EX-99 5 ex99-3form6k_060603.txt EXHIBIT 99.3 EXHIBIT 99.3 ------------ THIS SHORT FORM PROSPECTUS CONSTITUTES A PUBLIC OFFERING OF THESE SECURITIES ONLY IN THOSE JURISDICTIONS WHERE THEY MAY BE LAWFULLY OFFERED FOR SALE AND THEREIN ONLY BY PERSONS PERMITTED TO SELL SUCH SECURITIES. NO SECURITIES REGULATORY AUTHORITY HAS EXPRESSED AN OPINION ABOUT THESE SECURITIES AND IT IS AN OFFENCE TO CLAIM OTHERWISE. THESE SECURITIES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY STATE SECURITIES LAWS. ACCORDINGLY, EXCEPT TO THE EXTENT PERMITTED BY THE UNDERWRITING AGREEMENT, THESE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO A U.S. PERSON (AS SUCH TERM IS DEFINED IN REGULATION S UNDER THE 1933 ACT) EXCEPT IN TRANSACTIONS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS. THIS SHORT FORM PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES WITHIN THE UNITED STATES. SEE "PLAN OF DISTRIBUTION". INFORMATION HAS BEEN INCORPORATED BY REFERENCE IN THIS SHORT FORM PROSPECTUS FROM DOCUMENTS FILED WITH SECURITIES COMMISSIONS OR SIMILAR AUTHORITIES IN CANADA. COPIES OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE MAY BE OBTAINED ON REQUEST WITHOUT CHARGE FROM THE CORPORATE SECRETARY OF ARC RESOURCES LTD. AT 2100, 440 - 2ND AVENUE S.W., CALGARY, ALBERTA, T2P 5E9 (TOLL FREE NUMBER 1-888-272-4900). FOR THE PURPOSE OF THE PROVINCE OF QUEBEC, THIS SIMPLIFIED PROSPECTUS CONTAINS INFORMATION TO BE COMPLETED BY CONSULTING THE PERMANENT INFORMATION RECORD. A COPY OF THE PERMANENT INFORMATION RECORD MAY BE OBTAINED FROM THE CORPORATE SECRETARY OF ARC RESOURCES LTD. AT THE ABOVE MENTIONED ADDRESS AND TELEPHONE NUMBER. SECONDARY OFFERING JUNE 3, 2003 [GRAPHIC OMITTED] [LOGO - ARC ENERGY TRUST] $201,858,097 16,891,891 Trust Units This prospectus qualifies the distribution of 16,891,891 trust units (the "Offered Trust Units") of ARC Energy Trust (the "Trust") acquired by United ARC L.P. (the "Selling Securityholder") on May 30, 2003 upon the conversion of $200,000,000 of a $320,000,000 8% Special Adjustable Convertible Subordinated Debenture of the Trust ("Special Debenture") held by the Selling Securityholder into $200,000,000 principal amount of 8% Adjustable Convertible Unsecured Subordinated Debentures of the Trust ("Underlying Debentures") and then the conversion on such date of all such Underlying Debentures into the Offered Trust Units. The Special Debenture was issued to the Selling Securityholder in connection with the Trust's recent acquisition of Star Oil & Gas Ltd. See "Selling Securityholder". THE TRUST WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF THE OFFERED TRUST UNITS BY THE SELLING SECURITYHOLDER. After giving effect to this offering and the concurrent debenture offering described herein, the Selling Securityholder will not hold any Special Debentures, Underlying Debentures or trust units of the Trust. The outstanding trust units ("Trust Units") of the Trust, including the Offered Trust Units, are listed on the Toronto Stock Exchange (the "TSX"). On May 16, 2003, the last completed trading day on which the Trust Units traded prior to announcement of this offering, the closing price of the Trust Units was $12.45. On June 2, 2003, the closing price of the Trust Units was $12.25. The offering price of the Offered Trust Units was determined by negotiation between the Selling Securityholder and CIBC World Markets Inc. and BMO Nesbitt Burns Inc. on their own behalf and on behalf of the other Underwriters. -------------------------------------------- Price: $11.95 per Trust Unit --------------------------------------------
NET PROCEEDS TO THE SELLING PRICE TO THE PUBLIC UNDERWRITERS' FEE SECURITYHOLDER(1) ------------------- ----------------- ----------------- Per Offered Trust Unit $11.95 $0.5975 $11.3525 Total $201,858,097 $10,092,905 $191,765,192
Note: (1) Before deducting expenses of this offering, estimated to be $425,000, which will be shared by the Selling Securityholder and the Trust. The Underwriters' fee will be paid by the Selling Securityholder. CIBC WORLD MARKETS INC., BMO NESBITT BURNS INC., RBC DOMINION SECURITIES INC., SCOTIA CAPITAL INC. AND TD SECURITIES INC., FIVE OF THE UNDERWRITERS, ARE DIRECT OR INDIRECT SUBSIDIARIES OF CANADIAN CHARTERED BANKS WHICH ARE LENDERS TO ARC RESOURCES LTD. ("ARC RESOURCES") AND ARC (SASK.) ENERGY TRUST ("ARC SASK.") AND TO WHICH ARC RESOURCES AND ARC SASK. ARE INDEBTED. CONSEQUENTLY, THE TRUST MAY BE CONSIDERED TO BE A CONNECTED ISSUER OF THESE UNDERWRITERS FOR THE PURPOSES OF SECURITIES REGULATIONS IN CERTAIN PROVINCES. NONE OF THE PROCEEDS OF THIS OFFERING WILL BE RECEIVED BY THE TRUST OR USED TO REPAY INDEBTEDNESS OWING TO SUCH BANKS. SEE "RELATIONSHIP BETWEEN ARC RESOURCES' AND ARC SASK.'S LENDERS AND THE UNDERWRITERS". 2 The Underwriters, as principals, conditionally offer the Offered Trust Units for sale, subject to prior sale, if, as and when delivered by the Selling Securityholder and accepted by the Underwriters in accordance with the conditions contained in the Underwriting Agreement referred to under "Plan of Distribution" and subject to the approval of certain legal matters on behalf of the Selling Securityholder by Bennett Jones LLP, on behalf of the Trust by Burnet, Duckworth & Palmer LLP, and on behalf of the Underwriters by Macleod Dixon LLP. The Underwriters may effect transactions which stabilize or maintain the market price for the Trust Units at levels other than those which otherwise might prevail in the open market. See "Plan of Distribution". Subscriptions will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. It is expected that closing of this offering will occur on or about June 10, 2003 but in any event not later than June 30, 2003. 3 TABLE OF CONTENTS TABLE OF CONTENTS..............................................................3 ABBREVIATIONS..................................................................3 CONVERSIONS....................................................................3 DOCUMENTS INCORPORATED BY REFERENCE............................................4 GLOSSARY OF TERMS..............................................................5 FORWARD-LOOKING STATEMENTS.....................................................7 ARC ENERGY TRUST...............................................................8 RECENT DEVELOPMENTS............................................................9 SELLING SECURITYHOLDER........................................................10 USE OF PROCEEDS...............................................................10 PLAN OF DISTRIBUTION..........................................................10 DETAILS OF THE OFFERING.......................................................11 CONSOLIDATED CAPITALIZATION OF THE TRUST......................................12 DISTRIBUTIONS TO UNITHOLDERS..................................................13 PRICE RANGE AND TRADING VOLUME OF TRUST UNITS.................................13 RELATIONSHIP BETWEEN ARC RESOURCES' AND ARC SASK.'S LENDERS AND THE UNDERWRITERS..............................................14 CANADIAN FEDERAL INCOME TAX CONSIDERATIONS....................................14 ELIGIBILITY FOR INVESTMENT....................................................17 RISK FACTORS..................................................................17 INTEREST OF EXPERTS...........................................................17 AUDITORS, TRANSFER AGENT AND REGISTRAR........................................18 PURCHASERS' STATUTORY RIGHTS..................................................18 CERTIFICATE OF THE TRUST......................................................19 CERTIFICATE OF UNDERWRITERS...................................................20 ABBREVIATIONS
bbl barrel mbbl one thousand barrels bbl/d barrels per day mboe one thousand barrels of oil equivalent bcf billion cubic feet mcf one thousand cubic feet boe barrels of oil equivalent converting 6 mcf mcf/d one thousand cubic feet per day of natural gas or one barrel of natural mlt thousand of long tons gas liquids to one barrel of oil mmbbl one million barrels equivalent. MMBTU one million British Thermal Units boe/d barrels of oil equivalent per day mmcf one million cubic feet lt long tons mmcf/d one million cubic feet per day lt/d long tons per day $MM one million Canadian dollars
