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

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ENERFLEX SYSTEMS LTD. – ANNUAL INFORMATION FORM 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
ENERFLEX SYSTEMS LTD. – ANNUAL INFORMATION FORM 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
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