Securities Law & Instruments

Headnote

Rule 61-501 - Related party transactions - Relieffrom valuation requirements in connection with a related partytransaction - Applicant and ARC Resources Management Ltd. ("ARML")both have exchangeable shares convertible into units of theirparent, ARC Energy Trust (the "Trust") - holders ofexchangeable shares do not have any rights in the Applicantor ARML - Directors and senior officers of the Applicant own67% of the outstanding ARML exchangeable shares - Applicantto acquire all the outstanding ARML exchangeable shares andmerge the shares with Applicant's exchangeable shares into oneclass of exchangeable shares - merger approved by the holdersof the Applicant's exchangeable shares, the independent unitholdersof the Trust and the independent directors of the Applicant- the exchangeable shares are the economic equivalent to thenumber of Trust units which the holder is entitled to receivein exchange for such shares - exchangeable shares are in substancea class of securities of the Trust and not of the Applicantor ARML - Applicant exempt from the valuation requirements,provided that the Trust complies with Rule 61-501 in the samemanner as if it were party to the transaction.

Ontario Rule Cited

Rule 61-501--Insider Bids, Issuer Bids, GoingPrivate Transactions and Related Party.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ONTARIO AND QUÉBEC

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

ARC RESOURCES LTD

 

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (a "Decision Maker" and collectively,the "Decision Makers") in each of the provinces ofOntario and Quebec (the "Jurisdictions") have receivedan application from ARC Resources Ltd. ("ARC Resources")for a decision pursuant to Ontario Securities Commission Rule61-501 ("Rule 61-501"), Policy Q-27 of the Commissiondes Valeurs Mobilieres du Quebec and other applicable securitieslegislation in Quebec (collectively, the "Legislation")that in connection with the acquisition by ARC Resources ofall of the outstanding exchangeable shares of ARC ResourcesManagement Ltd. ("ARML"), ARC Resources be exemptfrom the requirements contained in the Legislation to obtaina formal valuation, provide disclosure in respect of such formalvaluation and comply with other requirements in respect of suchformal valuation (the "Valuation Requirements");

AND WHEREAS pursuant to the Mutual RelianceReview Systems For Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the Principal Regulatorfor this application;

AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Québec Commission Notice14-101;

AND WHEREAS the ARC Energy Trust (the"Trust") and ARC Resources have represented to theDecision Makers that:

1. The Trust is an open-end investment trustcreated on May 7, 1996 under the laws of the Province of Albertapursuant to a trust indenture between ARC Resources and MontrealTrust Company of Canada (which has assigned its interest astrustee to Computershare Trust Company of Canada), as amended.

2. The Trust is a reporting issuer, or hasequivalent status, under the securities legislation in allprovinces of Canada (the "National Legislation")and is not in default of any of the requirements of the NationalLegislation.

3. The Trust is authorized to issue 650,000,000trust units of the Trust ("Trust Units") and anunlimited number of special voting units. As at March 28,2003, there were 136,187,345 Trust Units outstanding and outstandingrights to acquire 693,181 Trust Units under the Trust UnitIncentive Rights Plan of the Trust.

4. The Trust Units are currently listed onthe Toronto Stock Exchange (the "TSX").

5. ARC Resources was formed on January 22,1996 under the Business Corporations Act (Alberta)(the "ABCA").

6. ARC Resources is a reporting issuer, orhas equivalent status, under the National Legislation in allprovinces of Canada and is not in default of any of the requirementsof the National Legislation.

7. The authorized capital of ARC Resourcesconsists of an unlimited number of common shares (the "ARCCommon Shares"), 50,000,000 exchangeable shares of ARCResources ("ARC Resources Exchangeable Shares")and an unlimited number of second preferred shares.