CONVERSIONS The following table sets forth certain standard conversions between Standard Imperial Units and the International System of Units (or metric units). TO CONVERT FROM TO MULTIPLY BY --------------- -- ----------- cubic metres cubic feet 35.301 bbls cubic metres 0.159 cubic metres bbls 6.290 feet metres 0.305 metres feet 3.281 miles kilometers 1.609 kilometres miles 0.621 acres hectares 0.4047 hectares acres 2.471 IN THIS SHORT FORM PROSPECTUS, UNLESS OTHERWISE NOTED, ALL DOLLAR AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS. 4 DOCUMENTS INCORPORATED BY REFERENCE The following documents, filed with the various provincial securities commissions or similar regulatory authorities in Canada, are specifically incorporated into and form an integral part of this short form prospectus: (a) the Annual Information Form of the Trust dated May 16, 2003; (b) the audited comparative consolidated financial statements and notes thereto of the Trust for the fiscal years ended December 31, 2002 and 2001, together with the report of the auditors thereon dated January 27, 2003; (c) management's discussion and analysis of the financial condition and operating results of the Trust for the year ended December 31, 2002; (d) the Information Circular - Proxy Statement of the Trust dated March 17, 2003, relating to the annual and special meeting of Unitholders held on April 17, 2003 (excluding those portions thereof which appear under the headings "Performance Chart" and "Corporate Governance"); (e) the unaudited interim comparative consolidated financial statements of the Trust for the three months ended March 31, 2003 and 2002; (f) management's discussion and analysis of the financial condition and operating results of the Trust for the three months ended March 31, 2003; and (g) the Material Change Report of the Trust dated March 31, 2003 relating to the acquisition by ARC Resources of all of the shares of Star Oil & Gas Ltd. Any material change report and any document of the type referred to in the preceding paragraph (excluding confidential material change reports) filed by the Trust with the securities commissions or similar authorities in the provinces of Canada subsequent to the date of this short form prospectus and prior to the termination of this distribution shall be deemed to be incorporated by reference into this short form prospectus. ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR SUPERSEDED FOR PURPOSES OF THIS SHORT FORM PROSPECTUS TO THE EXTENT THAT A STATEMENT CONTAINED HEREIN OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT WHICH ALSO IS, OR IS DEEMED TO BE, INCORPORATED BY REFERENCE HEREIN MODIFIES OR SUPERSEDES SUCH STATEMENT. THE MODIFYING OR SUPERSEDING STATEMENT NEED NOT STATE THAT IT HAS MODIFIED OR SUPERSEDED A PRIOR STATEMENT OR INCLUDE ANY OTHER INFORMATION SET FORTH IN THE DOCUMENT THAT IT MODIFIES OR SUPERSEDES. THE MAKING OF A MODIFYING OR SUPERSEDING STATEMENT SHALL NOT BE DEEMED AN ADMISSION FOR ANY PURPOSES THAT THE MODIFIED OR SUPERSEDED STATEMENT, WHEN MADE, CONSTITUTED A MISREPRESENTATION, AN UNTRUE STATEMENT OF A MATERIAL FACT OR AN OMISSION TO STATE A MATERIAL FACT THAT IS REQUIRED TO BE STATED OR THAT IS NECESSARY TO MAKE A STATEMENT NOT MISLEADING IN LIGHT OF THE CIRCUMSTANCES IN WHICH IT WAS MADE. ANY STATEMENT SO MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO MODIFIED OR SUPERSEDED, TO CONSTITUTE A PART OF THIS SHORT FORM PROSPECTUS. INFORMATION HAS BEEN INCORPORATED BY REFERENCE IN THIS SHORT FORM PROSPECTUS FROM DOCUMENTS FILED WITH SECURITIES COMMISSIONS OR SIMILAR AUTHORITIES IN CANADA. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Corporate Secretary of ARC Resources, at 2100, 440 - 2nd Avenue S.W., Calgary, Alberta, T2P 5E9 (toll free number 1-888-272-4900). For the purpose of the Province of Quebec, this simplified prospectus contains information to be completed by consulting the permanent information record. A copy of the permanent information record may be obtained from the Corporate Secretary of ARC Resources at the above mentioned address and telephone number. 5 GLOSSARY OF TERMS In this short form prospectus, the following terms shall have the meanings set forth below, unless otherwise indicated: "AIF" means the Annual Information Form of the Trust dated May 16, 2003. "ARC FINANCIAL ADVISORY AGREEMENT" means the agreement dated August 28, 2002, among ARC Financial Corporation, ARC Resources, ARML and the Trust. "ARC RESOURCES" means ARC Resources Ltd. "ARC SASK." means ARC (Sask.) Energy Trust. "ARML" or the "MANAGER" means, as the context requires: (i) the corporation named ARC Resources Management Ltd., all of whose shares were acquired by 980445 Alberta Ltd. on August 28, 2002 pursuant to the Internalization Transaction and which was subsequently amalgamated with its then parent, 980445 Alberta Ltd., a wholly-owned subsidiary of the Trust, on August 29, 2002; or (ii) the corporation named ARC Resources Management Ltd., which corporation is the continuing entity resulting from the amalgamation on August 29, 2002, of 980445 Alberta Ltd. and its then wholly-owned subsidiary, ARC Resources Management Ltd.; or (iii) following the Exchange Transaction, a wholly-owned subsidiary of ARC Resources, which was subsequently wound up into ARC Resources as of May 16, 2003. "ARML EXCHANGEABLE SHARES" means non-voting exchangeable shares in the capital of ARML. "ARRANGEMENT" means the business combination of ARC Resources and Startech as described under "ARC Energy Trust - General Development of the Business". "ARTC" means Alberta Royalty Tax Credit. "CASH DISTRIBUTION DATE" means the date Distributable Income is paid to Unitholders, being the 15th day following any Record Date (or if such day is not a business day, on the next business day). "CONCURRENT DEBENTURE OFFERING" means the secondary offering of $120,000,000 principal amount of Underlying Debentures as described under "Selling Securityholder". "DEFERRED PURCHASE PRICE OBLIGATION" means the ongoing obligation of the Trust to pay to ARC Resources and ARC Sask. an amount equal to 99% of the cost of, or any amount borrowed to acquire, any additional "Canadian resource property" (as defined in the Tax Act) acquired by ARC Resources and ARC Sask. (other than the working, royalty and other interests acquired by ARC Resources pursuant to the Arrangement) and of the cost of, or any amount borrowed to fund, "Canadian Development Expense" and "Canadian Exploration Expense" (both as defined in the Tax Act). "DISTRIBUTABLE INCOME" means, for any particular period, the Royalties, other income from permitted investments (including the Long Term Notes) and ARTC, if any, received by the Trust less the Trust's share of Crown royalties (other than Crown royalties which are deducted in the computation of the Royalties) and direct expenses of the Trust. "EXCHANGEABLE SHARES" means the non-voting exchangeable shares in the capital of ARC Resources. "GILBERT" means Gilbert Laustsen Jung Associates Ltd., independent petroleum consultants of Calgary, Alberta. "GILBERT REPORT" means the report prepared by Gilbert dated May 12, 2003, evaluating the crude oil, natural gas liquids and sulphur reserves at January 1, 2003 utilizing the Gilbert product price forecasts effective April 1, 2003 attributable to the working interest, royalty and other interests acquired by ARC Resources pursuant to the Star Acquisition other than the working, royalty and other interests which were sold pursuant to the sale by ARC Resources to third parties of certain working, royalty and other interests of Star which was completed following the completion of the Star Acquisition. "INTERNALIZATION TRANSACTION" means the transaction encompassing the indirect purchase by the Trust of all of the ARML shares and related transactions as described under "ARC Energy Trust - General Development of the Business". 6 "LONG TERM NOTES" means the long term notes issued by ARC Resources to the Trust on January 31, 2001, August 29, 2002 and April 16, 2003. Interest on the notes is payable monthly and the principal is due and payable on December 31, 2016, December 31, 2017 and December 31, 2018, respectively. "OFFERED TRUST UNITS" means the Trust Units qualified for distribution by this short form prospectus. "PROPERTIES" means the working, royalty or other interests of ARC Resources and ARC Sask. from time to time in any petroleum and natural gas rights, tangibles and miscellaneous interests, including additional properties which may be acquired by ARC Resources or ARC Sask. at a future date. "RECORD DATE" means the last business day of each month. "ROYALTIES" means, collectively, the royalties payable by ARC Resources and ARC Sask. to the Trust pursuant to the Royalty Agreements which equal 99% of royalty income. "ROYALTY AGREEMENTS" means, collectively, the agreements regarding the grant of the Royalties made as of July 1, 2002, between each of ARC Resources and ARC Sask. and Computershare Trust Company of Canada, as trustee for and on behalf of the Trust. "SELLING SECURITYHOLDER" means United ARC L.P., a limited partnership organized under the laws of Virginia. The Selling Securityholder is an affiliate of United Energy LLC, the entity which sold all of the issued shares of Star to ARC Resources pursuant to the Star Acquisition. The Selling Securityholder is not affiliated with or related to any of the Trust, ARC Resources and ARC Financial Corporation. "SHAREHOLDER AGREEMENT" means the agreement amended and restated January 31, 2001, among ARC Resources, the Manager and the Trustee for and on behalf of Unitholders. "SPECIAL DEBENTURE" means the $320,000,000 principal amount 8% Special Adjustable Convertible Subordinated Debenture of the Trust issued to the Selling Securityholder on April 16, 2003 and due June 30, 2008. "STAR" means Star Oil & Gas Ltd. "STAR ACQUISITION" means the acquisition by ARC Resources of all of the shares of Star on April 16, 2003. "STARTECH" means Startech Energy Inc. "TAX ACT" means the Income TAX ACT (Canada) and the regulations thereunder. "TRUSTEE" means the trustee of the Trust, presently Computershare Trust Company of Canada. "TRUST INDENTURE" means the trust indenture dated May 7, 1996, as amended and restated as of May 16, 2003, between the Trustee and ARC Resources. "TRUST UNITS" means the units of the Trust, each unit representing an equal undivided beneficial interest therein. "TSX" means the Toronto Stock Exchange. "UNDERLYING DEBENTURES" means the 8% Adjustable Convertible Unsecured Subordinated Debentures of the Trust due June 30, 2008 issuable on conversion of the Special Debenture. "UNDERWRITERS" means CIBC World Markets Inc., BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., Scotia Capital Inc., National Bank Financial Inc., TD Securities Inc., FirstEnergy Capital Corp., Raymond James Ltd. and Dundee Securities Corporation. "UNITHOLDERS" means holders of Trust Units. 