ENERFLEX SYSTEMS LTD. ANNUAL INFORMATION FORM For the ...

ENERFLEX SYSTEMS LTD. – ANNUAL INFORMATION FORM 

ENERFLEX SYSTEMS LTD. 

ANNUAL INFORMATION FORM 

For the year ended December 31, 2004 

March 7, 2005 

PAGE 1


TABLE OF CONTENTS 

CORPORATE STRUCTURE ......................................................................................................................................... 3 

The Corporation ........................................................................................................................................................ 3 

Subsidiaries............................................................................................................................................................... 3 

Forward Looking Statements .................................................................................................................................... 3 

GENERAL DEVELOPMENT OF THE BUSINESS......................................................................................................... 3 

Three Year History .................................................................................................................................................... 3 

Significant Acquisitions ............................................................................................................................................. 4 

Trends ....................................................................................................................................................................... 5 

NARRATIVE DESCRIPTION OF THE BUSINESS........................................................................................................ 5 

General Description .................................................................................................................................................. 5 

Service ...................................................................................................................................................................... 6 

Fabrication ................................................................................................................................................................ 6 

Leasing...................................................................................................................................................................... 7 

Compression............................................................................................................................................................. 8 

Production and Processing ....................................................................................................................................... 9 

Power ........................................................................................................................................................................ 9 

Segmented Revenue Details .................................................................................................................................... 9 

Competitive Conditions ............................................................................................................................................. 9 

Intangible Properties ............................................................................................................................................... 11 

Seasonality.............................................................................................................................................................. 11 

Economic Dependence........................................................................................................................................... 11 

Environmental Matters ............................................................................................................................................ 11 

Social Policies......................................................................................................................................................... 11 

Internal Controls...................................................................................................................................................... 12 

Employees .............................................................................................................................................................. 12 

Economic Drivers .................................................................................................................................................... 12 

Business Risks........................................................................................................................................................ 12 

SELECTED CONSOLIDATED FINANCIAL INFORMATION ....................................................................................... 15 

Annual Information.................................................................................................................................................. 15 

DESCRIPTION OF CAPITAL STRUCTURE ............................................................................................................... 15 

DIVIDENDS............................................................................................................................................................. 16 

MARKET FOR SECURITIES....................................................................................................................................... 16 

Escrowed Securities................................................................................................................................................ 16 

DIRECTORS AND OFFICERS .................................................................................................................................... 16 

Corporate Cease Trade Orders or Bankruptcies..................................................................................................... 19 

Conflicts of Interests................................................................................................................................................ 19 

LEGAL PROCEEDINGS.............................................................................................................................................. 19 

INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS....................................................................................... 19 

TRANSFER AGENTS AND REGISTRARS ................................................................................................................. 19 

MATERIAL CONTRACTS............................................................................................................................................ 19 

AUDIT COMMITTEE.................................................................................................................................................... 20 

REMUNERATION OF AUDITORS .............................................................................................................................. 21 

ADDITIONAL INFORMATION ..................................................................................................................................... 21 

APPENDIX “A”............................................................................................................................................................. 22 

PAGE 2


CORPORATE STRUCTURE 

The Corporation 

Enerflex Systems Ltd. ("Enerflex" or the "Company") was incorporated under the Companies Act (Alberta) on April 

21, 1980 and was continued under the Business Corporations Act (Alberta) on February 13, 1985. On April 17, 1986 

the Company continued under the Canada Business Corporations Act. The head office, registered office and 

principal place of business is located at 4700 - 47th Street SE, Calgary, Alberta, T2B 3R1. 

On September 1, 1993, the articles of the Company were amended to subdivide the outstanding common shares of 

the Company (the “Common Shares”) into 4,500,000 Common Shares and the private company restrictions were 

removed. In addition, the minimum number of directors that may be elected was increased from one to three and the 

maximum number of directors was increased from seven to eleven. 

On September 17, 1993, the Company became a publicly traded company on the Toronto Stock Exchange and 

issued 3,000,000 Common Shares. 

Effective May 14, 1997, the Common Shares of the Company were subdivided on a two for one basis. All share and 

per share data has been restated to give effect to the subdivision. 

Subsidiaries 

The following table sets forth the principal operating subsidiaries of the Company, the jurisdiction of incorporation, 

and the percentage of shares owned, directly or indirectly, by the Company as of December 31, 2004: 

Name of Subsidiary 

Jurisdiction of Incorporation 

Percentage of Shares 

Beneficially Owned or Controlled, 

Directly or Indirectly, by the Company 

Enerflex Leasing Ltd. Canada 100% 

Gas Drive Systems Pty Limited Australia 100% 

Enerflex Systems, Inc. Delaware, United States 100% 

Landré Ruhaak bv The Netherlands 100% 

Joint Venture Interests Jurisdiction of Incorporation Percentage of Ownership 

S & L Energie Projekte GmbH Germany 51% 

Presson Descon International Ltd. Pakistan 46.5% 

Forward Looking Statements 

This Annual Information Form contains forward looking statements. The words “anticipate”, “expect”, “project” and 

similar expressions identify forward-looking statements. Such statements are subject to certain risks, uncertainties 

and assumptions pertaining to operating performance, economic conditions and other factors. Should one or more 

of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary 

significantly from those expected. 

GENERAL DEVELOPMENT OF THE BUSINESS 

Three Year History 

Enerflex is a leading supplier of products and services to the global oil and natural gas production industry. The 

Company’s core expertise lies in its ability to provide products and services to the industry segment that operates 

between the wellhead and the pipeline. Enerflex’s primary products and services are: natural gas compression, 

power generation and process equipment for sale or lease, hydrocarbon production and processing facilities, 

electrical, instrumentation and controls services, and a comprehensive package of mechanical field maintenance 

and contracting capabilities. 

PAGE 3


The Company was founded in 1980 by P. John Aldred, Enerflex’s Chairman, President and Chief Executive Officer. 

Since 1980, Enerflex has benefited from the growing demand for natural gas and is now a significant player in 

providing companies around the world with the ability to “one-stop shop” for products and services used in the 

production and processing of crude oil and natural gas. 

Enerflex’s strategic goals are: 

• Expand the compression and production equipment rental business; 

• Maintain an efficient and responsive organizational structure; 

• Foster a culture and corporate philosophy of operational excellence; 

• Explore opportunities to expand into complementary business areas; 

• Develop a significant presence in International markets including the United States, Latin America, Europe, 

Africa, Australia and the Middle East including Pakistan; and 

• Continue to maintain a strong customer focus. 

In 2001 and 2002, the Company completed several acquisitions, both domestically and internationally, establishing a 

worldwide product and service offering. In addition, Gas Drive Systems Pty Limited, the Company’s Australian-based 

service organization, was granted the Waukesha distributorship for engine sales and parts for the Republic of 

Indonesia in 2001. 

On October 29, 2001, Enerflex, through its wholly-owned subsidiary, Enerflex European Holdings bv, acquired 100% 

of the issued and outstanding shares of Landré Ruhaak bv, a Netherlands based company, for cash consideration of 

$8.5 million. Geographic expansion and continued development of Enerflex’s worldwide service business is one of 

the key elements of the plan for the growth of Enerflex. The acquisition of Landré Ruhaak bv strengthened the 

Company’s service operations in the North Sea and provided a strong engine sales and parts and service 

organization from which to expand into other parts of continental Europe. 

On March 20, 2002, Enerflex, through its wholly-owned subsidiary, Enerflex Systems, Inc., acquired the operating 

assets of VR Systems Inc., a specialty natural gas compression equipment packager located in Odessa, Texas, for 

cash consideration of $4.1 million. This acquisition was also consistent with the Company’s strategic objective of 

increasing its global presence. VR Systems’ 20,000 square foot manufacturing facility is particularly well placed to 

serve customers in the west Texas and New Mexico regions and it also contributes to the packaging needs of 

Enerflex’s Houston sales office. Additionally, the facility provides a base from which the Company is establishing a 

service and leasing presence in the United States. 

On July 18, 2002, Enerflex acquired 100% of the issued and outstanding shares of EnSource Energy Services Inc. in 

exchange for 7,384,288 Common Shares valued at $19.10 per Common Share. Including the assumption of 

EnSource long-term debt, the transaction was valued at approximately $167.0 million. The EnSource acquisition 

enhanced the Company’s service capability, expanded the compression equipment offering to include sub-400 

horsepower screw compression, provided the expertise and facilities to design and fabricate oil and gas production 

and processing equipment, expanded the compression rental fleet and offered new power generation solutions. It 

also introduced Enerflex to new international markets. 

In December 2002, Enerflex simplified its legal structure by amalgamating the majority of its Canadian subsidiaries 

into its wholly owned subsidiary, EnSource Energy Services Inc., and subsequently conveyed the net assets and 

liabilities to the parent Canadian company, Enerflex Systems Ltd. Also in December 2002, the Company merged its 

United States subsidiaries into Enerflex Systems, Inc. 

In 2003, the Company introduced an internal re-organization of its operating divisions under the direction of P. John 

Aldred, who resumed the position of President and Chief Executive Officer in May 2003, and J. Blair Goertzen, who 

was appointed Executive Vice President and Chief Operating Officer in August 2003. 

In 2004, the Company completed the re-organization it introduced during 2003. These efforts included the 

restructuring of business units around successful product lines, the establishment of product line managers, a focus 

on improved cost controls and expenditure reduction, the implementation of improved processes and practices and 

the pursuit of contracts on a global basis. These efforts have also served as the initiation point for Enerflex’s 

response to the expanded reporting and governance requirements for publicly traded organizations. During the 

fourth quarter of 2004, Enerflex was awarded the Waukesha distribution rights for Poland. 

Significant Acquisitions 

Enerflex made no significant acquisitions during the year. 

PAGE 4


Trends 

The needs of Enerflex’s customers are changing in several ways and the Company is anticipating this by proactively 

adjusting how it operates. One such trend is the increasing globalization of the oil and gas industry and power 

generation industry. In this changing world, Enerflex is taking steps to increase its exposure to international markets. 

A second trend affecting customer needs is the rapid pace of consolidation among natural gas producers. In the 

past few years, several Enerflex customers were acquired by companies seeking greater economies of scale or a 

stronger Canadian presence. This consolidation affects the Company’s sales strategies. For example, whereas in 

the past the Company might have pursued five projects with each of five different companies, in the future the 

Company might pursue 25 projects in the hands of a single organization. 

In North America, income trusts and master limited partnerships are becoming a commonly used corporate structure 

for crude oil and natural gas production organizations. Producers adopting this form of organization tend to focus 

increasingly on annual cash flows and distributions to unit holders. As a consequence, there is a growing tendency 

for these entities to focus on a short term production requirements and, to a growing extent, avoid capital 

expenditures by leasing infrastructure related assets. Should this trend proliferate, we believe the sale of natural gas 

infrastructure assets provided by our Fabrication segment could reduce while revenue from leasing activities and our 

Mechanical Service division could increase. 

