Document:

Confidential

                                 GPC Biotech AG
                               Martinsried/Planegg

                     Convertible Bonds Terms and Conditions
      for members of the management bodies of GPC Biotech AG and affiliated
                   subsidiary companies in Germany and abroad

               (Resolution of the General Meeting of May 24, 2006)

                                    Preamble

The General Meeting of GPC Biotech AG (hereinafter "the Company" or "GPC
Biotech") resolved on May 24, 2006 to implement a program for the issuance of
convertible bonds, nominal value (euro) 1,00 per convertible bond (the
"Convertible Bonds") to members of the management bodies of GPC Biotech AG and
affiliated subsidiary companies in Germany and abroad (hereinafter the
"Allottees").

The terms and conditions of the program for the issuance of Convertible Bonds
are as follows:

                                      ss. 1
                                Convertible Bonds

(1)      The Allottees receive registered Convertible Bonds which comprise
         the right to purchase ordinary no-par value bearer shares (the
         "Shares") of the Company in the number listed in the offer letter or in
         the convertible bond certificate, subject to adjustment pursuant to ss.
         9 hereof.

(2)      By accepting the offer to purchase the Convertible Bonds, the Allottee
         shall transfer the total nominal amount of the Convertible Bonds to
         which he/she is entitled in Euros for unconditional disposition by the
         Company and without further costs to an account to be specified by the
         Company. The transfer has been made no later than one month after the
         grant date.

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                                     - 2 -

(3)      The Convertible Bonds may be evidenced in several registered global
         convertible bond certificates. The right to (individual) convertible
         bond certificates is excluded.

(4)      On behalf of the Company, a bonds register entitled "Convertible
         Bonds" (hereinafter the "Options Register"), in which the Convertible
         Bonds are registered together with the conversion price (see ss. 8 (1)
         hereof), the series and number as well as the holder by name, date of
         birth and residence address will be maintained by the exercise agent
         (see ss. 18 hereof). In addition, the Options Register sets forth in
         particular the information necessary for determining the period
         according to ss. 14 (1) hereof (the "Vesting Period").

(5)      In relation to the Company, only parties registered as Allottees in the
         Options Register are qualified as such.

                                      ss. 2
                     Basic Features of the Convertible Bonds

(1)      As provided by these terms and conditions, and subject to any
         adjustment pursuant to ss.ss. 8 and 9 hereof, the Convertible Bonds may
         be converted to obtain one Share of the Company for each Convertible
         Bond upon payment of the conversion price to be specified by the
         Company in accordance with ss. 8 hereof.

(2)      To cover the Convertible Bonds to be issued to the Allottees, the May
         24, 2006 General Meeting of the Company created a conditional capital
         in the amount of up to (euro) 900,000. A maximum of 650,000 Convertible
         Bonds may be issued to members of the management bodies of GPC Biotech
         AG and affiliated subsidiary companies in Germany and abroad.
         Supervisory Board of the Company may choose whether the Shares
         underlying the Convertible Bonds will be made available from such
         conditional capital or from a program to repurchase its own Shares,
         resolved or possibly yet to be resolved by the General Meeting.

                                      ss. 3
                 Interest Rate, Repayment of the Nominal Amount

(1)      The Convertible Bonds bear interest at 3.5% per annum starting from the
         date of their issuance. The interest amounts are due at the end of the
         respective calendar year. In the event of the cancellation of the
         Convertible Bonds pursuant to ss. 14 hereof or of the due conversion of
         the Convertible Bonds pursuant to ss. 10 hereof, the interest amounts
         for the current calendar year are due immediately.

(2)      A right to compound interest does not exist.

(3)      The paid-in nominal amount is due for repayment  within ten calendar
         days after lapse of the Convertible Bonds for whatever reason.

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                                     - 3 -

                                      ss. 4
                      Purchasing Periods, Time to Maturity

(1)      The Convertible Bonds may be offered to the Allottees for subscription
         within the last fifteen working days of each calendar month. The date
         of issuance is the day on which the Supervisory Board has made an offer
         to the Allottee for subscription of the Convertible Bonds, provided,
         such offer has been accepted within the subscription period.

(2)      The time to maturity of the Convertible Bonds is ten years from the
         date of their issuance. ss. 3(3) notwithstanding, the Convertible Bonds
         lapse without compensation upon expiration of the time to maturity.

                                      ss. 5
                                 Waiting Period

The Allottees may convert the Convertible Bonds at the earliest after the second
anniversary date of their issuance pursuant to ss. 4 (1) hereof. In addition,
the Convertible Bonds may only be converted if, after expiration of the two-year
waiting period, the cancellation periods set forth in ss. 14 (1) hereof, as
specified by the Company in the (global) convertible bond certificates, have
expired.

                                      ss. 6
                                Exercise Periods

(1)      Convertible Bonds may not be converted from the date on which the
         Company submits an offer to its shareholders for the subscription of
         new shares or convertible bonds with conversion or option rights by
         written notice to all shareholders or through an announcement in the
         publications named in the Company's Articles of Association or in a
         mandatory stock exchange publication of the Frankfurt Stock Exchange
         until the end of the last day of the subscription period.

(2)      Notwithstanding ss. 6 (1) hereof, the Convertible Bonds may only be
         converted during a period of the six weeks starting on the second day
         after the publication of the quarterly reports or of the annual
         financial statement, respectively. The Convertible Bonds may not be
         converted from December 24 to December 31 of each calendar year.

(3)      The  Supervisory Board has the right to impose further restrictions on
         the exercise periods.

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                                     - 4 -

                                      ss. 7
                                Performance Goals

Notwithstanding ss.ss. 4 and 5 hereof, the Convertible Bonds may only be
converted if the Closing Price (as defined below) develops better than a
reference index. The reference index shall be the stock index TecDax of the
Frankfurt Stock Exchange (the "Price Index"). The Price Index and the Closing
Price on the date on which the Convertible Bonds are issued shall serve as the
starting point for the performance measurement. The Convertible Bonds may only
be converted if the Closing Price has developed better than the Price Index. The
relevant comparison date for this shall be the date four weeks prior to the
conversion.

                                      ss. 8
                                Conversion Price

(1)      As provided by these terms and conditions, each conversion privilege
         represents the right to subscribe for one Share.

(2)      The conversion price to be paid upon exercise of the conversion
         privilege for the subscription of one individual Share corresponds to
         the average closing price of the Shares in the XETRA closing auction on
         the Frankfurt Stock Exchange (the "Closing Price") during the last five
         exchange trading days prior to the issuance of the Convertible Bonds
         less (euro) 1.00; provided, however, that the conversion price shall at
         least be equal to the proportionate amount of the share capital
         allocable to one Share.

                                      ss. 9
                       Adjustment of the Convertible Bonds

(1)      In the event of a merger of the Company with and into another entity
         where the Company is not the surviving entity (Verschmelzung durch
         Aufnahme), a change in the legal form of the Company (Umwandlung), a
         change in the notional nominal value of the shares of stock in the
         Company and similar measures leading to the cancellation or conversion
         of the shares of stock underlying the Convertible Bonds, each
         Convertible Bond shall be substituted by the right to purchase at the
         exercise price a specific number of shares of stock or other interests
         in the Company or its successor entity (calculated on the basis of the
         Fair Market Value at the time of any such change) substituting the
         shares of stock in the Company. The remaining provisions of these Terms
         and Conditions shall remain unaffected.

(2)      In the event of a capital decrease by means of amalgamating the
         ordinary shares in the Company (Kapitalherabsetzung durch
         Zusammenlegung, ss. 222(4) AktG) or by means of cancellation
         (Einziehung) of ordinary shares (ss. 237 AktG), the subscription ratio
         (as specified in the applicable Convertible Bond Grant) shall be

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                                      -5 -

         adjusted by multiplying it with the coefficient resulting from the
         division of the number of shares of stock after such capital decrease
         by the number of shares of stock prior to such capital decrease.
         Fractional shares of stock resulting from any such capital decrease
         will not be delivered upon conversion of the Convertible Bonds.

(3)      In case of a capital increase out of retained earnings by the Company,
         any existing conditional capital will be increased according to Section
         218 AktG in the same ratio as the Company's share capital, instead of a
         deduction of the exercise price. The right of an Allottee to purchase
         stock of the Company, at the point in time of conversion, will increase
         in the same ratio as the Company's share capital increase.

                                     ss. 10
               Conversion Procedure; Issuance of Underlying Shares

(1)      To convert the Convertible Bonds, the Allottee must

         a)       using the form available from the exercise agent or from a
                  trustee (see ss. 18 hereof), if such is appointed for the
                  purpose, deliver a written subscription declaration in
                  duplicate to the exercise agent or to the trustee; and

         b)       pay the conversion price in EURO, completely and free of costs
                  and charges to the Company, to the Company's account indicated
                  in the subscription declaration form.

(2)      Declarations received by the exercise agent within the periods set
         forth in ss.ss. 5 and 6 hereof are deemed to be delivered and received
         on the next subsequent banking business day on which the conversion of
         the convertible bond is again permissible. The Allottee may revoke
         his/her subscription declaration only so long as receipt has not yet
         effectively taken place.

(3)      The Shares resulting from the conversion of the Convertible Bonds are
         printed and delivered in the form provided by the Articles of
         Association of the Company in their respective valid version. Issuance
         will be initiated - to the extent possible and subject to receipt by
         the Company of payment in full of the conversion price - within ten
         banking business days after the subscription declaration becomes
         effective. The initiation of the delivery requires the assignment of a
         bank by the Company. The Company is not liable for any delay of the
         share delivering unless caused by default.

(4)      In the event that the Allottee intends to sell the Shares acquired
         through the conversion of his/her Convertible Bonds immediately after
         such acquisition, the Company may, with a view to a smooth placement in
         the market, tender, in a manner that safeguards the interests of the
         Allottees, the Shares created from a

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                                     - 6 -

         large number of conversions in the form of a block sale to (for
         example) institutional investors. The Allottee shall, at the request of
         the Company, assist appropriately and reasonably in the smooth
         placement on the market.

(5)      Any issuance of Shares resulting from the conversion of Convertible
         Bonds is only permitted in conformity with the terms and conditions
         hereof and in no case prior to payment in full of the conversion price
         according to ss. 8 hereof (see ss. 199(1) AktG).

                                     ss. 11
                     Dividend Entitlement of the New Shares

The Shares created through the conversion of Convertible Bonds - provided they
are created through conversion before the beginning of the General Meeting of
the Company that resolves on the allocation of balance sheet profits - are
entitled to dividends from the beginning of the previous fiscal year, or, to the
extent created through conversion after the beginning of General Meeting of the
Company, the respective fiscal year in which they were created through such
conversion.

                                     ss. 12
                    Nonassignability of the Convertible Bonds

(1)      In principle, the Convertible Bonds may not be transferred.

(2)      Other methods of disposing of the Convertible Bonds, granting of
         subordinate equity interests or creation of a trust as well as
         establishment of short positions by granting to third parties the
         Convertible Bonds granted to the Allottee as well as comparable
         offsetting transactions that are economically equivalent to a sale of
         the Convertible Bonds are also prohibited.

(3)      Any violation of paragraphs (1) and/or (2) of this ss. 12 results in
         forfeiture of the Convertible Bonds. To the extent that the Company or
         the Allottees have substantive reasons, the Supervisory Board may
         consent to dispositions of the Convertible Bonds in the form described
         in paragraphs (1) and (2) of this ss. 12.

(4)      Notwithstanding paragraphs (1) and (2) of this ss. 12, the Allottee is
         authorized, after expiration of the two-year waiting period or after
         expiration of the cancellation period specified in the convertible bond
         certificates, to sell his/her Convertible Bonds to a credit institution
         to be specified by the Company.

                                     ss. 13
                                   Succession

(1)      The Convertible Bonds - provided they have not been cancelled pursuant
         to ss. 14

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                                     - 7 -

         hereof - may be transferred by will or the laws of descent and
         distribution. The heirs shall be bound by these terms and conditions.

(2)      The heirs shall report their standing as heirs to the Company and must
         prove their legitimacy in conformity with ss. 35 GBO.

                                     ss. 14
              Vesting Period; Cancellation of the Convertible Bonds

(1)      The Convertible Bonds may in principle be cancelled for a maximum
         period of up to four (4) years (the "Vesting Period"). Expiration of
         the Vesting Period in relation to the Convertible Bonds granted in
         total to the Allottee does not take place uniformly, but is divided
         into stages over the Vesting Period. One quarter of the Convertible
         Bonds becomes uncancellable each year, calculated from the beginning of
         the vesting period. The Vesting Period begins to run with the issuance
         of the convertible bonds. A different Vesting Period may be specified
         by the Supervisory Board for each individual case on the basis of
         internal guidelines of the Company that may be formulated thereby for
         common application and notified to the Allottee in the offer letter.
         Above and beyond this, the expiration of the Vesting Period - if
         certificates evidencing the Convertible Bonds are issued - is noted in
         the respective certificates.

(2)      The Company or second-tier enterprises currently affiliated with it or
         in the future may immediately cancel the Convertible Bonds that are
         still subject to the Vesting Period without compensation if the
         Allottee's employment or consultancy agreement has been terminated
         prior to expiration of the Vesting Period specified for the Convertible
         Bonds. The cancellation of Convertible Bonds becomes effective upon
         receipt of a separate written cancellation declaration by the Allottee,
         but not earlier than:

         a)       in the case of an ordinary termination by the Allottee, upon
                  receipt of his/her termination notice;

         b)       in the case of an ordinary termination of the Allottee by the
                  Company, upon effectiveness of such termination (termination
                  of employment or consultancy) or - in the case of the
                  exoneration of the Allottee - on the date of such exoneration;

         c)       in the case of termination by the Allottee for cause, on the
                  date on which the ordinary termination - defined as the
                  termination notice by the Company or by a second-tier
                  enterprise currently affiliated with it or in the future on
                  the date of the termination notice by the Allottee - would
                  have become effective;

         d)       in all other cases, on the date of actual termination of
                  employment or consultancy (for example, termination by
                  rescission contract, death,

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                                     - 8 -

                  retirement, educational leave of absence and similar reasons).

(3)      The Company or an affiliated  subsidiary company (affiliated now or in
         the future) may cancel the Convertible Bonds no longer subject to a
         Vesting Period without compensation if

         a)       the Allottee has not converted his/her  Convertible Bonds
                  within 12 calendar months after the cancellation according to
                  paragraph (2) above becomes effective, or

         b)       the Allottee has not converted  his/her  Convertible Bonds
                  within 12 months after the affiliated subsidiary company
                  employing the Allottee has left the group (i.e. GPC Biotech
                  holds an equity interest of less than 50% in the equity or
                  share capital of such affiliate),

         provided such conversion would have been possible taking into
         consideration the waiting period set forth in ss. 5 hereof and the
         exercise periods set forth in ss. 6 hereof. If a conversion of the
         Convertible Bonds according to ss.ss. 5 and 6 hereof is not possible on
         the effective date of the termination, the period begins when the
         conditions for conversion in ss.ss. 5 and 6 hereof are met for the
         first time.

(4)      The [Supervisory Board] may, in isolated cases, choose not to cancel
         all or part of the Convertible Bonds if such cancellation seems
         inequitable in such isolated cases (suspension of employment because of
         a maternity or paternity leave of absence, general disability,
         retirement and similar reasons). The same shall apply mutatis mutandis
         if the Convertible Bonds are intended to substitute for a severance
         payment that may be due upon termination of employment or officer
         status. In individual cases, the choice not to cancel the Convertible
         Bonds may be made contingent upon the extension of the Vesting Period
         by the duration of the suspension of employment (for example, due to a
         maternal or paternal leave of absence or an unpaid leave of absence).

(5)      In the event that the employment and/or the officer status of an
         Allottee with the Company or with an affiliated subsidiary company
         (affiliated now or in the future) is - irrespective of the reason -
         terminated, but at the same time a new employment or officer status is
         established with the Company or with a second-tier enterprise currently
         affiliated with it or in the future, the aforementioned cancellation
         rights shall not apply on the occasion of such termination but only
         relative to any termination of the new employment or new officer
         status.

(6)      The Company has the right to cancel the Convertible  Bonds with
         immediate effect if and as soon as insolvency proceedings are
         instituted against the assets of the Allottee, institution of
         insolvency proceedings is declined for insufficiency of assets or
         Convertible Bonds are attached by a creditor and the enforcement
         measure is not rescinded within six (6) months (with expiration of the
         6-month period).

(7)      For his/her part, the Allottee may cancel the conversion privilege with

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                                     - 9 -

         three-months written notice as of the end of a quarter without having
         to give any reasons.

(8)      The Company may request the return of any issued and cancelled
         convertible bond certificates from the Allottee or from any other
         possessor.

                                     ss. 15
                                      Taxes

The Allottee himself/herself shall pay all taxes that may be incurred in
connection with the issuance or conversion of Convertible Bonds, including
church taxes and solidarity surcharge. However, the Company shall deduct such
taxes and charges from the Allottee's salary to the extent legally prescribed
and pay them over, if appropriate in the form of wage-tax withholding, to the
tax office having jurisdiction over its permanent establishment. Above and
beyond this, the Company may, if necessary, make the issuance of Shares
contingent upon proof of appropriate tax payments by the Allottee or upon
lodging of reasonable surety. If the Allottee does not or cannot meet his/her
obligations stipulated by this ss. 15 hereof, the Company has to so report to
the tax office having jurisdiction over its permanent establishment.

                                     ss. 16
                                  Insider Rules

(1)      The Company hereby advises each Allottee that such Allottee may be
         subject to insider regulations and under certain circumstances may be
         punishable for disregard of these regulations. In particular, insiders
         are prohibited from selling any Shares acquired through the conversion
         of Convertible Bonds by exploiting their knowledge of insider facts
         (ss. 14(1) WpHG) and equivalent provisions under US law and
         regulations.

(2)      The Allottee hereby undertakes to acknowledge and honor any current or
         future internal guidelines published by the Company with respect to the
         prevention of insider trading violations. Any violation of such
         guidelines is a breach of the accessory obligations defined by labor
         law and may give rise to, possibly immediate, termination of the
         Allottee's employment.

                                     ss. 17
                         Reservation of Voluntary Nature

Any issuance of Convertible Bonds is voluntary in nature and an Allottee who has
been issued Convertible Bonds does not, by reason of such issuance, accrue any
right to receive additional Convertible Bonds at any point in the future.

<PAGE>

                                     - 10 -

                                     ss. 18
                                 Exercise Agent

The exercise agent is the Supervisory Board of the Company. The Supervisory
Board empowers the Legal Department to accept subscription declarations and to
handle the exercise procedure. In addition, the Company has the right to appoint
a trustee (such as a bank), which in this respect assumes the tasks of the
Supervisory Board and functions as the exercise agent.

                                     ss. 19
                                  Announcements

Declarations, notices, amendments or adjustments in regard to the Convertible
Bonds are announced to the Allottee in writing. Written announcements of legally
binding nature (such as cancellation declaration and similar information) are
effected by personal delivery with acknowledgment of receipt or by registered
letter or messenger to the address last reported by the Allottee to the Company
or to the second-tier enterprise affiliated with it.

                                     ss. 20
                            Miscellaneous Provisions

(1)      Should any of these terms and conditions be or become invalid or
         unenforceable, in part or in whole, such provision shall be replaced by
         such valid and enforceable provision that, in a legally permissible
         manner, matches as closely as possible the invalid or unenforceable
         provision, attaining the same or a similar economic effect. The
         invalidity or unenforceability of any provision hereof shall not affect
         the validity or enforceability of any other provision hereof, which
         shall remain in full force and effect. The same shall apply mutatis
         mutandis if a loophole requiring amplification is discovered during
         execution of these terms and conditions.

(2)      Amendments and additions to these conditions shall be in writing,
         unless recording by a notary is required. The foregoing sentence
         applies mutatis mutandis to any amendments of this ss. 20(2).

(3)      The place of performance and place of jurisdiction is the registered
         seat of the Company.

(4)      The form and content of the  Convertible  Bonds as well as the rights
         and obligations of the Allottees and of the Company are construed in
         accordance with the laws of the Federal Republic of Germany.

<PAGE>

                                     - 11 -

Martinsried/Planegg, _______________________

The Supervisory Board of

GPC Biotech AG

                                                 Duly noted:

                                                 ______________________________EX-4.1

 

Exhibit 4.1

Esprit Energy Trust

REVISED ANNUAL INFORMATION FORM

For the year ended December 31, 2005

June 15, 2006

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page
	 
	FORWARD-LOOKING INFORMATION
	 	 	2	 
	NON-GAAP MEASURES
	 	 	2	 
	ESPRIT ENERGY TRUST
	 	 	3	 
	GENERAL DEVELOPMENT OF THE TRUST
	 	 	4	 
	OIL AND NATURAL GAS PROPERTIES
	 	 	5	 
	DESCRIPTION OF THE TRUST
	 	 	21	 
	DESCRIPTION OF THE CORPORATION
	 	 	31	 
	VOTING AND EXCHANGE TRUST AGREEMENT
	 	 	36	 
	SUPPORT AGREEMENT
	 	 	37	 
	NOTES
	 	 	39	 
	NPI AGREEMENT
	 	 	39	 
	MARKET FOR THE TRUST’S SECURITIES
	 	 	40	 
	TRUSTEES, DIRECTORS AND OFFICERS
	 	 	41	 
	RISK FACTORS
	 	 	44	 
	INDUSTRY CONDITIONS
	 	 	50	 
	LEGAL PROCEEDINGS
	 	 	52	 
	INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
	 	 	52	 
	TRANSFER AGENT AND REGISTRAR
	 	 	52	 
	MATERIAL CONTRACTS
	 	 	53	 
	INTERESTS OF EXPERTS
	 	 	53	 
	AUDIT COMMITTEE MATTERS
	 	 	53	 
	ABBREVIATIONS AND EQUIVALENCIES
	 	 	54	 
	ADDITIONAL INFORMATION
	 	 	55	 
	GLOSSARY OF TERMS
	 	 	56	 
	SCHEDULE A – REPORT ON RESERVES DATA BY INDEPENDENT QUALIFIED RESERVES EVALUATOR
	 	 	A-1	 
	SCHEDULE B – REPORT OF MANAGEMENT AND DIRECTORS ON OIL AND GAS DISCLOSURE
	 	 	B-1	 
	SCHEDULE C – MANDATE OF THE AUDIT COMMITTEE
	 	 	C-1	 

 

2

All initial capitalized words used in this Annual Information Form which are not otherwise defined
herein have the meanings ascribed thereto in the Glossary of Terms herein.

FORWARD-LOOKING INFORMATION

This Annual Information Form contains certain forward-looking statements relating to, but not
limited to, the Trust’s operations, anticipated financial performance, business prospects and
strategies. Forward-looking information typically contains statements with words such as
“anticipate”, “believe”, “plan”, “continuous”, “estimate”, “expect”, “may”, “will”, “project”,
“should”, or similar words suggesting future outcomes.

By its nature, forward-looking information or statements necessarily involve numerous assumptions
regarding factors and risks that could cause the Trust’s actual results to vary materially,
including, without limitation to, the following factors: general global economic and business
conditions including the effect, if any, of a potential economic slowdown in the U.S. and/or
Canada; changes in business strategies; the availability and price of energy commodities from the
perspective of both a producer and a user of such commodities; the effects of competition and
pricing pressures; industry overcapacity; shifts in market demands; changes in laws and
regulations, including environmental and regulatory laws such as the imposition of restrictions in
response to environmental concerns with respect to the production of oil and gas; potential
increases in maintenance and operating costs; uncertainties of litigation; labour disputes; timing
of completion of capital or maintenance projects; currency and interest rate fluctuations; various
events which could disrupt operations, including severe weather conditions; technological changes;
and those other factors described under “Risk Factors” in this Annual Information Form. The reader
is cautioned that these factors and risks are difficult to predict and that the assumptions used in
the preparation of such information, although considered reasonably accurate at the time of
preparation, may prove to be incorrect. Accordingly, readers are cautioned that the actual results
achieved will vary from the information provided herein and the variations may be material.
Readers are also cautioned that the foregoing list of factors is not exhaustive. Consequently,
there is no representation by Esprit Energy Trust or Esprit Exploration Ltd. that actual results
achieved will be the same in whole or in part as those set out in the forward-looking information.
Furthermore, the forward-looking statements contained in this Annual Information Form are made as
of the date hereof, and Esprit Energy Trust and Esprit Exploration Ltd. undertake no obligation,
except as required by applicable securities legislation, to update publicly or to revise any of the
included forward-looking statements, whether as a result of new information, future events or
otherwise. The forward-looking statements contained herein are expressly qualified by this
cautionary statement.