7 FORWARD-LOOKING STATEMENTS Certain statements contained in this short form prospectus, and in certain documents incorporated by reference into this short form prospectus, constitute forward-looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Trust and ARC Resources believe the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in, or incorporated by reference into, this short form prospectus should not be unduly relied upon. These statements speak only as of the date of this short form prospectus or as of the date specified in the documents incorporated by reference into this short form prospectus, as the case may be. In particular, this short form prospectus, and the documents incorporated by reference, contain forward-looking statements pertaining to the following: o the size of the reserves; o projections of market prices and costs; o supply and demand for oil and natural gas; o expectations regarding the ability to raise capital and to continually add to reserves through acquisitions and development; and o treatment under governmental regulatory regimes. The actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth below and elsewhere in this short form prospectus: o volatility in market prices for oil and natural gas; o liabilities inherent in oil and gas operations; o uncertainties associated with estimating reserves; o competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; o incorrect assessments of the value of acquisitions; o geological, technical, drilling and processing problems; and o the other factors discussed under "Risk Factors". These factors should not be construed as exhaustive. Neither the Trust nor ARC Resources undertakes any obligation to publicly update or revise any forward-looking statements. 8 ARC ENERGY TRUST GENERAL The Trust is an open-end investment trust created on May 7, 1996 under the laws of the Province of Alberta pursuant to the Trust Indenture. The Trust Indenture has been amended from time to time, the latest material amendments being approved at the annual and special meeting of Unitholders held April 17, 2003, which included an amendment to eliminate the delegation of responsibilities and powers of the Trustee to the Manager and to delegate to ARC Resources all of the matters formerly delegated to the Manager. Computershare Trust Company of Canada has been appointed as trustee under the Trust Indenture. The beneficiaries of the Trust are holders of the Trust Units. The principal and head office of the Trustee is located at Suite 600, 530 - 8th Avenue S.W., Calgary, Alberta, T2P 3S8. ARC Resources was incorporated under the BUSINESS CORPORATIONS ACT (Alberta) on January 22, 1996 and was amalgamated with Orion Energy Holdings Inc. and Pencor Petroleum Limited on March 31, 1999, and subsequently amalgamated with Startech and ARC Resources Finance Ltd. on January 31, 2001. On December 31, 2002, ARC Resources amalgamated with its wholly-owned subsidiaries, Erehwon Exploration Ltd., Erex Inc. and FarPoint Energy Corporation, and on April 16, 2003, amalgamated with its wholly-owned subsidiary, Star. All of the issued and outstanding shares of ARC Resources are held by the Trust except for the Exchangeable Shares issued in conjunction with the acquisition of Startech on January 31, 2001 and the Exchangeable Shares issued to the former holders of ARML Exchangeable Shares. The business of ARC Resources is the acquisition, development, exploitation, and disposition of all types of petroleum and natural gas and energy related assets, including conventional oil and gas assets, oil sands interests, electricity or power generating assets and pipeline, gathering and transportation assets. The head and principal office of ARC Resources is located at Suite 2100, 440 - 2nd Avenue S.W., Calgary, Alberta, T2P 5E9. The principal investments of the Trust are the Royalties granted by ARC Resources and by ARC Sask. pursuant to the Royalty Agreements, the common shares of ARC Resources, the Long Term Notes and the common shares of ARC Canadian Oil & Gas Ltd. The Trust's investments in Royalties and Long Term Notes are made in order to finance oil and gas acquisitions made by ARC Resources and ARC Sask. The Royalties consist of a 99% share of royalty income on all of the Properties held by ARC Resources and ARC Sask. On each Cash Distribution Date, ARC Resources and ARC Sask. pay the Trust 99% of royalty income and ARC Resources pays interest on the Long Term Notes. The Trust will make cash distributions of such funds, subject only to required deductions and expenses of the Trust. Such cash distributions may be wholly or in part taxable. See "Distributions to Unitholders". The Trust is structured with the objective of having income tax incurred only in the hands of the Unitholders. Distributable Income received by Unitholders consists essentially of the operating cash flow generated by the oil and natural gas properties of ARC Resources and ARC Sask. More specifically, internally generated cash flow, with the exception of cash flow used for capital expenditures and debt repayments, is effectively returned to the Unitholders. GENERAL DEVELOPMENT OF THE BUSINESS The following is a description of the general development of the business of the Trust over its last two completed financial years. The Trust, ARC Resources, Startech and Impact Energy Inc. entered into the Arrangement Agreement as of December 15, 2000 which provided for the acquisition by ARC Resources of all of the issued and outstanding shares of Startech in exchange for, at the option of each holder of Startech shares, either 0.96 Trust Units or 0.96 Exchangeable Shares (to a maximum of 15,000,000 Exchangeable Shares) plus one common share of Impact Energy Inc. for each Startech share. The Arrangement was approved by the shareholders of Startech on January 25, 2001 and was completed on January 31, 2001 on the basis that ARC Resources acquired all of the issued and outstanding shares of Startech in consideration of the issuance of approximately 22.6 million Trust Units and approximately 7.4 million Exchangeable Shares to holders of Startech shares. ARC Resources also assumed approximately $168 million of bank indebtedness. Concurrently, ARC Resources amalgamated with Startech and ARC Resources' wholly-owned subsidiary, ARC Resources Finance Ltd. In connection with the Arrangement, ARC Resources issued the Long Term Notes in the principal amount of approximately $352 million to the Trust. The reserves attributable to the properties as at January 1, 2001 were 58.3 million boe on the basis of proven reserves plus probable reserves risked at 50 per cent. The reserve life index was 10.2 years for the proven reserves plus probable reserves risked at 50 per cent. Effective February 1, 2001, a number of transactions involving the Trust, ARC Resources and ARC Sask. were completed pursuant to which ARC Resources disposed of the oil and gas properties located in the Province of Saskatchewan which were formerly held by Startech to ARC Sask., ARC Sask. granted a 99% royalty to ARC Resources, such royalty was assigned by ARC Resources to the Trust and the Long Term Notes were reduced by an equal amount. 