In 2005, industry analysts forecast that capital expenditures on plant and equipment by crude oil and natural gas 

production companies will remain strong and will be comparable to, or above, 2004 levels. Many forecasters also 

expect that, in the absence of significant discoveries, North American conventional natural gas production will 

decrease. Sustaining or increasing production volumes is progressively more dependent upon development of tight 

gas and coal-bed methane, both of which require more compression than traditional reservoirs, and expansion in 

frontier regions such as the Northwest Territories. The continuation of higher natural gas prices similar to or above 

those experienced in recent years will be required to support gas development in these areas. 

While the oil and gas industry and the power generation industry have always been cyclical businesses, cycles are 

becoming shorter and more pronounced. Industry consolidation underscores Enerflex’s longer-term strategy of 

increasing the proportion of revenue earned outside Canada, growing the portion of the business related to service 

and leasing, and expanding into complementary lines of business. 

In 2004, 27% of revenue was derived from international sources, compared to 25% in 2003. Looking ahead, 

revenues from international operations are expected to represent an increasing percentage of Enerflex’s 

consolidated revenues. 

General Description 

NARRATIVE DESCRIPTION OF THE BUSINESS 

Enerflex is a leading supplier of products and services to the global oil and gas industry. The Company’s core 

expertise lies in its ability to provide products and services to the industry segment that operates between the 

wellhead and the pipeline. Enerflex’s primary products and services are: natural gas compression, production, and 

power generation equipment for sale or lease, hydrocarbon production and processing facilities, electrical, 

instrumentation and controls services and a comprehensive package of mechanical field maintenance and 

contracting capabilities. Through our ability to provide these products and services in an integrated manner, or as 

stand-alone offerings, Enerflex believes it offers customers a unique value proposition. 

The Company is headquartered in Calgary, Canada, and has operations in Canada, the United States, Germany, the 

Netherlands, Australia, Pakistan and Indonesia. 

The Company’s revenue is derived from offering a complete suite of oil and gas related products and services, 

including: 

• service, parts and re-engineering of existing compression and power generation equipment; 

• electrical, instrumentation and controls services; 

• design and packaging of new compression and power generation equipment; 

• design and fabrication of hydrocarbon production and processing facilities, flare systems and combustionrelated 

equipment; and 

• oil and gas equipment rental and leasing. 

PAGE 5


The Company’s operations are structured along three business segments – Service, Fabrication and Leasing, 

allowing Enerflex to meet customers’ needs in the following distinct ways: 

Service 

Enerflex is an international provider of mechanical, and electrical, instrumentation and controls services to the oil 

and gas production industry through an extensive network of locations in Canada, the United States, Germany, the 

Netherlands, Australia and Indonesia. These services are offered through two divisions, namely Mechanical Service 

and Syntech. 

Mechanical Service Enerflex is the Waukesha distributor in key markets around the world including Canada 

(operating as Pamco and Jiro), parts of Europe (operating as Landré Ruhaak bv and in Germany through its 

51% owned joint venture S & L Energie Projekte GmbH) and Australia/Indonesia (operating as Gas Drive 

Systems and PT Gas Drive Systems Indonesia). The Mechanical Service Unit provides repair and maintenance 

services, equipment optimization and maintenance programs, manufacturer warranties, exchange components 

and technical services. The division operates through an extensive network of branch offices and often provides 

its services at the customers well site locations using trained technicians and mechanics. Mechanical Service 

maintains a Canadian $26 million inventory of genuine parts from key manufacturers. 

Syntech Enerflex is the largest open-shop electrical and instrumentation provider based in western Canada, 

with approximately 540 hourly tradesmen strategically located through the Western Canadian Sedimentary 

basin. Through Syntech, the Company provides a wide range of expertise including electrical products and 

services, focusing on construction at plant sites and ongoing maintenance of those systems, instrumentation 

products and services for both maintenance and new construction projects, and control technology expertise in 

design and technical services and automation. 

Fabrication 

Enerflex’s fabrication business segment engineers and assembles standard and custom-designed compression 

packages, production and processing equipment and facilities, and power generation systems. These products are 

offered through three divisions, namely: 

Compression Enerflex’s Compression division designs, manufactures and installs a wide variety of new 

natural gas compression packages for customers around the world. Packages are engineered and assembled 

at three locations: Calgary and Stettler, Alberta, and Odessa, Texas. These packages are standard-built or 

custom-designed with major components supplied by leaders and innovators within the global industry. The 

Company offers compression packages from 5 horsepower to 6,000 horsepower and ranging from low 

specification field compressors to high specification process compressors for onshore and offshore applications. 

The Company’s Compression facilities presently provide approximately 370,000 square feet of shop floor space 

and during 2004, the Company estimates, based on the theoretical plant capacity, these facilities operated at 

58% utilization based on labor hours. Enerflex provides re-engineering and refurbishment of existing 

compression equipment both in a Calgary facility and at customer field locations. 

Production and Processing Enerflex’s Production and Processing division is a fully integrated engineering, 

design and fabrication group which custom-builds oil and gas processing equipment. Complete oil and gas 

processing facilities are designed through our Presson business unit, located in Nisku, Alberta, in modules 

enabling transportation anywhere in the world. Enerflex, through its Mactronic business unit, located in Red 

Deer, Alberta, is a recognized industry leader in the design and fabrication of flare systems and combustionrelated 

equipment for onshore and offshore applications. The Company’s Production and Processing facilities 

presently provide approximately 100,000 square feet of shop floor space and the Company estimates these 

facilities operated at 89.1% utilization based on labor hours in 2004. 

Power Enerflex’s Power division designs, manufactures and installs sub 10-megawatt power generation 

packages worldwide. These custom or standardized packages are designed and assembled in the Company’s 

primary compression fabrication facility located in Calgary, Alberta. The Company offers turbine-drive 

generators, gas-fired reciprocating packages and diesel-fired reciprocating packages. 

PAGE 6


Leasing 

Enerflex offers customers flexible and innovative financing alternatives, through which oil and natural gas producers 

and electricity generators can lease the use of a broad range of compression, production and power generation 

equipment. Leasing options include short-term rentals, long-term capital and operating leases and full-service 

contract operations. The Company’s lease fleet is located principally in western Canada. Expansion in international 

markets commenced during 2004, and is being executed on a selective basis to minimize the risk from these new 

markets. 

Enerflex Leasing contributes significantly to overall earnings as it is a significant customer of our compression 

fabrication business as almost all of its equipment is purchased from Fabrication. Service benefits as the majority of 

Leasing customers use Pamco and Jiro Service to perform routine maintenance over the life of the lease. 

Leasing expects continued growth in demand for its products in Canada, and has targeted specific geographic 

regions for expansion in the United States and abroad. Leasing does not generally increase the capital invested in 

its fleet unless it has lease contracts. Growth in the lease fleet is expected to be the largest investment opportunity 

for the Company in 2005. 

The following chart is an overview of the Enerflex structure: 

FABRICATION 

LEASING 

SERVICE 

COMPRESSION 

FABRICATION 

POWER 

PRODUCTION & 

PROCESSING 

LEASING 

LEASING 

ELECTRICAL, 

INSTRUMENTATION 

& CONTROLS 

SERVICE 

MECHANICAL 

SERVICE 

Compression 

Services 

EFX Compression 

COMPRESSION 


USA 

Jiro 

Compression 

Services 



USA 

Jiro 

Compression 

POWER 

SEGMENT 

Division 

SEGMENT 

Mactronic 

Presson 

Presson-Descon 

PRODUCTION & 

International PROCESSING 

Ltd. 

(46.5%) 

Mactronic 

Presson 

Business Presson-Descon 

Unit 

International Ltd. 

(46.5%) 

Division 

Business Unit 

LEASING 

Syntech 

ELECTRICAL, 

INSTRUMENTATION 

& CONTROLS 

Syntech 

Pamco 

Jiro Service 

Gas Drive MECHANICAL Systems 

SERVICE 

PT Gas Drive Systems 

Indonesia 

Landré Ruhaak 

Pamco 

S&L Energie Projekte Jiro Service 

GmbH 

(51%) 

Gas Drive Systems 

PT Gas Drive Systems 

Indonesia 

Landré Ruhaak 

S&L Energie Projekte GmbH 

(51%) 

PAGE 7


The following section provides an overview of the compression, production and processing, and 

power markets and applications. 

Compression 

Natural gas, including coal-bed methane gas, (together “natural gas”) is found in underground reservoirs and coal 

seams. The pressure of the gas at the wellhead is generally too low to enable it to be transported to its destination 

for consumption. Virtually every cubic foot of natural gas requires compression at some point in the transportation 

and processing cycles. Compression equipment is used to increase the pressure within gas gathering systems and 

processing plants. Generally several compressors are required to sustain the pressure necessary to deliver gas 

from a typical field to the main line high pressure transmission facility and to its end use. 

Demand for compression occurs when new wells are drilled or when reservoir pressures decline in existing fields. A 

combination of additional compression and development drilling is invariably required to offset the decline in 

reservoir pressures. This is particularly evident in shallow gas reservoirs and coal-bed methane gas fields, where 

production can be brought on quickly and with relatively low capital costs, but will usually experience low initial 

production pressure or rapid production declines. 

Enerflex packages and services reciprocating and screw type compressors. A typical compressor package consists 

of a steel or concrete skid, gas compressor, driver such as a reciprocating engine, gas turbine or electric motor, gas 

cooler, liquid or particulate separation, piping and a control system. In colder climates the equipment is enclosed in 

an insulated building. 

Compression is required both in land and offshore applications. The following are some of the more common 

compression applications: 

Land Based Applications 

• Wellhead Compression – Compression at or near the wellhead is almost always required to boost the pressure 

of produced gas to slightly more than the pressure in the transmission pipeline. 

• Gas Gathering – Mid to large horsepower (“HP”) compressors (800 to 6,000 HP) deployed at a central field 

location, are used to boost gas pressure from several wells. 

• Gas Storage and Withdrawal – Natural gas is often stored in underground facilities such as depleted oil or gas 

reservoirs or salt caverns. This is done to balance production with seasonal demand. Compression is required 

both to inject gas into the storage reservoir and to subsequently withdraw the gas for reinjection into the 

pipeline. Storage facilities typically use compressors in increments of 2,000 to 3,000 HP. 

• Coal-Bed Methane – Methane trapped in coal-beds or seams occurs naturally at low pressures. Its production 

requires a combination of reciprocating and screw compression near the wellhead. 

• Fuel Gas Boosting – Most large gas turbine power generation plants require compressors to boost the fuel gas 

pressure from the low (30 PSI) pressure delivered by the local utility, up to the much higher pressures (350 – 

650 PSI) required by the turbine. These units typically are driven by electric motors. Their control systems are 

highly sophisticated to regulate a proper flow of fuel while the turbine undergoes load changes. 

• Gas Lift – Compressors are used to increase oil production by injecting gas into the oil reservoir. This increases 

reservoir pressure and facilitates the oil flow. At the surface, the gas is separated from the oil, recompressed 

and then re-injected in a continuous cycle. Local conservation and environmental regulations often make reinjection 

mandatory. 