NON-GAAP MEASURES

In this Annual Information Form and the documents incorporated by reference herein, the Trust uses
the terms “cash flow”, “net debt”, “distributable income” and “netbacks” as indicators of financial
performance and to facilitate comparative analysis. These measures are not measures recognized by
Canadian generally accepted accounting principles (“GAAP”) and do not have a standardized meaning
prescribed by GAAP. Therefore, these measures, as defined by the Trust, may not be comparable to
similar measures presented by other issuers. Investors are cautioned that “cash flow” should not
be construed as an alternative to net earnings, cash flow from operating activities or other
measures of financial performance calculated in accordance with GAAP. The Trust considers “cash
flow” a key measure as it demonstrates the Trust’s ability to generate the cash flow necessary to
pay distributions, repay debt and to fund future capital investment. The Trust considers “net
debt” a useful measure of the Trust’s total financial leverage. The Trust considers “netbacks” a
useful measure to compare the Trust’s operations with those of its peers. Cash flow cannot be
assured and future distributions may vary.

 

3

ESPRIT ENERGY TRUST

General

Esprit Energy Trust (the “Trust”) is an open-end unincorporated investment trust governed by the
laws of the Province of Alberta and created pursuant to the Trust Indenture. The head and
principal office of the Trust is located at Suite 900, 606 – 4th Street S.W., Calgary, Alberta, T2P
1T1. The Trust was formed on August 16, 2004 and commenced operations on October 1, 2004 as a
result of the completion of a plan of arrangement (the “Esprit Arrangement”) among the Trust,
Esprit Exploration Ltd. (the “Corporation”), Esprit Acquisition Corp., Esprit ExchangeCo Ltd.
(“ExchangeCo”) and others.

The Trust has two material subsidiaries, the Corporation and ExchangeCo.

Structure

The Trust is the holder of all of the Common Shares of the Corporation. The following diagram
shows the structure of the Trust as at the date hereof:

Business of the Trust and the Corporation

The principal undertaking of the Trust is to indirectly acquire and hold, through the Corporation,
interests in petroleum and natural gas properties and assets related thereto. The Trust’s primary
assets are the Notes, the Common Shares of the Corporation and the NPI.

The Board of Trustees may declare payable to the Unitholders all or any part of the net income of
the Trust less all expenses and liabilities of the Trust due and accrued and which are chargeable
to the net income of the Trust. It is currently anticipated that the only income to be received by
the Trust will be the interest received on the principal amount of the Notes and payments under the
NPI Agreement. The Trust makes monthly cash distributions to Unitholders of the interest income
earned from the Notes and under the NPI Agreement, after expenses, if any, and any cash redemptions
of Trust Units.

 

4

For a description of the Trust, see “Description of the Trust”.

The Corporation

The Corporation is a corporation amalgamated and subsisting pursuant to the provisions of the CBCA.
The principal business of the Corporation is to acquire, develop, optimize, exploit and produce
oil and natural gas reserves in western Canada. The Corporation does not have any subsidiaries
that represent individually more than 10%, and in the aggregate more than 20%, of the total
consolidated assets and total consolidated sales and operating revenues of the Corporation as at
December 31, 2005. The Corporation currently has a total of 112 full-time employees, including
36 field personnel.

For a description of the Corporation’s business, see “Oil and Natural Gas Properties”. For a
description of the Corporation see “Description of the Corporation”.

The head office of the Corporation is located at Suite 900, 606 – 4th Street S.W., Calgary,
Alberta, T2P 1T1 and its registered office is located at 4500, 855 – 2nd Street S.W., Calgary,
Alberta, T2P 4K7.

Business Strategy

The principal business strategy of the Corporation is to support sustainable distributions of the
Trust through internally identified exploitation opportunities and grow production and reserves
through strategic, accretive acquisitions. Where appropriate, the Corporation participates with
joint venture partners to mitigate the risks associated with finding and developing oil and gas
reserves.

GENERAL DEVELOPMENT OF THE TRUST

Prior to the Esprit Arrangement

The Corporation was incorporated under the CBCA under the name Canadian 88 Energy Corp. on
September 4, 1987. On May 26, 2003, the articles of the Corporation were amended to change the
name of the Corporation to Esprit Exploration Ltd.

On October 1, 2004, the Esprit Arrangement was completed, pursuant to which the former Esprit
Exploration Ltd. was amalgamated with Esprit Acquisition Corp. to form the Corporation and the
Corporation became a subsidiary of the Trust. Pursuant to the Esprit Arrangement, holders of
common shares of the former Esprit Exploration Ltd. received (i) depending on the holder’s
residency and election, either 0.25 of a Class A Trust Unit, 0.25 of a Class B Trust Unit or 0.25
of an Exchangeable Share, (ii) 0.20 of a common share of ProspEx Resources Ltd., and (iii) a cash
payment of $0.22.

Subsequent to the Esprit Arrangement

Acquisition of Resolute

Pursuant to an arrangement agreement dated March 14, 2005, and the plan of arrangement set out
therein among the Trust, the Corporation, Resolute Energy Inc. (“Resolute”), Cordero Energy Inc.
(“Cordero”), Cordero Finance Corp. and others, on April 29, 2005, the Trust indirectly acquired the
majority of Resolute’s assets and the remainder of Resolute’s assets were transferred to Cordero.
As a result of the plan of arrangement, shareholders of Resolute received 0.338 of a Trust Unit,
0.287 of a common share of Cordero and 0.0269 of a Cordero transaction warrant, for each Resolute
share held. The acquisition of Resolute constituted a “significant acquisition” for the Trust
under applicable securities legislation. For further information concerning the acquisition of
Resolute, see the business acquisition report of the Trust dated June 30, 2005, which is available
on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com and which is
incorporated by reference herein.

 

5

Reclassification of Trust Units

Effective July 30, 2005, the trust completed the reclassification of its then outstanding Class A
Trust Units and Class B Trust Units into Trust Units (the “Reclassification”). Pursuant to the
Reclassification (i) the residency restrictions attached to the Class B Trust Units were removed,
(ii) all provisions in the Trust Indenture relating to the dual trust unit class structure were
removed, (iii) the Class B Trust Units were renamed as the Trust Units, and (iv) the outstanding
Class A Trust Units were exchanged on a one-for-one basis for Trust Units. Holders of Exchangeable
Shares were not impacted by the Reclassification, except that after the Reclassification such
holders will receive Trust Units upon exchange of their Exchangeable Shares. Pursuant to the
Reclassification, holders of Post-Arrangement Entitlements of the Trust may obtain Trust Units upon
contacting the transfer agent of the Trust without satisfying the prior requirement to declare
their residency.

Debenture Offering

On July 28, 2005 the Trust issued $100 million aggregate principal amount of 6.5% convertible
extendible unsecured subordinated debentures (the “Debentures”). The Debentures had an initial
maturity date of August 31, 2005, which was extended to December 31, 2010 upon the acquisition of
Markedon Energy Ltd.

Acquisitions of Markedon and Monroe

On August 8, 2005, the Corporation acquired all of the issued and outstanding shares of Markedon
Energy Ltd. (“Markedon”) and Monroe Energy Inc. (“Monroe”), in exchange for approximately $91.4
million in cash. The acquisitions were indirectly funded by the Trust, using proceeds of the
offering of the Debentures.

Asset Exchange

On January 25, 2006, the Corporation divested of its non-core Ante Creek properties pursuant to an
asset exchange agreement effective December 15, 2005 between the Corporation and a third party.
The Ante Creek producing assets sold by the Corporation included 15,680 net acres of land
(approximately 11,500 net acres undeveloped) and a 70% interest in the Ante Creek natural gas plant
with a capacity of 10 mmcf/d. In consideration for the sale of these assets, the Corporation
received cash consideration of $16 million, an interest in properties at Manyberries and a small
interest in a unit at Three Hills, adding to the Corporation’s existing positions in the areas.
The anticipated effect of this transaction is a 2006 net production decrease of 250 boe/d.

OIL AND NATURAL GAS PROPERTIES

Description of Oil and Natural Gas Properties and Assets

The following is a description of the major oil and natural gas properties, plants and facilities
of the Corporation. Production volumes represent the Corporation’s working interest share before
the deduction of royalties. Reserve amounts are stated, before deduction of royalties, at December
31, 2005, based on escalating cost and price assumptions, as set forth in the GLJ Report.

The Corporation is a Calgary based oil and gas company with a natural gas focus on the western side
of the Western Canadian Sedimentary Basin. The key areas of focus for the Corporation include
Greater Olds, Berry/Winnifred, Peace River Arch, Saskatchewan, Central Alberta and Southern
Alberta.

 

6

Greater Olds

Greater Olds is a major contributor to the Corporation’s production. The area consists of the Olds
field, located 100 kilometres north of Calgary, in a corridor that extends from the town of
Carstairs to the town of Olds. Production at Olds is 85% natural gas; approximately 75% of this is
sour gas. The field makes up approximately one-third of the Corporation’s total production. The
Greater Olds area also includes Three Hills and Swalwell, both located 80 kilometres east of Olds.
Three Hills is a mature, sweet gas property while Swalwell is an exploitation area.

The Corporation owns the plant at Olds which processes both its own production and third party
volumes. This gives the Corporation a high level of control over its costs and ensures its gas
production has continuous access to facilities. Third party volumes represent approximately 25% of
the total volumes processed. The revenue received from the third party processing allows the
Corporation to reduce its operating costs in the area. The Corporation plans to continue to pursue
third party processing contracts to further lower its overall unit operating costs.

The Corporation drilled a total of 30 gross wells at its Greater Olds area in 2005, six at
Swalwell, one at Three Hills and 23 at Olds. Five of the six wells drilled at Swalwell were
successful. At Olds, the Corporation has two drilling programs, one targeting the deeper, sour
Wabamun/Crossfield gas and a shallower program targeting sweet gas in the Edmonton, Viking and
Pekisko zones. The Corporation expects to continue its Viking program in 2006. In the deeper
program, the Corporation drilled six wells in 2005. Two were unsuccessful and two were considered
marginal, performing at rates lower than the Corporation has seen throughout the long history of
the field. This reduced rate was not a result of reservoir depletion but reflected lower
permeability patches in the reservoir. These results prompted the Corporation to conduct an
in-depth review of the area and undertake initiatives to better understand and exploit the
reservoir.

The remaining two wells drilled in 2005 were successful. One was drilled into the main Crossfield
zone and produced at expected rates. The final well was a particularly successful well drilled into
the Upper Crossfield zone of the Wabamun formation. Production from this well, although still
early, is significantly exceeding expectations and historical average production rates from other
Crossfield wells. The results provided the Corporation additional information on the reservoir and
opened up the possibility of new drilling opportunities in the area. These drilling results as well
as other technical analysis under review may result in increased spending at Olds.

During the first two weeks of June 2005, the Olds gas plant and field was shut in for its scheduled
turnaround. In addition to regular maintenance performed during the turnaround, the Corporation
completed a major upgrade to improve the plant’s ability to handle electrical power disruptions and
to provide additional liquids handling capacity. The Corporation has already experienced improved
reliability from the plant’s electrical backup system. Work was also performed to ensure the plant
continues to comply with evolving regulatory and safety standards and to provide additional
compression for potential infill drilling in the south portion of the field. The next major
turnaround is expected to take place in four years time, in 2009.

Under the current plan for 2006, the Corporation plans to drill 11 wells at Olds and participate in
a multi-well farm-out agreement in its Three Hills area. The Olds plan calls for drilling two of
the deeper Wabamun wells with the remaining nine wells targeting shallower, sweet gas. Additional
Wabamun wells may be added later in the year as a result of the information obtained from the last
2005 well.

In 2005, production at Greater Olds averaged 6,710 boe/d, a 2% decrease from 2004 due to the
production shut in during the scheduled plant turnaround.

 

7

Berry/Winnifred

The Berry/Winnifred area located in southeast Alberta provides the Corporation with considerable
exploitation opportunities and is one of the Corporation’s key focus areas. It consists of the
Berry and Winnifred properties as well as some minor acreage positions. These assets were first
acquired in 2005 through the acquisition of Resolute and were expanded with the Markedon and Monroe
acquisitions.

Production from this area is about 60% natural gas and 40% oil and makes up approximately
one-quarter of the Corporation’s total production. The gas production comes from a number of zones
including Belly River, Milk River, Second White Specks, Viking and Mannville. The oil production is
predominantly from the Banff and Mannville zones.

The Corporation had an active drilling program in this area in 2005, drilling a total of 41 wells.
The Corporation’s activity was focused in the Berry area with the majority of these wells targeting
the Second White Specks formation. Outcomes from this drilling program exceeded expectations with
average gas test rates of approximately 250 mcf/d and a 97% drilling success rate. The Corporation
expects to continue the high level of drilling activity in this area in 2006.

The Richdale Banff oil pool, also located in the Berry area, produces mainly light, slightly sour
oil and has promising exploitation potential. The first stage of development was completed in 2005
with a total of five wells drilled in this pool. The production results from this program were
above expectations and development is expected to continue in 2006. In addition, during 2005 the
Corporation completed an acreage swap/farm-in deal and added one section with multiple drilling
locations to its Banff pool program.

The Corporation expects to spend approximately $19 million in this area in 2006 drilling 26 wells.
The Corporation expects five to be the deeper Banff wells with the remainder targeting Second White
Specks, Viking and Mannville formations.

Production in 2005 averaged 2,024 boe/d in this area. As these properties were all acquired by the
Corporation during the year, there are no year-over-year comparisons.

Peace River Arch

The Peace River Arch assets, located predominantly northwest of Grand Prairie, were acquired in
2005 through the acquisition of Resolute.

Production from this area is 74% natural gas; a combination of sweet and slightly sour natural gas,
with some light oil production. This production is all processed at third party facilities and
comprises about 4% of the Corporation’s total production.

The Corporation receives production from over 50 wells within the Peace River Arch area, most of
which lie within three main properties – Gordondale, Beaverlodge and Balsam. This area provides the
Corporation potential in multiple zones including Dunvegan, Paddy, Notikewin, Fahler, Bluesky,
Gething, Charlie Lake, Halfway, Doig, Montney and Belloy.

In 2005, the Corporation participated in one well in the Peace River Arch area which came on
production in early 2006 at a rate of 3.2 mmcf/d of which the Corporation’s portion is
approximately 33%. The Corporation also added to its land base in the area by purchasing offsetting
acreage at its Beaverlodge property. The Corporation has over 11,000 net acres of undeveloped land
in the Peace River Arch area; this land represents significant opportunity with several lower risk
drilling locations identified for 2006.

 

8

The Corporation expects to spend approximately $7 million to drill nine gross wells in 2006. These
plans include wells in both Beaverlodge and Gordondale targeting multi-zoned opportunites that
possess relatively higher volume potential with strong capital efficiency metrics.

Production in 2005 averaged 458 boe/d. As these properties were all acquired by the Corporation
during the year, there are no year-over-year comparisons available.

Saskatchewan

The Corporation’s Saskatchewan assets are concentrated in two key areas: Lashburn, located in west
central Saskatchewan and its southeast Saskatchewan properties. The southeast Saskatchewan
properties were added to the Corporation’s land base through the acquisition of Resolute in 2005.
These holdings consist of three areas: Wauchope, Arcola, and Hitchcock.

Production in Saskatchewan makes up approximately 8% of the Corporation’s total production. In
2005, the Corporation increased its focus on this area. In Lashburn, the Corporation had a
successful eight well drilling program targeting the upper Mannville zone. Production from this
area is mainly heavy oil. Wauchope and Arcola produce light oil from the Mississippian Alida
formation. Analysis of 3D geophysical data in this area has identified several opportunities
expected to be drilled in 2006.

In 2006, the Corporation plans to spend approximately $6 million in Saskatchewan, drilling seven
wells in total; two wells in Lashburn and five horizontal wells in southeast Saskatchewan.

Production in 2005 in this area averaged 512 boe/d, up 39% from 2004 due to the addition of
acquired properties as well as drilling success at Lashburn.

Central Alberta

Central Alberta is the Corporation’s most diverse and expansive production area, spanning across
the province from the foothills to the Alberta-Saskatchewan border. This area was enhanced
significantly by the acquisitions during 2005.

Production in this area is approximately 80% natural gas. Gas production consists of sweet gas in
the East Central locations and a mixture of sweet and sour gas in the West Central locations.
Liquids production is made up of a mixture of slightly sour oil and natural gas liquids in the West
Central locations. Central Alberta accounts for approximately one-quarter of the Corporation’s
total production.

The Corporation’s primary focus in this area is to optimize existing producing assets. Limited
capital for new drilling has been allocated to Central Alberta. As part of the Corporation’s
ongoing portfolio management, the Corporation has identified some of these assets as non-core and
is investigating several alternatives to optimize their value. These alternatives could include
divestitures, farm-out agreements, swaps or other arrangements. The Ante Creek divestiture
announced in January of 2006 is an example of this effort.

In 2005, the Corporation drilled three wells in the Central Alberta area with mixed drilling
results. Capital projects during the year focused on using acquired infrastructure to improve
efficiency and production from the Corporation’s existing wells. In addition, two standing Viking
wells were tied-in and production commenced in the first quarter of 2006.

In 2006, the Corporation plans to spend approximately $2 million in Central Alberta, focusing its
capital expenditures mostly on facility de-bottlenecking, re-completions and well optimizations as
well as drilling two wells in the area.

 

9

Production in 2005 averaged 4,131 boe/d in Central Alberta, up 16% from 2004 due to the addition of
properties acquired during the year.

Southern Alberta

The Corporation’s Southern Alberta area consists of High River, Manyberries, Aden and Pakowki.
Manyberries, Aden and Pakowki were all added in 2005 with the acquisition of Monroe and Markedon.

Production in this area is approximately 60% natural gas and natural gas liquids and approximately
40% oil. It makes up approximately 5% of the Corporation’s total production.

A portion of the Corporation’s Southern Alberta assets are viewed as non-core. These properties
include a large amount of undeveloped land, particularly in the High River area, which is
considered exploratory in nature. In order to reduce risk and maximize value for unitholders, the
Corporation entered into a multi-well farm out agreement in 2005 covering 22,000 net acres in the
High River area.

There are some minor activities scheduled for 2006 at High River. Some of this activity will be
conducted through a farm-out agreement and the Corporation also expects to drill a couple of wells
at its other operated areas. The Corporation expects to spend about $1 million in Southern Alberta
in 2006.

In 2005, production averaged 835 boe/d, up 54% from 2004 due to the addition of the properties
acquired during the year.

2005 Average Daily Production Volumes

The following table sets out the Corporation’s average daily production volumes by area during
2005.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Gas	 	Oil	 	NGL	 	Boe
	Property	 	(mcf/d)	 	(bbl/d)	 	(bbl/d)	 	(boe/d)
	Greater Olds
	 	 	33,747	 	 	 	96	 	 	 	989	 	 	 	6,710	 
	Berry/Winnifred
	 	 	9,846	 	 	 	346	 	 	 	37	 	 	 	2,024	 
	Peace River Arch
	 	 	2,027	 	 	 	108	 	 	 	12	 	 	 	458	 
	Saskatchewan
	 	 	132	 	 	 	490	 	 	 	—	 	 	 	512	 
	Central Alberta
	 	 	20,370	 	 	 	386	 	 	 	350	 	 	 	4,131	 
	Southern Alberta
	 	 	3,306	 	 	 	224	 	 	 	60	 	 	 	835	 
	Other
	 	 	470	 	 	 	10	 	 	 	7	 	 	 	95	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	69,898	 	 	 	1,660	 	 	 	1,455	 	 	 	14,765	 

Oil and Gas Reserves Data

The tables below summarize the crude oil, natural gas liquids (“NGL”) and natural gas reserves of
the Corporation and the present worth of future net cash flows associated with such reserves
effective as at December 31, 2005, as evaluated by GLJ in a report dated February 23, 2006, with a
preparation date of February 9, 2006, based on constant and forecast price assumptions and have
been extracted from the GLJ Report. The GLJ Report has been prepared in accordance with the
standards contained in the Canadian Oil and Gas Evaluators Handbook (the “COGE Handbook”) and the
reserves definitions set out by the Canadian Securities Administrators in National Instrument
51-101 – Standards of Disclosure for Oil and Gas Activities and the COGE Handbook. The tables
summarize the data contained in the GLJ Report and, as a result, may contain slightly different
numbers than the GLJ Report due to rounding. All future cash flows are stated prior to provision
for indirect costs and lease reclamation costs (other than well abandonment costs associated with
existing wells and wells to be drilled in the future that have been assigned reserves) and after
deduction of royalties and estimated future capital expenditures.

 

10

It should not be assumed that the present worth of estimated future cash flows shown below is
representative of the fair market value of the reserves. There is no assurance that such price and
cost assumptions will be attained and variances could be material. The recovery and reserve
estimates of the Corporation’s crude oil, NGL and natural gas reserves provided herein are
estimates only and there is no guarantee that the estimated reserves will be recovered. Actual
crude oil, natural gas and NGL reserves may be greater than or less than the estimates provided
herein.

In the various reserves related tables included herein, columns may not add due to rounding.

All of the Corporation’s crude oil, NGL and natural gas reserves are located within Canada.

Attached as Schedule A to this Annual Information Form is the report on reserves data of GLJ and
attached as Schedule B to this Annual Information Form is the report of management and directors of
the Corporation on the oil and gas disclosure.

Petroleum and Natural Gas Reserves and Present Worth Values

(Based on Forecast Price Assumptions)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Reserves
	 	 	Light/Medium Oil	 	Heavy Oil	 	Natural Gas	 	NGL
	 	 	(mbbls)	 	(mbbls)	 	(mmcf)	 	(mbbls)
	 	 	Gross	 	Net	 	Gross	 	Net	 	Gross	 	Net	 	Gross	 	Net
	Proved
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Developed Producing
	 	 	3,848	 	 	 	3,219	 	 	 	531	 	 	 	449	 	 	 	198,757	 	 	 	152,705	 	 	 	4,697	 	 	 	3,208	 
	Developed Non-Producing
	 	 	38	 	 	 	35	 	 	 	57	 	 	 	46	 	 	 	11,437	 	 	 	9,020	 	 	 	234	 	 	 	160	 
	Undeveloped
	 	 	265	 	 	 	239	 	 	 	0	 	 	 	0	 	 	 	25,860	 	 	 	18,991	 	 	 	989	 	 	 	663	 
	Total Proved
	 	 	4,150	 	 	 	3,493	 	 	 	588	 	 	 	495	 	 	 	236,055	 	 	 	180,716	 	 	 	5,919	 	 	 	4,031	 
	Probable
	 	 	1,971	 	 	 	1,588	 	 	 	230	 	 	 	194	 	 	 	76,691	 	 	 	57,750	 	 	 	1,759	 	 	 	1,191	 
	Total Proved plus Probable
	 	 	6,122	 	 	 	5,080	 	 	 	819	 	 	 	689	 	 	 	312,746	 	 	 	238,466	 	 	 	7,678	 	 	 	5,222	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Present Worth Values
	 	 	Before Income Taxes
	 	 	Discounted at (%/year)
	 	 	0%	 	5%	 	10%	 	15%	 	20%
	 	 	(MM$)	 	(MM$)	 	(MM$)	 	(MM$)	 	(MM$)
	Proved
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Developed Producing
	 	 	1,099	 	 	 	844	 	 	 	704	 	 	 	613	 	 	 	549	 
	Developed Non-Producing
	 	 	50	 	 	 	41	 	 	 	35	 	 	 	30	 	 	 	26	 
	Undeveloped
	 	 	109	 	 	 	68	 	 	 	46	 	 	 	32	 	 	 	23	 
	Total Proved
	 	 	1,259	 	 	 	954	 	 	 	784	 	 	 	675	 	 	 	598	 
	Probable
	 	 	424	 	 	 	246	 	 	 	167	 	 	 	125	 	 	 	98	 
	Total Proved plus Probable
	 	 	1,682	 	 	 	1,120	 	 	 	951	 	 	 	800	 	 	 	697	 

Petroleum and Natural Gas Reserves and Present Worth Values

(Based on Constant Price Assumptions)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Reserves
	 	 	Light/Medium Oil	 	Heavy Oil	 	Natural Gas	 	NGL
	 	 	(mbbls)	 	(mbbls)	 	(mmcf)	 	(mbbls)
	 	 	Gross	 	Net	 	Gross	 	Net	 	Gross	 	Net	 	Gross	 	Net
	Proved
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Developed Producing
	 	 	3,926	 	 	 	3,287	 	 	 	527	 	 	 	451	 	 	 	199,618	 	 	 	153,444	 	 	 	4,702	 	 	 	3,200	 
	Developed Non-Producing
	 	 	38	 	 	 	35	 	 	 	53	 	 	 	43	 	 	 	11,458	 	 	 	9,037	 	 	 	234	 	 	 	159	 
	Undeveloped
	 	 	266	 	 	 	240	 	 	 	0	 	 	 	0	 	 	 	25,864	 	 	 	18,993	 	 	 	989	 	 	 	660	 
	Total Proved
	 	 	4,230	 	 	 	3,562	 	 	 	580	 	 	 	494	 	 	 	236,939	 	 	 	181,474	 	 	 	5,925	 	 	 	4,020	 

 

11

	 	 	 	 	 	 	 	 	 	 
	 	 	 	Present Worth Values
	 	 	 	Before Income Taxes
	 	 	 	Discounted at (%/year)
	 	 	 	0%	 	10%
	 	 	 	(MM$)	 	(MM$)
	Proved
	 	 	 	 	 	 	 	 	 
	Developed Producing
	 	 	 	1,444	 	 	 	867	 
	Developed Non-Producing
	 	 	 	70	 	 	 	46	 
	Undeveloped
	 	 	 	161	 	 	 	72	 
	Total Proved
	 	 	 	1,675	 	 	 	985	 

Notes:

	(1)	 	Columns may not add due to rounding.
	 