9 Effective July 1, 2002, a number of transactions involving the Trust, ARC Resources, ARC Sask., Orion Energy Trust and ARC Canadian Oil & Gas Ltd. were completed pursuant to which, following the completion of such transactions: (i) the Trust holds a 99% royalty on all of the properties held by ARC Resources; (ii) the Trust holds a 99% royalty on all of the properties held by ARC Sask.; and (iii) ARC Canadian Oil & Gas Ltd. (which company is a wholly-owned subsidiary of the Trust) holds all of the issued and outstanding trust units of Orion Energy Trust which in turn holds all of the issued and outstanding trust units of ARC Sask. On August 28, 2002, the Internalization Transaction was completed resulting in a wholly-owned subsidiary of the Trust, 980445 Alberta Ltd., acquiring all of the common shares of ARML in exchange for $4,247,658 in cash, the assumption of the obligation of ARML to pay retention bonuses in the aggregate amount of $5,000,000 over a period of five years, 298,648 Trust Units and 3,281,279 ARML Exchangeable Shares. As part of the transaction, an aggregate 9,013 Trust Units and 2,008,699 ARML Exchangeable Shares were placed in escrow in accordance with the terms of escrow agreements which were entered into on August 28, 2002 (the terms of which are described in the Information Circular - Proxy Statement of the Trust dated July 24, 2002 prepared in connection with the Special Meeting of Unitholders held August 28, 2002). In addition, the ARC Financial Advisory Agreement was entered into pursuant to which ARC Financial Corporation agreed to provide certain ongoing research and strategic services to the Trust for a five year period without cost to the Trust. Furthermore, ARML agreed to waive its right under the Shareholder Agreement to select three of the seven directors on the Board of Directors of ARC Resources and, accordingly, Unitholders have the right to select all of the members of the Board of Directors of ARC Resources commencing at the annual meeting of Unitholders held in 2003. The Internalization Transaction was approved by the Unitholders of the Trust at a special meeting of Unitholders held on August 28, 2002. Subsequent to the completion of the Internalization Transaction, on August 29, 2002, 980445 Alberta Ltd. amalgamated with its then wholly-owned subsidiary, ARML, and the amalgamated company continued under the name "ARC Resources Management Ltd.". On October 18, 2002, ARC Resources issued U.S. $30 million of 4.94% Senior Secured Notes with principal payments due on October 19 in each of 2006, 2007, 2008, 2009 and 2010 to a U.S. financial institution pursuant to an Uncommitted Master Shelf Agreement dated November 16, 2000. RECENT DEVELOPMENTS ACQUISITION OF STAR OIL & GAS LTD. On March 31, 2003, the Trust and ARC Resources, as purchaser, entered into a Share Sale Agreement with United Energy LLC, as vendor, under which the Trust indirectly acquired all the shares of Star for $710,000,000 effective January 1, 2003, paid by issuance of the Special Debenture in the principal amount of $320,000,000 and the repayment of an aggregate of $187,372,000 of corporate and shareholder debt and $202,628,000 in cash. ARC Resources concurrently agreed to sell its interest in certain producing properties and undeveloped acreage to third parties for $78,200,000. ARC Resources and ARC Sask. increased their aggregate credit facilities to $650,000,000 to finance the transaction, which closed on April 16, 2003. Star operated approximately 75% of its production, its six largest properties comprised approximately 72% of its production, and approximately 78% of its proven reserves are gas reserves. Star's primary producing areas are the Dawson, Pouce Coupe and Hatton gas fields located in British Columbia, Alberta and Saskatchewan, respectively. In 2002, production from the properties acquired was approximately 20,151 boe/d, comprised of 6,634 boe/d of oil and natural gas liquids and 81.1 mmcf/d of natural gas. The reserves attributed to the Star properties in the Gilbert Report as at January 1, 2003 were 67.1 million of barrels of oil equivalent and 80.5 million of barrels of oil equivalent for total proved reserves and for total established reserves (proved reserves plus probable reserves risked at 50%), respectively. More information in respect of the properties and reserves acquired from Star and Star's financial condition is described in the AIF. Pro forma financial statements of the Trust as at December 31, 2002 and March 31, 2003 are also set forth in the AIF. POTENTIAL ACQUISITIONS The Trust continues to evaluate potential acquisitions of all types of petroleum and natural gas and other energy-related assets as part of its ongoing acquisition program. The Trust is normally in the process of evaluating several potential acquisitions at any one time which individually or together could be material. As of the date hereof, the Trust has not reached agreement on the price or terms of any potential material acquisitions. The Trust cannot predict whether any current or future opportunities will result in one or more acquisitions for the Trust. 10 SELLING SECURITYHOLDER The Selling Securityholder is a limited partnership organized under the laws of Virginia. As of the date hereof, the Selling Securityholder is the registered and beneficial owner of the Offered Trust Units and $120,000,000 principal amount of the Special Debenture. The Offered Trust Units being sold pursuant to this offering were acquired by the Selling Securityholder on May 30, 2003 upon the conversion of $200,000,000 principal amount of the Special Debenture into an equal principal amount of Underlying Debentures and then the conversion on such date of all such Underlying Debentures into the Offered Trust Units at a conversion price of $11.84 per Trust Unit. In addition to the Underwriting Agreement described under "Plan of Distribution", the Selling Securityholder has entered into an underwriting agreement with CIBC World Markets Inc. and BMO Nesbitt Burns Inc. providing for the concurrent secondary offering (the "Concurrent Debenture Offering") of $120,000,000 principal amount of Underlying Debentures that the Selling Securityholder is entitled to own after the conversion of $120,000,000 principal amount of the Special Debenture. The completion of this offering is not conditional upon the completion of the Concurrent Debenture Offering. Upon completion of this offering and the Concurrent Debenture Offering, the Selling Securityholder will not own any Special Debentures, Underlying Debentures or Trust Units. USE OF PROCEEDS The net proceeds to the Selling Securityholder from the sale of the Offered Trust Units hereunder are estimated to be $191,527,692 after deducting the fees of $10,092,905 payable to the Underwriters, which will be paid by the Selling Securityholder, and the estimated expenses of the issue of $425,000, which will be shared by the Selling Securityholder and the Trust. NONE OF THE PROCEEDS OF THE OFFERING WILL BE RECEIVED BY THE TRUST. PLAN OF DISTRIBUTION Pursuant to an underwriting agreement dated May 22, 2003 (the "Underwriting Agreement") among the Selling Securityholder, the Trust, ARC Resources and the Underwriters, the Selling Securityholder has agreed to sell an aggregate of 16,891,891 Trust Units (inclusive of the Underwriters' Option discussed below) and the Underwriters have severally agreed to purchase on or about June 10, 2003, or such other date as may be agreed upon but not later than June 30, 2003, subject to the terms and conditions stated therein, all of such Trust Units at a price of $11.95 per Trust Unit. In consideration for their services in connection with this offering, the Underwriters will be paid a fee of $0.5975 per Offered Trust Unit by the Selling Securityholder. The terms of the offering were determined by negotiation between the Selling Securityholder and CIBC World Markets Inc. and BMO Nesbitt Burns Inc. on their own behalf and on behalf of the other Underwriters. The Selling Securityholder had granted to the Underwriters an option (the "Underwriters' Option") to purchase up to an additional 2,533,783 Trust Units, exercisable at any time until 48 hours prior to the time of closing. The Underwriters exercised the Underwriters' Option on May 29, 2003 and the offering was increased to 16,891,891 Trust Units. On May 30, 2003, the Selling Securityholder converted $200,000,000 principal amount of the Special Debenture owned by it into Underlying Debentures and then converted all of such Underlying Debentures into the Offered Trust Units. The obligations of the Underwriters under the Underwriting Agreement are several and the Underwriters may terminate their obligations at their discretion upon the occurrence of certain stated events. Pursuant to policy statements of the Ontario Securities Commission and the Commission des valeurs mobilieres du Quebec, the Underwriters may not, throughout the period of distribution under this prospectus, bid for or purchase Trust Units. The foregoing restriction is subject to exceptions, on the condition that the bid or purchase is not engaged for the purpose of creating actual or apparent active trading in, or raising the price of, the Trust Units. These exceptions include a bid or purchase permitted under the by-laws and rules of the TSX relating to market stabilization and passive market-making activities and a bid or purchase made for or on behalf of a customer where the order was not solicited during the period of distribution, provided that the bid or purchase was not engaged for the purpose of creating actual or apparent trading in, or raising the price of the Trust Units. In connection