• Enhanced Oil Recovery (EOR) – This process involves the injection of carbon dioxide or other gases by means 

of compression. Operators use EOR to decrease the viscosity of oil to enable it to flow from the reservoir 

formation. 

• Gas Processing – Gas plants typically require mid to large HP compressors for processing and boosting the 

pressure between inlet and outlet supply pipelines. 

Offshore Applications 

Compression equipment is used on FPSO (Floating Production, Storage & Offloading) vessels and other offshore 

units to re-inject gas associated with oil production back into the reservoir. Most offshore operating regulations 

prohibit the flaring of gas. Re-injection may also be necessary to increase production, or where pipeline access is 

unavailable or uneconomic. Reciprocating compression equipment is gaining market acceptance for offshore gas 

re-injection projects where the gas volumes are generally lower and the required differential pressures are high. 

PAGE 8


Production and Processing 

The Company designs and fabricates equipment and facilities that process and purify oil and natural gas coming 

from the wellhead. These facilities remove impurities such as hydrogen sulphide (“H 2S”), carbon dioxide (“CO 2”), 

hydrocarbon liquids (propane, butane and liquefied propane gas (“LPG”)), and water from oil and natural gas before 

they enter a pipeline. 

For the natural gas production and processing sector, the Company manufactures products ranging from 

hydrocarbon dew point control and liquid petroleum gas recovery, to H 2S and CO 2 removal and natural gas 

dehydration facilities. Oil products designed and manufactured include everything from oil emulsion treaters and oil 

stabilization and fractionation systems, to direct fired crude oil heaters and separator packages. The Company can 

build small components such as separators and heaters, or design a turnkey oil and natural gas facility from initial 

concept to start-up. 

Power 

A typical power generation unit is comprised of a natural gas reciprocating engine or turbine driver, generator and 

control devices. Power generation equipment may operate on natural gas, landfill gas, digester fuel, propane, diesel 

or a combination of these fuels. 

Enerflex’s power systems are used for the generation of prime, standby or peak shaving power and cogeneration. In 

the latter process, waste heat, produced by the driver, is captured and used for water or space heating, steam 

production or for cooling via absorption refrigeration. 

The Company manufactures high specification modular and portable power generation units. Outputs range from 15 

kW to 10MW. Multiple set configurations can also be provided. Enerflex has designed and installed plants with 

power outputs of up to 13 MW. Customer applications outside the petroleum industry include industrial plants, 

medical centres, office buildings, municipal landfill operators and independent power producers. Turnkey design, 

fabrication and installation, including permitting, are also available. 

Segmented Revenue Details 

The Company’s external revenue by business and geographic segment are illustrated in the following table: 

Business Segment 

Service 

Fabrication 

Leasing 

2004 Revenue 

$ 000 % 

248,635 

280,043 

28,399 

557,077 

44.63 

50.27 

5.10 

100.00 

2003 Revenue 

$ 000 % 

256,418 

236,914 

22,196 

515,528 

49.74 

45.95 

4.31 

100.00 

Geographic Segment 

Domestic 

International 

409,373 

147,704 

557,077 

73.49 

26.51 

100.00 

386,922 

128,606 

515,528 

75.05 

24.95 

100.00 

Competitive Conditions 

As a Canadian-based provider of equipment and services to the global oil and natural gas industry, Enerflex’s 

business prospects are influenced by several market factors. These include the business outlook for oil and natural 

gas producers, prospects for natural gas infrastructure development, as well as the business outlook and 

competitive environment within the oil and natural gas service industry. 

PAGE 9


Industry outlook – oil and gas producers 

While Enerflex continues to build its international presence, the Company’s fortunes are largely tied to natural gas 

capital and operating expenditures in western Canada. Approximately 21,700 wells were completed in 2004, of 

which approximately 70% were natural gas wells. In 2005, industry analysts forecast that capital expenditures on 

plant and equipment will remain strong, and will be comparable to 2004. Many forecasters expect that, in the 

absence of significant discoveries, North American conventional natural gas production will decrease. Sustaining or 

increasing production volumes is progressively more dependent upon development of tight gas and coal-bed 

methane, both of which require more compression than traditional reservoirs, and expansion in frontier regions such 

as the Northwest Territories. The continuation of higher natural gas prices similar to or above those experienced in 

recent years will be required to support gas development in these areas. 

Competitive issues in the oil and gas service industry 

Although the Canadian market continues to have distinct differences from the United States market, it is clear that a 

single North American market is developing. For this reason, investors should be aware of certain competitive 

issues in Canada, the United States and overseas markets. 

Canada 

The Canadian production and processing equipment and compressor packaging markets are very 

competitive. Several fabricators target the same customers as Enerflex, and fabrication floor space is not a 

constraint. To be successful, the Company must compete on the basis of quality and service while 

remaining price competitive. The introduction of additional products is one way the Company maintains its 

competitive position. In 2004, the Company reintroduced the BTB Compression product line and expanded 

the screw compressor product line to 600 horsepower. In 2005, Enerflex will further expand the screw 

compressor product line and introduce a compression optimization service, HPMAX. The HPMAX service 

will give customers access to the unique capabilities of the Compression Services business unit when 

developing plans for enhanced production in existing fields. 

A number of new competitors have emerged for both the Syntech and Pamco business units. Enerflex is a 

market leader in Canada and maintains an extensive branch network, as proximity to customer locations is 

key to earning business. Late in 2004, Pamco introduced a dedicated Central Services facility to better 

serve its customers and the Mechanical Service division’s global branch network through improved supplychain 

management and improved access to remanufactured parts. Pamco has a competitive advantage as 

the authorized Waukesha distributor. Syntech does not have exclusive distributorships, but has developed 

proprietary control technology to help differentiate its business from the competition. 

While it is the Company’s belief that more compression equipment is being rented each year in Canada, the 

majority of compression equipment, measured by horsepower, is owned by producers. Enerflex is a leader 

in the compression rental industry, supplying an estimated 30% of the Canadian market (calculated by 

horsepower). 

United States 

There are two major public competitors, one significant private competitor and a number of small regional 

competitors in the U.S. compression fabrication business. Management believes that the U.S. market may 

provide the Company with an opportunity to expand its business, through EFX Compression USA, a 

specialty natural gas compression equipment packager in Odessa, Texas. 

In the United States there is no dominant service provider. In 2003, Enerflex used Odessa, Texas facility as 

a platform to establish a mechanical service business in this market. The Company believes it can expand 

its mechanical service capability in this region. 

The U.S. market continues to be more heavily weighted towards compression rentals than the Canadian 

market. Approximately 30% of the U.S. market is served by rental compression equipment while 70% is 

owned by producers and pipeline companies (calculated by horsepower). In comparison to the Canadian 

market, rental rates are lower on certain product ranges in the United States as there has been a surplus of 

available equipment. Enerflex plans to compete in certain niche markets where returns on capital are 

appropriate. 

PAGE 10


International 

Internationally, Enerflex generally faces the same competitors as in North America. Most significant North 

American production equipment and compression fabricators pursue international business. International 

contacts developed by Presson and Mactronic over the past ten years, along with those compression 

products exported from the Company’s Canadian facilities, have increased Enerflex’s exposure to 

international opportunities, particularly in Pakistan and Australasia. 

Through our Australian subsidiary, Gas Drive Systems Pty Limited, expansion into Indonesia, and the 

acquisition of Landré Ruhaak bv in late 2001, Enerflex has developed an international platform from which 

to expand into certain global regions including Europe and Australasia. 

Intangible Properties 

In addition to the skills and experience of its employees, Enerflex maintains a number of intangible assets which 

includes the Mechanical Service division’s distribution agreements with Waukesha Engine, a division of Dresser Inc. 

Though the agreements are of a limited duration, generally three years, and can be terminated on 30 days notice, 

they do not generally change over time. This is exhibited by Pamco’s strong long-term relationship with Waukesha 

which has been in place since 1970. 

Additionally, internally developed product designs, specifications, fabrication processes and techniques, and 

customer relationships are considered to be of significant value to the organization. These intangible assets 

combine to form the intrinsic value associated with the various product and brand names employed by the 

organization. The effectiveness of our strategies and indirectly the brand and product names are reflected in the 

revenues and gross margin attained in the corresponding business unit. 

Seasonality 

While demand for Enerflex’s products and services is largely a function of the supply, demand and price of natural 

gas, other factors can affect the business, either positively or negatively. Energy prices in general affect the 

Company, as most customers generate cash flow from the production and sale of both oil and gas. Natural gas 

prices are determined by supply, demand and government regulations relating to natural gas production and 

processing. The market for capital goods used by natural gas producers is cyclical and, at times, highly volatile. 

Enerflex is structured to be profitable in both high and low periods of the energy cycle. This is achieved through 

product breadth, international diversification and a flexible workforce. Since becoming a public company in 1993, the 

Company has generated profits and positive cash flow even in challenging times. 

The oil and natural gas service sector in Canada, where Enerflex’s operations are currently concentrated, has a 

distinct seasonal trend in activity levels which results from well-site access and drilling patterns being adjusted to 

take advantage of weather conditions. Generally, the Company’s Fabrication segment experiences higher revenues 

in the fourth quarter of each year, its Service segment experiences higher revenues in the first quarter of each year 

and its Leasing segment experiences stable revenues throughout the year, impacted by the Company’s capital 

investment decisions. Variations from this trend usually occur when hydrocarbon energy fundamentals are either 

improving, as in the third quarter of 2004, or deteriorating. 

Economic Dependence 

The Company does not have significant exposure to any individual customer or counter party other than one major 

Canadian independent oil and natural gas producer which accounted for 13.1% of Enerflex’s revenue in 2004. No 

other customer accounted for more than 10% of the Company’s revenues. 

Enerflex is committed to building strong relationships with our suppliers and recognizes that success is achieved by 

fostering trust and respect between two parties. An effective competitive bidding process is in place to provide 

opportunities for all new and existing suppliers. 

Environmental Matters 

The Company designs and operates its facilities in compliance with applicable federal, provincial, local and foreign 

requirements regulating the discharge of substances into the environment or otherwise relating to the protection of 

the environment. The Company cannot predict the changes that may be made to environmental requirements in the 

future although it anticipates that such requirements generally will become more stringent. In this regard, the 

Company’s capital and operating costs for environmental controls will likely increase in the future; however, this is 

not expected to have a material effect on the earnings or competitive position of the Company. 

Social Policies 

Enerflex is actively involved in community events and encourages employees to participate in any initiatives. 

Enerflex does not support any particular political parties. 

PAGE 11


Internal Controls 

The creation of Bill 198 by the Ontario legislature and Multilateral Instrument’s 52-109, 52-110, and 52-111 by the 

Canadian Securities Administrators resulted in increased legislation of Corporate Governance. These instruments 

are the Canadian response to the Sarbanes-Oxley legislation in the United States. Enerflex is committed to adopting 

emerging and best practices in Corporate Governance. The Company believes that Corporate Governance is 

fundamental to an efficient and effectively operated organization, as it contributes to business and financial success. 