8. All of the issued and outstanding ARC CommonShares are held by the Trust.

9. As at March 28, 2003, there were 535,140ARC Resources Exchangeable Shares issued and outstanding.As at March 28, 2003, each ARC Resources Exchangeable Sharecan be exchanged for 1.34954 Trust Units. The ARC ResourceExchangeable Shares are not "participating securities"within the meaning of the Legislation. None of the ARC ResourcesExchangeable Shares are held by a related party of the Trust,ARC Resources or ARML.

10. The ARC Resources Exchangeable Sharesare listed on the TSX.

11. 980445 Alberta Ltd. was formed on March22, 2002, under the ABCA and on August 29, 2002 it amalgamatedwith its then wholly-owned subsidiary, ARC Resources ManagementLtd. to form ARML.

12. The authorized capital of ARML consistsof an unlimited number of common shares (the "ARML CommonShares") and an unlimited number of exchangeable shares("ARML Exchangeable Shares").

13. All of the issued and outstanding ARMLCommon Shares are held by the Trust.

14. As at March 28, 2003, there were 2,153,666ARML Exchangeable Shares issued and outstanding. As at March28, 2003, each ARML Exchangeable Share can be exchanged for1.08143 Trust Units. Directors and senior officers of ARCResources (the "Related Parties") beneficially own,directly or indirectly, or exercise control or direction over1,449,169 or 67% of the outstanding ARML Exchangeable Shares.

15. The ARML Exchangeable Shares are not listedon the TSX or any other stock exchange.

16. As at March 28, 2003, the outstandingARC Resources Exchangeable Shares and ARML Exchangeable Sharesentitled the holders to acquire 3,051,301 Trust Units or approximately2.2% of the outstanding Trust Units, assuming the exchangeof all ARC Resources Exchangeable Shares and ARML ExchangeableShares for Trust Units. If the Related Parties were to exchangetheir holdings of ARML Exchangeable Shares for Trust Unitsas at March 28, 2003, they would hold approximately 1.1% ofthe outstanding Trust Units, assuming the exchange of no ARCResources Exchangeable Shares or other ARML Exchangeable Sharesfor Trust Units.

17. Management of the Trust intends to mergeARC Resources and ARML (the "Exchangeable Share Reorganization")so that only one type of exchangeable share will remain outstanding.

18. ARC Resources will make certain amendmentsto its Articles of Incorporation by replacing the rights,privileges, restrictions and conditions presently attachingto the ARC Resources Exchangeable Shares with rights, privileges,restrictions and conditions which are in substance identicalto those presently attaching to the ARML Exchangeable Shares(the "ARC Resources Exchangeable Share Amendment").

19. The ARC Resources Exchangeable Share Amendmenthas received the following approvals:

(a) as required by the ABCA and the termsof the ARC Resources Exchangeable Shares, the ARC ResourcesExchangeable Share Amendment has been approved by a majorityof not less than two-thirds of the votes cast by holdersof ARC Resources Exchangeable Shares at a meeting held onApril 17, 2003;

(b) all seven members of the board of directorsof ARC Resources (the "ARC Board"), includingfour directors who are not Related Parties, unanimouslyrecommended approval of the ARC Resources Exchangeable ShareAmendment to holders of ARC Resources Exchangeable Sharesand also to holders of the Units (the "Unitholders");

(c) the Unitholders approved the ARC ResourcesExchangeable Share Amendment by a majority of not less thantwo-thirds of the votes cast by Unitholders at a meetingheld on April 17, 2003 (the "Unitholder Meeting");

(d) as required by the TSX, the ARC ResourcesExchangeable Share Amendment was also approved by a majorityof the votes cast by Unitholders at the Unitholder Meeting,other than the votes cast by directors, officers and otherinsiders of the Trust; and

(e) all necessary regulatory approvals.

20. Immediately following the ARC ResourcesExchangeable Share Amendment, ARC Resources will acquire allof the outstanding ARML Exchangeable Shares in exchange (the"Share Exchange") for the amended ARC ResourcesExchangeable Shares (the "New ARC Resources ExchangeableShares"). Pursuant to the Share Exchange, holders ofARML Exchangeable Shares will receive that number of New ARCResources Exchangeable Shares that will entitle the holderto receive the same number of Trust Units that the holderwould have received if it had exercised its right, immediatelyprior to the Share Exchange, to receive Trust Units.