with this offering, and subject to the foregoing, the Underwriters may effect transactions which stabilize or maintain the market price for the Trust Units at levels other than those which might otherwise prevail in the open market. Such transactions, if commenced, may be discontinued at any time. 11 The Trust has agreed that it will not, without the prior written consent (after notice to all of the Underwriters) of Underwriters who, pursuant to the Underwriting Agreement, are obligated to purchase equal to or greater than 50% of the Offered Trust Units, which consent may not be unreasonably withheld, directly or indirectly, authorize, issue or sell any Trust Units or any securities giving the right to acquire Trust Units or agree or announce the intention to do so, at any time prior to the date 90 days following the closing of the offering, except for the grant of rights pursuant to the Trust Unit Rights Incentive Plan by the Trust, the issuance of Trust Units pursuant to the distribution reinvestment and optional Trust Unit purchase plan by the Trust, the issuance of securities by the Trust in connection with an acquisition, merger, consolidation or amalgamation, the issuance of Trust Units by the Trust upon the exercise of other currently existing rights, the issuance of Underlying Debentures pursuant to the Special Debenture and the issuance of Trust Units pursuant to the Underlying Debentures. Certificates for the Offered Trust Units will be available for delivery at the closing of this offering, which is expected to take place on or about June 10, 2003 but in any event not later than June 30, 2003. The Offered Trust Units have not been and will not be registered under the United States SECURITIES ACT OF 1933, as amended (the "1933 Act") or any state securities laws, and accordingly may not be offered or sold within the United States or to U.S. Persons (as such term is defined in Regulation S under the 1933 Act) except in transactions exempt from the registration requirements of the 1933 Act and applicable state securities laws. The Underwriting Agreement enables the Underwriters to offer and resell the Offered Trust Units that they have acquired pursuant to the Underwriting Agreement to certain qualified institutional buyers in the United States, provided such offers and sales are made in accordance with Rule 144A under the 1933 Act. Moreover, the Underwriting Agreement provides that the Underwriters will offer and sell the Offered Trust Units outside the United States only in accordance with Regulation S under the 1993 Act. In addition, until 40 days after the commencement of this offering, any offer or sale of Offered Trust Units offered hereby within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the 1933 Act if such offer or sale is made otherwise than in accordance with Rule 144A under the 1933 Act. DETAILS OF THE OFFERING A maximum of 650,000,000 Trust Units have been created and may be issued pursuant to the Trust Indenture. The Trust Units represent equal undivided beneficial interests in the Trust. All Trust Units share equally in all distributions from the Trust and all Trust Units carry equal voting rights at meetings of Unitholders. No Unitholder will be liable to pay any further calls or assessments in respect of the Trust Units. No conversion or preemptive rights attach to the Trust Units. A Special Voting Unit has been designated by the Board of Directors of ARC Resources as the "Special Voting Unit, Exchangeable Shares" ("Special Voting Unit, Exchangeable Shares"). The Special Voting Unit, Exchangeable Shares possesses a number of votes for the election of directors of ARC Resources and on all other matters submitted to a vote of Unitholders equal to the number of outstanding Exchangeable Shares from time to time not owned by the Trust or 908563 Alberta Ltd., a wholly-owned subsidiary of the Trust. The holders of Trust Units and the holder of the Special Voting Unit, Exchangeable Shares vote together as a single class on all matters. In the event of any liquidation, dissolution or winding-up of the Trust, and the holder of the Special Voting Unit, Exchangeable Shares will not be entitled to receive any assets of the Trust available for distribution to its holders of Trust Units. The holder of the Special Voting Unit, Exchangeable Shares will not be entitled to receive dividends. The Special Voting Unit, Exchangeable Shares has been issued to Computershare Trust Company of Canada, as trustee, to facilitate voting by holders of Exchangeable Shares. At such time as the Special Voting Unit, Exchangeable Shares has no votes attached to them because there are no Exchangeable Shares outstanding not owned by the Trust or 908563 Alberta Ltd., the Special Voting Unit, Exchangeable Shares will be cancelled. The Trust Indenture, among other things, provides for the calling of meetings of Unitholders, the conduct of business thereof, notice provisions, the appointment and removal of the Trustee and the form of Trust Unit certificates. The Trust Indenture may be amended from time to time. Substantive amendments to the Trust Indenture, including early termination of the Trust and the sale or transfer of the property of the Trust as an entirety or substantially as an entirety, require approval by special resolution of the Unitholders. The foregoing is a summary of certain provisions of the Trust Indenture. For a complete description of such Trust Indenture, reference should be made to the complete text of the Trust Indenture, copies of which may be viewed at the offices of, or obtained from the Trustee. 12 CONSOLIDATED CAPITALIZATION OF THE TRUST The following table sets forth the combined capitalization of the Trust, ARC Resources and ARC Sask. as at December 31, 2002, March 31, 2003, May 1, 2003 before and after giving effect to this offering and May 1, 2003 after giving effect to the offering and the Concurrent Debenture Offering:
AS AT MAY 1, 2003 AFTER GIVING EFFECT TO THE AS AT MAY 1, 2003 OFFERING AND THE AFTER GIVING EFFECT CONCURRENT AS AT AS AT TO THE DEBENTURE DECEMBER 31, 2002 MARCH 31, 2003 AS AT MAY 1, 2003(6) OFFERING(6)(7) OFFERING(6)(7)(8) ----------------- -------------- -------------------- -------------- ----------------- Long Term Debt(1)(2)(6) $337,728,000 $ 219,907,000 $ 490,717,297 $ 490,717,297 $ 490,717,297 Unitholders' Equity Excluding Special Debentures and Underlying Debentures $868,666,000 $1,021,491,000 $1,010,000,000 $1,210,000,000 $1,210,000,000 Special Debentures -- -- 320,000,000 120,000,000 -- Underlying Debentures -- -- -- -- 120,000,000 ----------------- -------------- -------------------- -------------- ----------------- Total Unitholders' Equity $868,666,000 $1,021,491,000 $1,330,000,000 $1,330,000,000 $1,330,000,000 Trust Units(3)(4)(5) 123,305,329 136,187,344 136,242,427 153,134,318 153,134,318 Exchangeable Shares 637,167 535,190 533,747 533,747 535,747 ARML Exchangeable Shares 2,206,409 2,153,666 2,150,816 2,150,816 2,150,816
NOTES: (1) ARC Resources and ARC Sask. have a combined credit facility of approximately $650 million as at April 30, 2003 consisting of a combined $551 million line of credit with five major chartered banks and U.S. $65 million of senior secured notes. Collateral for the long term debt is in the form of floating charges on all lands and assignments and negative pledges on specific petroleum and natural gas properties. (2) Excludes cash and working capital surplus (deficit) of ($10.1) million as at December 31, 2002, ($6.7) million as at March 31, 2003, and ($8.7) million at May 1, 2003. The deduction of the working capital surplus (deficit) and the funds in the reclamation fund would result in net debt of $334.9 million, $212.5 million, $485.6 million, $485.6 million and $485.6 million for December 31, 2002, March 31, 2003, May 1, 2003, May 1, 2003 after giving effect to the issue, and May 1, 2003 after giving effect to the issue and the Concurrent Debenture Offering, respectively. (3) As at May 1, 2003, rights were outstanding to purchase an aggregate of 2.847 million Trust Units, exercisable at prices between $5.02 and $12.48, which were granted pursuant to the Trust Unit rights incentive plan. In addition, on May 6, 2003 rights to purchase an additional 2,800,000 Trust Units, exercisable at a price of $12.07 per Trust Unit were issued. (4) As at May 1, 2003, 533,747 Exchangeable Shares were outstanding entitling the holders to exchange shares at an exchange ratio of 1.36281. If all Exchangeable Shares were exchanged on May 1, 2003, there would be 727,396 additional Trust Units issued. (5) As at May 1, 2003, 2,150,816 ARML Exchangeable Shares were outstanding entitling the holders to exchange shares at an exchange ratio of 1.09578. If all ARML Exchangeable Shares were exchanged on May 1, 2003, there would be 2,356,821 additional Trust Units issued. (6) Long Term Debt at May 1, 2003 includes the distribution to Unitholders paid on May 15, 2003 of $20.4 million. (7) After giving effect to the conversion of $200,000,000 principal amount of the Special Debenture into Underlying Debentures and then the conversion of all such Underlying Debentures into Trust Units, all of which occurred on May 30, 2003. (8) After giving effect to the conversion of $120,000,000 principal amount of the Special Debenture into $120,000,000 principal amount of Underlying Debentures. 