In June 2003, Enerflex began developing its VIPER (Value Improvement Program for Enhanced Results) program, 

which will enable Enerflex to implement all aspects of Bill 198 and the attendant securities regulation, and to add 

shareholder value through improvements in processes throughout the entire Company. This project continues to 

move forward on its schedule for completion. 

In March 2005, the Company intends to establish a whistle blower communication program. The program will act as 

an intake point for the confidential, anonymous submission by any stakeholder of concerns relating to any ethical, 

legal or financial matters. The program will be in compliance with the relevant sections of Multilateral Instrument 52- 

110 on Audit Committees and will assist the company in monitoring and improving the effectiveness of its core 

values established in 2004. 

Employees 

Enerflex had approximately 2,000 employees worldwide as at December 31, 2004. 

Economic Drivers 

The energy service sector, of which Enerflex is a part, is largely dependant upon the spending levels and activities of 

crude oil and natural gas (hydrocarbon) exploration and production companies. These spending patterns vary 

dramatically year over year and from one global region to another, and are influenced by many key factors including 

the current and expected commodity prices of crude oil and natural gas, the availability, access and cost of 

transporting hydrocarbon products, current and anticipated global supply and demand estimates, and a wide array of 

economic and political factors. As such, the demand for oilfield products and services can be volatile and is 

impacted by factors that are outside the control and influence of oilfield service companies. In addition to activity 

levels, access to skilled personnel, the supply and availability of major components and repair parts, and the 

competitive nature of the oilfield service sector are other challenges that face the industry sector and Enerflex. 

During 2004, and to a lesser extent 2003, the increase in oilfield activity and natural gas infrastructure development 

in Canada and other international markets have benefited the Company, primarily through increased demand for 

Enerflex’s products and services, and improved facility and personnel utilization rates. In addition to meeting the 

escalating demand for products and services, it has been necessary for Enerflex to maintain its competitive position 

and market share. This has been achieved by negotiating fair prices for Enerflex’s products and services, expanding 

the global reach of the Company’s export sales, developing and maintaining the Company’s relationships with key 

customers and suppliers, maintaining the skill levels of Enerflex’s people, and monitoring and adjusting to the 

practices of the Company’s competitors. The ability to meet these competitive pressures within a reasonable cost 

structure will continue to be key to Enerflex’s future success. 

Business Risks 

While demand for Enerflex’s products and services is largely a function of the supply, demand and price of natural 

gas, many other factors can affect the fortunes of the business either positively or negatively. Enerflex encourages 

all investors to read and be aware of business risks and the Company’s response to them. 

Personnel 

The Company’s Fabrication segment requires skilled engineering and design professionals in order to maintain 

customer satisfaction and engage in product innovation. The Company competes for these professionals, not only 

with other companies in the same industry, but with oil and gas producers and other industries. In periods of high 

energy activity, demand for the skills and expertise of these professionals increases, this makes the hiring and 

retention of these individuals more difficult. 

PAGE 12


Both the Fabrication and Service segments rely on the skills and availability of trained and experienced tradesmen 

and technicians to provide efficient and appropriate services to the Company and its customers. Hiring and 

retaining such individuals are critical to the success of the Company’s businesses. Demographic trends are reducing 

the number of individuals entering the trades, making the Company’s access to skilled individuals more difficult. 

There are few barriers to entry in a number of the Enerflex’s businesses, so retention of staff is essential in order to 

differentiate the Company’s businesses and compete in its various markets. 

Internal and external training programs have become a key component to insuring the availability of skilled personnel 

in all aspects of the Company’s activities. Both the Fabrication and Service segments are active in apprenticeship 

programs and the Company has developed an ongoing retention program. Career development is encouraged 

through both in-house training and outside education centers and the Company has recently undertaken an initiative 

to identify, train and retain skilled personnel for critical positions. 

Energy prices 

Energy prices affect Enerflex, as the majority of the Company’s customers generate cash flow from both crude oil 

and natural gas. The prices for these commodities are determined by supply, demand, government regulations 

relating to natural gas production and processing, and international political events, none of which can be accurately 

predicted. During 2004, crude light price per barrel ranged from US$32.48 to US$55.17 and natural gas price per 

mcf ranged from CDN$4.32 to a high of CDN$8.74. 

As free cash flow available for investment by producers varies with commodity prices, the market for capital goods 

required by the Company’s customers is both cyclical and, at times, highly volatile. A sustained period of low natural 

gas prices or oversupply, could negatively impact the Company’s fabrication businesses as natural gas producers 

would likely curtail investment in production equipment. Periods of extremely high natural gas prices can cause 

producers to delay routine maintenance on equipment, impacting the Service segment in the near-term. 

Enerflex seeks to mitigate these risks through diversification in both products and services offered and geographical 

expansion. 

The cyclical nature of the energy industry 

Changing political, economic or military circumstances throughout the energy producing regions of the world can 

impact the market price of oil for extended periods of time, which in turn impacts the price of natural gas, as 

industrial users often have the ability to chose to use the lower priced energy source. 

Enerflex is structured to be profitable in both high and low periods of the energy cycle. This is done through product 

breadth, international diversification and access to a variety of equipment financing methods. Since becoming a 

public company in 1993, Enerflex has generated profits and positive cash flow even in challenging times. 

Climatic factors and seasonal demand 

Demand for natural gas fluctuates largely with the heating and electrical generation requirements caused by the 

changing seasons in North America. Cold winters typically increase demand for, and the price of, natural gas. This 

increases customers’ cash flow which can then have a positive impact on Enerflex. At the same time, access to 

many western Canadian oil and gas properties is limited to the period when the ground is frozen so that heavy 

equipment does not sink. As a result, the first quarter of the year is generally accompanied by increased winter 

deliveries of equipment. Warm winters in western Canada, however, can both reduce demand for natural gas and 

make it difficult for producers to reach well locations. This restricts drilling and development operations and can 

negatively impact Enerflex. 

Enerflex seeks to reduce the impact of seasonality through geographic expansion and product diversification. 

Credit risk 

A substantial portion of the Company’s accounts receivable are with customers involved in the oil and natural gas 

industry, whose revenues may be impacted by fluctuations in commodity prices. The Company does not have 

significant exposure to any individual customer or counter party other than one major Canadian independent oil and 

natural gas producer which accounted for 13.1% of Enerflex’s revenue in 2004. No other customer accounted for 

more than 10% of the Company’s revenues. 

PAGE 13


Foreign currency exchange 

Enerflex, a Canadian company, is exposed to foreign exchange risk when it buys or sells goods or services in foreign 

currencies. As these foreign currencies depreciate against the Canadian dollar, it makes the Company’s products 

exported from Canada more expensive in the foreign currency, while reducing the relative cost of inputs purchased 

in the same currency. 

The Company manages most of this inherent risk through a variety of contractual means, but currency risk cannot be 

eliminated entirely. Enerflex has foreign subsidiaries in Australia, Indonesia, the Netherlands and the United States, 

and interests in joint ventures in Pakistan and Germany. These expose the Company to changes in the exchange 

rates for the currencies of each country in addition to changes in the Canadian and U.S. dollar. 

The following table highlights Bank of Canada noon rates for years ended December 31, 2004 and 2003: 

Currency December 31, 2004 December 31, 2003 

US Dollar 1.2036 1.2924 

Australian Dollar 0.9388 0.9731 

EURO 1.6292 1.6280 

UK Pounds 2.3062 2.3066 

Foreign operations 

Enerflex sells products and services throughout the world. While this diversification is desirable, it can expose the 

Company to risks related to cultural, political and economic factors of foreign jurisdictions which are beyond the 

control of the Company. Other issues, such as the quality of receivables may also arise. Enerflex seeks to mitigate 

these risks by using staff experienced in foreign operations and closely monitoring the exposure it maintains in 

foreign currencies and international operations. 

Distribution agreements 

One of the Company’s strategic assets is its distribution and Original Equipment Manufacturer agreements with 

leading manufacturers, notably the Waukesha Engine, division of Dresser Inc., for engines and parts, and Ariel 

Corporation for compressors. In the event that one or more of these agreements were to be terminated, Enerflex 

would lose a competitive advantage. 

Enerflex and its people make it a priority to maintain and enhance these strategic relationships. 

Competition 

The Company has a number of competitors in all aspects of its business, both domestically and abroad. Some of 

these competitors, particularly in the Fabrication segment, are large, multi-national companies with greater access to 

resources and more experience in international operations then Enerflex. Within Canada, particularly in the Service 

segment, the Company has a number of small to medium sized competitors as well, who may not have access to the 

capital and resources that Enerflex has, but may also face lower overhead costs than the Company. 

Availability of Raw Materials, Component Parts or Finished Products 

Enerflex purchases a broad range of materials and components in connection with its manufacturing and service 

activities. The Company purchases most of its compressors and engines through distribution agreements with Ariel 

Corporation for compressors and Waukesha Engine, a division of Dresser Inc., for natural gas engines and parts. 

The Company has had a relationship with both of these companies since 1980. Additionally, the Company has 

relationships with a number of other suppliers including Kobelco Compressors (America) Inc., Mycom Group Inc., 

and Caterpillar Inc. The availability of the component parts and the delivery schedules provided by these suppliers 

affect the assembly schedules of the Company’s production and services. 

Enerflex purchases coolers for its compression packages from a limited number of suppliers. The production 

schedules and delivery time tables from these suppliers affects the assembly schedule of the Company’s products. 

Though the Company is generally not dependent on any single source of supply, the ability of suppliers to meet 

performance, quality specifications and delivery schedules is important to the maintenance of customer satisfaction. 

PAGE 14


A challenge to achieving improved profitability in 2005 will be the timely availability of certain Original Equipment 

Manufacturer components and repair parts, which will be in steady demand, as activity levels and production 

demands for natural gas in North America remain high. 

Environmental considerations 

Enerflex’s customers, particularly in North America and Europe, are subject to significant and ever-increasing 

environmental legislation and regulation. This legislation can impact Enerflex both through increasing technical 

difficulty in meeting environmental requirements in product design which could increase the cost of the Company’s 

products, and a reduction in activity by producers in environmentally sensitive areas which would reduce the sales 

opportunities available. 

At the same time, Enerflex itself operates in a number of jurisdictions and is also subject to environmental legislation 

and regulation. In order to maintain and enhance environmental compliance, the Company conducts routine 

property inspections and may engage third-party environmental companies to perform audits when deemed 

appropriate in the circumstances. 

Insurance 

Enerflex carries insurance to protect the Company in the event of destruction or damage to its property and 

equipment, subject to appropriate deductibles and the availability of coverage. Liability insurance is also maintained 

at prudent levels to limit exposure to unforeseen incidents. An annual review of insurance coverage is completed to 

assess the risk of loss and risk mitigation alternatives. Extreme weather conditions, natural occurrences and terrorist 

activity have strained insurance markets leading to substantial increases in insurance costs and limitations on 

coverage. 

Annual Information 

SELECTED CONSOLIDATED FINANCIAL INFORMATION 

The following table contains a summary of financial information of Enerflex for the indicated periods. 