	(2)	 	“Gross” means the Corporation’s total working interest and/or royalty interest share before
royalties owned by others.
	 
	 	 	“Net” means the Corporation’s total working interest and/or royalty interest share after
deducting the amounts attributable to royalties owned by others.
	 
	 	 	“Royalties” refers to royalties paid to others. The royalties deducted from the reserves
are based on the percentage royalty calculated by applying the applicable royalty rate or
formula. In the case of Crown sliding scale royalties which are dependent on selling
prices, the price forecasts for the individual properties in question have been employed.
	 
	 	 	“Reserves” are the estimated remaining quantities of oil and natural gas and related
substances anticipated to be recoverable from known accumulations, from a given date
forward, based on: analysis of drilling, geological, geophysical and engineering data; the
use of established technology; and specified economic conditions, which are generally
accepted as being reasonable. Reserves are classified according to the degree of certainty
associated with the estimates.
	 
	 	 	“Proved Reserves” are those Reserves that can be estimated with a high degree of certainty
to be recoverable. It is likely that the actual remaining quantities recovered will exceed
the estimated Proved Reserves. At least a 90% probability that the quantities actually
recovered will equal or exceed the estimated Proved Reserves is the targeted level of
certainty.
	 
	 	 	“Probable Reserves” are those additional Reserves that are less certain to be recovered than
Proved Reserves. It is equally likely that the actual remaining quantities recovered will
be greater or less than the sum of the estimated Proved plus Probable Reserves. At least a
50% probability that the quantities actually recovered will equal or exceed the sum of the
estimated Proved plus Probable Reserves is the targeted level of certainty.
	 
	 	 	“Proved Developed Reserves” are those Reserves that are expected to be recovered from
existing wells and installed facilities or, if facilities have not been installed, that
would involve a low expenditure (e.g., when compared to the cost of drilling a well) to put
the Reserves on production. The developed category may be subdivided into producing and
non-producing.
	 
	 	 	“Developed Producing Reserves” are those Reserves that are expected to be recovered from
completion intervals open at the time of the estimate. These Reserves may be currently
producing or, if shut-in, they must have previously been on production, and the date of
resumption of production must be known with reasonable certainty.
	 
	 	 	“Developed Non-Producing Reserves” are those Reserves that either have not been on
production, or have previously been on production, but are shut-in, and the date of
resumption of production is unknown.
	 
	 	 	“Undeveloped Reserves” are those Reserves expected to be recovered from known accumulations
where a significant expenditure (e.g., when compared to the cost of drilling a well) is
required to render them capable of production. They must fully meet the requirements of the
Reserves classification (proved, probable, possible) to which they are assigned.
	 
	(3)	 	The forecast cost and price assumptions assume the continuance of current laws and
regulations and changes in wellhead selling prices, and take into account inflation with
respect to future operating and capital costs. In the GLJ Report operating costs are assumed
to escalate at 2% per annum. Crude oil and natural gas base case prices as forecast by GLJ
effective January 1, 2006 are as follows:

GLJ Petroleum Consultants

Crude Oil and Natural Gas Liquids Price Forecast

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Edmonton Light	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	WTI at Cushing,	 	Sweet	 	Edmonton	 	 	 	 	 	Edmonton	 	 	 	 
	 	 	Oklahoma	 	40o API	 	Propane	 	Edmonton Butane	 	Pentanes Plus	 	Inflation Rate	 	Exchange Rate
	Year	 	($US/bbl)	 	($Cdn/bbl)	 	($Cdn/bbl)	 	($Cdn/bbl)	 	($Cdn/bbl)	 	(%/yr)	 	($US/$Cdn)
	2006
	 	 	57.00	 	 	 	66.25	 	 	 	42.50	 	 	 	49.00	 	 	 	67.00	 	 	 	2	 	 	 	0.85	 
	2007
	 	 	55.00	 	 	 	64.00	 	 	 	41.00	 	 	 	47.25	 	 	 	65.25	 	 	 	2	 	 	 	0.85	 
	2008
	 	 	51.00	 	 	 	59.25	 	 	 	38.00	 	 	 	43.75	 	 	 	60.50	 	 	 	2	 	 	 	0.85	 
	2009
	 	 	48.00	 	 	 	55.75	 	 	 	35.75	 	 	 	41.25	 	 	 	56.75	 	 	 	2	 	 	 	0.85	 
	2010
	 	 	46.50	 	 	 	54.00	 	 	 	34.50	 	 	 	40.00	 	 	 	55.00	 	 	 	2	 	 	 	0.85	 
	2011
	 	 	45.00	 	 	 	52.25	 	 	 	33.50	 	 	 	38.75	 	 	 	53.25	 	 	 	2	 	 	 	0.85	 
	2012
	 	 	45.00	 	 	 	52.25	 	 	 	33.50	 	 	 	38.75	 	 	 	53.25	 	 	 	2	 	 	 	0.85	 
	2013
	 	 	46.00	 	 	 	53.25	 	 	 	34.00	 	 	 	39.50	 	 	 	54.25	 	 	 	2	 	 	 	0.85	 
	2014
	 	 	46.75	 	 	 	54.25	 	 	 	34.75	 	 	 	40.25	 	 	 	55.25	 	 	 	2	 	 	 	0.85	 
	2015
	 	 	47.75	 	 	 	55.50	 	 	 	35.50	 	 	 	41.00	 	 	 	56.50	 	 	 	2	 	 	 	0.85	 
	2016
	 	 	48.75	 	 	 	56.50	 	 	 	36.25	 	 	 	41.75	 	 	 	57.75	 	 	 	2	 	 	 	0.85	 
	2017+
	 	+2%/yr	 	+2%/yr	 	+2%/yr	 	+2%/yr	 	+2%/yr	 	 	2	 	 	 	0.85	 

 

12

GLJ Petroleum Consultants

Natural Gas Price Forecast

	 	 	 	 	 
	Year	 	Alberta
Spot AECO-C

($Cdn/mmbtu)
	2006
	 	 	10.60	 
	2007
	 	 	9.25	 
	2008
	 	 	8.00	 
	2009
	 	 	7.50	 
	2010
	 	 	7.20	 
	2011
	 	 	6.90	 
	2012
	 	 	6.90	 
	2013
	 	 	7.05	 
	2014
	 	 	7.20	 
	2015
	 	 	7.40	 
	2016
	 	 	7.55	 
	2017+
	 	+2%/yr

	(4)	 	The constant price assumptions assume the continuance of current laws, regulations and
operating costs in effect on the date of the GLJ Report. Product prices were not escalated
beyond December 31, 2005. In addition, operating and capital costs have not been increased on
an inflationary basis. The prices used for the mix of crude oil gravities and various gas
contracts were as follows (adjusted for quality and transportation):

	 	 	 	 	 
	Light Crude Oil at Edmonton, Alberta
	 	$68.27 Cdn/bbl
	WTI Oil at Cushing, Oklahoma
	 	$61.04 US/bbl
	Alberta Spot Gas at AECO-C
	 	$9.71 Cdn/mmbtu

	 	 	Weighted average historical prices realized by the Corporation for the year ended December
31, 2005 were $8.67/mcf for natural gas, $62.75/bbl for NGL and $55.04/bbl for crude oil.

	(5)	 	Effective on January 1, 1995, the ARTC rate ranges from a maximum of 75% of $2,000,000 when
the royalty tax credit reference is below $100/m3 to a minimum of 25% of $2,000,000
when the royalty tax credit reference is above $210/m3.

	(6)	 	The GLJ Report estimates the undiscounted future capital expenditures necessary to achieve
the estimated present worth of future net cash flows based on forecast costs from Proved plus
Probable Reserves to be an aggregate of $122.6mm, of which $38.7mm is to be expended in 2006,
$34.3mm is to be expended in 2007, $21.4mm is to be expended in 2008 and $28.1mm thereafter
(or based on constant costs: an aggregate of $116.6mm, of which $38.7mm is to be
expended in 2006, $33.7mm is to be expended in 2007, $20.6mm is to be expended in 2008
and $23.7mm thereafter).

	(7)	 	Substantially all of the Developed Producing Reserves evaluated in the GLJ Report were on
production at December 31, 2005.

	(8)	 	The extent and character of all factual data supplied to GLJ were accepted by GLJ as
represented. The crude oil and natural gas reserve calculations and any projections upon
which the GLJ Report is based were determined in accordance with generally accepted evaluation
practices. No field inspection was conducted. Salvage values for facilities and lease
reclamation costs have not been included in the GLJ Report (other than well abandonment costs
associated with existing wells and wells to be drilled in the future that have been assigned
reserves).

	(9)	 	The net present value of future net revenues has been presented only on a before income tax
basis. Given the structure of the Trust, taxes are passed on to unitholders.

The following tables set forth the following elements of future net revenue attributed to
Proved Reserves and Proved plus Probable Reserves of the Corporation as of December 31, 2005
estimated based on constant and forecast price assumptions and calculated without discount:

Total Future Net Revenue

(Undiscounted)

(Based on Forecast Price Assumptions)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Well	 	Future Net Revenue
	 	 	 	 	 	 	 	 	 	 	Operating	 	Development	 	Abandonment	 	Before
	 	 	Revenue	 	Royalties	 	Costs	 	Costs	 	Costs	 	Income Taxes
	Reserves Category	 	(MM$)	 	(MM$)	 	(MM$)	 	(MM$)	 	(MM$)	 	(MM$)
	Proved Reserves
	 	 	2,555	 	 	 	536	 	 	 	657	 	 	 	81	 	 	 	22	 	 	 	1,259	 
	Proved plus Probable Reserves
	 	 	3,432	 	 	 	732	 	 	 	870	 	 	 	123	 	 	 	26	 	 	 	1,682	 

 

13

Total Future Net Revenue

(Undiscounted)

(Based on Constant Price Assumptions)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Future Net
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Well	 	Revenue
	 	 	 	 	 	 	 	 	 	 	Operating	 	Development	 	Abandonment	 	Before
	 	 	Revenue	 	Royalties	 	Costs	 	Costs	 	Costs	 	Income Taxes
	Reserves Category	 	(MM$)	 	(MM$)	 	(MM$)	 	(MM$)	 	(MM$)	 	(MM$)
	Proved Reserves
	 	 	2,991	 	 	 	659	 	 	 	563	 	 	 	76	 	 	 	17	 	 	 	1,675	 

 

Note:

	(1)	 	The net present value of future net revenues has been presented only on a before income tax
basis. Given the structure of the Trust, the values after income taxes would be the same.

The following tables set forth the future net revenue (before deducting future income tax
expenses) of the Corporation’s assets as of December 31, 2005 estimated based on forecast and
constant price assumptions and calculated using a discount rate of 10 percent:

Future Net Revenue

By Production Group

(Based on Forecast Price Assumptions)

	 	 	 	 	 	 	 
	 	 	 	 	Future Net Revenue
	 	 	 	 	Before Income Taxes
	 	 	 	 	(discounted at 10%/year)
	Reserves Category	 	Production Group	 	(M$)
	Proved Reserves
	 	Light/Medium Oil(1)	 	 	106,442	 
	 
	 	Heavy Oil(1)	 	 	6,466	 
	 
	 	Natural Gas(2)	 	 	671,296	 
	 
	 	 	 	 	 	 
	 
	 	Total	 	 	784,204	 
	 
	 	 	 	 	 	 
	Proved plus Probable Reserves
	 	Light/Medium Oil(1)	 	 	144,761	 
	 
	 	Heavy Oil(1)	 	 	9,223	 
	 
	 	Natural Gas(2)	 	 	797,455	 
	 
	 	 	 	 	 	 
	 
	 	Total	 	 	951,438	 

Notes:

	(1)	 	Including solution gas and other by-products.
	 
	(2)	 	Including by-products but excluding solution gas from oil wells.

 

14

Future Net Revenue

By Production Group

(Based on Constant Price Assumptions)

	 	 	 	 	 	 	 
	 	 	 	 	Future Net Revenue
	 	 	 	 	Before Income Taxes
	 	 	 	 	(discounted at 10%/year)
	Reserves Category	 	Production Group	 	(M$)
	Proved Reserves
	 	Light/Meduim Oil(1)	 	 	127,911	 
	 
	 	Heavy Oil(1)	 	 	5,458	 
	 
	 	Natural Gas(2)	 	 	851,265
	 
	 
	 	Total	 	 	984,633	 
	 
	 	 	 	 	 	 
	Proved plus Probable Reserves
	 	Light/Medium Oil(1)	 	 	177,225	 
	 
	 	Heavy Oil(1)	 	 	8,054	 
	 
	 	Natural Gas(2)	 	 	1,027,424
	 
	 
	 	Total	 	 	1,212,703	 

Notes:

	(1)	 	Including solution gas and other by-products.
	 
	(2)	 	Including by-products but excluding solution gas from oil wells.

Reconciliation of Reserves

The following table provides a reconciliation of the Corporation’s net reserves of crude oil,
natural gas and NGL for the year ended December 31, 2005 presented using forecast prices and costs.

Reconciliation of Company Net Reserves

By Principal Product Type

(Forecast Prices and Costs)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Light and Medium Oil	 	Heavy Oil	 	Conventional Natural Gas	 	Natural Gas Liquids	 	Total Oil Equivalent
	 	 	 	 	 	 	 	 	 	 	Net	 	 	 	 	 	 	 	 	 	Net	 	 	 	 	 	 	 	 	 	Net	 	 	 	 	 	 	 	 	 	Net	 	 	 	 	 	 	 	 	 	Net
	 	 	 	 	 	 	 	 	 	 	Proved	 	 	 	 	 	 	 	 	 	Proved	 	 	 	 	 	 	 	 	 	Proved	 	 	 	 	 	 	 	 	 	Proved	 	 	 	 	 	 	 	 	 	Proved
	 	 	 	 	 	 	Net	 	Plus	 	Net	 	Net	 	Plus	 	Net	 	Net	 	Plus	 	Net	 	Net	 	Plus	 	Net	 	Net	 	Plus
	 	 	Net proved	 	Probable	 	Probable	 	proved	 	Probable	 	Probable	 	Proved	 	Probable	 	Probable	 	proved	 	Probable	 	Probable	 	Proved	 	Probable	 	Probable
	Factors	 	(Mbbl)	 	(Mbbl)	 	(Mbbl)	 	(Mbbl)	 	(Mbbl)	 	(Mbbl)	 	(MMcf)	 	(MMcf)	 	(MMcf)	 	(Mbbl)	 	(Mbbl)	 	(Mbbl)	 	(Mboe)	 	(Mboe)	 	(Mboe)
	December 31, 2004
	 	 	112	 	 	 	24	 	 	 	136	 	 	 	260	 	 	 	62	 	 	 	322	 	 	 	144,831	 	 	 	42,724	 	 	 	187,555	 	 	 	3,448	 	 	 	944	 	 	 	4,392	 	 	 	27,959	 	 	 	8,150	 	 	 	36,109	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Extensions
	 	 	0	 	 	 	68	 	 	 	68	 	 	 	306	 	 	 	138	 	 	 	444	 	 	 	1,993	 	 	 	839	 	 	 	2,832	 	 	 	3	 	 	 	6	 	 	 	10	 	 	 	642	 	 	 	351	 	 	 	993	 
	Improved Recovery
	 	 	48	 	 	 	24	 	 	 	73	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,357	 	 	 	533	 	 	 	1,890	 	 	 	9	 	 	 	3	 	 	 	12	 	 	 	283	 	 	 	117	 	 	 	400	 
	Technical Revisions
	 	 	-32	 	 	 	-3	 	 	 	-35	 	 	 	40	 	 	 	-13	 	 	 	27	 	 	 	-1,928	 	 	 	-1,868	 	 	 	-3,796	 	 	 	433	 	 	 	135	 	 	 	568	 	 	 	118	 	 	 	-192	 	 	 	-74	 
	Discoveries
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	1,922	 	 	 	419	 	 	 	2,342	 	 	 	40	 	 	 	10	 	 	 	51	 	 	 	361	 	 	 	80	 	 	 	441	 
	Acquisitions
	 	 	3,718	 	 	 	1,474	 	 	 	5,192	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	51,747	 	 	 	15,020	 	 	 	66,767	 	 	 	499	 	 	 	96	 	 	 	595	 	 	 	12,841	 	 	 	4,074	 	 	 	16,915	 
	Dispositions
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Economic Factors
	 	 	13	 	 	 	0	 	 	 	13	 	 	 	14	 	 	 	7	 	 	 	21	 	 	 	439	 	 	 	83	 	 	 	522	 	 	 	-8	 	 	 	-4	 	 	 	-12	 	 	 	92	 	 	 	17	 	 	 	109	 
	Production
	 	 	-366	 	 	 	0	 	 	 	-366	 	 	 	-125	 	 	 	0	 	 	 	-125	 	 	 	-19,645	 	 	 	0	 	 	 	-19,645	 	 	 	-393	 	 	 	0	 	 	 	-393	 	 	 	-4,158	 	 	 	0	 	 	 	-4,158	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	December 31, 2005
	 	 	3,493	 	 	 	1,587	 	 	 	5,080	 	 	 	495	 	 	 	194	 	 	 	689	 	 	 	180,716	 	 	 	57,750	 	 	 	238,466	 	 	 	4,031	 	 	 	1,191	 	 	 	5,222	 	 	 	38,138	 	 	 	12,597	 	 	 	50,735	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

Notes:

	(1)	 	The Improved Recovery values presented above include additions associated with Infill
Drilling in accordance with CSA Notice 51-313 issued April 8, 2004. This guidance is
inconsistent with how companies report under U.S. FASB regulations. The following are the
additions associated with Infill Drilling:

													
	 	 	 	 	 	 	 	 	 	 	Net Proved Plus
	 	 	Net Proved	 	Net Probable	 	Probable
	Light and Medium Oil — Mbbls
	 	 	48	 	 	 	24	 	 	 	73	 
	Heavy Oil — Mbbls
	 	 	0	 	 	 	0	 	 	 	0	 
	Gas — MMcf
	 	 	735	 	 	 	224	 	 	 	959	 
	NGL — Mbbls
	 	 	4	 	 	 	1	 	 	 	6	 

	(2)	 	The Corporation has no unconventional reserves (Bitumen, Synthetic Crude Oil, Natural Gas
from Coal, etc.).

 

15

Future Net Revenue Reconciliation

The following table provides a reconciliation of the estimates of the future net revenue (estimated
using constant prices and costs and calculated using a discount rate of 10 percent) attributed to
Proved Reserves:

	 	 	 	 	 
	 	 	Before Tax
	 	 	2005
	Period and Factor	 	(M$)
	Estimated Net Present Value at December 31, 2004
	 	 	423,208	 
	 
	Oil and Gas Sales During the Period Net of Production Costs and Royalties(1)
	 	 	(163,447	)
	Changes due to Prices, Production Costs and Royalties Related to Forecast Production(2)
	 	 	254,081	 
	Development Costs During the Period(3)
	 	 	78,500	 
	Changes in Future Development Costs(4)
	 	 	(80,636	)
	Changes Resulting from Extensions and Improved Recovery(5)
	 	 	20,975	 
	Changes Resulting from Discoveries(5)
	 	 	10,202	 
	Changes Resulting from Acquisitions of Reserves(5)
	 	 	358,279	 
	Changes Resulting from Dispositions of Reserves(5)
	 	 	—	 
	Changes Resulting from Technical Reserves Revisions
	 	 	3,180	 
	Accretion of Discount(6)
	 	 	42,321	 
	Net Change in Income Taxes(7)
	 	 	—	 
	All Other Changes
	 	 	37,971	 
	 
	Estimated Net Present Value at December 31, 2005
	 	 	984,633	 

Notes:

	(1)	 	Company actual before income taxes, excluding general and administrative expenses.
	 
	(2)	 	The impact of changes in prices and other economic factors on future net revenue.
	 
	(3)	 	Actual capital expenditures relating to the exploration, development and production of oil
and gas reserves.
	 
	(4)	 	The change in forecast development costs for the properties evaluated at the beginning of the
period.
	 
	(5)	 	End of period net present value of the related reserves.
	 
	(6)	 	Estimated as 10% of the beginning of period net present value.
	 
	(7)	 	The difference between forecast income taxes at beginning of period and the actual taxes for
the period plus forecast income taxes at the end of the period.

Undeveloped Reserves

Over 76% of the Corporation’s Proved Undeveloped Reserves (20.4 bcf natural gas and 881 mbbls NGL)
exist in the Olds Gas Field Unit No.1. The Corporation plans to develop these reserves over the
next three years by drilling 11 horizontal infill development wells in the Wabamun gas pool.

Over 66% of the Corporation’s Probable Undeveloped Reserves (24.8 bcf natural gas and 760 mbbls
NGL) exist in the Olds Gas Field Unit No.1. The Corporation plans to develop these reserves over
the next four years by drilling nine horizontal infill development wells in the Wabamun gas pool.

The Corporation holds interests in 65,203 gross acres (50,603 net acres) with 2006 expiry dates
(all of which is located in Canada), however, a substantial amount of these lands can be continued
by proving production capability.

Significant Factors or Uncertainties Affecting Reserves Data

There are numerous uncertainties inherent in estimating quantities of proved reserves, including
many factors beyond the control of the Corporation. The reserve data included herein represents
estimates only.

 

16

In general, estimates of economically recoverable oil and natural gas reserves and the future net
cash flows therefrom are based upon a number of variable factors and assumptions, such as
historical production from the properties, the assumed effects of regulation by governmental
agencies and future operating costs, all of which may vary considerably from actual results. All
such estimates are to some degree speculative, and classifications of reserves are only attempts to
define the degree of speculation involved. For those reasons, estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group of properties,
classification of such reserves based on risk of recovery and estimates of future net revenues
expected therefrom, prepared by different reserve evaluators or by the same reserve evaluators at
different times, may vary substantially. The actual production, revenues, taxes and development
and operating expenditures of the Corporation with respect to these reserves will vary from such
estimates, and such variances could be material.

Estimates with respect to proved reserves that may be developed and produced in the future are
often based upon volumetric calculations and upon analogy to similar types of reserves rather than
actual production history. Estimates based on these methods are generally less reliable than those
based on actual production history. Subsequent evaluation of the same reserves based upon
production history will result in variations, which may be substantial, in the estimated reserves.