13 DISTRIBUTIONS TO UNITHOLDERS The following per Trust Unit distributions have been payable to holders of Trust Units on record dates during the following periods. DISTRIBUTION PER TRUST UNIT --------------------------- 2001: ----- First Quarter $0.60 Second Quarter $0.66 Third Quarter $0.60 Fourth Quarter $0.45 2002: ----- First Quarter $0.39 Second Quarter $0.39 Third Quarter $0.39 Fourth Quarter $0.39 2003: ----- First Quarter $0.45 April $0.15 May $0.15 Since the closing of this offering is expected to occur after May 31, 2003, purchasers of Offered Trust Units under this short form prospectus will not receive the distribution to Unitholders of record on May 31, 2003. The first distribution in which purchasers of Trust Units will be able to participate will be the distribution to Unitholders of record on June 30, 2003, payable on July 15, 2003. The Board of Directors of ARC Resources on behalf of the Trust reviews the distribution policy from time to time. The current distribution policy allows the use of up to 20% of cash available for distribution for capital expenditures. Depending upon commodity prices and the size of the capital budget, it is expected that 20% of the cash available for distribution will fund between 50% and 100% of the Trust's annual capital expenditure program, including both exploitation expenditures and minor property acquisitions, but excluding major acquisitions. The Trust's distribution policy includes withholding approximately $4 million per annum to contribute to the Trust's reclamation fund to provide a cash reserve for the eventual abandonment of oil and gas properties (and subsequent to the Star Acquisition has been increased to $6 million per annum). In addition to the 20% holdback of cash flow to fund capital expenditures, cash flow generated from the properties formerly held by Star may be withheld from distributions and used to repay bank indebtedness or the Underlying Debentures. The actual amount withheld is dependent on the commodity price environment and is at the discretion of the Board of Directors. PRICE RANGE AND TRADING VOLUME OF TRUST UNITS The Trust Units are listed and posted for trading on the TSX. The following table sets forth the high and low trading prices and the aggregate volume of trading of the Trust Units on the TSX for the periods indicated (as quoted by the TSX): THE TORONTO STOCK EXCHANGE -------------------------- PERIOD HIGH LOW VOLUME ------ ---- --- ------ $ $ 2001 First Quarter 11.89 11.00 31,949,493 Second Quarter 13.50 10.85 28,155,247 Third Quarter 12.59 10.41 23,851,740 Fourth Quarter 12.20 10.35 26,359,861 14 THE TORONTO STOCK EXCHANGE -------------------------- PERIOD HIGH LOW VOLUME ------ ---- --- ------ $ $ 2002 First Quarter 13.18 11.35 24,094,995 Second Quarter 13.44 11.85 16,153,913 Third Quarter 12.98 11.05 16,234,877 Fourth Quarter 12.74 11.04 16,975,916 2003 First Quarter 12.34 10.89 19,729,174 April 11.90 11.29 6,255,701 May 12.60 11.67 11,224,881 June 1 - 2 12.29 12.22 495,955 On May 16, 2003 the last completed trading day on which the Trust Units traded prior to announcement of this offering, the closing price of the Trust Units was $12.45. On June 2, 2003 the closing price of the Trust Units was $12.25. RELATIONSHIP BETWEEN ARC RESOURCES' AND ARC SASK.'S LENDERS AND THE UNDERWRITERS CIBC World Markets Inc., BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., Scotia Capital Inc. and TD Securities Inc., five of the Underwriters, are direct or indirect wholly-owned subsidiaries of Canadian chartered banks which are lenders to ARC Resources and ARC Sask. and to which ARC Resources and ARC Sask. are indebted. See note (1) to the table under "Consolidated Capitalization of the Trust" for a description of the credit facility of ARC Resources and ARC Sask. Consequently, the Trust may be considered to be a connected issuer of these Underwriters for the purposes of securities regulations in certain provinces. The decision to distribute the Trust Units hereby and the determination of the terms of distribution were made through negotiations among the Selling Securityholder and CIBC World Markets Inc. and BMO Nesbitt Burns Inc., on behalf of the Underwriters. The banks did not have any involvement in such decision or determination; however, the banks have been advised of the issuance and the terms thereof. As a consequence of this issuance, CIBC World Markets Inc., BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., Scotia Capital Inc. and TD Securities Inc. will receive their respective share of the Underwriters' fee. None of the net proceeds of this offering will be received by the Trust or used to repay indebtedness owing to such banks. See "Use of Proceeds". CANADIAN FEDERAL INCOME TAX CONSIDERATIONS In the opinion of Bennett Jones LLP, Burnet, Duckworth & Palmer LLP and Macleod Dixon LLP (collectively "Counsel"), the following summary fairly describes the principal Canadian federal income tax considerations pursuant to the Tax Act generally applicable to a Unitholder who acquires Trust Units pursuant to this offering and who, for purposes of the Tax Act, is resident in Canada, holds the Trust Units as capital property and deals at arm's length with the Trust and the Underwriters. Generally speaking, Trust Units will be considered to be capital property to a Unitholder provided the Unitholder does not hold the Trust Units in the course of carrying on a business and has not acquired them in one or more transactions considered to be an adventure in the nature of trade. Certain Unitholders who might not otherwise be considered to hold their Trust Units as capital property may, in certain circumstances, be entitled to have them treated as capital property by making the election permitted by subsection 39(4) of the Tax Act. This summary is not applicable to a Unitholder that is a "financial institution", as defined in the Tax Act for purposes of the mark-to-market rules, or to a Unitholder an interest in which would be a "tax shelter investment", as defined in the Tax Act, and any such Unitholder should consult its own tax advisor with respect to an investment in Trust Units. This summary is based upon the provisions of the Tax Act and the Income Tax Regulations (the "Regulations") in force as of the date hereof, all specific proposals to amend the Tax Act and the Regulations that have been publicly announced prior to the date hereof (the "Proposed Amendments") and Counsel's understanding of the current administrative policies of the Canada Customs and Revenue Agency. No advance income tax ruling has been requested in respect of this offering. This summary is not exhaustive of all possible Canadian federal income tax considerations and, except for the Proposed Amendments, does not take into account or anticipate any changes in the law, whether by legislative, governmental or judicial action, nor does it take into account provincial (except for certain provisions of the Alberta Corporate Tax Act relating to the ARTC), territorial or foreign tax considerations, which may differ significantly from those discussed herein. This summary is of a general nature only and is not intended to be legal or tax advice to any prospective purchaser of Trust Units. Consequently, prospective Unitholders should consult their own tax advisors with respect to their particular circumstances. 