Thousand of Canadian dollars, except 

per share amounts 2004 2003 2002 

RESULTS 

Revenue 557,077 515,528 326,706 

Net income 32,059 20,383 9,232 

Net income per common share 

Basic 1.44 0.92 0.51 

Diluted 1.43 0.91 0.51 

Dividends per common share (in cents) 40.0 40.0 40.0 

FINANCIAL POSITION 

Total Assets 486,865 457,674 451,211 

Long-term debt (including current portion) 64,036 68,386 69,000 

Shareholders’ equity 297,869 274,543 260,902 

DESCRIPTION OF CAPITAL STRUCTURE 

Enerflex is authorized to issue an unlimited number of Common Shares and first preferred shares. Each Common 

Share shall have the right to receive notice of and to one vote at all meetings of shareholders of the Company, 

except meetings at which only holders of a specified class or series of shares are entitled to vote. Subject to the 

prior rights and privileges attaching to any other class of shares of the Company, the right to participate equally, on a 

share for share basis, with respect to the payment of any dividends on the Common Shares as and when declared 

by the Board of Directors. Subject to prior rights and privileges attaching to any other class of shares of the 

Company, the right to participate equally on a share for share basis, with respect to the distribution of the remaining 

property and assets or return of capital of the Company in the event of a liquidation, dissolution or winding-up of the 

Company, whether voluntary or involuntary, or any other distribution of the property and assets or return of capital of 

the Company among its shareholders for the purpose of winding up its affairs. 

The Board of Directors may at any time and from time to time issue the first preferred shares in one or more series, 

each series to consist of such number of shares as may, before the issue thereof, be fixed by the Board of Directors. 

Subject to the provisions of the Canada Business Corporations Act, as from time to time amended, supplemented or 

replaced, the Board of Directors may, by resolution, determine from time to time and before the issue thereof, the 

designation, rights, privileges, restrictions and conditions to be attached to the first preferred shares of each series. 

PAGE 15


DIVIDENDS 

Enerflex has a policy of paying quarterly dividends on outstanding Common Shares. The Board of Directors reviews 

this policy from time to time, based upon and subject to the Company's earnings, financial requirements and general 

economic circumstances. 

The Company declared a dividend of 10.0 cents per Common Share for each quarter of 2002, 2003 and 2004. 

Management anticipates that the payment of dividends will continue for each quarter of 2005. 

MARKET FOR SECURITIES 

The Common Shares are listed and posted for trading on the Toronto Stock Exchange under the symbol “EFX”. 

The table below displays the trading volume and price ranges for the year ended December 31, 2004. 

Price 

Month Volume High Low 

January 642,255 $ 23.80 $ 19.25 

February 535,012 24.70 20.50 

March 987,449 26.30 23.10 

April 525,023 25.00 21.01 

May 1,090,460 23.20 21.00 

June 1,203,011 23.44 20.75 

July 1,061,025 21.95 20.10 

August 182,551 22.95 21.25 

September 990,633 22.10 20.11 

October 706,708 22.17 19.25 

November 1,053,356 21.75 19.91 

December 527,949 24.60 20.72 

During 2004 the Common Share price ranged from $19.25 to $26.30 with 9,505,432 shares exchanging hands. 

Escrowed Securities 

No shares of the Company are held in escrow. 

DIRECTORS AND OFFICERS 

The following table sets forth the current directors and officers of the Company as at March 15, 2005, together with 

the positions currently held by them with the Company, their principal occupation or employment during the last five 

years and, where applicable, the year in which they were first elected a director of the Company. Directors of the 

Company stand for election at each annual meeting of shareholders of the Company, to hold office until the next 

annual meeting or until their successors have been duly elected. Accordingly, the current term of each of the 

directors will expire at the next annual meeting of shareholders, which is scheduled for April 14, 2005. 

PAGE 16


Name and 

Municipality of Residence Office Principal Occupation 

Director 

Since 

P. John Aldred 

Calgary, Alberta 

Chairman, President and 

Chief Executive Officer 

Chairman, President and Chief 

Executive Officer, Enerflex Systems 

Ltd. 

1980 

(1) (2) 

Patrick D. Daniel 


Director 

President and Chief Executive 

Officer, Enbridge Inc. 

1998 

Douglas J. Haughey (3) 


Director 

President, Gas Transmission West, 

Duke Energy Corporation 

2002 

Robert B. Hodgins (1) 


Director Investor and Corporate Director 2004 

Geoffrey F. Hyland (2) 

Toronto, Ontario 

Director 

President and Chief Executive 

Officer, ShawCor Ltd. 

1998 

John R. King (3) 


Director 

Senior Vice-President, Technology 

Services Group, Precision Drilling 

Corporation 

2002 

J. Nicholas Ross (1)(3) 


Director 

Chairman and Chief Executive 

Officer, Rover Capital Corporation 

1980 

Hon. Barbara J. Sparrow (1) 


Director President, Sparrow Holdings Ltd. 1994 

Robert C. Williams (2) 


Director 

Managing Director, Equity Capital 

Markets/Syndication, Scotia Capital 

Inc. 

1980 

Leonard A. Cornez 


Officer 

Vice-President and Chief Financial 

Officer 

N/A 

Thomas D. Gamble 

Houston, Texas 

Officer 

Vice-President US & Latin American 

Operations 

N/A 

J. Blair Goertzen 


Officer 

Executive Vice-President and Chief 

Operating Officer 

N/A 

William A. Moore 


Officer Vice-President, Mechanical Services N/A 

Kelly R. Smith 

Edmonton, Alberta 

Officer 

Vice-President, Production and 

Processing 

N/A 

Yves J. Tremblay 


Sean R. Ulmer 


Officer Vice-President, Syntech N/A 

Officer Vice-President, Leasing N/A 

Notes: 

(1) Member of Audit Committee. 

(2) Member of Corporate Governance Committee. 

(3) Member of the Human Resources and Compensation Committee. 

As of February 28, 2005, the directors and executive officers of the Company as a group owned, directly or indirectly, 

2,441,150 Common Shares representing approximately 10.89% of the issued and outstanding Common Shares of 

the Company. 

PAGE 17


During the past five years, all of the directors and officers of Enerflex have been engaged in their principal 

occupations or in executive capacities with the corporations or entities in which they currently hold positions, with the 

following exceptions: 

Mr. John R. King is a Senior Vice-President, Technology Services Group at Precision Drilling, a position he has 

held since March 2003. Mr. King founded and served as Managing Director of Red Tree Capital Corporation in 

1998, after a period from 1996 to 1998 with Peters & Co. Prior to that, Mr. King held various positions with both 

Enserv Corporation and Schlumberger Ltd. Mr. King graduated from the University of Calgary in 1988 with a 

Bachelor of Science degree in Mechanical Engineering. Mr. King is a licensed professional engineer in the 

Province of Alberta. 

Mr. Robert B. Hodgins has recently retired from a full time executive position following a career that spanned 

more than 25 years with several senior Canadian corporations and is now an investor and a corporate director. 

From 2002 to 2004, Mr. Hodgins served as the Chief Financial Officer at Pengrowth Energy Trust. Prior to this, 

Mr. Hodgins was Vice-President and Treasurer of Canadian Pacific Limited, Chief Financial Officer of 

TransCanada Pipelines Limited from 1993 to 1998 and held various other positions at TransCanada 

commencing in 1981. Mr. Hodgins is also a trustee of Calpine Power Income Fund. Mr. Hodgins holds a 

Bachelor of Arts in Business from the Richard Ivey School of Business and is a Chartered Accountant. 

Mr. Leonard A. Cornez was appointed Vice-President and Chief Financial Officer of Enerflex in June 2004. 

Prior to Enerflex, he was Vice-President Finance at Terasen Pipelines Inc. from August 2003 to May 2004. 

From July 2000 to December 2002, Mr. Cornez was Vice-President, Finance and Chief Financial Officer of Ryan 

Energy Technologies. Mr. Cornez was a finance services consultant from March 2000 to July 2000 and from 

January 2003 to July 2003. From September 1999 to February 2000, Mr. Cornez was a Vice-President and 

Chief Financial Officer of Hartland Pipelines Services Ltd. Prior thereto, from July 1991 to August 1999, Mr. 

Cornez held various positions including Vice-President and Chief Financial Officer of Computalog Ltd., and from 

July 1981 to June 1999, he held various positions with the chartered accounting firm of Coopers & Lybrand. Mr. 

Cornez has been a director of Technicoil Corporation since October 2004. See below for additional disclosure 

with respect to Hartland Pipelines Services Ltd. 

Mr. Thomas D. Gamble was appointed Vice-President US & Latin American Operations in September 2003. 

His previous career included 31 years with Dresser-Rand; from 1997 to 2003 he was an Executive Vice- 

President for North American operations. From 1993 to 1997 Mr. Gamble was a President of the Compression 

Services division of Dresser-Rand which fabricated and leased high speed reciprocating gas compressor 

packages worldwide. 

Mr. J. Blair Goertzen was appointed Executive Vice-President and Chief Operating Officer of the Company in 

August 2003. From October 2002 to May 2003 Mr. Goertzen was Senior Vice-President of Flint Energy 

Services Ltd. Mr. Goertzen served as President of IPEC Ltd. from September 1999 to October 2002. From 

1996 to 1999 Mr. Goertzen was Senior Vice-President Business Development of Precision Drilling Corporation. 

Mr. William A. Moore was appointed Vice-President, Mechanical Services in January 2004. From January 

1996 to December 2003, Mr. Moore held the position of General Manager, Asia Pacific, working out of the Gas 

Drive Systems (GDS) office in Sydney, Australia. Prior to joining GDS, Mr. Moore held a number of project 

engineering and management positions with AGL, a large energy company in Australia. 

Mr. Kelly R. Smith was appointed Vice-President, Production and Processing in July 2002. In the five years 

prior to this appointment Mr. Smith was President of Presson Manufacturing Ltd., a wholly-owned subsidiary of 

EnSource Energy Services Inc. 

Mr. Yves J. Tremblay was appointed Vice-President, Syntech in October 2003. From July 2002 to September 

2003, Mr. Tremblay was Vice-President, Power. From April 2001 to July 2002 Mr. Tremblay was President of 

Gridlink Power Systems Ltd., a wholly-owned subsidiary of EnSource Energy Services Inc. Mr. Tremblay was 

Director, General Business Services of TransAlta Corporation from 2000 to April 2001 and held various other 

positions at TransAlta Corporation prior to 2000. 

Mr. Sean R. Ulmer was appointed Vice-President, Leasing in July 2002. From September 2001 to July 2002 

Mr. Ulmer was Vice-President, Corporate Development of Jiro Compression Ltd., a wholly-owned subsidiary of 

EnSource Energy Services Inc. From April 2000 to September 2001 Mr. Ulmer was Manager, Corporate 

Development for EnSource Energy Services Inc. Mr. Ulmer served as Corporate Finance Manager for 

Westcoast Capital Corporation from July 1998 to April 2000. 