Consistent with the securities disclosure legislation and policies of Canada, as interpreted by the
securities regulatory authorities in Canada, the Corporation has used forecast prices and costs in
calculating reserve quantities included herein. Actual future net cash flows also will be affected
by other factors such as actual production levels, supply and demand for oil and natural gas,
curtailments or increases in consumption by oil and natural gas purchasers, changes in governmental
regulation or taxation and the impact of inflation on costs.

Future Development Costs

The following table sets forth the amount of future development costs estimated, in total,
calculated using no discount and using a discount rate of 10% in respect of development costs
deducted in the estimation of future net revenue:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Reserves Case (M$)
	 	 	Proved	 	Proved	 	Proved plus Probable
	 	 	Constant	 	Forecast	 	Forecast
	 	 	Prices	 	Prices	 	Prices
	 	 	& Costs	 	& Costs	 	& Costs
	 
	2006
	 	 	29,077	 	 	 	29,077	 	 	 	38,736	 
	2007
	 	 	18,057	 	 	 	18,418	 	 	 	34,335	 
	2008
	 	 	14,587	 	 	 	15,176	 	 	 	21,418	 
	2009
	 	 	1,693	 	 	 	1,796	 	 	 	11,347	 
	2010
	 	 	1,499	 	 	 	1,622	 	 	 	1,622	 
	Thereafter
	 	 	11,483	 	 	 	15,147	 	 	 	15,148	 
	 
	Total (Undiscounted)
	 	 	76,396	 	 	 	81,236	 	 	 	122,606	 
	Total (Discounted at 10%)
	 	 	60,127	 	 	 	61,947	 	 	 	96,711	 

The Corporation expects that the above future development costs will be funded through
internally-generated cash flow.

Oil and Gas Wells

The following table sets forth the number and status of wells in which the Corporation had a
working or a royalty interest as at December 31, 2005 which are producing or which the Corporation
considers to be capable of production.

 

17

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Producing	 	Shut-in(1)(4)
	 	 	Oil	 	Gas	 	Oil	 	Gas
	 	 	Gross(2)	 	Net(3)	 	Gross(2)	 	Net(3)	 	Gross(2)	 	Net(3)	 	Gross(2)	 	Net(3)
	British Columbia
	 	 	—	 	 	 	—	 	 	 	1	 	 	 	0.25	 	 	 	—	 	 	 	—	 	 	 	1	 	 	 	0.33	 
	Alberta
	 	 	252	 	 	 	170	 	 	 	742	 	 	 	600	 	 	 	74	 	 	 	50	 	 	 	313	 	 	 	229	 
	Saskatchewan
	 	 	54	 	 	 	46	 	 	 	4	 	 	 	4	 	 	 	6	 	 	 	5	 	 	 	8	 	 	 	7.42	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	306	 	 	 	216	 	 	 	747	 	 	 	604.25	 	 	 	80	 	 	 	55	 	 	 	322	 	 	 	236.75	 

			

	Notes:
	(1)	 	“Shut-in” wells means wells which are capable of producing crude oil or natural gas but
which are not producing due to lack of available transportation facilities, available markets
or other reasons.
	 
	(2)	 	“Gross” wells are defined as the total number of wells in which the Corporation has an
interest.
	 
	(3)	 	“Net” wells are defined as the aggregate of the numbers obtained by multiplying each gross
well by the Corporation’s percentage working interest therein.
	 
	(4)	 	All shut-in wells are within five kilometers of pipeline facilities.

Properties with No Attributed Reserves

The following table sets out the Corporation’s undeveloped land holdings as at December 31, 2005.

	 	 	 	 	 	 	 	 	 
	 	 	Gross Acres (1)	 	 	Net Acres (2)	 
	Western Canada
	 	 	383,946	 	 	 	268,985	 
	United States.
	 	 	3,520	 	 	 	3,520	 
	 
	 	 	 	 	 	 
	Total
	 	 	287,466	 	 	 	272,505	 

			

	Notes:
	 
	(1)	 	“Gross” refers to the total acres in which the Corporation has an interest.
	 
	(2)	 	“Net” refers to the total acres in which the Corporation has an interest, multiplied by the
percentage working interest therein owned by the Corporation.

An aggregate of 50,603 net acres will expire in 2006, all of which is located in Canada.

Forward Contracts

For details of material commitments to sell natural gas and crude oil which were outstanding at
December 31, 2005, see note 13 to the Trust’s audited consolidated financial statements for the
year ended December 31, 2005, which note is incorporated herein by reference.

Additional Information Concerning Abandonment and Reclamation Costs

Abandonment and reclamation costs were estimated for all legal obligations associated with the
retirement of long-lived tangible assets such as wells, facilities and plants based on market
prices or on the best information available where no market price was available. There are
approximately 800 net wells to be reclaimed. The total abandonment and reclamation costs, net of
estimated salvage value, are estimated to be $68 million (without discount) and $19 million
discounted at 10%. Of these amounts, $42 million (without discount) and $11 million discounted at
10% were not deducted as abandonment and reclamation costs in estimating future net revenue as
disclosed in the GLJ Report. In the next three financial years, a total of $1.3 million of the
costs are expected to be incurred.

Tax Horizon

As a result of the Trust’s tax efficient structure, annual taxable income is transferred from its
operating entities to the Trust and from the Trust to its Unitholders. This is primarily
accomplished through the deduction of the net profits interest on underlying oil and gas properties
and the deduction of interest on

 

18

the Notes held by the Trust. Therefore, no income tax liability will be incurred by the Trust for
as long as the organization maintains this corporate tax structure.

Costs Incurred

The following tables summarize capital expenditures (net of incentives and net of certain proceeds
and including capitalized general and administrative expenses) related to the Corporation’s
activities for the year ended December 31, 2005 ($ millions):

	 	 	 	 	 
	Property acquisition costs
	 	 	 	 
	Proved properties
	 	 	380.8	 
	Unproved properties
	 	 	27.7	 
	Total acquisition costs
	 	 	408.5	 
	Exploration costs
	 	 	1.3	 
	Development costs
	 	 	78.5	 
	 
	 	 	 
	Total Capital Expenditures
	 	 	488.3	 
	 
	 	 	 

Exploration and Development Activities

The following table sets forth the gross and net exploratory and development wells (all of which
are in Canada) in which the Corporation participated during the periods indicated.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Year Ended	 	 	Year Ended	 
	 	 	December 31, 2005	 	 	December 31, 2004	 
	 	 	Gross(1)	 	 	Net(2)	 	 	Gross(1)	 	 	Net(2)	 
	Exploratory
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Oil
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Gas
	 	 	3	 	 	 	1.3	 	 	 	11	 	 	 	4.6	 
	Service
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Dry
	 	 	2	 	 	 	1.0	 	 	 	5	 	 	 	3.3	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	5	 	 	 	2.3	 	 	 	16	 	 	 	7.9	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Development
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Oil
	 	 	13	 	 	 	13.0	 	 	 	6	 	 	 	5.6	 
	Gas
	 	 	68	 	 	 	54.2	 	 	 	56	 	 	 	52.6	 
	Service
	 	 	0	 	 	 	0	 	 	 	—	 	 	 	—	 
	Dry
	 	 	1	 	 	 	0.2	 	 	 	3	 	 	 	2.7	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	82	 	 	 	67.4	 	 	 	65	 	 	 	60.9	 

			
	 

	Notes:
	(1)	 	“Gross” wells means the number of wells in which the Corporation has an interest.
	 
	(2)	 	“Net” wells means the aggregate of the numbers obtained by multiplying each gross well by the
Corporation’s percentage working interest therein.

Production Estimates

The following tables provide a summary of the constant and forecast production volumes estimated
for 2006 in the GLJ Report, all of which is in Canada.

 

19

2006 Production Estimates

Average Daily Rates

Constant Prices and Costs

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Light and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Natural Gas	 	 	Total Oil	 
	 	 	Medium Oil	 	 	Heavy Oil	 	 	Natural Gas	 	 	Liquids	 	 	Equivalent	 
	 	 	W.I.	 	 	Net	 	 	W.I.	 	 	Net	 	 	W.I.	 	 	Net	 	 	W.I.	 	 	Net	 	 	W.I.	 	 	Net	 
	 	 	bbl/d	 	 	bbl/d	 	 	bbl/d	 	 	bbl/d	 	 	mcf/d	 	 	mcf/d	 	 	bbl/d	 	 	bbl/d	 	 	boe/d	 	 	boe/d	 
	Proved Producing
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Olds Gas Field Unit No. 1
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	20,738	 	 	 	14,331	 	 	 	647	 	 	 	432	 	 	 	4,104	 	 	 	2,821	 
	Others
	 	 	2,121	 	 	 	1,684	 	 	 	625	 	 	 	518	 	 	 	55,599	 	 	 	43,133	 	 	 	997	 	 	 	695	 	 	 	13,010	 	 	 	10,087	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Proved Producing
	 	 	2,121	 	 	 	1,684	 	 	 	625	 	 	 	518	 	 	 	76,337	 	 	 	57,464	 	 	 	1,645	 	 	 	1,127	 	 	 	17,113	 	 	 	12,908	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Proved
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Olds Gas Field Unit No. 1
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	22,726	 	 	 	15,697	 	 	 	694	 	 	 	463	 	 	 	4,482	 	 	 	3,079	 
	Others
	 	 	2,195	 	 	 	1,747	 	 	 	643	 	 	 	533	 	 	 	58,868	 	 	 	45,666	 	 	 	1,055	 	 	 	736	 	 	 	13,704	 	 	 	10,627	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Proved
	 	 	2,195	 	 	 	1,747	 	 	 	643	 	 	 	533	 	 	 	81,594	 	 	 	61,364	 	 	 	1,749	 	 	 	1,199	 	 	 	18,186	 	 	 	13,706	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Proved plus Probable
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Olds Gas Field Unit No. 1
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	23,570	 	 	 	16,267	 	 	 	709	 	 	 	473	 	 	 	4,637	 	 	 	3,184	 
	Others
	 	 	2,673	 	 	 	2,067	 	 	 	736	 	 	 	609	 	 	 	61,903	 	 	 	47,841	 	 	 	1,088	 	 	 	758	 	 	 	14,814	 	 	 	11,408	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Proved plus Probable
	 	 	2,673	 	 	 	2,067	 	 	 	736	 	 	 	609	 	 	 	85,473	 	 	 	64,109	 	 	 	1,796	 	 	 	1,231	 	 	 	19,452	 	 	 	14,592	 

			

	Note:
	 
	(1)	 	“W.I.” means working interest.

2006 Production Estimates

Average Daily Rates

Forecast Prices and Costs

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Light and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Natural Gas	 	 	Total Oil	 
	 	 	Medium Oil	 	 	Heavy Oil	 	 	Natural Gas	 	 	Liquids	 	 	Equivalent	 
	 	 	W.I.	 	 	Net	 	 	W.I.	 	 	Net	 	 	W.I.	 	 	Net	 	 	W.I.	 	 	Net	 	 	W.I.	 	 	Net	 
	 	 	bbl/d	 	 	bbl/d	 	 	bbl/d	 	 	bbl/d	 	 	mcf/d	 	 	mcf/d	 	 	bbl/d	 	 	bbl/d	 	 	boe/d	 	 	boe/d	 
	Proved Producing
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Olds Gas Field Unit No. 1
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	20,738	 	 	 	14,331	 	 	 	647	 	 	 	432	 	 	 	4,104	 	 	 	2,821	 
	Others
	 	 	2,121	 	 	 	1,684	 	 	 	625	 	 	 	511	 	 	 	55,599	 	 	 	43,133	 	 	 	997	 	 	 	696	 	 	 	13,010	 	 	 	10,080	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Proved Producing
	 	 	2,121	 	 	 	1,684	 	 	 	625	 	 	 	511	 	 	 	76,337	 	 	 	57,464	 	 	 	1,645	 	 	 	1,128	 	 	 	17,113	 	 	 	12,901	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Proved
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Olds Gas Field Unit No. 1
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	22,726	 	 	 	15,697	 	 	 	694	 	 	 	463	 	 	 	4,482	 	 	 	3,080	 
	Others
	 	 	2,195	 	 	 	1,747	 	 	 	643	 	 	 	526	 	 	 	58,868	 	 	 	45,666	 	 	 	1,055	 	 	 	736	 	 	 	13,704	 	 	 	10,620	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Proved
	 	 	2,195	 	 	 	1,747	 	 	 	643	 	 	 	526	 	 	 	81,594	 	 	 	61,364	 	 	 	1,749	 	 	 	1,200	 	 	 	18,186	 	 	 	13,700	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Proved plus Probable
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Olds Gas Field Unit No. 1
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	23,570	 	 	 	16,267	 	 	 	709	 	 	 	476	 	 	 	4,637	 	 	 	3,185	 
	Others
	 	 	2,674	 	 	 	2,067	 	 	 	736	 	 	 	601	 	 	 	61,903	 	 	 	47,841	 	 	 	1,088	 	 	 	758	 	 	 	14,814	 	 	 	11,400	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Proved plus Probable
	 	 	2,674	 	 	 	2,067	 	 	 	736	 	 	 	601	 	 	 	85,473	 	 	 	64,109	 	 	 	1,796	 	 	 	1,232	 	 	 	19,452	 	 	 	14,585	 

			

	Note:
	 
	(1)	 	“W.I.” means working interest.

 

20

Production History

The following table sets forth the Corporation’s average daily production volume before deductions
of royalties payable to others, crude oil prices, and net oil and gas capital expenditures incurred
for each quarter of the Corporation’s most recent year ended, all of which was in Canada. Also
shown are average annual netbacks received by product category.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	First	 	Second	 	Third	 	Fourth	 	 
	2005 Information	 	Quarter	 	Quarter	 	Quarter	 	Quarter	 	Annual
	Average Daily Production
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Light/Medium Oil (bbl/d)
	 	 	121	 	 	 	1,003	 	 	 	1,732	 	 	 	2,279	 	 	 	1,291	 
	Heavy Oil (bbl/d) 
	 	 	273	 	 	 	213	 	 	 	427	 	 	 	561	 	 	 	370	 
	NGL (bbl/d) 
	 	 	1,310	 	 	 	1,357	 	 	 	1,424	 	 	 	1,725	 	 	 	1,455	 
	Natural Gas (mcf/d) 
	 	 	54,963	 	 	 	65,709	 	 	 	79,056	 	 	 	79,494	 	 	 	69,898	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Oil and NGL Netback ($/bbl)(1)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Revenue
	 	 	48.46	 	 	 	54.48	 	 	 	64.34	 	 	 	60.21	 	 	 	58.64	 
	Royalties
	 	 	10.75	 	 	 	12.68	 	 	 	14.21	 	 	 	14.24	 	 	 	13.44	 
	Production Costs
	 	 	8.42	 	 	 	9.89	 	 	 	11.23	 	 	 	8.53	 	 	 	9.61	 
	Netback
	 	 	29.29	 	 	 	31.91	 	 	 	38.90	 	 	 	37.44	 	 	 	35.59	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Natural Gas Netback ($/mcf)(1)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Revenue
	 	 	7.12	 	 	 	7.46	 	 	 	8.50	 	 	 	10.87	 	 	 	8.67	 
	Royalties
	 	 	1.73	 	 	 	1.54	 	 	 	1.77	 	 	 	2.98	 	 	 	2.05	 
	Production Costs
	 	 	1.24	 	 	 	1.35	 	 	 	1.48	 	 	 	1.54	 	 	 	1.42	 
	Netback
	 	 	4.15	 	 	 	4.57	 	 	 	5.25	 	 	 	6.35	 	 	 	5.20	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Capital Expenditures ($000’s)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Western Canada
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Acquisitions / (Dispositions)(2)
	 	 	30	 	 	 	6,971	 	 	 	99,745	 	 	 	181	 	 	 	106,927	 
	Exploration and Development
	 	 	5,955	 	 	 	8,180	 	 	 	17,808	 	 	 	16,714	 	 	 	48,657	 
	Plants, Facilities and Pipelines
	 	 	3,450	 	 	 	8,081	 	 	 	5,369	 	 	 	6,469	 	 	 	23,369	 
	Land and Lease
	 	 	375	 	 	 	1,234	 	 	 	1,253	 	 	 	1,043	 	 	 	3,905	 
	Capitalized G&A
	 	 	674	 	 	 	839	 	 	 	904	 	 	 	1,035	 	 	 	3,452	 
	East Coast
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Other capital costs
	 	 	82	 	 	 	246	 	 	 	150	 	 	 	145	 	 	 	623	 
	Total
	 	 	10,566	 	 	 	25,551	 	 	 	125,229	 	 	 	25,587	 	 	 	186,933	 

Notes:

			
	 
	(1)	 	Operating expenses are allocated between NGL’s and natural gas in the ratio of gross
revenue received for each product during the period.
	 
	(2)	 	The acquisition amounts do not include the issuance of 24.1 million Trust Units valued at
approximately $301.3 million relating to the acquisition of Resolute.

Development

During 2006, the Corporation intends to undertake natural gas development projects that realize
commercial value with low finding and development costs.

The budgeted capital program for 2006 is approximately $63 million. The Berry/Winnifred area will
be a significant focus for the Corporation in 2006 with planned spending of approximately $19
million on a 26 well program. In the Greater Olds area, the Corporation plans on drilling 11 wells
in 2006 and will

 

21

participate in a multi-well farm-out agreement costing a total of $17 million. In the Peace River
Arch the Corporation plans on spending $7 million to drill nine wells and in Saskatchewan seven
wells are planned for $6 million. In Central Alberta, the Corporation will spend approximately $2
million on facility de-bottlenecking, recompletions and optimizations as well as drilling two
wells. In Southern Alberta, Esprit will spend $1 million with the majority of activity conducted
through a farm-out.

DESCRIPTION OF THE TRUST

General

The Trust is an open-end unincorporated mutual fund trust governed by the laws of the Province of
Alberta and created pursuant to the Trust Indenture. The Trust’s business consists of:

	(a)	 	acquiring, investing, transferring, disposing of and otherwise dealing with, directly or
indirectly, any of the securities issued by the Corporation, including securities of the
Corporation’s subsidiaries and affiliates, the Common Shares and the Notes, borrowing funds
for those purposes and holding the NPI;
	 
	(b)	 	investing in any other securities and in any other investments as the Trustees may determine
and borrowing funds for that purpose;
	 
	(c)	 	issuing Trust Units, convertible securities or securities exchangeable for Trust Units for
the purpose of obtaining funds to conduct any of the activities of the Trust, completing any
acquisition of securities or any other assets for the benefit of the Trust;
	 
	(d)	 	disposing of any part of the property of the Trust;
	 
	(e)	 	satisfying the obligations, liabilities or indebtedness of the Trust; and
	 
	(f)	 	performing all acts necessary, incidental, ancillary or related to any of the foregoing
purposes.

The Trustees are prohibited from acquiring any investment which, (i) would result in the cost
amount to the Trust of all “foreign property” (as defined in the Tax Act) which is held by the
Trust to exceed the amount prescribed by section 5000 of the regulations promulgated under the Tax
Act, or (ii) would result in the Trust not being considered either a “unit trust” or a “mutual fund
trust” for purposes of the Tax Act.

Trust Units

The beneficial interests in the Trust are divided into interests of one class, described and
designated as Trust Units, which are entitled to the rights and subject to the limitations,
restrictions and conditions set out in the Trust Indenture.

Authorized Classes

The Trust is authorized to issue one class of Trust Units. Effective June 30, 2005, the Trust
completed the Reclassification pursuant to which the former Class A Trust Units and Class B Trust
Units of the Trust were reclassified as the Trust Units. See “General Development of the Trust –
Subsequent to the Esprit Arrangement – Reclassification of Trust Units”. As at December 31, 2005,
an aggregate of 66,322,792 Trust Units were issued and outstanding.

 

22

Voting

Each Trust Unit entitles the holder thereof to one vote at all meetings of the holders of Trust
Units or in respect of any written resolution.

Distributions

Each Trust Unit represents an equal fractional undivided beneficial interest in any distribution
from the Trust (whether of net income, net realized capital gains or other amounts) and in any net
assets of the Trust in the event of termination or winding-up of the Trust. All Trust Units rank
among themselves equally and rateably without discrimination, preference or priority.

Transferability

Subject to certain restrictions described under “Description of the Trust – Non-Resident
Unitholders”, each Trust Unit is freely transferable.

Redemption and Conversion

Each Trust Unit is not subject to pre-emptive rights and entitles the holder thereof to require the
Trust to redeem any or all of the Trust Units held by such holder. See “Redemption Right”.

Nature of Trust Units

The Trust Units do not represent a traditional investment and should not be viewed as “shares” in
either the Corporation or the Trust. As holders of Trust Units in the Trust, Unitholders do not
have the statutory rights normally associated with ownership of shares of a corporation including,
for example, the right to bring “oppression” or “derivative” actions. The price per Trust Unit is
generally a function of the anticipated distributable income from the Corporation and the ability
of the Corporation to effect long term growth in the value of the Trust. The market price of the
Trust Units is sensitive to a variety of market conditions including, but not limited to, interest
rates, commodity prices and the ability of the Trust to acquire additional assets. Changes in
market conditions may adversely affect the trading price of the Trust Units.

The Trust Units are not “deposits” within the meaning of the Canada Deposit Insurance Corporation
Act (Canada) and are not insured under the provisions of that Act or any other legislation.
Furthermore, the Trust is not a trust company and, accordingly, is not registered under any trust
and loan company legislation as it does not carry on or intend to carry on the business of a trust
company.

Post-Arrangement Entitlements

An unlimited number of Post-Arrangement Entitlements may be created and issued pursuant to the
Trust Indenture. Post-Arrangement Entitlements were issued under the Esprit Arrangement to persons
who did not provide or did not properly complete a declaration as to their residency for the
purpose of the Tax Act. Subsequent to the Reclassification, each Post-Arrangement Entitlement
entitles the holder thereof to receive one Trust Unit upon contacting the transfer agent of the
Trust without satisfying the prior requirement to declare their residency. As at December 31,
2005, an aggregate of 35,372 Post-Arrangement Entitlements were issued and outstanding.

Each Post-Arrangement Entitlement entitles the holder to one vote at any meeting of the holders of
Trust Units. Post-Arrangement Entitlements may not be transferred and are not entitled to
distributions

 

23

declared on the Trust Units. In addition, Post-Arrangement Entitlements are not entitled to any
distributions of the Trust’s net assets in the event of termination or winding-up of the Trust.

Post-Arrangement Entitlements are not subject to redemption.

Special Voting Units

In order to allow the Trust flexibility in pursuing corporate acquisitions, the Trust Indenture
allows for the creation of Special Voting Units entitling the holders thereof to such number of
votes at meetings of unitholders as may be prescribed. Special Voting Units will enable the Trust
to provide voting rights to holders of Exchangeable Shares and, in the future, to holders of other
exchangeable shares that may be issued by the Corporation or other subsidiaries of the Trust in
connection with other exchangeable share transactions.

An unlimited number of Special Voting Units may be created and issued pursuant to the Trust
Indenture. Holders of Special Voting Units shall not be entitled to any distributions of any
nature whatsoever from the Trust or have any beneficial interest in any assets of the Trust upon
its termination. Except for the right to vote at meetings of the Unitholders, the Special Voting
Units shall not confer upon the holders thereof any other rights.

Under the terms of the Voting and Exchange Trust Agreement, the Trust has issued one Special Voting
Unit to the Voting and Exchange Trust Agreement Trustee, which entitles the holders of record of
Exchangeable Shares to a number of votes at meetings of Unitholders equal to the aggregate
equivalent vote amount.