15 STATUS OF THE TRUST In the opinion of Counsel, based on representations of ARC Resources and the Trust, the Trust qualifies as a "unit trust" and a "mutual fund trust" as defined by the Tax Act, and this summary assumes that the Trust will continue to so qualify. The qualification of the Trust as a mutual fund trust requires that certain factual conditions generally be met throughout its existence. Firstly, in order for the Trust to qualify as a mutual fund trust, it must not be established nor must it at any time be maintained primarily for the benefit of non-residents. Although this fact has been assumed for the purposes of this opinion, Counsel is of the view that such assumption is reasonable in light of the restrictions on the ownership of Trust Units by non-resident persons and based on representations to Counsel that the overwhelming majority of Unitholders are Canadian residents. Secondly, in order for the Trust to continue to qualify as a mutual fund trust, there generally must be at least 150 Unitholders each of whom owns not less than one "block" of Trust Units having a fair market value of not less than $500. Based on factual representations to Counsel by ARC Resources, this requirement is also complied with at present. The Trust and ARC Resources have advised that it is intended that these requirements will be satisfied so that the Trust will continue to so qualify, but in the event the Trust were not to so qualify, the income tax considerations would in some respects be materially different from those described below. The Trust will continue to so qualify if it qualifies at any time in a particular year and it would not otherwise qualify at a particular time only by virtue of the dispersal of ownership of Trust Units. If the Trust ceases to qualify as a mutual fund trust, the Trust Units will cease to be qualified investments for registered retirement savings plans ("RRSPs"), registered retirement income funds ("RRIFs"), registered education savings plans ("RESPs") and deferred profit sharing plans ("DPSPs") (collectively, "Exempt Plans"). Where at the end of any month an Exempt Plan holds Trust Units that are not qualified investments, the Exempt Plan must, in respect of that month, pay a tax under Part XI.1 of the Tax Act equal to 1% of the fair market value of the Trust Units at the time such Trust Units were acquired by the Exempt Plan. In addition, where a trust governed by an RRSP or an RRIF holds Trust Units that are not qualified investments, the trust will become taxable on its income attributable to, and any capital gain from the disposition of, the Trust Units while they are not qualified investments. In addition, where a trust governed by an RESP holds Trust Units that are not qualified investments and does not dispose of such Trust Units within 60 days of the Trust Units ceasing to be qualified investments, the registration of the RESP may be revoked. If the Trust ceases to qualify as a mutual fund trust, the Trust will be required to pay a tax under Part XII.2 of the Tax Act. The payment of Part XII.2 tax by the Trust may have adverse income tax consequences for certain Unitholders including non-resident persons, and tax exempt persons (including Exempt Plans) that acquire an interest in the Trust directly or indirectly from another Unitholder. INCOME OF THE TRUST The Trust will be required to include in computing its income for a taxation year its entitlement under the Royalties in that year, including the amount which is paid by the Trust to ARC Resources or ARC Sask. in reimbursement of ARC Resources' or ARC Sask.'s obligation to pay Crown charges, and other amounts subject to set off. The Trust will also be required to include in its income any interest from the Long Term Notes which is paid to it, and any interest which accrues to it on unexpended funds. Costs incurred in the issuance of Trust Units may generally be deducted by the Trust on a five year, straight line basis. The Trust will be entitled to deduct reasonable current expenses incurred in its ongoing operation as well as annual deductions in respect of cumulative Canadian oil and gas property expense ("COGPE") and resource allowance. Under the Proposed Amendments, the Trust may be required to report its income from the Royalties on an accrual basis, rather than on a cash basis. Further, the proposed amendments specify that the Royalties only constitute a Canadian resource property, and hence the cost of the Royalties will only constitute COGPE provided that 90% of the revenues is payable out of, or from the proceeds of, the production from an oil and gas well in Canada. In addition, the Proposed Amendments provide for the deductibility of Crown Royalties, the elimination of the resource allowance and the inclusion in income of ARTC, all to be phased in commencing in 2003. The cost to the Trust of the Royalties, including any amount paid under the Deferred Purchase Price Obligation will, subject to the Proposed Amendments, when incurred, be added to the Trust's cumulative COGPE account. Any amount which is receivable by the Trust from the release of the Royalties will be deducted from the Trust's cumulative COGPE (see "Deferred Purchase Price Obligation and the Release of the Royalties on Certain Properties"). The Trust may generally deduct, in computing its income from all sources for a taxation year, an amount not exceeding 10%, on a declining basis, of any positive balance of its cumulative COGPE account at the end of that year. If the balance of the cumulative COGPE of the Trust at the end of a particular taxation year after all additions and deductions for that year have been made would otherwise be a negative amount, the negative amount will be included in the Trust's income for the purposes of the Tax Act for that year. The Trust's resource allowance is, subject to the Proposed Amendments, computed as being 25% of its adjusted resource profits, calculated in accordance with the Regulations. Generally, the Trust's adjusted resource profits will equal its income from the 16 Royalties prior to any deduction in respect of its cumulative COGPE and any amount deducted in respect of distributions to Unitholders, as described below. Royalty payments which do not have a corresponding obligation to effect a reimbursement of Crown Royalties and distributions from ARC Sask. will not be included in the Trust's resource profits. The Tax Act requires the Trust to compute its income or loss for a taxation year as though it were an individual resident in Canada. The taxation year of the Trust is the calendar year. To the extent that the Trust has any income for a taxation year after the inclusions and deductions outlined above, the Trust will be permitted to deduct all amounts which are paid or payable by it to Unitholders in the year and any amounts which constitute the excess, if any, of Crown charges reimbursed by the Trust to ARC Resources or ARC Sask. over the resource allowance deductible by the Trust for that year, to the extent that such excess amounts are designated to the Unitholders for that year. See "The Unitholders - Income from Trust Units", below. The Trustee has agreed to designate the full amount of any such excess amounts annually in favour of the Unitholders. Accordingly, it is anticipated that the Trust will generally not have any material taxable income for the purposes of the Tax Act. The Trust may, at its discretion, claim a deduction in computing income for a taxation year in an amount less than its income for the year that becomes payable to Unitholders in the year in order to utilize losses from prior taxation years. The Trustee has agreed to maximize the use of deductions in computing income and taxable income as allowed by the Tax Act. DEFERRED PURCHASE PRICE OBLIGATION AND THE RELEASE OF THE ROYALTIES ON CERTAIN PROPERTIES Where as a result of a sale of a Property by ARC Resources (or ARC Sask.) and the release of the Royalties relating to that Property, an amount becomes receivable by the Trust in a taxation year such amount will be required to be deducted from the balance of the Trust's cumulative COGPE account otherwise determined at the end of that year. If all or a portion of the consideration receivable in a taxation year upon the release of the Royalty or ARC Sask. Royalty relating to a Property is used pursuant to the Deferred Purchase Price Obligation to acquire in that year one or more replacement Canadian resource properties, the amount so used will be added, in that year, to the cumulative COGPE account of the Trust to the extent of its share of the portion of the consideration that is so used. ENTITLEMENT TO ALBERTA ROYALTY TAX CREDITS The Trust and ARC Resources are entitled to claim ARTC in respect of certain properties located in Alberta. Under current legislation, ARTC is based on a price sensitive formula linked to crude oil prices. The maximum Alberta Crown Royalty to which the rate applies annually is $2 million per applicant or associated group of applicants. The Trust and ARC Resources have advised Counsel that they are eligible to receive ARTC. ARC Resources has indicated it intends to use the ARTC to defray other expenses and capital expenditures of ARC Resources thereby effectively increasing royalty income. ARC Resources will be entitled to claim ARTC in respect of the portion of the Royalties which are not subject to the Trust's obligations to reimburse for Crown Royalties and where the properties to which the Royalty relates are not otherwise "restricted resource properties". THE UNITHOLDERS INCOME FROM TRUST UNITS Each Unitholder is required to include in computing income for a particular taxation year the Unitholder's pro rata share of the Trust's net income for tax purposes that was payable in that year by the Trust to that Unitholder whether such amounts are reinvested in additional Trust Units and whether the amount was actually paid to the Unitholder in that year, together with all amounts designated to him as reimbursed Crown charges in excess of the resource allowance deducted in computing the Trust's income. An amount will be considered to be payable to the Unitholders in a taxation year if the Unitholder is entitled in that year to enforce payment of the amount. Income of a Unitholder from the Trust Units will be considered to be income from property