PAGE 18


Corporate Cease Trade Orders or Bankruptcies 

On December 2, 2003, the Ontario Securities Commission issued a temporary cease trade order, effective for 15 

days from the date of the order, and subsequently issued a cease trade order on December 15, 2003, pursuant to 

subsection 127(1) of the Securities Act (Ontario), prohibiting certain trustees of the ACS Freezers Income Trust (“the 

Trust”) and certain directors and officers of Atlas Cold Storage Holdings Inc. (“ACSHI”), including Mr. J. Nicholas 

Ross, from trading in the securities of the Trust. This sanction was imposed for a failure to file financial statements 

contrary to subsection 77(1) of the Securities Act (Ontario). The delay in filing financial statements was caused by 

the discovery of accounting irregularities, which are now the subject of an Ontario Securities Commission proceeding 

brought against certain officers of ACSHI. The cease trade order remained in effect until May 11, 2004 

On December 1999, Hartland Pipelines Services Ltd. was petitioned into bankruptcy following proceedings initiated 

under the Companies Creditor Arrangement Act (Canada) in November 1999. Mr. Leonard A. Cornez was an officer 

of Hartland Pipelines Services Ltd. from September 1999 until February 2000. 

No director, officer or promoter of the Issuer has been the subject of any penalties or sanctions imposed by court or 

a securities regulatory authority relating to trading in securities, the promotion, formation or management of a 

publicly traded issuer or involving theft or fraud, other than penalties for late filing of insider reports. The foregoing 

information, not being within the knowledge of the Issuer, has been furnished by the respective directors, officers 

and promoters of the Issuer individually. 

Conflicts of Interests 

Investors should be aware that some of the directors and officers of the Company are directors and officers of other 

private and public companies. Some of these private and public companies may, from time to time, be involved in 

business transactions or banking relationships which may create situations in which conflicts might arise. Any such 

conflicts shall be resolved in accordance with the procedures and requirements of the relevant provisions of the 

Canada Business Corporations Act, including the duty of such directors and officers to act honestly and in good faith 

with a view to the best interests of the Company. 

LEGAL PROCEEDINGS 

The Corporation is involved in various claims and litigation as a regular part of its business. Management believes 

that the resolution of these claims and litigation (which in certain cases are, subject to applicable deductibles, 

covered by insurance) will not have a materially adverse effect on its financial position or results of operations. 

INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS 

Other than as set forth elsewhere in this Annual Information Form, management is unaware of any person who has 

been a director, or senior officer of the Company at any time since the beginning of the last financial year, nor any 

proposed nominee for election as director of the Company, nor any associate or affiliate of the foregoing, has any 

material interest, direct or indirect in any transaction since the commencement of the Company’s last financial year 

or in any proposed transaction which has materially affected or would materially affect the Company. 

TRANSFER AGENTS AND REGISTRARS 

The transfer agent and registrar for the Corporation is Computershare Trust Company of Canada. The register of 

transfers of the Corporation’s securities is located at Toronto, Ontario, Canada. 

MATERIAL CONTRACTS 

Except for contracts entered into by the Company in the ordinary course of business or otherwise disclosed herein, 

the only material contracts entered into or to be entered into by the Company which can reasonably be regarded as 

presently material are the following: 

Amended and Restated Shareholder Rights Plan Agreement dated February 12, 2003. 

PAGE 19


On December 4, 1997, the Company implemented a shareholder rights plan (the "Rights Plan"), the terms and 

conditions of which are set out in the Shareholder Rights Plan Agreement dated as of December 4, 1997 (the "1997 

Agreement") between the Company and Montreal Trust Company of Canada, as rights agent. On February 12, 

2003, the Board of Directors passed a resolution approving the continuation of the Rights Plan and approving certain 

amendments to the 1997 Agreement (which was confirmed by the Toronto Stock Exchange and the shareholders of 

the Company) (the “Amended Rights Plan”). On the same date, the Company entered into an amended and 

restated shareholder rights plan agreement (the “2003 Agreement”) with Computershare Trust Company of Canada, 

the successor to Montreal Trust Company of Canada, the original rights agent. The 2003 Agreement continued to 

the Rights Plan and incorporated certain amendments to the 1997 Agreement in order to update the Rights Plan and 

conform its provisions to current shareholder rights plan design practices prevalent for Canadian issuers. 

The primary objectives of the Amended Rights Plan are to ensure that, in the context of a bid for control of the 

Company through an acquisition of Common Shares, the Board of Directors has sufficient time to explore for and 

develop alternatives for maximizing shareholder value, to provide adequate time for competing bids to emerge, to 

ensure that shareholders have an equal opportunity to participate in such a bid and have adequate time to properly 

assess the bid and to lessen the pressure to tender typically encountered by a shareholder of a corporation that is 

subject to a bid. The Amended Rights Plan utilizes the mechanism of the Permitted Bid (as defined in the 2003 

Agreement) to ensure that a person seeking control of the Company allows shareholders and the Board of Directors 

sufficient time to evaluate the bid. The purpose of the Permitted Bid is to allow a potential bidder to avoid the dilutive 

features of the Amended Rights Plan by making a bid that conforms with the conditions specified in the Permitted 

Bid provisions. If a person makes a takeover bid that is a Permitted Bid, the Amended Rights Plan will not affect the 

transaction in any respect. 

The Board of Directors may, from time to time, supplement or amend the Amended Rights Plan in order to cure any 

ambiguity or to correct or supplement any provisions contained in the Amended Rights Plan that may be inconsistent 

with any other provision thereof or otherwise defective. Any supplement or amendment made after the date of 

shareholder ratification of the Amended Rights Plan but prior to the Separation Time (as defined in the Amended 

Rights Plan) may only be made with the prior consent of shareholders. In addition, no supplement or amendment 

may be made to the Amended Rights Plan without the approval of the Toronto Stock Exchange. 

AUDIT COMMITTEE 

The Audit Committee is appointed annually by the Board of Directors and consists of a minimum of three directors of 

the Company. Every Audit Committee member has been determined by the Board to be independent, as defined in 

Multilateral Instrument 52-110 and is financially literate as they are able to read and understand a set of financial 

statements that represents the breadth and level of complexity of accounting issues that can reasonably be expected 

to arise in the Company’s financial statements. 

The Audit Committee of the Company is composed of the following members: Patrick D. Daniel, Robert B. Hodgins, 

J. Nicholas Ross, and Hon. Barbara J Sparrow. The responsibilities and duties of the Committee are set out in the 

Charter of which is outlined in Appendix “A”. 

The following is a brief summary of the education and experience of each member of the Committee that is relevant 

to his or her performance of his or her responsibilities as a member of the Audit Committee: 

Patrick D. Daniel 

Mr. Daniel has been the President and Chief Executive Officer for Enbridge Inc. since January 2001 and has over 30 

years of experience in the energy industry. In addition to serving on Enerflex’s Board of Directors, Mr. Daniel is also 

a director for several Enbridge subsidiary companies including Enbridge Energy Company Inc., and Enbridge 

Commercial Trust. He is also a Director of EnCana Corporation. Mr. Daniel earned his Bachelor of Science from the 

University of Alberta and his Masters of Science degree from the University of British Columbia, both in Chemical 

Engineering. 

Robert B. Hodgins 

Mr. Hodgins has recently retired from a full time position following a career that spanned more than 25 years with 

several senior Canadian corporations and is now an investor and corporate director. From 2002 to 2004, Mr. 

Hodgins served as the Chief Financial Officer at Pengrowth Energy Trust. Prior to this, Mr. Hodgins was a Vice- 

President and Treasurer of Canadian Pacific Limited, a Chief Financial Officer of TransCanada Pipelines Limited 

from 1993 to 1998 and held various other positions at TransCanada commencing in 1981. Mr. Hodgins is also a 

trustee of Calpine Power Income Fund. Mr. Hodgins holds a Bachelor of Arts in Business from the Richard Ivey 

School of Business and is a Chartered Accountant. 

Mr. Hodgins is currently the Chair of the Audit Committee. 

PAGE 20


J. Nicholas Ross 

Mr. J. Nicholas Ross is the founder and Chairman of Rover Capital Corporation, a private merchant banking 

organization since 1996. From 1970 to 1996, Mr. Ross was a partner of Ernst & Young where he specialized in 

advising entrepreneurial businesses. From 1997 to 2004, Mr. Ross also served as a Trustee of Atlas Cold Storage 

Income Trust formerly ACS Freezers Income Trust and was a Chairman of its subsidiary, Atlas Cold Storage 

Holdings Inc. His current directorships include two Sciti Trusts (Toronto), E.D. Smith & Sons Ltd. (Winona) and 

Butterfield & Company in Bermuda. Mr. Ross holds a Bachelor of Arts with Honours in English Language and 

Literature from the University of Toronto and a Master in Arts in Economics from Cambridge University. He is a 

Chartered Accountant having earned the Ontario Gold Medal on obtaining such designation in 1964. 

Hon. Barbara J. Sparrow 

The Honorable Ms. Barbara J. Sparrow has had a lengthy career in Canadian politics. Ms. Sparrow served as a 

Member of Parliament from 1984-1993 and finished her political career as Natural Resources Minister in 1993. Ms. 

Sparrow is an active member of the community, serving on the University of Calgary Board of Governors and as a 

member of the Alberta initiative steering committee for Neuroscience Canada. 

REMUNERATION OF AUDITORS 

The following table presents, by category, the fees billed by the external auditors of the Corporation, Deloitte & 

Touche for the years ended 2004 and 2003. 

2004 2003 

Audit Fees $ 588,196 $ 596,580 

Audit Related Fees (1) 15,436 - 

Tax Fees (2) 94,293 238,681 

Other (3) - 19,289 

Notes: 

(1) Audit Related Fees – Fees charged for Canadian Public Accountability Board and review of 

documentation preparatory to implementation of Multilateral Instrument 52-109. 

(2) Tax Fees – Corporate Income Tax Planning and Compliance, and guidance to employees transferred 

internationally. 

(3) Other – Fees related to documentation of branch business processes. 

ADDITIONAL INFORMATION 

Additional information relating to directors' and officers' remuneration and indebtedness, principal holders of the 

Company's securities, options, and other information is set out in the Company's Management Information 

Circular(1) dated March 7, 2005, prepared in connection with its Annual General Meeting of Shareholders to be held 

on April 14, 2005 and is incorporated by reference. 

Additional financial information is provided in the “Financial Statements” for the year ended December 31, 2004 

contained on pages 57 to 74 of the Company's 2004 Annual Report (1) and is incorporated by reference. 

Information about the Mandate of the Board of Directors, Human Resources and Compensation Committee Charter, 

Corporate Governance Committee Charter, Discussion on Corporate Governance Guidelines and Disclosure Policy 

can be found as appendices in the Information Circular and is incorporated by reference. 

Additional information about Enerflex can be found on SEDAR at www.sedar.com. 

Note: 

(1) Copies of these documents may be obtained upon request to Investor Relations, Enerflex Systems Ltd., 

4700 - 47 Street SE, Calgary, Alberta, T2B 3R1, Phone 1.403.236.6800, Fax 1.403.236.6816, 

email ir@enerflex.com, www.enerflex.com 

PAGE 21


APPENDIX “A” 

ENERFLEX SYSTEMS LTD. 