Debentures

The Debentures were issued on July 28, 2005 with an initial maturity date of August 31, 2005, which
was subsequently extended to December 31, 2010 upon the closing of the acquisition by the
Corporation of Markedon. The Debentures bear interest at the rate of 6.50% per annum and pay
interest semi-annually in arrears on June 30 and December 31 each year. The Debentures are direct
unsecured obligations of the Trust and are subordinated to all senior indebtedness of the Trust.
The Debentures rank equally with all other unsecured and subordinated indebtedness of the Trust.
Payment of principal and interest on the Debentures ranks in priority to the payment of
distributions on the Trust Units. The Debentures are not redeemable on or before December 31,
2008. The Trust may redeem the Debentures after December 31, 2008 and on or prior to December 31,
2009 at a price of $1,050 per Debenture and at a price of $1,025 per Debenture after December 31,
2009 and prior to maturity, in each case plus accrued and unpaid interest. Each Debenture is
convertible into Trust Units at the option of the holder at any time prior to the close of business
on the earlier of the maturity date and the business day immediately preceding the date specified
by the Trust for redemption of the Debentures at a conversion price of $13.85 per Trust Unit,
subject to adjustment in certain events. Holders converting their Debentures will receive accrued
and unpaid interest, if any, thereon. As at December 31, 2005, 4,150 Debentures with a face value
of $4.15 million had been converted into Trust Units. The Debentures trade on the TSX under the
symbol “EEE.DB”.

Unitholder Limited Liability

The Trust Indenture provides that no Unitholder, in its capacity as such, shall incur or be subject
to any liability in contract or in tort in connection with the Trust or its obligations or affairs
and, in the event that a court determines Unitholders are subject to any such liabilities, the
liabilities will be enforceable only against, and will be satisfied only out of the Trust’s assets.
Pursuant to the Trust Indenture, the Trust will indemnify and hold harmless each Unitholder from
any cost, damages, liabilities, expenses, charges or losses suffered by a Unitholder from or
arising as a result of such Unitholder not having such limited liability.

 

24

The Trust Indenture provides that all contracts signed by or on behalf of the Trust must contain a
provision to the effect that such obligation will not be binding upon Unitholders personally.
Notwithstanding the terms of the Trust Indenture, Unitholders may not be protected from liabilities
of the Trust to the same extent a shareholder is protected from the liabilities of a corporation.
Personal liability may also arise in respect of claims against the Trust (to the extent that claims
are not satisfied by the Trust) that do not arise under contracts, including claims in tort, claims
for taxes and possibly certain other statutory liabilities. The possibility of any personal
liability to Unitholders of this nature arising is considered unlikely in view of the fact that the
primary activity of the Trust is to hold securities, and all business operations are carried out by
the Corporation. In addition, the Income Trust Liability Act (Alberta) was proclaimed in Alberta
on July 1, 2004. The Income Trust Liability Act (Alberta) provides that the beneficiary of a trust
that is (i) created by a trust instrument governed by the laws of Alberta, and (ii) a reporting
issuer as defined in the Securities Act (Alberta), is not liable as a beneficiary for any act,
default, obligation or liability of the trustee.

The activities of the Trust and the Corporation are conducted, upon the advice of counsel, in such
a way and in such jurisdictions as to avoid as far as possible any material risk of liability to
the Unitholders for claims against the Trust including by obtaining appropriate insurance, where
available, for the operations of the Corporation and having contracts signed by or on behalf of the
Trust include a provision that such obligations are not binding upon Unitholders personally.

Issuance of Trust Units

The Trust Indenture provides that Trust Units, including rights, warrants and other securities to
purchase, to convert into or to exchange into Trust Units, may be created, issued, sold and
delivered on such terms and conditions and at such times as the Board of Trustees, upon the
recommendation of the Board of Directors of the Corporation may determine. The Trust Indenture
also provides that the Trust may authorize the creation and issuance of debentures, notes and other
evidences of indebtedness of the Trust which debentures, notes or other evidences of indebtedness
may be created and issued from time to time on such terms and conditions to such persons and for
such consideration as the Corporation may determine.

Cash Distributions

The Board of Trustees may declare payable to the Unitholders all or any part of the net income of
the Trust earned from interest income on the Notes and from the income generated under the NPI
Agreement, less all expenses and liabilities of the Trust due and accrued and which are chargeable
to the net income of the Trust. In addition, Unitholders may, at the discretion of the Board of
Directors, receive distributions in respect of prepayments of principal on the Notes made by the
Corporation to the Trust before the maturity of the Notes.

Cash distributions are made on the 15th day of each month to Unitholders of record on the
immediately preceding Distribution Record Date, or if such day does not fall on a business day, the
next following business day. The following cash distributions have been declared to Unitholders
since the Esprit Arrangement.

	 	 	 	 	 	 	 	 	 	 	 
	Record Date	 	Payment Date	 	Per Trust Unit	 	Total Distribution
	2004
	 	 	 	 	 	 	 	 	 	 
	October 29, 2004
	 	November 15, 2004	 	$	0.14	 	 	$	5,581,597	 
	November 30, 2004
	 	December 15, 2004	 	$	0.14	 	 	$	5,592,982	 
	December 31, 2004
	 	January 17, 2005	 	$	0.14	 	 	$	5,613,887	 

 

25

	 	 	 	 	 	 	 	 	 	 	 
	Record Date	 	Payment Date	 	Per Trust Unit	 	Total Distribution
	2005
	 	 	 	 	 	 	 	 	 	 
	January 31, 2005
	 	February 15, 2005	 	$	0.14	 	 	$	5,628,554	 
	February 28, 2005
	 	March 15, 2005	 	$	0.14	 	 	$	5,630,611	 
	March 31, 2005
	 	April 15, 2005	 	$	0.14	 	 	$	5,632,200	 
	May 2, 2005
	 	May 16, 2005	 	$	0.14	 	 	$	5,652,988	 
	May 31, 2005
	 	June 15, 2005	 	$	0.14	 	 	$	9,024,437	 
	June 30, 2005
	 	July 15, 2005	 	$	0.14	 	 	$	9,025,312	 
	July 29, 2005
	 	August 15, 2005	 	$	0.14	 	 	$	9,025,768	 
	August 31, 2005
	 	September 15, 2005	 	$	0.14	 	 	$	9,027,334	 
	September 30, 2005
	 	October 14, 2005	 	$	0.14	 	 	$	9,034,972	 
	October 31, 2005
	 	November 15, 2005	 	$	0.15	 	 	$	9,851,979	 
	November 30, 2005
	 	December 15, 2005	 	$	0.15	 	 	$	9,853,880	 
	December 30, 2005
	 	January 16, 2006	 	$	0.15	 	 	$	9,948,419	 

Redemption Right

Trust Units are redeemable at any time on demand by the holders thereof upon delivery to the Trust
of the certificate or certificates representing such Trust Units, accompanied by a duly completed
and properly executed notice requiring redemption. Upon receipt of the notice to redeem Trust
Units by the Trust, the holder thereof shall only be entitled to receive the Market Redemption
Price.

For the purposes of this calculation, “market price” is an amount equal to the simple average of
the closing price of the Trust Units for each of the trading days on the applicable stock exchange
or other market on which the Trust Units are quoted for trading and on which there was a closing
price; provided that, if the applicable exchange or market does not provide a closing price but
only provides the highest and lowest prices of the Trust Units traded on a particular day, the
market price shall be an amount equal to the simple average of the average of the highest and
lowest prices for each of the trading days on which there was a trade; and provided further that if
there was trading on the applicable exchange or market for fewer than five of the 10 trading days,
the market price shall be the simple average of the Closing Market Price on each of the 10 trading
days. The “closing market price” shall be: an amount equal to the closing price of the Trust Units
on the applicable exchange if there was a trade on the date; if the applicable exchange does not
provide for a closing price for the Trust Units, an amount equal to the average of the highest and
lowest prices of the Trust Units if there was trading on such date; or if there was no trading on
such date, the average of the last bid and last ask prices of the Trust Units.

The aggregate Market Redemption Price payable by the Trust in respect of any Trust Units
surrendered for redemption during any calendar month shall be satisfied by way of a cash (cheque)
payment on the last day of the following month. The entitlement of Unitholders to receive cash
upon the redemption of their Trust Units is subject to the limitation that the total amount payable
by the Trust in respect of such Trust Units and all other Trust Units tendered for redemption in
the same calendar month shall not exceed $100,000 (the “Monthly Limit”); provided that the Trust
may, in its sole discretion, waive such limitation in respect of any calendar month. Unitholders
receiving a distribution in specie of securities of the Trust will be entitled to receive a price
per Trust Unit (hereinafter called the “In Specie Redemption Price”) equal to the fair market value
thereof as determined by the Trust and the In Specie Redemption Price shall, subject to all
necessary regulatory approvals, be paid and satisfied by way of a distribution in specie of the
securities held by the Trust, on the basis, per Trust Unit tendered for redemption, of the number
of each class of securities owned by the Trust on the date such Trust Units were tendered for
redemption, each such class of other securities divided by the number of Trust Units outstanding on
such date. The In Specie Redemption Price payable in respect of Trust Units tendered for
redemption during any month

 

26

shall be paid by the transfer, to or to the order of the Unitholder who exercised the right of
redemption, on the last day (the “Transfer Date”) of the calendar month following the month in
which the Trust Units were tendered for redemption, of the number of each class of securities
determined as aforesaid. The Trust shall be entitled to all other interest paid or accrued and
unpaid to and including the Transfer Date, distributions declared and paid or declared payable on
or before the Transfer Date and all other income, profits, earnings and royalties paid or accrued
and unpaid on any securities being transferred to and including the Transfer Date.

In the absence of such a waiver, Trust Units tendered for redemption in any calendar month in which
the total amount payable by the Trust exceeds the Monthly Limit will be redeemed for cash by order
of the date on which Trust Units are tendered for redemption, and, for all Trust Units tendered on
the same date, on a pro rata basis up to the maximum total amount which does not exceed the Monthly
Limit and, subject to the receipt of any applicable regulatory approvals, by a distribution in
specie of securities held by the Trust on a pro rata basis.

If at the time Trust Units are tendered for redemption by a Unitholder, the outstanding Trust Units
are not listed for trading on any stock exchange or market which the board of directors of the
Corporation considers, in its sole discretion, provides representative fair market value price for
the Trust Units or trading of the outstanding Trust Units is suspended or halted on any stock
exchange on which the Trust Units are listed for trading or, if not so listed, on any market on
which the Trust Units are quoted for trading, on the date such Trust Units are tendered for
redemption or for more than five trading days during the 10 trading day period, commencing
immediately after the date such Trust Units were tendered for redemption, then such Unitholder
shall, instead of the Market Redemption Price, be entitled to receive the In Specie Redemption
Price.

This redemption right will not be the primary mechanism for holders of Trust Units to dispose of
their Trust Units. Securities which may be distributed in specie to Unitholders in connection with
a redemption will not be listed on any stock exchange and no market is expected to develop in such
Securities. In addition, the Securities may not be qualified investments for trusts governed by
registered retirement savings plans, registered retirement income funds, deferred profit sharing
plans and registered education savings plans.

Non-Resident Unitholders

It is in the best interest of Unitholders that the Trust qualifies as a “unit trust” and a “mutual
fund trust” under the Tax Act. Certain provisions of the Tax Act require that the Trust not be
established nor maintained primarily for the benefit of Non-Residents. Accordingly, in order to
comply with such provisions, the Trust Indenture contains a prohibition on the ownership of Trust
Units by Non-Residents and provides that at no time may Non-Residents be the beneficial owners of
more than 49% of the Trust Units issued and outstanding. The Trust may require declarations as to
the jurisdictions in which beneficial owners of the Trust Units are resident.

If at any time the Trust becomes aware, as a result of acquiring such declarations as to beneficial
ownership, that the beneficial owners of 49% of the Trust Units (or rights to acquire Trust Units)
then outstanding are, or may be, Non-Residents or that such a situation is imminent, the Trust may
make a public announcement thereof and shall not accept subscription for such Trust Units from or
issue or register a transfer of such Trust Units to a Person unless the Person provides a
declaration in form and content satisfactory to the Trust that the Person is not a Non-Resident.

Meetings of Unitholders

The Trust Indenture provides that annual meetings of Unitholders must be called and held for, among
other matters, the appointment of Trustees of the Trust and the appointment of auditors of the
Trust.

 

27

Special meetings of the Unitholders may be called at any time by the Trustees and shall be called
by the Trustees upon a written request of Unitholders holding in the aggregate not less than 10% of
the Trust Units then outstanding. A requisition must, among other things, state in reasonable
detail the business purpose for which the meeting is to be called.

Unitholders are entitled to pass resolutions that will bind the Trustees in respect of, among other
things, the termination of the Trust, the sale of all or substantially all of the assets of the
Trust and any other matters required by securities law, stock exchange rules or other laws or
regulations to be submitted to Unitholders for their approval. Except in respect of the election
or removal of one or more trustee, the appointment of an inspector or the appointment or removal of
auditors, any action taken or resolution passed, shall be by special resolution requiring the
affirmative vote of the holders of more than 662/3% of the Trust Units.

Unitholders may attend and vote at all meetings of Unitholders either in person or by proxy and a
proxyholder need not be a Unitholder. Two or more individuals present in person or represented by
proxy and representing in the aggregate not less than 20% of the votes attaching to all outstanding
Trust Units shall constitute a quorum for the transaction of business at all such meetings.

The Trust Indenture contains provisions as to the notice required and other procedures with respect
to the calling and holding of meetings of Unitholders in accordance with the requirements of
applicable laws.

Reporting to Unitholders

The financial statements of the Trust are audited annually by an independent recognized firm of
chartered accountants. The audited financial statements of the Trust, together with the report of
such chartered accountants, are mailed or made available by the Trustee to Unitholders and the
unaudited interim financial statements of the Trust are made available to Unitholders within the
periods prescribed by securities legislation. The year end of the Trust is December 31.

The Trust is subject to the continuous disclosure obligations under all applicable securities
legislation.

Take-over Bids

The Trust Indenture contains provisions to the effect that if a take-over bid is made for the Trust
Units and not less than 90% of the Trust Units (other than Trust Units held at the date of the
takeover bid by or on behalf of the offeror or associates or affiliates of the offeror) are taken
up and paid for by the offeror, the offeror will be entitled to acquire the Trust Units held by
Unitholders who did not accept the takeover bid on the terms offered by the offeror.

The Trustees

For a list of the Trustees of the Trust, see “Trustees, Directors and Officers”. The Trustees are
responsible for, among other things, accepting subscriptions for Trust Units and issuing Trust
Units pursuant thereto and maintaining the books and records of the Trust and providing timely
reports to holders of Trust Units. The Trust Indenture provides that the Trustees shall act
honestly and in good faith with a view to the best interests of the Trust and in connection
therewith, shall exercise the degree of care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances.

Delegation of Authority, Administration and Trust Governance

The Board of Directors has generally been delegated the significant management decisions of the
Trust. In particular, the Board of Trustees has delegated to the Corporation responsibility for
any and all matters relating to, among other things, the following:

 

28

	(a)	 	to supervise the activities and manage the investments and affairs of the Trust;
	 
	(b)	 	to manage the Trust’s assets;
	 
	(c)	 	to maintain records and provide reports to Unitholders;
	 
	(d)	 	to enter into any agreement or instrument to create or provide for the issue of Trust Units
(including any firm or best efforts underwriting agreement) and to do all things and prepare
and sign all documents to qualify those Trust Units for sale in whatever jurisdictions they
will be sold or offered for sale;
	 
	(e)	 	to effect payment of Distributions to the Unitholders;
	 
	(f)	 	to possess and exercise all the rights, powers and privileges pertaining to the ownership of
any securities comprising the Trust’s assets (including the Notes);
	 
	(g)	 	subject to the limitations contained in the Trust Indenture, to sell, transfer, assign and
convey, for and on behalf of the Trust, all or any portion of the Trust’s assets on such terms
and conditions as shall deem to be in the best interests of the Unitholders;
	 
	(h)	 	without limit as to amount, to borrow money or otherwise obtain credit in the name of the
Trust from time to time, from any Person for the purpose of carrying out the business or any
other purposes of the Trust;
	 
	(i)	 	to charge, mortgage, hypothecate, pledge or assign on behalf of the Trust, or grant any
security interest, lien or encumbrance over or with respect to, all or any portion of the
currently owned or subsequently acquired Trust’s assets for any purpose, including to secure
any monies borrowed or other liabilities or obligations of the Trust or to secure any
guarantee granted by the Trust;
	 
	(j)	 	to pay all taxes or assessments, of whatever kind or nature, whether within or outside
Canada, imposed upon or against the undertaking of the Trust or income of the Trust, or
imposed upon or against the Trust’s assets, the undertaking of the Trust or income of the
Trust, or any part thereof;
	 
	(k)	 	to make, execute, acknowledge and deliver any and all deeds, contracts, waivers, releases or
other documents of transfer and any and all other instruments in writing necessary (including
tax elections or designations) or proper for the accomplishment of any of the powers granted
under the terms of the Trust Indenture; and
	 
	(l)	 	to do all such other acts and things as are incidental to the foregoing, and to exercise all
powers which are necessary or useful to carry on the purpose and activities of the Trust, to
promote any of the purposes for which the Trust is formed and to carry out the provisions of
the Trust Indenture.

Liability of the Trustees

The Trustees, and the officers and agents of the Trust shall not be liable to any Unitholder or any
other person, in tort, contract or otherwise, in connection with any matter pertaining to the Trust
or the property of the Trust, arising from the exercise by the Trustees of any powers, authorities
or discretion conferred under the Trust Indenture, including, without limitation, entering into the
Administration Agreement and relying on the Corporation thereunder, any action taken or not taken
in good faith in reliance on any documents that are, prima facie, properly executed, any
depreciation of, or loss to, the property of the Trust incurred by reason of the sale of any asset,
any inaccuracy in any evaluation provided by any appropriately qualified person, any reliance on
any such evaluation, any action or failure to act of the

 

29

Corporation, or any other person to whom the Trustees have, with the consent of the Corporation,
delegated any of its duties thereunder, or any other action or failure to act (including failure to
compel in any way any former trustee to redress any breach of trust or any failure by the
Corporation to perform its duties under or delegated to it under the Trust Indenture or any other
contract), including anything done or permitted to be done pursuant to, or any error or omission
relating to, the rights, powers, responsibilities and duties conferred upon, granted, allocated and
delegated to the Corporation thereunder or under the Administration Agreement, or the act of
agreeing to the conferring upon, granting, allocating and delegating any such rights, powers,
responsibilities and duties to the Corporation in accordance with the terms of the Trust Indenture
or under the Administration Agreement, unless and to the extent such liabilities arise out of the
gross negligence, dishonesty or fraud of the Trustees or any of the Trust’s officers or agents. In
the exercise of the powers, authorities or discretion conferred upon the Trustees under the Trust
Indenture, the Trustees are and shall be conclusively deemed to be acting as trustees of the assets
of the Trust and shall not be subject to any personal liability for any debts, liabilities,
obligations, claims, demands, judgments, costs, charges or expenses against or with respect to the
Trust or the property of the Trust. In addition, the Trust Indenture contains other customary
provisions limiting the liability of the members of the Board of Trustees.

Amendments to the Trust Indenture

The provisions of the Trust Indenture may only be amended by the Trustees with the consent of
Unitholders evidenced by Special Resolution; provided that the Trustees may, without the consent of
the Unitholders, amend the Trust Indenture at any time for the purpose of:

	(a)	 	ensuring continuing compliance with applicable laws (including the Tax Act), regulations,
requirements or policies of any governmental authority having jurisdiction over the Trustees
or the Trust;
	 
	(b)	 	making amendments which, in the opinion of the Trustees, provide additional protection or
added benefits for the Unitholders;
	 
	(c)	 	removing any conflicts or inconsistencies in the Trust Indenture or making minor changes or
corrections including the correction or rectification of any ambiguities, defective
provisions, errors, mistakes or omissions, which are, in the opinion of the Trustees,
necessary or desirable and not prejudicial to the Unitholders;
	 
	(d)	 	making amendments which, in the opinion of the Trustees, are necessary or desirable in the
interests of the Unitholders as a result of changes in taxation laws or policies of any
governmental authorities having jurisdiction over the Trustees or the Trust; or
	 
	(e)	 	for any purpose (except one in respect of which a vote by Unitholders is specifically
otherwise required) if the Trustees are of the opinion that the amendment is not prejudicial
to Unitholders and is necessary or desirable,

but, notwithstanding the foregoing, no such amendment shall be adopted which causes (i) the Trust
to fail to qualify as a “mutual fund trust” under the Tax Act or (ii) the Trust Units to constitute
“foreign property” for purposes of the Tax Act, without the consent of the Unitholders. In
addition, no such amendment shall modify the right to one vote per Trust Unit or reduce the
fractional undivided interest in the Trust’s assets represented by any Trust Unit without the
consent of the holder of such Trust Unit.

Termination of the Trust

Unless the Trust is earlier terminated or extended by vote of the Unitholders, the Trust shall
continue for a term ending 21 years after the date of death of the last surviving issue of Her
Majesty, Queen Elizabeth II,

 

30

alive on August 16, 2004. For the purpose of terminating the Trust by such date, the Trustees
shall commence to wind-up the affairs of the Trust on such date as may be determined by the
Trustees, being not more than two years prior to the end of the term of the Trust. In the event
that the Trust is wound-up, the Trustees will sell and convert into money the property of the Trust
in one transaction or in a series of transactions at public or private sale and do all other acts
appropriate to liquidate the property of the Trust, and shall in all respects act in accordance
with the directions, if any, of the Unitholders in respect of termination authorized pursuant to
the Special Resolution authorizing the termination of the Trust. After paying, retiring or
discharging or making provision for the payment, retirement or discharge of all known liabilities
and obligations of the Trust and providing for indemnity against any other outstanding liabilities
and obligations, the Trustees shall distribute the remaining part of the proceeds of the sale of
the assets together with any cash forming part of the property of the Trust among the Unitholders
in accordance with their pro rata share.

The Unitholders may vote by Special Resolution to terminate the Trust at any meeting of Unitholders
duly called by the Trustees for the purpose of considering termination of the Trust, following
which the Trustees shall commence to wind-up the affairs of the Trust.

Voting of Securities Held by the Trust

The securities (including the Common Shares and the Notes) held from time to time by the Trust as
part of the Trust’s assets may be voted by the Trustees at any and all meetings of securityholders
of such Persons in which the Trust holds securities, at which the holders of such securities are
entitled to vote. However, the Trustees may not at any time under any circumstances whatsoever
authorize:

	(a)	 	any amalgamation, arrangement or other merger of the Trust or the Corporation with any other
corporation except with one or more direct or indirect wholly-owned subsidiaries of the Trust
or in conjunction with an internal reorganization;
	 
	(b)	 	any sale or disposition of any securities held by the Trust or any other sale, lease or
exchange of all or substantially all of the Trust’s assets, pursuant to an in specie
redemption (as defined herein), pursuant to any security granted, pursuant to any internal
reorganization of the direct or indirect assets of the Trust as a result of which the Trust
has the same interest, whether direct or indirect, in the assets as the interest, whether
direct or indirect, that it had prior to the reorganization or where any such sale, lease or
exchange is effected between or among the Trust and any one or more of:

	 	(i)	 	the Corporation;
	 
	 	(ii)	 	any other corporation, partnership, firm or other form of entity or
organization that is directly or indirectly wholly-owned by the Trust;
	 
	 	(iii)	 	any trust or trusts, the sole beneficiaries of which are the Trust and/or any
of the Persons referred to in (i) and (ii) above; and
	 
	 	(iv)	 	any partnership, the only partners of which are Persons referred to in (i) to (iii)
above;

	(c)	 	any sale, lease or exchange of all or substantially all of the assets of the Corporation
except pursuant to any security granted by the Corporation, pursuant to any internal
reorganization, or where any such sale, lease or exchange is effected between or among any one
or more of:

	 	(i)	 	the Trust;
	 
	 	(ii)	 	the Corporation;

 

31

	 	(iii)	 	any other corporation, partnership, firm or other form of entity or
organization that is directly or indirectly wholly-owned by the Trust;
	 
	 	(iv)	 	any trust or trusts, the sole beneficiaries of which are the Trust and/or any
of the Persons referred to in (i) to (iii) above; and
	 
	 	(v)	 	any partnership, the only partners of which are Persons referred to in (i) to (iv)
above;

	(d)	 	any material amendment to the Note Indenture other than in contemplation of a future issuance
of Notes; or

	(e)	 	any material amendment to the articles of the Corporation to change its authorized share
capital or otherwise amend its constating documents in a manner which may be prejudicial to
the Trust,

without the approval of the Unitholders by Special Resolution.

DESCRIPTION OF THE CORPORATION

The Corporation is authorized to issue an unlimited number of Common Shares and an unlimited number
of Exchangeable Shares. The Trust is the sole holder of the issued and outstanding Common Shares.