21. The Share Exchange has received the followingapprovals:

(a) the members of the ARC Board who arenot Related Parties unanimously approved the Share Exchangeand all members of the ARC Board unanimously recommendedapproval of the Share Exchange to the Unitholders;

(b) the Unitholders approved the Share Exchangeby a majority of the votes cast by the Unitholders at theUnitholder Meeting;

(c) as required by the TSX, the Share Exchangewas also approved by a majority of the votes cast by Unitholdersat the Unitholder Meeting, other than the votes cast bydirectors, officers and other insiders of the Trust; and

(d) all necessary regulatory approvals.

22. All holders of ARC Resources ExchangeableShares will be treated identically and no holder will receive,as a consequence of the Exchangeable Share Reorganization,consideration of greater value than that received on a prorata basis by all the other holders of ARC Resources ExchangeableShares.

23. All holders of ARML Exchangeable Shares,including the Related Parties, will be treated identicallyand no holder will receive, as a consequence of the ExchangeableShare Reorganization, consideration of greater value thanthat received on a pro rata basis by all the other holdersof ARML Exchangeable Shares.

24. The Share Exchange will be effected bya written agreement between ARC Resources and each holderof ARML Exchangeable Shares. The Share Exchange will constitutea take-over bid under the securities legislation of Albertaand Saskatchewan. However, ARC Resources has applied to thesecurities regulatory authorities in Alberta and Saskatchewanfor exemptive relief from applicable take-over bid requirements.

25. Following the completion of the ARC ResourcesExchangeable Share Amendment and the Share Exchange, ARC Resourceswill acquire all of the outstanding ARML Common Shares inexchange for the issuance to the Trust of ARC Common Shares(the "Common Share Acquisition").

26. Following the completion of the ARC ResourcesExchangeable Share Amendment, the Share Exchange and the CommonShare Acquisition, ARC Resources and its then wholly-ownedsubsidiary, ARML, will execute an agreement whereby ARML willtransfer and assign all of its assets and liabilities to ARCResources.

27. The issuance of New ARC Resources ExchangeableShares to the Related Parties pursuant to the Share Exchangeconstitutes a "related party transaction" underthe Legislation as the Related Parties will be purchasingan asset (ARML Exchangeable Shares) from the Related Partiesfor valuable consideration (New ARC Resources ExchangeableShares).

28. The ARC Resources Exchangeable Sharesare not "affected securities" within the meaningof the Legislation and, as a result, holders of ARC ResourcesExchangeable Shares do not have minority approval rights inconnection with the Share Exchange. However, ARC Resourcesmust still comply with the Valuation Requirements in the absenceof an exemption.

29. Although each of the ARC Resources ExchangeableShares and the ARML Exchangeable Shares is a security of anentity other than the Trust, such shares are, as a resultof the rights, privileges, restrictions and conditions attachingto such shares and the various agreements relating to suchshares, the economic equivalent of the number of Trust Unitswhich the holder is entitled to receive in exchange for suchshares. Accordingly, the ARC Resources Exchangeable Sharesand the ARML Exchangeable Shares are each, in substance, aclass of securities of the Trust and not of ARC Resourcesor ARML, as the case may be.

30. If the Share Exchange were a "relatedparty transaction" of the Trust, the Trust would be ableto rely on exemptions from the Valuation Requirements currentlyavailable under the Legislation.

AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each of the DecisionMakers (collectively, the "Decision");

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;

THE DECISION of the Decision Makers underthe Legislation is that in connection with the Share Exchange,ARC Resources shall not be subject to the Valuation Requirements,provided that the Trust complies with the Legislation in thesame manner as if the Share Exchange were a "related partytransaction" of the Trust.

May 8, 2003.

"Ralph Shay"