and not business income or income from production for purposes of the Tax Act. Any loss of the Trust for purposes of the Tax Act cannot be allocated to and treated as a loss of the Unitholders. The amount of income allocable to a Unitholder may vary from the amount of cash payments as a result of the deduction of non-cash expenses by the Trust, and the non-deductibility or deferred deductibility of certain Trust expenditures. ADJUSTED COST BASE OF TRUST UNITS The cost to a Unitholder of Trust Units acquired pursuant to this offering will equal the purchase price of the Trust Units plus the amount of any other reasonable costs incurred in connection with such acquisition. Trust Units issued pursuant to a reinvestment of distributions will be considered acquired at a cost equal to the amount of the distribution. This cost will be averaged with the adjusted cost base of all other Trust Units to determine the adjusted cost base of each Trust Unit. Amounts distributed by the 17 Trust to a Unitholder in respect of a Trust Unit (including amounts in respect of ARTC, if any) will reduce the Unitholder's adjusted cost base of the Trust Unit to the extent that the amount distributed is in excess of the Trust's income for the purposes of the Tax Act computed prior to any deduction for amounts distributed to Unitholders. To the extent that the adjusted cost base to a holder of Trust Units would otherwise be less than zero, the negative amount will be treated as a capital gain from the disposition of such Trust Units. DISPOSITION OF TRUST UNITS An actual or deemed disposition of Trust Units (other than in a tax-deferred transaction) will give rise to a capital gain (or capital loss) equal to the amount by which the proceeds of disposition are greater than (or less than) the adjusted cost base to the holder of such Trust Units plus reasonable costs associated with the disposition. Generally, one-half of any capital gain (a "taxable capital gain") realized by a Unitholder in a taxation year must be included in the Unitholder's income under the Tax Act for the year, and one half of any capital loss (an "allowable capital loss") realized by a Unitholder in a taxation year may be deducted from taxable capital gains realized by the Unitholder in that year. Allowable capital losses for a taxation year in excess of taxable capital gains for that year generally may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net capital gains realized in such years, to the extent and under the circumstances described in the Tax Act. A Unitholder that throughout the relevant taxation year is a "Canadian-controlled private corporation", as defined in the Tax Act, may be liable to pay an additional refundable tax of 6 2/3% on certain investment income, including taxable capital gains. INTEREST ON FUNDS BORROWED TO ACQUIRE TRUST UNITS Reasonable amounts of interest which are paid or payable pursuant to a legal obligation by a Unitholder on borrowed money used to acquire Trust Units will generally be deductible in computing the Unitholder's income for the period during which the person holds the Trust Units. Interest on funds used directly or indirectly to make a contribution to an Exempt Plan is not deductible. REDEMPTION OF TRUST UNITS A redemption of Trust Units in consideration for cash or promissory notes issued by ARC Resources ("ARC Resources Notes"), as the case may be, will be a disposition of such Trust Units for proceeds of disposition equal to such cash, or the fair market value of such ARC Resources Notes, as the case may be. Redeeming Unitholders will consequently realize a capital gain, or sustain a capital loss, depending upon whether the amount received exceeds, or is exceeded by, the adjusted cost base of the Trust Units so redeemed. ELIGIBILITY FOR INVESTMENT In the opinion of Bennett Jones LLP, Burnet, Duckworth & Palmer LLP and Macleod Dixon LLP, the Trust Units will on the date of closing, subject to the assumptions contained in "Canadian Federal Income Tax Considerations" being met on the date of closing and on a continuous basis and provided that the Trust qualifies as a "mutual fund trust" as described under "Canadian Federal Income Tax Considerations", be qualified investments for trusts governed by registered retirement savings plans, registered retirement income funds, registered education savings plans and deferred profit sharing plans under the Tax Act as in effect on the date hereof. The Trust has advised Counsel that the cost amount of foreign property of the Trust, if any, will be less than 30% of the cost amount of all property of the Trust and accordingly the Trust Units will not constitute foreign property for such plans. RISK FACTORS An investment in the Trust Units is subject to certain risks. Investors should carefully consider the risks described under "Risk Factors" in the AIF. INTEREST OF EXPERTS Certain legal matters will be passed upon on behalf of the Selling Securityholder by Bennett Jones LLP, Calgary, on behalf of the Trust by Burnet, Duckworth & Palmer LLP, Calgary, and on behalf of the Underwriters by Macleod Dixon LLP, Calgary. As of the date hereof, each of the partners and associates of Bennett Jones LLP, as a group, the partners and associates of Burnet, Duckworth & Palmer LLP, as a group, and the partners and associates of Macleod Dixon LLP, as a group, owned less than 1% of the outstanding Trust Units. 18 The audited consolidated financial statements (other than pro forma combined financial statements) of the Trust incorporated by reference in this short form prospectus have been audited by Deloitte & Touche LLP, Chartered Accountants, as stated in their report dated January 27, 2003. As of the date hereof, the partners of Deloitte & Touche LLP, as a group, do not beneficially own, directly or indirectly, any Trust Units of the Trust. Reserve estimates contained in the AIF, and incorporated by reference into this prospectus, are based upon reports prepared by Gilbert, as independent consultants, as of January 1, 2003 with respect to reserves of ARC Resources and ARC Sask. and the reserves formerly held by Star. As of the date hereof, the partners, as a group, of Gilbert own, directly or indirectly, less than 1% of the outstanding Trust Units. AUDITORS, TRANSFER AGENT AND REGISTRAR The auditors of the Trust are Deloitte & Touche LLP, Chartered Accountants, 3000, 700 - 2nd Street SW, Calgary, Alberta T2P 0S7. The transfer agent and registrar for the Trust Units is Computershare Trust Company of Canada at its principal offices in Calgary and Toronto. PURCHASERS' STATUTORY RIGHTS Securities legislation in several of the provinces provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces, securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, damages if the prospectus and any amendment thereto contains a misrepresentation or is not delivered to the purchaser, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of such purchaser's province. The purchaser should refer to any applicable provisions of the securities legislation of such purchaser's province for the particulars of these rights or consult with a legal advisor. 19 CERTIFICATE OF THE TRUST Dated: June 3, 2003 This short form prospectus, together with the documents incorporated herein by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this short form prospectus as required by the securities laws of all of the provinces of Canada. For the purposes of the Province of Quebec, this simplified prospectus, as supplemented by the permanent information record, contains no misrepresentation that is likely to affect the value or the market price of the securities to be distributed. ARC ENERGY TRUST BY: ARC RESOURCES LTD. (signed) John P. Dielwart (signed) Steven W. Sinclair President and Chief Executive Officer Vice-President, Finance and Chief Financial Officer On behalf of the Board of Directors (signed) Mac Van Wielingen (signed) John M. Stewart Director Director 20 CERTIFICATE OF UNDERWRITERS Dated: June 3, 2003 To the best of our knowledge, information and belief, this short form prospectus, together with the documents incorporated herein by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this short form prospectus as required by the securities laws of all of the provinces of Canada. For the purposes of the Province of Quebec, to our knowledge, this simplified prospectus, as supplemented by the permanent information record, contains no misrepresentation that is likely to affect the value or the market price of the securities to be distributed. CIBC WORLD MARKETS INC. BMO NESBITT BURNS INC. By: (signed) Arthur Korpach By: (signed) Aaron M. Engen RBC DOMINION SECURITIES INC. By: (signed) Robi Contrada SCOTIA CAPITAL INC. By: (signed) Mark Herman NATIONAL BANK FINANCIAL INC. By: (signed) L. Trevor Anderson TD SECURITIES INC. By: (signed) Alec W.G. Clark FIRSTENERGY CAPITAL CORP. By: (signed) John S. Chambers RAYMOND JAMES LTD. By: (signed) Edward J. Bereznicki DUNDEE SECURITIES CORPORATION By: (signed) David P. Styles