Common Shares

Each Common Share entitles the holder to receive notice of and to attend all meetings of the
shareholders of the Corporation and to one vote at such meetings. The holders of Common Shares
are, at the discretion of the Board of Directors and subject to applicable legal restrictions, and
subject to certain preferences of holders of Exchangeable Shares, entitled to receive any dividends
declared by the Board of Directors on the Common Shares to the exclusion of the holders of
Exchangeable Shares, subject to the proviso that no dividends shall be paid on the Common Shares
unless all declared dividends on the outstanding Exchangeable Shares have been paid in full. The
holders of Common Shares are entitled to share equally in any distribution of the assets of the
Corporation upon the liquidation, dissolution, bankruptcy or winding-up of the Corporation or other
distribution of its assets among its shareholders for the purpose of winding-up its affairs. Such
participation is subject to the rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares and any other shares having priority over the Common Shares.

Exchangeable Shares

Rights of Exchangeable Shares

Each Exchangeable Share has economic rights (including the right to have the Exchange Ratio
adjusted to account for distributions paid to Unitholders) and voting attributes (through the
benefit of the Special Voting Units granted to the Voting and Exchange Trust Agreement Trustee)
equivalent to those of the Trust Units. In addition, holders of Exchangeable Shares have the right
to receive Trust Units at any time in exchange for their Exchangeable Shares, on the basis of the
Exchange Ratio in effect at the time of the exchange. Fractional Trust Units will not be delivered
on any exchange of Exchangeable Shares. In the event that the Exchange Ratio in effect at the time
of an exchange would otherwise entitle a holder of Exchangeable Shares to a fractional Trust Unit,
the number of Trust Units to be delivered will be rounded to the nearest whole number of Trust
Units. Holders of Exchangeable Shares do not receive cash distributions from the Trust or the
Corporation. Rather, the Exchange Ratio is adjusted to account for distributions paid to
Unitholders. The Exchangeable Shares are not to be listed on any stock exchange. An aggregate of
2,424,415 Exchangeable Shares were issued pursuant to the Esprit Arrangement. As at December 31,
2005, an aggregate of 466,918 Exchangeable Shares were issued and outstanding which, as at such
date, were exchangeable for an aggregate of 545,148 Trust Units.

 

32

Ranking

The Exchangeable Shares shall be entitled to a preference over the Common Shares and any other
shares ranking junior to the Exchangeable Shares with respect to the payment of dividends and the
distribution of assets in the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding up its affairs; provided that
notwithstanding such ranking the Corporation shall not be restricted in any way from repaying
indebtedness of the Corporation to the Trust from time to time.

Dividends

The holders of Exchangeable Shares, in priority to the Common Shares and any class of shares of the
Corporation ranking junior to the Exchangeable Shares with respect to the payment of dividends,
shall be entitled to receive, and the Corporation shall pay on each Exchangeable Share, if, as and
when declared by the Board of Directors in its sole discretion from time to time out of the money,
assets or property of the Corporation properly applicable to the payment of dividends, cumulative
preferential cash dividends. Such dividends, whether or not declared, shall accrue and shall be
cumulative from the effective date of the dividend.

Certain Restrictions

So long as any of the Exchangeable Shares are outstanding, the Corporation will not, without
obtaining the approval of the holders of the Exchangeable Shares as set forth below under
“Amendment and Approval”:

	(a)	 	pay any dividends on the Common Shares or any other shares ranking junior to the Exchangeable
Shares, other than stock dividends payable in Common Shares or any other shares ranking junior
to the Exchangeable Shares;

	(b)	 	redeem or purchase or make any capital distribution in respect of the Common Shares or any
other shares ranking junior to the Exchangeable Shares;

	(c)	 	redeem or purchase any other shares of the Corporation ranking equally with the Exchangeable
Shares with respect to the payment of dividends or on any liquidation distribution; or

	(d)	 	issue any shares, other than Exchangeable Shares or Common Shares, which rank superior to the
Exchangeable Shares with respect to the payment of dividends or on any liquidation
distribution.

The above restrictions shall not apply if all declared dividends on the outstanding Exchangeable
Shares have been paid in full.

Liquidation or Insolvency of the Corporation

In the event of the liquidation, dissolution or winding-up of the Corporation or any other
distribution of the assets of the Corporation among its shareholders for the purpose of winding up
its affairs, a holder of Exchangeable Shares will be entitled, subject to applicable law, to
receive from the Corporation, in respect of each such Exchangeable Share, an amount per share (the
“Liquidation Amount”) equal to the amount determined by multiplying the Exchange Ratio on the last
Business Day prior to the Liquidation Date by the Current Market Price of a Trust Unit, which
payment shall be satisfied by the Corporation delivering that number of Trust Units equal to the
Exchange Ratio as at the effective date of such event.

Upon the occurrence of such an event, the Trust and ExchangeCo will each have the overriding right
to purchase from all but not less than all of the holders of Exchangeable Shares (other than the
Trust or

 

33

ExchangeCo) all but not less than all of the Exchangeable Shares then outstanding on payment to
each holder of an amount per Exchangeable Share equal to the Liquidation Amount, to be satisfied by
the issuance or delivery, as the case may be, of that number of Trust Units equal to the Exchange
Ratio at such time and in accordance with the provisions governing the Exchangeable Shares, and
upon the exercise of this right, the holders thereof will be obligated to sell such Exchangeable
Shares to the Trust or ExchangeCo, as applicable. This right may be exercised by either the Trust
or ExchangeCo.

Upon the occurrence of an Insolvency Event (as defined in the Voting and Exchange Trust Agreement),
the Voting and Exchange Trust Agreement Trustee on behalf of the holders of the Exchangeable Shares
will have the right to require the Trust or ExchangeCo to purchase any or all of the Exchangeable
Shares then outstanding and held by such holders at a purchase price per Exchangeable Share to be
determined by multiplying the current market price of a Trust Unit and the Exchange Ratio to be
satisfied by the issuance or delivery, as the case may be, of that number of Trust Units equal to
the Exchange Ratio at such time.

Automatic Exchange Right on Liquidation of the Trust

The Voting and Exchange Trust Agreement provides that in the event of a Trust Liquidation Event, as
described below, the Trust or ExchangeCo will be deemed to have purchased all outstanding
Exchangeable Shares and each holder of Exchangeable Shares will be deemed to have sold their
Exchangeable Shares prior to such Trust Liquidation Event at a purchase price per Exchangeable
Share to be determined by multiplying the Current Market Price of a Trust Unit and the Exchange
Ratio, to be satisfied by the issuance or delivery, as the case may be, of that number of Trust
Units equal to the Exchange Ratio at such time. “Trust Liquidation Event” means:

	(a)	 	any determination by the Trust to institute voluntary liquidation, dissolution or winding-up
proceedings in respect of the Trust or to effect any other distribution of assets of the Trust
among the Unitholders for the purpose of winding up its affairs; or

	(b)	 	the earlier of, the Trust receiving notice of and the Trust’s otherwise becoming aware of,
any threatened or instituted claim, suit, petition other proceedings with respect to the
involuntary liquidation, dissolution or winding up of the Trust or to effect any other
distribution of assets of the Trust among the Unitholders for the purpose of winding up its
affairs in each case where the Trust has failed to contest in good faith such proceeding
within 30 days of becoming aware thereof.

Retraction of Exchangeable Shares by Holders and Retraction Call Right

Subject to the Retraction Call Right of the Trust and ExchangeCo described below, a holder of
Exchangeable Shares will be entitled at any time to require the Corporation to redeem any or all of
the Exchangeable Shares held by such holder for a retraction price (the “Retraction Price”) per
Exchangeable Share equal to the amount determined by multiplying the Exchange Ratio on the last
Business Day prior to the date of retraction (the “Retraction Date”) by the Current Market Price of
a Trust Unit, which payment will be satisfied by the delivery of such number of Trust Units equal
to the Exchange Ratio. Fractional Trust Units will not be delivered. Any amount payable on
account of the Retraction Price that includes a fractional Trust Unit will be rounded to the
nearest whole number of Trust Units. Holders of the Exchangeable Shares may request redemption by
presenting and surrendering to the Corporation the certificate or certificates representing the
number of Exchangeable Shares the holder desires to have redeemed, together with a duly executed
retraction request, a residency declaration and such other documents as may be reasonably required
to effect the redemption of the Exchangeable Shares. Subject to extension as described below, the
redemption will become effective on the Retraction Date.

 

34

When a holder requests the Corporation to redeem the Exchangeable Shares, the Trust and ExchangeCo
will have an overriding right (the “Retraction Call Right”) to purchase on the Retraction Date all
but not less than all of the Exchangeable Shares that the holder has requested the Corporation to
redeem at a purchase price per Exchangeable Share equal to the Retraction Price, to be satisfied by
the delivery of that number of Trust Units equal to the Exchange Ratio at such time. At the time
of a Retraction Request by a holder of Exchangeable Shares, the Corporation will immediately notify
the Trust and ExchangeCo. The Trust or ExchangeCo must then advise the Corporation as to whether
the Retraction Call Right will be exercised. A holder may revoke his or her Retraction Request at
any time prior to the close of business on the last business day immediately preceding the
Retraction Date, in which case the holder’s Exchangeable Shares will neither be purchased by the
Trust or ExchangeCo nor be redeemed by the Corporation. If the holder does not revoke his or her
Retraction Request, the Exchangeable Shares that the holder has requested the Corporation to redeem
will on the Retraction Date be purchased by the Trust or ExchangeCo or redeemed by the Corporation,
as the case may be, in each case at a purchase price per Exchangeable Share equal to the Retraction
Price. In addition, a holder of Exchangeable Shares may elect to instruct the Voting and Exchange
Trust Agreement Trustee to exercise the optional exchange right (the “Exchange Right”) to require
the Trust or ExchangeCo to acquire such holder’s Exchangeable Shares in circumstances where neither
the Trust nor ExchangeCo have exercised the Retraction Call Right. See “Voting and Exchange Trust
Agreement - Exchange Right”.

The Retraction Call Right may be exercised by either the Trust or ExchangeCo. If, as a result of
solvency provisions of applicable law, the Corporation is not permitted to redeem all Exchangeable
Shares tendered by a retracting holder, the Corporation will redeem only those Exchangeable Shares
tendered by the holder as would not be contrary to such provisions of applicable law. The holder
of any Exchangeable Shares not redeemed by the Corporation will be deemed to have required the
Trust or ExchangeCo to purchase such unretracted Exchangeable Shares in exchange for Trust Units on
the Retraction Date pursuant to the Exchange Right. See “Voting and Exchange Trust Agreement -
Exchange Right”.

Redemption of Exchangeable Shares

Subject to applicable law and the Redemption Call Right of the Trust and ExchangeCo, the
Corporation:

	(a)	 	will, on October 1, 2007, subject to extension of such date by the board of directors of the
Corporation (the “Automatic Redemption Date”), redeem all but not less than all of the then
outstanding Exchangeable Shares for a redemption price per Exchangeable Share equal to the
value of that number of Trust Units equal to the Exchange Ratio as at the last Business Day
prior to that Redemption Date (as that term is defined below) (the “Redemption Price”), to be
satisfied by the delivery of such number of Trust Units;

	(b)	 	may, on October 1, 2006 (the “Optional Redemption Date”), redeem all but not less than all
outstanding Exchangeable Shares for the Redemption Price per Exchangeable Share at the last
Business Day prior to that Redemption Date (as that term is defined below), to be satisfied by
the delivery of Trust Units;

	(c)	 	may, on any date that is within the first 90 days of any calendar year commencing in 2006
(the “Annual Redemption Date”), redeem up to that number of Exchangeable Shares equal to 25%
of the Exchangeable Shares outstanding on the effective date of the Arrangement for the
Redemption Price per Exchangeable Share at the last Business Day prior to that Redemption Date
(as that term is defined below), to be satisfied by the delivery of Trust Units; and

	(d)	 	may, on any date when the aggregate number of issued and outstanding Exchangeable Shares is
less than 423,000 (other than Exchangeable Shares held by the Trust and its subsidiaries as
such shares may be adjusted from time to time) (the “De Minimus Redemption Date” and,
collectively

 

35

	 	 	with the Automatic Redemption Date, Optional Redemption Date and Annual Redemption Date, a
“Redemption Date”), redeem all but not less than all of the then outstanding Exchangeable
Shares for the Redemption Price per Exchangeable Share.

The Corporation will, at least 45 days prior to any Redemption Date, provide the registered holders
of the Exchangeable Shares with written notice of the prospective redemption of the Exchangeable
Shares by the Corporation.

The Trust and ExchangeCo will have the right (the “Redemption Call Right”), notwithstanding a
proposed redemption of the Exchangeable Shares by the Corporation on the applicable Redemption
Date, pursuant to the terms of the Exchangeable Shares, to purchase on any Redemption Date all but
not less than all of the Exchangeable Shares then outstanding (other than Exchangeable Shares held
by the Trust or its subsidiaries) in exchange for the Redemption Price per Exchangeable Share and,
upon the exercise of the Redemption Call Right, the holders of all of the then outstanding
Exchangeable Shares will be obliged to sell all such shares to the Trust or ExchangeCo, as
applicable. If either the Trust or ExchangeCo exercise the Redemption Call Right, then the
Corporation’s right to redeem the Exchangeable Shares on the applicable Redemption Date will
terminate. The Redemption Call Right may be exercised by either the Trust or ExchangeCo.

Voting Rights

Except as required by applicable law, the holders of the Exchangeable Shares are not entitled as
such to receive notice of or attend any meeting of the shareholders of the Corporation or to vote
at any such meeting. Holders of Exchangeable Shares will have the notice and voting rights
respecting meetings of the Trust that are provided in the Voting and Exchange Trust Agreement. See
“Voting and Exchange Trust Agreement - Voting Rights”.

Amendment and Approval

The rights, privileges, restrictions and conditions attaching to the Exchangeable Shares may be
added to, changed or amended only with the approval of the holders thereof. Any such approval or
any other approval or consent to be given by the holders of the Exchangeable Shares will be
sufficiently given if given in accordance with applicable law and subject to a minimum requirement
that such approval or consent be evidenced by a resolution passed by not less than two-thirds of
the votes cast thereon (other than shares beneficially owned by the Trust, ExchangeCo or any of
their subsidiaries and affiliates) at a meeting of the holders of the Exchangeable Shares duly
called and held at which holders of at least 10% of the then outstanding Exchangeable Shares (other
than Exchangeable Shares held by Trust, ExchangeCo or any of their subsidiaries and affiliates) are
present in person or represented by proxy. In the event that no such quorum is present at such
meeting within one-half hour after the time appointed therefor, then the meeting will be adjourned
to such place and time (not less than ten days later) as may be determined at the original meeting
and the holders of Exchangeable Shares present in person or represented by proxy at the adjourned
meeting will constitute a quorum thereat and may transact the business for which the meeting was
originally called. At the adjourned meeting, a resolution passed by the affirmative vote of not
less than two-thirds of the votes cast thereon (other than shares beneficially owned by the Trust,
ExchangeCo or any of their subsidiaries and affiliates) will constitute the approval or consent of
the holders of the Exchangeable Shares.

Actions by the Corporation under the Support Agreement

Pursuant to the terms of the Exchangeable Shares and the Support Agreement, the Corporation has
agreed to take all such actions and do all such things as are necessary or advisable to perform and
comply with its obligations under, and to ensure the performance and compliance by the Trust and
ExchangeCo with their obligations under the Support Agreement.

 

36

Non-Resident and Tax-Exempt Holders

Exchangeable Shares were not issued to persons who were Non-Residents or who were exempt from tax
under Part I of the Tax Act. The obligation of the Corporation, the Trust or ExchangeCo to deliver
Trust Units to a Non-Resident holder in respect of the exchange of such holder’s Exchangeable
Shares may be satisfied by delivering such Trust Units to the transfer agent who shall sell such
Trust Units on the stock exchange on which they are listed and deliver the proceeds of sale to the
Non-Resident holder.

VOTING AND EXCHANGE TRUST AGREEMENT

Voting Rights

In accordance with the Voting and Exchange Trust Agreement, the Trust has issued a Special Voting
Unit to the Voting and Exchange Trust Agreement Trustee for the benefit of the holders (other than
the Trust and ExchangeCo) of the Exchangeable Shares. The Special Voting Unit carries a number of
votes, exercisable at any meeting at which Unitholders are entitled to vote, equal to the number of
Trust Units (rounded to the nearest whole number) into which the Exchangeable Shares are then
exchangeable multiplied by the number of votes to which the holder of one Trust Unit is then
entitled. With respect to any written consent sought from the Unitholders, each vote attached to
the Special Voting Unit will be exercisable in the same manner as set forth above.

Each holder of an Exchangeable Share on the record date for any meeting at which Unitholders are
entitled to vote will be entitled to instruct the Voting and Exchange Trust Agreement Trustee to
exercise that number of votes attached to the Special Voting Unit which relate to the Exchangeable
Shares held by such holder. The Voting and Exchange Trust Agreement Trustee will exercise each
vote attached to the Special Voting Unit only as directed by the relevant holder and, in the
absence of instructions from a holder as to voting, will not exercise such votes.

The Voting and Exchange Trust Agreement Trustee will send to the holders of the Exchangeable Shares
a copy of the notice of each meeting at which the Unitholders are entitled to vote, together with
the related meeting materials and a statement as to the manner in which the holder may instruct the
Voting and Exchange Trust Agreement Trustee to exercise the votes attaching to the Special Voting
Unit, at the same time as the Trust sends such notice and materials to the Unitholders. The Voting
and Exchange Trust Agreement Trustee will also send to the holders copies of all information
statements, interim and annual financial statements, reports and other materials sent by the Trust
to the Unitholders at the same time as such materials are sent to the Unitholders. To the extent
such materials are provided to the Voting and Exchange Trust Agreement Trustee by the Trust, the
Voting and Exchange Trust Agreement Trustee will also send to the holders all materials sent by
third parties to Unitholders, including dissident proxy circulars and tender and exchange offer
circulars, as soon as possible after such materials are first sent to Unitholders.

All rights of a holder of Exchangeable Shares to exercise votes attached to the Special Voting Unit
will cease upon the exchange of all such holder’s Exchangeable Shares. With the exception of
changes for the purpose of adding covenants for the protection of the holders of the Exchangeable
Shares, making necessary amendments or curing ambiguities or clerical errors (in each case provided
that the board of directors of ExchangeCo and The Corporation are of the opinion that such
amendments are not prejudicial to the interests of the holders of the Exchangeable Shares), the
Voting and Exchange Trust Agreement may not be amended without the approval of the holders of the
Exchangeable Shares.

Exchange Right

Upon the occurrence and during the continuance of:

 

37

	(a)	 	an Insolvency Event; or
	 
	(b)	 	circumstances in which the Trust or ExchangeCo may exercise a Call Right, but elect not to
exercise such Call Right;

a holder of Exchangeable Shares will be entitled to instruct the Trustee to exercise the Exchange
Right with respect to any or all of the Exchangeable Shares held by such holder, thereby requiring
the Trust or ExchangeCo to purchase such Exchangeable Shares from the holder. Immediately upon the
occurrence of (i) an Insolvency Event, (ii) any event which will, with the passage of time or the
giving of notice, become an Insolvency Event, or (iii) the election by the Trust and ExchangeCo not
to exercise a Call Right which is then exercisable by the Trust and ExchangeCo, the Corporation,
the Trust or ExchangeCo will give notice thereof to the Trustee. As soon as practicable
thereafter, the Trustee will then notify each affected holder of Exchangeable Shares (who has not
already provided instructions respecting the exercise of the Exchange Right) of such event or
potential event and will advise such holder of its rights with respect to the Exchange Right.

The purchase price payable by the Trust or ExchangeCo for each Exchangeable Share to be purchased
under the Exchange Right will be satisfied by the issuance of that number of Trust Units equal to
the Exchange Ratio as at last business day prior to the day of closing of the purchase and sale of
such Exchangeable Share under the Exchange Right (the “Exchange Price”).

If, as a result of solvency provisions of applicable law, the Corporation is unable to redeem all
of a holder’s Exchangeable Shares which such holder is entitled to have redeemed in accordance with
the Exchangeable Share Provisions, the holder will be deemed to have exercised the Exchange Right
with respect to the unredeemed Exchangeable Shares and the Trust or ExchangeCo will be required to
purchase such shares from the holder in the manner set forth above.

SUPPORT AGREEMENT

The Trust Support Obligation

Pursuant to the Support Agreement:

	(a)	 	the Trust will take all such actions and do all such things as are necessary or desirable to
enable and permit the Corporation, in accordance with applicable law, to pay to the holders of
the Exchangeable Shares the Liquidation Amount in the event of a liquidation, dissolution or
winding-up of the Corporation, the Retraction Price in the event of the giving of a Retraction
Request by a holder of Exchangeable Shares, or the Redemption Price in the event of a
redemption of Exchangeable Shares by the Corporation; and
	 
	(b)	 	the Trust will not vote or otherwise take any action or omit to take any action causing the
liquidation, dissolution or winding-up of the Corporation.

The Support Agreement also provides that the Trust will not:

	(a)	 	issue or distribute additional Trust Units (or securities exchangeable for or convertible
into or carrying rights to acquire Trust Units) to the holders of all or substantially all of
the then outstanding Trust Units by way of stock distribution or other distribution, other
than an issue of Trust Units (or securities exchangeable for or convertible into or carrying
rights to acquire Trust Units) to holders of Trust Units who exercise an option or right to
receive distributions in Trust Units (or securities exchangeable for or convertible into or
carrying rights to acquire Trust Units); or

 

38

	(b)	 	issue or distribute rights, options or warrants to the holders of all or substantially all of
the then outstanding Trust Units entitling them to subscribe for or to purchase Trust Units
(or securities exchangeable for or convertible into or carrying rights to acquire Trust
Units); or
	 
	(c)	 	issue or distribute to the holders of all or substantially all of the then outstanding Trust
Units:

	 	(i)	 	securities of the Trust of any class other than Trust Units (other than
securities convertible into or exchangeable for or carrying rights to acquire Trust
Units); or
	 
	 	(ii)	 	rights, options or warrants other than those referred to above; or
	 
	 	(iii)	 	evidences of indebtedness of the Trust; or
	 
	 	(iv)	 	assets of the Trust other than distributions which result in an adjustment to
the Exchange Ratio; or

	(d)	 	subdivide, redivide or change the then outstanding Trust Units into a greater number of Trust
Units; or
	 
	(e)	 	reduce, combine or consolidate or change the then outstanding Trust Units into a lesser
number of Trust Units; or
	 
	(f)	 	reclassify or otherwise change the rights, privileges or other terms of the Trust Units or
effect an amalgamation, merger, reorganization or other transaction involving or affecting the
Trust Units;

unless

	(g)	 	the same or an economically equivalent change is simultaneously made to, or in the rights of
the holders of, the Exchangeable Shares; or
	 
	(h)	 	it has received the prior written approval of the Corporation and the holders of the
Exchangeable Shares.

In the event of any proposed take-over bid, issuer bid or similar transaction affecting the Trust
Units which is effected with the consent or approval of the trustees of the Trust or the
Corporation, the Trust will use reasonable efforts to take all actions necessary or desirable to
enable holders of Exchangeable Shares to participate in such transaction to the same extent and on
an economically equivalent basis as the Unitholders.

The Support Agreement also provides that, as long as any outstanding Exchangeable Shares are owned
by any person or entity other than the Trust, ExchangeCo or any of their respective subsidiaries
and other affiliates, the Trust will, unless approval to do otherwise is obtained from the holders
of Exchangeable Shares, remain the direct or indirect beneficial owner collectively of more than
50% of all of the issued and outstanding voting securities of the Corporation, provided that the
Trust will not be in violation of this obligation if a party acquires all or substantially all the
assets of the Trust. With the exception of changes for the purpose of adding covenants for the
protection of the holders of the Exchangeable Shares, making certain necessary amendments or curing
ambiguities or clerical errors (in each case provided that the board of directors of the
Corporation and the Board of Trustees are of the opinion that such amendments are not prejudicial
to the interests of the holders of the Exchangeable Shares), the Support Agreement may not be
amended without the approval of the holders of the Exchangeable Shares.

