.
The by-laws of Pengrowth Corporation (the "Corporation") and Pengrowth
Management Limited (the "Manager"), respectively, provide that they will
indemnify the indemnified persons designated in Section 124(1) of the Business
Corporations Act(Alberta) of the Corporation and the Manager, respectively, in
the manner contemplated by the Business Corporations Act (Alberta).
As contemplated by Section 124(4) of the Business Corporations Act
(Alberta), the Corporation has purchased insurance against potential claims
against the directors and officers of Pengrowth and against loss for which the
Corporation may be required or permitted by law to indemnify such directors and
officers.
Pursuant to the Amended and Restated Management Agreement (the
"Management Agreement") dated as of May 12, 2003 among the Corporation,
Pengrowth Energy Trust (the "Trust"), Computershare Trust Company of Canada and
the Manager, the Manager and these persons having served as a director, officer
or employee thereof shall be indemnified by the Corporation (out of its assets
and out of the royalty provided for in the Amended and Restated Royalty
Indenture dated as of July 17, 2003 between the Corporation and Computershare
Trust Company of Canada, as trustee) for all liabilities and expenses arising
from or in any matter related to the Management Agreement, so long as the party
seeking such indemnification shall not be adjudged liable for or guilty of
willful misfeasance, bad faith, gross negligence or reckless disregard of duty
to the Corporation or the Trust, and shall not be adjudged to be in breach of
any material covenants and duties of the Manager under the Management
Agreement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
II-2
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.1 The section entitled "Trust Units - Trust Unit
Reclassification" in the Registrant's annual information form
dated March 29, 2006 (incorporated by reference to the
Registrant's Form 40-F filed with the Commission on March 31,
2006, Commission File No. 1-31253).
4.2 The sections under the headings "Risk Factors - If the Trust
ceases to qualify as a mutual fund trust it would adversely
affect the value of our Trust Units", "Risk Factors - Changes
in Canadian legislation could adversely affect the value of
our Trust Units" and "Risk Factors - Changes to the terms of
the Class A Trust Units or to the Class B Trust Units could
adversely affect the market value of either class of Trust
Units" in the Registrant's annual information form dated
March 29, 2006 (incorporated by reference to the Registrant's
Form 40-F filed with the Commission on March 31, 2006,
Commission File No. 1-31253).
5.1 Consent of Bennett Jones LLP.
6.1 Powers of Attorney (included on the signature page of this
Registration Statement).
II-3
PART III
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
ITEM 1. UNDERTAKING
The Registrant undertakes to make available, in person or by
telephone, representatives to respond to inquiries made by the Commission
staff, and to furnish promptly, when requested to do so by the Commission
staff, information relating to the securities registered pursuant to Form F-10
or to transactions in said securities.
ITEM 2. CONSENT TO SERVICE OF PROCESS
Concurrent with the filing of this Registration Statement on Form
F-10, the Registrant filed with the Commission a written irrevocable consent
and power of attorney on Form F-X.
Concurrent with the filing of this Form F-10, the trustee for the
Trust Units, Computershare Trust Company of Canada, is filing with the
Commission a written irrevocable consent and power of attorney on Form F-X.
Any change to the name or address of the agent for service of process
of the Registrant shall be communicated promptly to the Securities and Exchange
Commission by an amendment to the Form F-X referencing the file number of the
relevant registration statement.
III-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form F-10 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Calgary, Province of Alberta, Canada, on the
26th day of May, 2006.
PENGROWTH ENERGY TRUST
By: Pengrowth Corporation, Administrator
By: /s/ James S. Kinnear
-------------------------------
Name: James S. Kinnear
Title: President, Chairman and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of James S. Kinnear, Charles V.
Selby and Christopher G. Webster, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him in his name,
place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) and supplements to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
and in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each acting alone, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as they might or
could do themselves, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them acting alone, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on May 26th, 2006.
-------------------------------------------------------------------------------
SIGNATURE TITLE
-------------------------------------------------------------------------------
/s/ James S. Kinnear President, Chairman and Chief
-------------------------------- Executive Officer
James S. Kinnear
/s/ Christopher G. Webster Chief Financial Officer
-------------------------------- (Principal Financial Officer)
Christopher G. Webster
/s/ Douglas C. Bowles Vice President and Controller
-------------------------------- (Principal Accounting Officer)
Douglas C. Bowles
III-2
Director
--------------------------------
John B. Zaozirny
/s/ Stanley H. Wong Director
--------------------------------
Stanley H. Wong
Director
--------------------------------
Thomas A. Cumming
/s/ Michael S. Parrett Director
--------------------------------
Michael S. Parrett
/s/ A. Terence Poole Director
--------------------------------
A. Terence Poole
/s/ Kirby L. Hedrick Director
--------------------------------
Kirby L. Hedrick
III-3
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the Securities Act of
1933, the undersigned has signed this Registration Statement, in the capacity
of the duly authorized representative of the Registrant in the United States,
on May 26th, 2006.
By: /s/ Kirby L. Hedrick
-----------------------------
Name: Kirby L. Hedrick
Title: Director
III-4
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.1 The section entitled "Trust Units - Trust Unit
Reclassification" in the Registrant's annual information form
dated March 29, 2006 (incorporated by reference to the
Registrant's Form 40-F filed with the Commission on March 31,
2006, Commission File No. 1-31253).
4.2 The sections under the headings "Risk Factors - If the Trust
ceases to qualify as a mutual fund trust it would adversely
affect the value of our Trust Units", "Risk Factors - Changes
in Canadian legislation could adversely affect the value of
our Trust Units" and "Risk Factors - Changes to the terms of
the Class A Trust Units or to the Class B Trust Units could
adversely affect the market value of either class of Trust
Units" in the Registrant's annual information form dated
March 29, 2006 (incorporated by reference to the Registrant's
Form 40-F filed with the Commission on March 31, 2006,
Commission File No. 1-31253).
5.1 Consent of Bennett Jones LLP.
6.1 Powers of Attorney (included on the signature page of this
Registration Statement).
III-5