(the “Company”) 

AUDIT COMMITTEE CHARTER 

PURPOSE 

The Audit Committee (the “Committee”) is appointed by the Board of Directors. The Committee is established to 

fulfil applicable public company obligations respecting audit committees and to assist the Board in fulfilling its 

oversight responsibilities with respect to financial reporting including responsibility to: 

• oversee the integrity of the Company’s financial statements and financial reporting process, including the 

audit process and the Company’s internal accounting controls and procedures and compliance with related 

legal and regulatory requirements; 

• monitor the management of the principal financial risks that could impact the financial reporting of the 

Company and ensure an appropriate mitigation strategy is adopted by management; 

• oversee the appointment, qualifications and independence of the external auditors; 

• oversee the work of the Company's financial management and external auditors in these areas; and 

• provide an open avenue of communication between the external auditors, the Board and Management. 

In discharging its responsibilities, the Committee will report and, where appropriate, make recommendations to the 

Board in respect of the matters identified in this charter. In addition, the Committee will review and/or approve any 

other matter specifically delegated to the Committee by the Board. 

The function of the Committee is oversight. The Committee and its Chair are members of the Board, appointed to the 

Committee to provide broad oversight of the financial, risk and control related activities of the Company. 

Management is responsible for the preparation, presentation and integrity of the Company’s financial statements. 

Management is also responsible for maintaining appropriate accounting and financial reporting principles and 

policies and systems of risk assessment and internal controls and procedures designed to provide reasonable 

assurance that assets are safeguarded and transactions are properly authorized, recorded and reported and to 

assure the effectiveness and efficiency of operations, the reliability of financial reporting and compliance with 

accounting standards and applicable laws and regulations. The external auditors are responsible for planning and 

carrying out an audit of the Company’s annual financial statements in accordance with generally accepted auditing 

standards to provide reasonable assurance that, among other things, such financial statements are in accordance 

with generally accepted accounting principles. 

PROCEDURES, POWERS AND DUTIES 

In addition to any procedures and powers set out in the resolution of the Board establishing this Committee, the 

Committee shall have, but not be limited to, the following procedures, powers and duties: 

General 

1. Composition – The Committee shall be composed of a minimum of three members or such greater number 

as the Board may from time to time determine. None of the members of the Committee shall be an officer 

or employee of the Company or any of its subsidiaries and each member of the Committee shall be an 

“independent” director as such term is defined in the Company’s Corporate Governance Guidelines and 

none of the members shall have participated in the preparation of the financial statements of the Company 

or any current subsidiaries of the Company at any time over the past three years. 

PAGE 22


2. All members of the Committee must be “financially literate”, as such term is defined under applicable 

securities laws, or must become financially literate within a reasonable period of time after their 

appointment to the Committee. An individual is considered financially literate if he or she has the ability to 

read and understand a set of financial statements that present a breadth and level of complexity of 

accounting issues that are generally comparable to the breadth and complexity of the issues that can 

reasonably be expected to be raised by the Company’s financial statements. 

3. Appointment and Replacement of Committee Members - Any member of the Committee may be removed or 

replaced at any time by the Board and shall automatically cease to be a member of the Committee upon 

ceasing to be a director. The Board may fill vacancies on the Committee by appointing another director to 

the Committee. The Board shall fill any vacancy if the membership of the Committee is less than three 

directors. Whenever there is a vacancy on the Committee, the remaining members may exercise all its 

power as long as a quorum remains in office. Subject to the foregoing, the members of the Committee shall 

be appointed by the Board annually and each member of the Committee shall remain on the Committee 

until the next annual meeting of shareholders after his or her appointment or until his or her successor shall 

be duly appointed and qualified. 

4. Committee Chair - The Chair of the Committee shall be designated by the full Board. The Chair of the 

Committee shall be responsible for leadership of the Committee, including preparing the agenda, presiding 

over the meetings, making committee assignments and reporting to the Board. 

5. Conflicts of Interest - If a Committee member faces a potential or actual conflict of interest relating to a 

matter before the Committee, that member shall be responsible for alerting the Committee Chair. If the 

Committee Chair faces a potential or actual conflict of interest, the Committee Chair shall advise the Chair 

of the Board. If the Committee Chair, or the Chair of the Board, as the case may be, concurs that a 

potential or actual conflict of interest exists, the member faced with such conflict shall disclose to the 

Committee the member’s interest and shall not participate in consideration of the matter and shall not vote 

on the matter. 

6. Compensation of Committee Members - The members of the Committee shall be entitled to receive such 

remuneration for acting as members of the Committee as the Board may from time to time determine. No 

member of a Committee shall receive from the Company any compensation other than the fees to which he 

or she is entitled as Director or a member of a committee of the Board. 

7. Separate Executive Meetings - The Committee shall meet periodically with the Chief Financial Officer and 

the external auditors in separate executive sessions to discuss any matters that the Committee or each of 

these groups believes should be discussed privately and such persons shall have access to the Committee 

to bring forward matters requiring its attention. However, the Committee shall also meet periodically without 

Management present. 

Meetings of the Committee 

8. Procedures for Meetings - Subject to any applicable statutory or regulatory requirements and the by-laws of 

the Company, the time at which and place where the meetings of a Committee shall be held and the calling 

of Committee meetings and the procedure in all things at such meetings shall be determined by the 

Committee. 

9. Calling of Meetings – The Committee shall meet at least four times annually, or more frequently as it deems 

appropriate, to discharge its responsibilities. Notice of the time and place of every meeting shall be given in 

writing, by any means of transmitted or recorded communication, including facsimile or other electronic 

means that produces a written copy, to each member of a Committee at least 24 hours prior to the time 

fixed for such meeting. However, a member may in any manner waive a notice of a meeting. Attendance 

of a member at a meeting constitutes a 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 is not lawfully called. Whenever practicable, the agenda for the meeting and the meeting materials 

shall be provided to members before each Committee meeting in sufficient time to provide adequate 

opportunity for their review. 

10. Quorum – A majority of members of the Committee shall constitute a quorum for the transaction of 

Committee business. No business may be transacted by the Committee except at a meeting of its 

members at which a quorum of the Committee is present in person or by telephone or other communication 

device that permits all persons participating in the meeting to speak and hear each other, or by a resolution 

in writing signed by all the members of the Committee. 

PAGE 23


11. Chair of Meetings - If the Chair of a Committee is not present at any meeting of the Committee, one of the 

other members of the Committee who is present shall be chosen by the Committee to preside at the 

meeting. 

12. Secretary of Meeting - The Chair of the Committee shall designate a person who need not be a member of 

the Committee to act as secretary or, if the Chair of the Committee fails to designate such a person, the 

secretary of the Company shall be secretary of the Committee. The agenda of each Committee meeting 

will be prepared by the secretary of the Committee and, whenever reasonably practicable, circulated to 

each member prior to each meeting. 

13. Minutes - Minutes of the proceedings of the Committee shall be kept in minute books provided for that 

purpose. The minutes of Committee meetings shall accurately record the discussions of and decisions 

made by the Committee, including all recommendations to be made by the Committee to the Board and 

shall be distributed to all Committee members. 

Powers of the Committee 

14. Access - Each Committee member will have the unrestricted ability to communicate directly with the 

Company’s internal and external auditors and will have full access to all books, records, facilities, and 

personnel of the Company and its subsidiaries. A Committee may require officers, trustees and employees 

of the Company and its subsidiaries and others as it may see fit from time to time to provide any information 

about the Company and its subsidiaries it may deem appropriate and to attend and assist at meetings of 

the Committee. 

15. Delegation - The Committee may delegate from time to time to any Committee member the authority to preapprove 

non-audit services in accordance with applicable securities laws. 

16. Adoption of Policies and Procedures - The Committee may adopt policies and procedures for carrying out 

its responsibilities. 

17. Professional Assistance – The Committee may require the external auditors to perform such supplemental 

reviews or audits as the Committee may deem desirable. In addition, the Committee may, subject to a 

simple majority vote in favor, retain such special legal, accounting, financial or other consultants as the 

Committee may determine to be necessary to carry out the Committee’s duties. The Committee has the 

authority to set the pay and compensation of such advisers at the Company’s expense. 

18. Reliance - Absent actual knowledge to the contrary (which shall be promptly reported to the Board), each 

member of the Committee shall be entitled to rely on (i) the integrity of those persons or organizations 

within and outside the Company from which it receives information, (ii) the accuracy of the financial and 

other information provided to the Committee by such persons or organizations and (iii) representations 

made by Management and the external auditors as to any information technology, internal audit and other 

non-audit services provided by the external auditors to the Company and its subsidiaries. 

19. Reporting to the Board - The Committee will report through the Committee Chair to the Board following 

meetings of the Committee on matters considered by the Committee, its activities and compliance with this 

Charter. 

PRIMARY DUTIES AND RESPONSIBILITIES 

Selection and Oversight of the External Auditors 

20. The external auditors shall report directly to the Committee and the Committee shall so instruct the external 

auditors. The Committee shall evaluate the performance of the external auditors and make 

recommendations to the Board on the reappointment or appointment of the external auditors of the 

Company to be proposed in the Company's proxy circular for shareholder approval and shall have authority 

to terminate the external auditors. If a change in external auditors is proposed, the Committee shall review 

the reasons for the change and any other significant issues related to the change, including the response of 

the incumbent auditors, and enquire on the qualifications of the proposed auditors before making its 

recommendation to the Board. 

PAGE 24


21. The Committee shall approve in advance the terms of engagement and the compensation to be paid by the 

Company to the external auditors. The Committee may approve policies and procedures for the preapproval 

of services to be rendered by the external auditors, which policies and procedures shall include 

reasonable detail with respect to the services covered. All non-audit services to be provided to the 

Company or any of its affiliates by the external auditors or any of their affiliates which are not covered by 

pre-approval policies and procedures approved by the Committee shall be subject to pre-approval by the 

Committee. 

22. The Committee shall review the independence of the external auditors and shall make recommendations to 

the Board on appropriate actions to be taken which the Committee deems necessary to protect and 

enhance the independence of the external auditors. In connection with such review, the Committee shall: 

a) actively engage in a dialogue with the external auditors about all relationships or services that may 

impact the objectivity and independence of the external auditors; 

b) require that the external auditors submit to it on a periodic basis, and at least annually, a formal 

written statement delineating all relationships between the Company and its subsidiaries, on the 

one hand, and the external auditors and their affiliates on the other hand; 

c) require that (i) both the lead audit partner and the partner responsible for performing a second 

review respecting the audit be rotated at least every five years and be subject to a five year time 

out and (ii) all other partners on the audit engagement team who provide more than 10 hours of 

audit, review or attest services with respect to the Company’s consolidated financial statements or 

who serve as the lead partner in connection with any audit or review related to financial statements 

of a subsidiary whose assets or revenues constitute at least 20% of the consolidated assets or 

revenues of the Company be rotated at least every seven years and be subject to a two year time 

out; 

d) consider the auditor independence standards promulgated by applicable auditing regulatory and 

professional bodies; and 

e) review annually the actual non-audit services and related fees provided by the external auditor. 