Under the Support Agreement, the Trust will not exercise any voting rights attached to the
Exchangeable Shares owned by it or any of its respective subsidiaries and other affiliates on any
matter considered at

 

39

meetings of holders of Exchangeable Shares (including any approval sought from such holders in
respect of matters arising under the Support Agreement).

Delivery of Trust Units

The Trust will make such filings and seek such regulatory consents and approvals as are necessary
so that the Trust Units issuable upon the exchange of Exchangeable Shares will be issued in
compliance with applicable securities laws in Canada and may be traded freely on the TSX or such
other exchange on which the Trust Units may be listed, quoted or posted for trading from time to
time.

NOTES

Terms of Notes

From time to time, the Corporation has issued notes to the Trust in connection with certain
acquisitions and other transactions undertaken by the Trust. The Notes are unsecured, payable on
demand and bear interest from the date of issue at rates between 0% and 11% per year. Interest is
due and payable for each month during the term of the Notes on the 10th day of the month following
such month. The Corporation is permitted to make payments against the principal amount of the
Notes outstanding from time to time without notice or bonus. Unless the Notes are called, the
Corporation is not required to make any payment in respect of principal until such notes are due,
subject to extension in the limited circumstances.

Ranking

The Notes are unsecured debt obligations of the Corporation and rank pari passu with all other
unsecured indebtedness of the Corporation, but subordinate to all secured debt.

Events of Default

The Notes provide that any of the following shall constitute an Event of Default: (i) default in
payment of the principal of the Notes when required; (ii) the failure to pay all of the interest
obligations on the Notes for a period of 90 days; (iii) if the Corporation has defaulted and a
demand for payment has been made under any material instrument, indenture or document evidencing
indebtedness in excess of specified amounts and the Corporation has failed to remedy such default
within applicable curative periods; (iv) certain events of winding-up, liquidation, bankruptcy,
insolvency, receivership or seizure; (v) default in the observance or performance of any other
covenant or condition of applicable to a Note and continuance of such default for an applicable
period after notice in writing has been given to the Corporation specifying such default and
requiring the Corporation to rectify the same; (vi) the Corporation ceasing to carry on its
business; and (vii) material default by the Corporation under material agreements if property
having a fair market value in excess of specified amounts is liable to forfeiture or termination.

NPI AGREEMENT

The Corporation and the Trust have entered into the NPI Agreement, pursuant to which the
Corporation granted and set over to the Trust the NPI, being the right to receive certain payments
in respect of petroleum and natural gas rights held by the Corporation from time to time. As
consideration for the granting of the NPI, in addition to all amounts previously paid by the Trust
to the Corporation, the Trust shall pay the Corporation an amount (the “Deferred Purchase Price
Obligation”) equal to (a) the portion of acquisition costs (“Future Acquisition Costs”) for
petroleum and natural gas rights and related tangibles and miscellaneous interests beneficially
owned by the Corporation from time to time (“Property Interests”) acquired after the date of the
NPI Agreement which are attributable to “Canadian Resource Property” (as defined in the Tax Act)
payable at the time of incurring such Future Acquisition Costs, plus (b) drilling, completion,
equipping and other costs (“Capital Expenditures”) in respect of the Property

 

40

Interests payable at the time of incurring such Capital Expenditures, plus (c) the portion of
indebtedness incurred in respect of such Future Acquisition Costs and Capital Expenditures payable
at the time of satisfaction by the Corporation of such indebtedness. In addition, the Trust will
pay over to the Corporation, to satisfy the Deferred Purchase Price Obligation, the net proceeds of
any issue of Trust Units or the proceeds from the disposition of the NPI on any petroleum and
natural gas rights held by the Corporation. The Trust shall not be obligated to pay an amount as a
Deferred Purchase Price Obligation except to the extent the Trust has such proceeds available.

Pursuant to the terms of the NPI Agreement, the Trust shall be entitled to a payment from the
Corporation for each month equal to the amount by which ninety-nine (99%) percent of the gross
proceeds from the sale of production attributable to the Property Interests for such month (the
“NPI Revenues”) exceed ninety-nine (99%) percent of certain deductible production costs for such
period. The Corporation may acquire and fund additional Property Interests from residual revenues,
the Deferred Purchase Price Obligation, borrowings or from its working capital.

If the Corporation wishes to dispose of any Property Interests which will result in proceeds in
excess of a threshold amount, the Board of Directors shall approve such disposition, however, if
the asset value (calculated in accordance with the terms of the NPI Agreement) of any interests
included in such disposition is greater than a threshold percentage of the asset value of all the
Property Interests held by the Corporation, such disposition must be approved by a Special
Resolution. The term of the NPI Agreement will be for so long as there are petroleum and natural
gas rights to which the NPI applies.

MARKET FOR THE TRUST’S SECURITIES

Subsequent to the Reclassification, the Trust Units are listed and posted for trading on the TSX
under the trading symbol “EEE.UN”. The following tables set forth the market price ranges and the
aggregate volume of trading of the Class A Trust Units and Class B Trust Units on the TSX for the
period during 2005 prior to the Reclassification, and for the Trust Units for the period subsequent
to the Reclassification:

Class A Trust Units

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	High	 	Low	 	Close	 	Volume
	Period	 	($)	 	($)	 	($)	 	(Class A Trust Units)
	2005
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	January
	 	 	12.65	 	 	 	11.98	 	 	 	12.55	 	 	 	1,361,506	 
	February
	 	 	13.40	 	 	 	12.42	 	 	 	13.33	 	 	 	3,783,978	 
	March
	 	 	13.51	 	 	 	11.90	 	 	 	12.48	 	 	 	1,080,776	 
	April
	 	 	12.79	 	 	 	11.25	 	 	 	11.31	 	 	 	775,754	 
	May
	 	 	12.01	 	 	 	10.95	 	 	 	11.95	 	 	 	2,278,311	 
	June
	 	 	12.39	 	 	 	11.69	 	 	 	11.91	 	 	 	3,084,573	 
	July
	 	 	11.95	 	 	 	11.86	 	 	 	11.94	 	 	 	11,240	 

Class B Trust Units

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	High	 	Low	 	Close	 	Volume
	Period	 	($)	 	($)	 	($)	 	(Class B Trust Units)
	2005
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	January
	 	 	12.66	 	 	 	12.10	 	 	 	12.55	 	 	 	3,128,926	 
	February
	 	 	13.39	 	 	 	12.40	 	 	 	13.33	 	 	 	7,818,543	 
	March
	 	 	13.45	 	 	 	11.95	 	 	 	12.45	 	 	 	2,778,903	 
	April
	 	 	12.69	 	 	 	11.40	 	 	 	11.51	 	 	 	2,692,973	 

 

41

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	High	 	Low	 	Close	 	Volume
	Period	 	($)	 	($)	 	($)	 	(Class B Trust Units)
	May
	 	 	12.00	 	 	 	10.86	 	 	 	11.88	 	 	 	5,503,375	 
	June
	 	 	12.05	 	 	 	11.66	 	 	 	11.94	 	 	 	5,242,607	 
	July
	 	 	12.00	 	 	 	11.85	 	 	 	12.00	 	 	 	103,925	 

Trust Units

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	High	 	Low	 	Close	 	Volume
	Period	 	($)	 	($)	 	($)	 	(Trust Units)
	2005
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	July
	 	 	13.20	 	 	 	11.86	 	 	 	13.20	 	 	 	7,559,316	 
	August
	 	 	14.78	 	 	 	13.22	 	 	 	14.56	 	 	 	7,699,205	 
	September
	 	 	15.66	 	 	 	14.28	 	 	 	14.49	 	 	 	12,075,940	 
	October
	 	 	14.80	 	 	 	11.90	 	 	 	12.60	 	 	 	8,319,960	 
	November
	 	 	13.40	 	 	 	11.85	 	 	 	12.40	 	 	 	6,387,447	 
	December
	 	 	13.46	 	 	 	12.21	 	 	 	13.46	 	 	 	9,238,721	 

The Debentures are listed and posted for trading on the TSX under the trading symbols
“EEE.DB”. The following table sets forth the market price ranges and the aggregate volume of
trading of the Debentures for the period during 2005 subsequent to their issuance:

Debentures

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	High	 	Low	 	Close	 	Volume
	Period	 	($)	 	($)	 	($)	 	($)
	2005
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	July
	 	 	102.75	 	 	 	101.05	 	 	 	102.12	 	 	 	18,094,969.30	 
	August
	 	 	107.50	 	 	 	102.26	 	 	 	107.50	 	 	 	18,427,755.60	 
	September
	 	 	113.75	 	 	 	106.25	 	 	 	107.50	 	 	 	19,149,197.90	 
	October
	 	 	108.00	 	 	 	102.99	 	 	 	104.55	 	 	 	4,692,742.10	 
	November
	 	 	105.00	 	 	 	100.50	 	 	 	103.00	 	 	 	6,374,907.60	 
	December
	 	 	105.32	 	 	 	102.25	 	 	 	105.32	 	 	 	4,295,881.10	 

TRUSTEES, DIRECTORS AND OFFICERS

Trustees of the Trust and Directors and Officers of the Corporation

The name, municipality of residence, principal occupation for the prior five years, and position of
each of the Trustees of the Trust and the directors and officers of the Corporation are as follows:

	 	 	 	 	 
	Name and Municipality	 	Position with the	 	 
	of Residence	 	Trust and the Corporation	 	Principal Occupation
	D. Michael G. Stewart

Calgary, Alberta

	 	Chairman of the Boards of
Trustees (since August 2004)

Chairman of the Board of
Directors (Director since May
2002, Chairman since October
2004)
	 	Principal,
Ballinaccura Group
of investment
companies since
March 2002; prior
thereto, a number
of senior executive
positions with
Westcoast Energy
Inc.

 

42

	 	 	 	 	 
	Name and Municipality	 	Position with the	 	 
	of Residence	 	Trust and the Corporation	 	Principal Occupation
	Donald R. Gardner

Calgary, Alberta

	 	Trustee (since August 2004)

Director (from March 2000 to
December 2001, and
subsequently since May 2002)
	 	Chief Financial
Officer, Canadian
Spirit Resources
Inc. (oil and gas
company) since
January 2003; prior
thereto Management
Consultant since
May 2002; prior
thereto, Executive
Vice President,
Chief Financial
Officer and
Secretary (or
predecessor
positions) of
Esprit Exploration
Ltd. from December
1999 to May 2002.
	 
	 	 	 	 
	Douglas W. Palmer

Calgary, Alberta

	 	Trustee (since February 2005)

Director (since February 2005)
	 	Member of Board of
Trustees of Calpine
Natural Gas Trust
from 2003 to
February 2005;
prior thereto,
Chief Executive
Officer of Numac
Energy Ltd. from
1998 to 2001.
	 
	 	 	 	 
	John E. Panneton

Toronto, Ontario

	 	Trustee (since August 2004)

Director (since 1998)
	 	President of
Goodman Private
Wealth Management
since July 2003,
and Vice Chairman
and a director (or
predecessor
positions) of
Dundee Securities
Corporation
(securities dealer)
since May 1998.
	 
	 	 	 	 
	W. Mark Schweitzer

Calgary, Alberta

	 	Trustee (since February 2005)

Director (since February 2005)
	 	Executive
Vice-President and
Chief Financial
Officer of Superior
Plus Inc., the
wholly owned
subsidiary of
Superior Plus
Income Fund since
1996.
	 
	 	 	 	 
	Eric L. Schwitzer

Vancouver, British Columbia

	 	Trustee (since August 2004)

Director (since October 2004)
	 	Managing Partner,
Enterprise Capital
Management Inc.
(investment
management company)
since June 2003;
from June 2002 to
May 2003, a
consultant and
corporate director;
prior thereto,
Senior Vice
President,
Strategic
Development,
Westcoast Energy
Inc. (energy
services company).
	 
	 	 	 	 
	Stephen J. Savidant

Calgary, Alberta

	 	Trustee (since August 2004)

Director (since May 2002)

President and Chief Executive Officer
	 	President and Chief
Executive Officer
of Esprit
Exploration Ltd.
since May 2002;
prior thereto,
Investor since
December 2001;
prior thereto,
President and Chief
Executive Officer
of Canadian Hunter
Exploration Ltd.
(oil and gas
company) since June
1998; prior thereto
President and Chief
Operating Officer
of Canadian Hunter
Exploration Ltd.
since 1996.
	 
	 	 	 	 
	Stephen B. Soules

Calgary, Alberta

	 	Trustee (since August 2004)

Director (since October 2004)

Executive Vice President

and Chief Financial Officer
	 	Executive Vice
President and Chief
Financial Officer
of Esprit
Exploration Ltd.
since October,
2004; prior
thereto, Senior
Vice President and
Chief Financial
Officer of Esprit
Exploration Ltd.
from May, 2002 to
October, 2004;
prior thereto,
Investor since
February, 2002;
prior thereto,
Advisor to
Burlington
Resources Canada
Ltd. (oil and gas
company) since
December, 2001;
prior thereto,
Chief Financial
Officer of Canadian
Hunter Exploration
Ltd. (oil and gas
company) since
April 1997.

 

43

	 	 	 	 	 
	Name and Municipality	 	Position with the	 	 
	of Residence	 	Trust and the Corporation	 	Principal Occupation
	Paul B. Myers

Calgary, Alberta

	 	Executive Vice President and

Chief Operating Officer
	 	Executive Vice
President and Chief
Operating Officer
of Esprit
Exploration Ltd.
since September
2005; prior thereto
investor since June
2005; prior thereto
Vice President,
Gulf of Mexico and
Alaska of EnCana
Corporation (or
predecessor
positions) since
September 2000.
	 
	 	 	 	 
	Gregory A. Jerome

Calgary, Alberta

	 	Vice President, Finance

and Corporate Secretary
	 	Vice President,
Finance and
Corporate Secretary
of Esprit
Exploration Ltd.
since October,
2004; prior
thereto, Treasurer
and Corporate
Secretary with
Esprit Exploration
Ltd. from February
2003 to October,
2004; prior thereto
Treasurer or
predecessor
positions with
Esprit Exploration
Ltd. since May,
1999.
	 
	 	 	 	 
	Patrick C. Connors

Calgary, Alberta

	 	Vice President, Operations

and Field Services
	 	Vice President,
Operations and
Field Services of
Esprit Exploration
Ltd. since October
2004; prior
thereto, General
Manager, Drilling
and Field
Operations of
Esprit Exploration
Ltd. from September
2001 to October,
2004; prior
thereto, Business
Unit Drilling
Manager of AEC Oil
& Gas (oil and gas
company) since May
2000.
	 
	 	 	 	 
	Michael J. St. Clair

Calgary, Alberta

	 	Vice President, Risk

Management and Marketing
	 	Vice President,
Risk Management and
Marketing of Esprit
Exploration Ltd.
since October,
2004; prior
thereto, Manager,
Marketing of Esprit
Exploration Ltd.
from July 2002 to
October, 2004;
prior thereto,
Manager, Marketing
and Trading of
Canadian Hunter
Exploration Ltd.
(oil and gas
company).

All Trustees of the Trust are also members of the Board of Directors of the Corporation. The
Board of Trustees has one committee, the Audit Committee, comprised of Messrs. Schweitzer
(Chairman), Gardner, Palmer and Schwitzer. The Board of Directors has one committee, the Human
Resources and Corporate Governance Committee, comprised of Messrs. Panneton (Chairman), Gardner,
Palmer and Schwitzer. Mr. Stewart, as Chairman of the Board of Trustees and Board of Directors is
ex officio a member of both committees. The Board of Directors of the Corporation as a whole
considers issues relating to oil and gas reserves and environmental, health and safety issues.

As at March 15, 2006, the Trustees and the directors and executive officers of the Corporation as a
group beneficially owned, directly or indirectly, 214,720 Trust Units and 154,758 Exchangeable
Shares or approximately 0.3% of the issued and outstanding Trust Units and approximately 34% of the
issued and outstanding Exchangeable Shares. The information as to Trust Units beneficially owned,
not being within the knowledge of the Trust or the Corporation, has been furnished by the
respective individuals.

Certain directors of the Corporation are associated with other companies, which may give rise to
conflicts of interest. In accordance with the CBCA, directors who have an interest in a material
contract or a material transaction, whether made or proposed, with the Corporation are required,
subject to certain exceptions, to disclose the nature and extent of the interest. A director
required to disclose such interest shall abstain from voting on any resolution to approve the
contract or transaction, except as otherwise

 

44

permitted by the CBCA. In addition, each director is required to act honestly and in good faith
with a view to the best interests of the Corporation.

RISK FACTORS

The following is a summary of certain risk factors relating to the Trust and the activities of the
Corporation and the ownership of securities of the Trust or the Corporation.

Nature of Trust Units

The Trust Units do not represent a traditional investment in the oil and natural gas sector and
should not be viewed by investors as shares in the Corporation. The Trust Units represent a
fractional interest in the Trust. The Trust’s sole assets are its shares in the Corporation, the
Notes and the NPI Agreement. The price per Trust Unit is a function of anticipated Distributable
Cash, the underlying assets of the Trust and management’s ability to effect long-term growth in the
value of the Trust. The market price of the Trust Units is sensitive to a variety of market
conditions including, but not limited to, commodity prices, interest rates and the ability of the
Trust to acquire suitable oil and natural gas properties on a profitable basis. Changes in market
conditions may adversely affect the trading price of the Trust Units.

One of the factors that may influence the market price of Trust Units is the level of prevailing
interest rates relative to the yield achieved by holders of Trust Units based on annual
distributions thereon. Accordingly, an increase in market interest rates may lead purchasers of
Trust Units to expect a higher effective yield, which could adversely affect the market price of
Trust Units. In addition, the market price for Trust Units may be affected by changes in general
market conditions, fluctuations in the markets for equity and debt securities, interest rates and
numerous other factors beyond the Trust’s control.

As the Trust is not a corporation, holders of Trust Units do not have the statutory rights normally
associated with the ownership of shares of a corporation including, for example, the right to bring
“oppression” or “derivative” actions and statutory rights of “dissent” available pursuant to
corporate statutes. In addition, the benefits of certain statutes applicable to corporations, such
as the Companies’ Creditors Arrangement Act (Canada), may not be applicable to the Trust.

The Trust Units are not “deposits” within the meaning of the Canada Deposit Insurance Corporation
Act (Canada) and are not insured under the provisions of that Act or any other legislation.
Furthermore, the Trust is not a trust company and, accordingly, is not registered under any trust
and loan company legislation as it does not carry on or intend to carry on the business of a trust
company.

Exchangeable Shares

Holding Exchangeable Shares should be considered speculative due to the fact that adjustments to
the Exchange Ratio are made assuming reinvestment of distributions or dividends, as applicable, at
the prevailing market price of a Trust Unit at the time at which any such distributions are made on
the Trust Units or any such dividends are paid on the Exchangeable Shares. As a result, the
cumulative return on an investment in Exchangeable Shares may be higher or lower than that on an
investment in Trust Units over a comparable period.

Post-Arrangement Entitlements

Holders of Post-Arrangement Entitlements do not receive distributions on, nor do distributions
accrue on, such Post-Arrangement Entitlements. Therefore, the longer a holder of Post-Arrangement
Entitlements refrains from contacting the Transfer Agent of the Trust to obtain Trust Units, the
greater economic return such holder foregoes.

 

45

Loss of Mutual Fund Trust Status

If the Trust ceases to qualify as a mutual fund trust, the Trust Units will cease to be qualified
investments for RRSPs, RRIFs, DPSPs and RESPs (“Exempt Plans”) which will have adverse tax
consequences to Exempt Plans or their annuitants or beneficiaries. Notes or Redemption Notes
acquired on a redemption of Trust Units may not be qualified investments for Exempt Plans.

Sale of Additional Trust Units

The Trust may issue an unlimited number of additional Trust Units in the future to finance its
activities without the approval of Unitholders. The Board of Trustees has the discretion to set
the price and terms of the issuance of any such additional Trust Units and any such issuance may
have a dilutive effect on the holders of Trust Units.

Unitholder Limited Liability

The Trust Indenture provides that no Unitholder will be subject to any liability in connection with
the Trust or its obligations and affairs and, in the event that a court determines Unitholders are
subject to any such liabilities, the liabilities will be enforceable only against, and will be
satisfied only out of the Trust’s assets. Pursuant to the Trust Indenture, the Trust will
indemnify and hold harmless each Unitholder from any costs, damages, liabilities, expenses, charges
and losses suffered by a Unitholder resulting from or arising out of such Unitholder not having
such limited liability.

The Trust Indenture provides that all written instruments signed by or on behalf of the Trust must
contain a provision to the effect that such obligation will not be binding upon Unitholders
personally. Personal liability may also arise in respect of claims against the Trust that do not
arise under contracts, including claims in tort, claims for taxes and possibly certain other
statutory liabilities. The possibility of any personal liability of this nature arising is
considered unlikely.

The operations of the Trust will be conducted, upon the advice of counsel, in such a way and in
such jurisdictions as to avoid as far as possible any material risk of liability on the Unitholders
for claims against the Trust.

In addition, the Income Trust Liability Act (Alberta) was proclaimed in force in Alberta on July 1,
2004. The Income Trust Liability Act (Alberta) provides that the beneficiary of a trust that is
(a) created by a trust instrument governed by the laws of Alberta, and (b) a reporting issuer as
defined in the Securities Act (Alberta), is not liable as a beneficiary for any act, default,
obligation or liability of the trustee.

Redemption of Trust Units

The redemption right associated with Trust Units is not intended to be the primary mechanism for
Unitholders to dispose of their Trust Units. Notes which may be distributed in specie to
Unitholders in connection with a redemption will not be listed on any stock exchange and no market
is expected to develop in such Notes.

Dependence on the Corporation

The Trust is a limited purpose trust which is entirely dependent upon the operations and assets of
the Corporation through its ownership, directly and indirectly, of the Common Shares and the Notes
and the holding of the NPI. Accordingly, the Trust is dependent upon the ability of the
Corporation to meet its interest and principal repayment obligations under the Notes, its interest
and principal obligations under credit or debt facilities with banks and other financial
institutions and to make payments under the NPI.

 

46

Return of Capital

Trust Units will have no value when reserves from the underlying assets of the Trust can be no
longer economically produced. As a result, cash distributions do not represent a “yield” in the
traditional sense as they represent both return of capital and return on investment.

Reserve Estimates

The production forecasts and recoverable estimates contained in the GLJ Report are only estimates
and the actual production and ultimate recoverable reserves from the properties may be greater or
less than the independent estimates of GLJ.

Depletion of Reserves

The Trust has certain unique attributes which differentiate it from other oil and gas industry
participants. Future oil and gas production, and therefore Distributions of Distributable Cash,
are highly dependent upon success in exploiting the current reserves base and acquiring or
discovering additional reserves. Absent commodity price increases or cost effective acquisition
and development activities, Distributions of Distributable Cash will decline over time in a manner
consistent with declining production from typical oil, natural gas and natural gas liquids
reserves.

The business of discovering, developing, or acquiring reserves is capital intensive. To the extent
cash flows from operations are insufficient and external sources of capital, including the issuance
of additional Trust Units, become limited or unavailable, the ability of the Corporation to make
the necessary capital investments to maintain and expand its oil and natural gas reserves may be
impaired. Much of the Corporation’s cash flows are distributed to the Trust under the terms of the
NPI Agreement and the Notes, which reduces funds available to maintain or expand its oil and gas
reserves. Also, to the extent that the Corporation is required to use cash flow to finance capital
expenditures or property acquisitions, the level of Distributable Cash, all other factors remaining
equal, will be reduced.

The future oil and natural gas production of the Corporation, and therefore its cash flows, will be
highly dependent on its success in exploiting its reserve base and acquiring additional reserves.
There can be no assurance that the Corporation will be able to find and develop or acquire
additional reserves to replace production at acceptable costs.

Volatility of Oil and Natural Gas Prices

The Trust’s operational results and financial condition will be dependent on the prices received by
the Corporation for oil and natural gas production. Oil and natural gas prices have fluctuated
widely during recent years and are determined by supply and demand factors, including weather and
general economic conditions as well as conditions in other oil and natural gas regions. Any
decline in oil and natural gas prices could have an adverse effect on the operations, proved
reserves, and financial condition of the Corporation, including its ability to satisfy its
obligations under the Notes and on the amounts, if any, paid to the Trust under the NPI Agreement,
thereby decreasing the amount of Distributable Cash to be distributed to holders of Trust Units.