23. The Committee shall establish and monitor clear policies for the hiring by the Company of employees or 

former employees of the external auditors. 

24. The Committee shall require the external auditors to provide to the Committee, and the Committee shall 

review and discuss with the external auditors, all reports which the external auditors are required to provide 

to the Committee or the Board under rules, policies or practices of professional or regulatory bodies 

applicable to the external auditors, and any other reports which the Committee may require. Such reports: 

a) shall include a description of the external auditors’ internal quality-control procedures, any material 

issues raised by the most recent internal quality-control review, or peer review, of the external 

auditors, or by any inquiry or investigation by governmental or professional authorities, within the 

preceding five years, respecting one or more independent audits carried out by the external 

auditors, and any steps taken to deal with any such issues; and 

b) may include a report describing (i) all critical accounting policies and practices to be used in the 

financial statements, (ii) all alternative treatments of financial information within generally accepted 

accounting principles related to material items that have been discussed with Management, 

ramifications of the use of such alternative disclosures and treatments, and the treatment preferred 

by the external auditors and (iii) other material written communication between the external 

auditors and Management, such as any management letter or schedule of unadjusted differences. 

25. The Committee is responsible for resolving disagreements between Management and the external auditors 

regarding financial reporting or the application of any accounting principles or practices. 

Oversight and Monitoring of Audits 

26. The Committee shall review with the external auditors and Management the audit function generally, the 

objectives, staffing, locations, co-ordination, reliance upon Management and general audit approach and 

scope of proposed audits of the financial statements of the Company and its subsidiaries, the overall audit 

plans, the responsibilities of Management and the external auditors, the audit procedures to be used and 

the timing and estimated budgets of the audits. 

PAGE 25


27. The Committee shall discuss with the external auditors any difficulties or disputes that arose with 

Management during the course of the audit and the adequacy of Management’s responses in correcting 

audit-related deficiencies. 

28. The Committee shall review with Management the results of external audits. 

29. The Committee shall take such other reasonable steps as it may deem necessary to satisfy itself that the 

audit was conducted in a manner consistent with all applicable legal requirements and auditing standards of 

applicable professional or regulatory bodies. 

Oversight and Review of Accounting Principles and Practices 

30. The Committee shall, as it deems necessary, oversee, review and discuss with Management and the 

external auditors: 

a) the quality, appropriateness and acceptability of the Company’s accounting principles and 

practices used in its financial reporting, changes in the Company’s accounting principles or 

practices and the application of particular accounting principles and disclosure practices by 

Management to new transactions or events; 

b) all significant financial reporting issues and judgments made in connection with the preparation of 

the financial statements and any “second opinions” sought by Management from an independent 

auditor with respect to the accounting treatment of a particular item; 

c) any material change to the Company’s auditing and accounting principles and practices as 

recommended by Management or the external auditors or which may result from proposed 

changes to applicable generally accepted accounting principles; 

d) the effect of regulatory and accounting initiatives on the Company’s financial statements and other 

financial disclosures; 

e) any reserves, accruals, provisions, estimates or Management programs and policies, including 

factors that affect asset and liability carrying values and the timing of revenue and expense 

recognition, that may have a material effect upon the financial statements of the Company; 

f) the use of special purpose entities and the business purpose and economic effect of off-balance 

sheet transactions, arrangements, obligations, guarantees and other relationships of the Company 

and their impact on the reported financial results of the Company; 

g) any legal matter, claim or contingency that could have a significant impact on the financial 

statements, the Company’s compliance policies and any material reports, inquiries or other 

correspondence received from regulators or governmental agencies and the manner in which any 

such legal matter, claim or contingency has been disclosed in the Company’s financial statements; 

h) the treatment for financial reporting purposes of any significant transactions which are not a 

normal part of the Company’s operations; 

i) the use of any “pro forma” or “adjusted” information not in accordance with generally accepted 

accounting principles; and 

j) Management’s determination of goodwill impairment, if any, as required by applicable accounting 

standards. 

Oversight and Monitoring of Internal Controls 

31. To assure itself that the Company has appropriate controls and procedures in place to achieve 

effectiveness and efficiency of operations, reliable financial reporting and compliance with applicable laws 

and regulations, and to ensure the Company has appropriate processes in place to manage the principal 

risks of its business, the Committee shall, as it deems necessary, exercise oversight of, review and discuss 

with Management and the external auditors: 

a) the adequacy and effectiveness of the Company’s internal accounting and financial controls and 

the recommendations of Management and the external auditors for the improvement of accounting 

practices and internal controls; 

PAGE 26


b) any related significant internal control findings and recommendations of the external auditor 

together with management’s responses thereto; and 

c) Management’s compliance with the Company’s processes, procedures and internal controls. 

Oversight and Monitoring of the Company’s Financial Disclosures 

32. In order to satisfy itself that the Company’s financial disclosures are fairly presented, the Committee shall: 

a) review with the external auditors and Management and recommend to the Board for approval the 

audited financial statements and the notes and Managements’ Discussion and Analysis 

accompanying such financial statements, the Company’s annual report and any financial 

information of the Company contained in any prospectus or information circular of the Company or 

other disclosure documents or regulatory filings of the Company; and 

b) review with the external auditors and Management and recommend to the Board for Approval each 

set of interim financial statements and the notes and Managements’ Discussion and Analysis 

accompanying such financial statements and any other disclosure documents or regulatory filings 

of the Company containing or accompanying financial information of the Company. 

Such reviews shall be conducted prior to the release of any summary of the financial results or the filing of such 

reports with applicable regulators. 

33. Prior to their distribution, the Committee shall discuss earnings press releases, as well as financial 

information and earnings guidance provided to analysts and ratings agencies, it being understood that such 

discussions may, in the discretion of the Committee, be done generally (i.e., by discussing the types of 

information to be disclosed and the type of presentation to be made) and that the Committee need not 

discuss in advance each earnings release or each instance in which the Company gives earnings guidance. 

34. As part of the process by which the Committee shall satisfy itself as to the reliability of public disclosure 

documents that contain audited and unaudited financial information, the Committee shall require each of 

the Chief Executive Officer and the Chief Financial Officer of the Company to provide a certificate 

addressed to the Committee certifying in respect of each annual and quarterly report the matters such 

officers are required to certify in connection with the filing of such reports under applicable securities laws. 

35. The Committee shall review the disclosure with respect to its pre-approval of audit and non-audit services 

provided by the external auditors. 

OTHER DUTIES 

Legal and Regulatory Compliance 

36. To provide assurance of the Company’s compliance with legal and regulatory requirements, the Committee 

shall: 

a) in areas in which it has oversight responsibility, monitor the Company’s compliance with applicable 

laws, regulations and internal policies; 

b) receive and review copies of legal letters provided to the external auditors by outside counsel 

regarding claims and possible claims against the Company; 

c) make inquiries of management, as well as the external auditors, to ensure that all material legal 

matters have been brought to the attention of the Committee; and 

d) obtain assurance from management regarding the Company’s compliance with applicable laws 

and regulations. 

PAGE 27


Code of Business Conduct 

37. The Company’s Code of Business Conduct (“the Code”) establishes procedures for the confidential, 

anonymous submission by employees of the Company regarding breaches of the code. Oversight and 

approval of the Code are the direct responsibility of the Corporate Governance Committee, however all 

submissions made regarding questionable accounting, auditing, financial reporting, internal controls, or any 

other matter that may have a material impact on the reported financial results of the Company are reported 

to the Audit Committee. 

38. The Committee shall establish and monitor procedures for the receipt and treatment of complaints received 

by the Company regarding accounting, internal accounting controls or audit matters and the anonymous 

submission by employees of concerns regarding questionable accounting or auditing matters and review 

periodically with Management these procedures and any significant complaints received. 

Oversight of Finance Matters 

39. Appointments of the key financial executives involved in the financial reporting process of the Company, 

including the Chief Financial Officer, shall require the prior review of the Committee. 

40. The Committee shall receive and review: 

a) material policies and practices of the Company respecting cash management and material 

financing strategies or policies or proposed financing arrangements and objectives of the 

Company; and 

b) material tax policies and tax planning initiatives, tax payments and reporting and any pending tax 

audits or assessments. 

41. The Committee shall meet periodically with Management to review and discuss the Company’s major 

financial risk exposures and the policy steps Management has taken to monitor and control such 

exposures, including the use of financial derivatives and hedging activities. 

42. The Committee shall review and make recommendations to the Board concerning the financial structure 

and condition of the Company and its subsidiaries, including with respect to long-term financial plans, 

corporate borrowings, investments, long-term commitments and the issuance and/or repurchase of stock. 

43. The Committee shall meet with Management to review the process and systems in place for ensuring the 

reliability of public disclosure documents that contain audited and unaudited financial information and their 

effectiveness. 

Committee Reporting 

44. As required by applicable laws or regulations or stock exchange requirements, the Committee shall review 

and approve the information required to be reported to shareholders and others in its Annual Information 

Form, and for such purposes, each member of the Committee shall provide information respecting that 

members’ education and experience that relate to his or her responsibilities as a Committee member. 

Other Responsibilities 

45. The Committee shall review and make recommendations to the Board concerning the Company’s internal 

authorization matrix. 

46. The Committee shall review and make recommendations to the Board concerning the Company’s corporate 

disclosure policy. 

47. The Committee shall assess the directors and officers insurance policy of the Company and make 

recommendations for its renewal or amendment or the replacement of the insurer. 

48. Subject to applicable law and the articles and by-laws of the Company, the Committee is responsible for 

administering all policies and practices of the Company with respect to the indemnification of directors by 

the Company and for approving all payments made pursuant to such policies and practices. 

PAGE 28


49. Officers’ Expenses – The Committee shall review policies and procedures with respect to the Chair of the 

Board and the President and Chief Executive Officer’s expense accounts and perquisites, including their 

use of corporate assets. Periodically, and at least annually, the Committee shall review a summary of 

major expenses incurred by the Chair of the Board, and the President and Chief Executive Officer and their 

direct executive reports. 

50. The Committee shall review and/or approve any other matter specifically delegated to the Committee by the 

Board and undertake on behalf of the Board such other activities as may be necessary or desirable to 

assist the Board in fulfilling its oversight responsibilities with respect to financial reporting. 

THE CHARTER 

The Committee shall review and reassess the adequacy of this Charter at least annually and otherwise as it deems 

appropriate and recommend changes to the Board. The performance of the Committee shall be evaluated with 

reference to this Charter annually. 

The Committee shall ensure that this Charter is disclosed on the Company’s website and that this Charter or a 

summary of it which has been approved by the Committee is disclosed in accordance with all applicable securities 

laws or regulatory requirements in the annual proxy circular or annual report of the Company. 

End of Appendix “A” 

PAGE 29

ENERFLEX SYSTEMS LTD. ANNUAL INFORMATION FORM For the ...

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?