Changes in Legislation

There can be no assurance that income tax laws and government incentive programs relating to the
oil and gas industry, such as the status of mutual fund trusts, will not be changed in a manner
that adversely affects Unitholders.

 

47

Operational Matters

The operation of oil and gas wells involves many risks, which even a combination of experience,
knowledge and careful evaluation may not be able to overcome. These risks include, but are not
limited to, a number of operating and natural hazards which may result in blowouts, environmental
damage and other unexpected or dangerous conditions resulting in damage to the Corporation and
potentially including possible liability to third parties. Although the Corporation maintains
liability insurance, where available, in amounts consistent with customary industry standards
practice, it may not be fully insured against all of these risks. Business interruption insurance
may also be purchased for selected facilities, to the extent that such insurance is available. The
Corporation may become liable for damages arising from such events against which it cannot insure
or against which it may elect not to insure because of high premium costs or other reasons. Costs
incurred to repair such damage or pay such liabilities may impair the ability of the Corporation to
satisfy its obligations under the Notes or otherwise reduce the amount received by the Trust under
the NPI Agreement.

Continuing production from a property, and to some extent the marketing of production therefrom,
depend upon many factors, including the ability of the operator of the property. To the extent the
operator fails to perform these functions properly, revenue may be reduced. Payments from
production often flow through the operator and there is a risk of delay and additional expense in
receiving such revenues if the operator becomes insolvent. Although satisfactory title reviews are
generally conducted in accordance with industry standards, such reviews do not guarantee or certify
that a defect in the chain of title may not arise to defeat the claim of the Corporation or its
subsidiaries to certain properties. Any such circumstances could impair the ability of the
Corporation to satisfy its obligations under the Notes or otherwise reduce the amount received by
the Trust under the NPI Agreement.

Acquisition Risks

The Corporation intends to continue acquiring oil and natural gas properties. Although the
Corporation performs a review of the acquired properties that it believes is appropriate and
consistent with industry practices, it generally is not feasible to review in depth every
individual property involved in each acquisition. Ordinarily, the Corporation will focus its
review efforts on the higher-value properties and will sample the remainder. However, even a
detailed review of records and properties may not necessarily reveal every existing or potential
problem, nor will it permit a buyer to become sufficiently familiar with the properties to assess
fully their deficiencies and potential. Inspections may not always be performed on every well, and
environmental problems, such as ground water contamination, are not necessarily observable even
when an inspection is undertaken. Even when problems are identified, we often assume certain
environmental and other risks and liabilities in connection with acquired properties. There are
numerous uncertainties inherent in estimating quantities of proved and probable oil and gas
reserves and actual future production rates and associated costs with respect to acquired
properties, and actual results may vary substantially from those assumed in the estimates.

Possible Failure to Realize Anticipated Benefits of Previous and Future Acquisitions

The Corporation acquired each of Resolute, Markedon and Monroe in 2005 to strengthen its position
in the oil and natural gas industry and to create the opportunity to realize certain benefits
including, among other things, potential cost savings. Achieving the benefits of these
acquisitions and future acquisitions that the Trust may complete depends in part on successfully
consolidating functions and integrating operations, procedures and personnel in a timely and
efficient manner, as well as the Trust’s and the Corporation’s ability to realize the anticipated
growth opportunities and synergies from combining the acquired businesses and operations with those
of the Corporation. The integration of acquired businesses requires the dedication of substantial
management effort, time and resources which may divert management’s focus and resources from other
strategic opportunities and from operational matters during this process. The integration process
may result in the loss of key employees and the disruption of

 

48

ongoing business and employee relationships that may adversely affect the Trust’s ability to
achieve the anticipated benefits of these and future acquisitions.

Competition

There is strong competition relating to all aspects of the oil and natural gas industry. The
Corporation actively competes for capital, skilled personnel, undeveloped land, reserve
acquisitions, access to drilling rigs, service rigs and other equipment, access to processing
facilities and pipeline and refining capacity, and in all other aspects of its operations with a
substantial number of other organizations, many of which may have greater technical and financial
resources than the Trust and the Corporation.

Environmental Risks

The oil and natural industry is subject to environmental regulation pursuant to a variety of
international conventions and Canadian federal, provincial and municipal laws, regulations, and
guidelines. A breach of such regulation may result in the imposition of fines or issuances of
clean up orders in respect of the Corporation or its assets. Such regulation may be changed to
impose higher standards and potentially more costly obligations on the Corporation. There is no
assurance that future environmental costs will not have a material adverse effect on the ability of
the Corporation to satisfy its obligations under the Notes or otherwise reduce the amount received
by the Trust under the NPI Agreement.

Kyoto Protocol

In December 2002, the Canadian federal government ratified the Kyoto Protocol, which requires
Canada to reduce its greenhouse gas emissions to 6% below 1990 levels over the 2008-2012 period.
Although the Canadian government has not yet provided significant details on how it intends to meet
these reduction targets, the energy industry has been identified as one of the areas that will be
affected. Reductions in greenhouse gases from producers may be required, which could result in,
among other things, increased operating and capital expenditures for the Corporation.

Governmental Regulation

The oil and natural gas business is subject to regulation and intervention by governments in such
matters as the awarding of exploration and production interests, the imposition of specific
drilling obligations, environmental protection controls, control over the development and
abandonment of fields (including restrictions on production) and possibly expropriation or
cancellation of contract rights. As well, governments may regulate or intervene with respect to
prices, taxes, royalties and the exportation of oil and natural gas. Such regulation may be
changed from time to time in response to economic or political conditions. The implementation of
new regulations or the modification of existing regulations affecting the oil and natural gas
industry could reduce demand for oil and natural gas, increase our costs and have a material
adverse impact on the Corporation and the Trust.

Debt Obligations

The Trust and/or Corporation may, from time to time, finance a significant portion of our
operations through debt. Amounts paid in respect of interest and principal on debt incurred by the
Corporation may impair the ability of the Corporation to satisfy its obligations under the Notes or
otherwise reduce the amount received by the Trust under the NPI Agreement. Variations in interest
rates and scheduled principal repayments could result in significant changes in the amount required
to be applied to debt service before payment by the Corporation of its obligations under the Notes
or the NPI Agreement or the payment by the Trust of distributions to Unitholders. These factors
may directly or indirectly result in lower levels of current or future Distributable Cash for the
Trust. Further, the inability of the Trust or the

 

49

Corporation to refinance debt obligations as they become due may also affect the ability of the
Trust to make distributions of Distributable Cash to securityholders.

Lenders may be provided with security over all of the assets of the Corporation. If the
Corporation becomes unable to pay its debt service charges or otherwise commits an event of default
such as bankruptcy, a lender may foreclose on or sell the assets of the Corporation, which would
adversely affect securityholders.

Delay in Cash Distributions

In addition to the usual delays in payment by purchasers of oil and natural gas to the operators of
the properties, and by the operator to the Corporation, payments between any of such parties may
also be delayed by restrictions imposed by lenders, delays in the sale or delivery of products,
delays in the connection of wells to a gathering system, blowouts or other accidents or recovery by
the operator of expenses incurred in the operation of the properties.

Taxation of the Corporation

The Corporation is subject to taxation in each taxation year on its income for the year, after
deducting interest paid to the Trust pursuant to the Note Indenture and after deducting payments,
if any, made to the Trust with respect to the NPI Agreement. While Exchangeable Shares remain
outstanding, a portion of the cash flow from operations will be subject to tax to the extent that
there are not sufficient resource pool deductions, capital cost allowance or utilization of prior
years non-capital losses to reduce taxable income to zero. The Corporation intends to deduct, in
computing its income for tax purposes, the full amount available for deduction in each year
associated with the income tax resource pools, undepreciated capital cost (“UCC”) and noncapital
losses carried forward from Esprit Exploration Ltd., if any, plus resource pools and UCC created by
capital expenditures of the Corporation. If there are not sufficient resource pools, UCC and
non-capital losses carried forward to shelter the income of the Corporation, then cash taxes would
be payable by the Corporation. In addition, there can be no assurance that taxation authorities
will not seek to challenge the deductibility, for income tax purposes, of all or a portion of the
interest payable on the Notes. If such a challenge were to succeed against the Corporation, it
could materially adversely affect the amount of distributable cash available.

Further, interest on the Notes accrues at the Trust level for income tax purposes whether or not
actually paid. The Trust Indenture provides that an amount equal to the taxable income of the
Trust will be distributed each year to Unitholders in order to reduce the Trust’s taxable income to
zero. Where interest payments on the Notes are due but not paid in whole or in part, the Trust
Indenture provides that any additional amount necessary to be distributed to Unitholders may be
distributed in the form of Units rather than in cash. Unitholders will be required to include such
additional amount in income even though they do not receive a cash distribution.

Net Asset Value

The net asset value of the assets of the Trust from time to time will vary dependent upon a number
of factors beyond the control of management, including oil and gas prices. The trading prices of
the Trust Units from time to time will also be determined by a number of factors which are beyond
the control of management and such trading prices may be greater or less than the net asset value
of the Trust’s assets.

Residual Liabilities

Pursuant to the Arrangement, the Corporation is the result of the amalgamation of Esprit
Exploration Ltd. and Esprit Acquisition Corp. As a result, the Corporation has retained all
liabilities of Esprit Exploration

 

50

Ltd., including liabilities relating to corporate and income tax matters, not specifically
transferred to ProspEx Resources Ltd.

Stability Rating

The Trust does not have a stability rating and has no current plans to apply for a stability
rating.

INDUSTRY CONDITIONS

The oil and natural gas industry is subject to extensive controls and regulations governing its
operations (including land tenure, exploration, development, production, refining, transportation
and marketing) imposed by legislation enacted by various levels of government and with respect to
pricing and taxation of oil and natural gas by agreements among the governments of Canada, Alberta,
British Columbia and Saskatchewan, all of which should be carefully considered by investors in the
oil and gas industry. It is not expected that any of these controls or regulations will affect the
operations of the Corporation in a manner materially different than they would affect other
participants in the sector of a similar size. All current legislation is a matter of public record
and the Trust and the Corporation are unable to predict what additional legislation or amendments
may be enacted. Outlined below are some of the principal aspects of legislation, regulations and
agreements governing the oil and gas industry.

Pricing and Marketing — Oil, Natural Gas and Associated Products

In the provinces of Alberta, British Columbia and Saskatchewan oil, natural gas and associated
products are generally sold at prices based upon market indicies. These indices are generated at
various sales points depending on the commodity and are reflective of the current value of the
commodity adjusted for quality and locational differentials. While these indices tend to track
industry reference prices (ie. price of West Texas Intermediate crude oil at Cushing, Oklahoma or
price of natural gas at Henry Hub, Louisiana or AECO Hub, Alberta), some variances can occur due to
specific supply-demand imbalances. These differentials can change on a monthly or daily basis
depending on the supply-demand fundamental at each location as well as other factors, such as the
value of the Canadian dollar and the cost of transporting the commodity to the pricing point of the
particular index.

The North American Free Trade Agreement

The North American Free Trade Agreement (“NAFTA”) among the governments of Canada, United States of
America and Mexico became effective on January 1, 1994. NAFTA carries forward most of the material
energy terms that are contained in the Canada — United States Free Trade Agreement. Canada
continues to remain free to determine whether exports of energy resources to the United States or
Mexico will be allowed, provided that any export restrictions do not: (i) reduce the proportion of
energy resources exported relative to domestic use (based upon the proportion prevailing in the
most recent 36 month period); (ii) impose an export price higher than the domestic price; or (iii)
disrupt normal channels of supply. All three countries are prohibited from imposing minimum export
or import price requirements.

NAFTA contemplates the reduction of Mexican restrictive trade practices in the energy sector and
prohibits discriminatory border restrictions and export taxes. The agreement also contemplates
clearer disciplines on regulators to ensure fair implementation of any regulatory changes and to
minimize disruption of contractual arrangements, which is important for Canadian natural gas
exports.

Provincial Royalties and Incentives

In addition to federal regulation, each province has legislation and regulations which govern land
tenure, royalties, production rates, environmental protection and other matters. The royalty
regime is a significant factor in the profitability of crude oil, natural gas liquids, sulphur and
natural gas production.

 

51

Royalties payable on production from lands other than Crown lands are determined by negotiations
between the mineral owner and the lessee, although production from such lands is subject to certain
provincial taxes and royalties. Crown royalties are determined by governmental regulation and are
generally calculated as a percentage of the value of the gross production. The rate of royalties
payable generally depends in part on prescribed reference prices, well productivity, geographical
location, field discovery date and the type or quality of the petroleum product produced.

From time to time the governments of the western Canadian provinces create incentive programs for
exploration and development. Such programs often provide for royalty rate reductions, royalty
holidays and tax credits. The programs are designed to encourage exploration and development
activity in targeted geographic areas or activity types. These programs, when in existence, reduce
the amount of Crown royalties paid by the Corporation to the provincial governments.

In the Province of Alberta, a producer of oil or natural gas is entitled to a credit against the
royalties payable to the Crown by virtue of the Alberta royalty tax credit (“ARTC”) program. The
ARTC rate is based on a price sensitive formula and the ARTC rate varies between 75% at crude oil
prices at and below $100 per m3 and 25% at prices at and above $210 per m3.
The ARTC rate is applied to a maximum of $2,000,000 of Alberta Crown royalties payable for each
producer or associated group of producers. Crown royalties on production from producing properties
acquired from a corporation claiming maximum entitlement to ARTC will generally not be eligible for
ARTC. The rate will be established quarterly based on the average “par price”, as determined by
the Alberta Department of Energy for the previous quarterly period. In general, the ARTC program
provides a rebate on Alberta Crown royalties paid in respect of eligible producing properties.

Land Tenure

Crude oil and natural gas located in western Canada are owned predominantly by the respective
provincial governments. Provincial governments grant rights to explore for and produce oil and
natural gas pursuant to leases, licences and permits for varying terms, usually from two to five
years, and on conditions set forth in provincial legislation, including requirements to perform
specific work or make payments. Oil and natural gas located in such provinces can also be
privately owned and rights to explore for and produce such oil and natural gas on freehold lands
are granted by lease on such terms and conditions as may be negotiated.

Environmental Regulation

The oil and natural industry is subject to environmental regulation pursuant to a variety of
international conventions and Canadian federal, provincial and municipal laws, regulations, and
guidelines. Such regulation provides for restrictions and prohibitions on the release or emission
of various substances produced in association with certain oil and gas industry operations. In
addition, such regulation requires that well and facility sites be abandoned and reclaimed to the
satisfaction of provincial authorities. Compliance with such regulation can require significant
expenditures and a breach of such requirements may result in suspension or revocation of necessary
licenses and authorizations, civil liability for pollution damage and the imposition of material
fines and penalties.

The Alberta Environmental Protection and Enhancement Act (the “AEPEA”), imposes strict
environmental standards, requires stringent compliance, reporting and monitoring obligations and
imposes significant penalties. The Corporation is committed to meeting its responsibilities to
protect the environment wherever it operates and anticipates making increased expenditures of both
a capital and an expense nature as a result of laws relating to the protection of the environment
and takes such steps as required to ensure compliance with the AEPEA and similar legislation in
other jurisdictions in which it operates. The Corporation believes that it is in material
compliance with applicable environmental laws

 

52

and regulations. The Corporation also believes that it is reasonably likely that the trend towards
stricter standards in environmental legislation and regulation will continue.

Trends

Natural gas prices have been extremely volatile over the past 12 months. With the North American
supply and demand balance for natural gas being extremely tight, the market is experiencing a great
deal of volatility in pricing due to a number of factors, including weather, supply disruptions,
price induced demand loss, drilling activity, natural production declines, storage levels, fuel
switching and volatility in other energy commodity prices.

Oil prices are dependent on the world economy and the global supply-demand balance. The current
environment of geo-political unrest has increased prices above those supported by current
supply-demand balances. While pricing in the future may more accurately reflect supply-demand
fundamentals, it would appear that the current tight supply environment is highly sensitive to
political and terrorist risks as evidenced by the risk premium in the current price structure. The
magnitude of this risk premium may change over time.

Equity financings may become more difficult and selective in the future forcing companies to work
within existing cash flows and opportunities that can be internally generated. This may result in
further industry consolidation, as companies have to focus on cost savings and operational controls
in order to perform to market expectations.

With the establishment of a number of start-up companies with experienced management teams there is
greater competition for a number of the smaller corporate and property acquisitions that will be
available.

Finally, it appears the market for skilled and qualified personnel, products and services will
remain tight. This has created cost pressures resulting in higher finding, developed and
acquisition costs.

LEGAL PROCEEDINGS

While the Corporation is the subject of several claims and is also pursuing a number of its own
claims against third parties, the Corporation is not aware of any material legal proceedings
against it or the Trust nor are any such proceedings known by the Corporation to be contemplated.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Other than as discussed herein, there are no material interests, direct or indirect, of trustees of
the Trust or directors, executive officers or senior officers of the Corporation, or any direct or
indirect Unitholder of the Trust who beneficially owns, or who exercises control over, more than
10% of the outstanding Trust Units or any known associate or affiliate of such persons, in any
transaction within the three most recently completed financial years or during the current
financial year that has materially affected or will materially affect the Trust or the Corporation.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Trust Units and the trustee for the Debentures is
Computershare Trust Company of Canada at its principal offices in Calgary, Alberta and Toronto,
Ontario.

 

53

MATERIAL CONTRACTS

The only material contracts currently in effect and entered into by the Trust or by the Corporation
during the past two years, other than during the ordinary course of business, are as follows:

	1.	 	the Trust Indenture,
	 
	2.	 	the Administration Agreement referred to under “Information Concerning Esprit Energy Trust”;
	 
	3.	 	the Note Indenture referred to under “Notes”;
	 
	4.	 	the NPI Agreement referred to under “NPI Agreement”;
	 
	5.	 	the Administration Agreement;
	 
	6.	 	the Support Agreement referred to under “Support Agreement:’
	 
	7.	 	the Performance Unit Incentive Plan of the Trust; and
	 
	8.	 	a trust indenture entered into between the Trust and Computershare Trust Company of Canada
dated July 28, 2005 in respect of the Debentures.

INTERESTS OF EXPERTS

KMPG LLP, Chartered Accountants, are the Trust’s auditors and such firm has prepared an opinion
with respect to the Trust’s consolidated financial statements as at and for the year ended December
31, 2005. Information relating to reserves in this Annual Information Form was evaluated by GLJ
Petroleum Consultants, as independent qualified reserves evaluators. As at the date hereof, KPMG
LLP and its partners did not hold any registered or beneficial ownership interests, directly or
indirectly, in the securities or property of the Trust or its associates or affiliates.

As at the date hereof, the principals of GLJ Petroleum Consultants, did not hold any registered or
beneficial ownership interests, directly or indirectly in the securities or property of the Trust
or its associates or affiliates.

AUDIT COMMITTEE MATTERS

The mandate of the Audit Committee (the “Audit Committee”) of the Board of Trustees is set forth in
Schedule “C” attached hereto.

Composition of the Audit Committee

The following table sets forth the name of each of the current members of the Audit Committee,
whether such member is independent, whether such member is financially literate and the relevant
education and experience of such member.

 

54

	 	 	 	 	 	 	 
	 	 	 	 	Financially	 	 
	Name	 	Independent	 	Literate	 	Relevant Education and Experience
	W. Mark Schweitzer
(Chairman)

	 	Yes
	 	Yes
	 	Mr. Schweitzer has a Bachelor of
Commerce degree from Queen’s
University and is a member of
the Canadian Institute of
Chartered Accountants. Mr.
Schweitzer has significant
experience with public
companies, currently as the
Executive Vice-President and
Chief Financial Officer of
Superior Plus Inc., the wholly
owned subsidiary of the Superior
Plus Income Fund and previously
as Vice President, Finance and
Chief Financial Officer at
Norcen Energy Resources Ltd. and
in senior treasury roles at
Canadian Hunter Exploration Ltd.
and Noranda Inc. Mr. Schweitzer
also held various audit
responsibilities with Ernst &
Young, Chartered Accountants in
Toronto.
	 
	 	 	 	 	 	 
	Donald R. Gardner

	 	Yes
	 	Yes
	 	Mr. Gardner holds a Bachelor of
Commerce degree from the
University of Alberta and a
Masters of Science Degree
(Business Administration) from
the University of British
Columbia. Mr. Gardner has
significant experience serving
with public companies, currently
in the role of Chief Financial
Officer with Canadian Spirit
Resources Inc. and previously in
the role of Executive Vice
President and Chief Financial
Officer with Esprit Exploration
Ltd. and Rigel Energy
Corporation.
	 
	 	 	 	 	 	 
	Eric L. Schwitzer

	 	Yes
	 	Yes
	 	Mr. Schwitzer holds a Bachelor
of Science in mathematics from
McGill University and a Masters
of Science degree in Management
from the Massachusetts Institute
of Technology and is a member of
the Canadian Institute of
Chartered Business Valuators.
Mr. Schwitzer has held very
senior positions in the Canadian
corporate finance industry,
including Managing Partner with
Enterprise Capital Management
Inc. and Managing Director with
Scotia Capital.
	 
	 	 	 	 	 	 
	Douglas W. Palmer

	 	Yes
	 	Yes
	 	Mr. Palmer has significant
experience with public issuers,
having served on the board of
Calpine Natural Gas Trust and
having held the position of
Chief Executive Officer of Numac
Energy Ltd. and Senior Vice
President and Chief Operating
Officer of Norcen Energy
Resources Ltd.

External Auditor Service Fees

The following table sets forth the aggregate fees billed by KPMG LLP in each of the last two fiscal
years.

	 	 	 	 	 	 	 	 	 
	 	 	2005	 	 	2004	 
	Audit Fees
	 	$	190,500	 	 	$	164,000	 
	Audit-Related Fees
	 	$	118,975	(2)	 	 	6,000	(1)
	Tax Fees
	 	 	—	 	 	 	—	 
	All Other Fees
	 	 	—	 	 	 	—	 
	 
	 	 	 	 	 	 
	Total
	 	$	309,475	 	 	$	170,000	 
	 
	 	 	 	 	 	 

Notes:

			
	 
	(1)	 	In 2004, KPMG LLP advised Esprit Exploration on Canadian annual certification issues which
was not part of its standard audit engagement.
	 
	(2)	 	In 2005, KPMG LLP provided services associated with the preparation of certain documents
relating to the acquisition of Resolute and the issuance of the Debentures.

ABBREVIATIONS AND EQUIVALENCIES

The following are abbreviations and definitions of terms used in this Annual Information Form. All
calculations converting natural gas to crude oil equivalent have been made using a ratio of six mcf
of

 

55

natural gas to one barrel of crude equivalent. References to boe may be misleading, particularly if
used in isolation. A boe conversion ratio of six mcf of natural gas to one barrel of crude oil
equivalent is based on an energy equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead.

	 	 	 	 	 	 	 
	Crude Oil and Natural Gas Liquids	 	Natural Gas
	 	 	 
	bbl

	 	One barrel equaling 34.972
Imperial gallons or 42 U.S.
gallons
	 	bcf
	 	Billion cubic feet
	bbl/d

	 	Barrels per day
	 	bcf/d
	 	Billion cubic feet per day
	boe

	 	Barrels of oil equivalent
	 	mcf
	 	Thousand cubic feet
	boe/d

	 	Barrels of oil equivalent per day
	 	mcf/d
	 	Thousand cubic feet per day
	mboe

	 	Thousand barrels of oil equivalent
	 	mmcf
	 	Million cubic feet
	mmboe

	 	Million barrels of oil equivalent
	 	mmcf/d
	 	Million cubic feet per day
	mbbl

	 	Thousand barrels
	 	MMBTU
	 	Million British Thermal Units
	mmbbls

	 	Million barrels
	 	gj/d
	 	Gigajoules per day
	NGL or NGLs

	 	Natural gas liquids, consisting
of any one or more of propane,
butane and condensate	 	 	 	 
	W.I.

	 	Working interest	 	 	 	 

ADDITIONAL INFORMATION

Additional information on the remuneration and indebtedness of the trustees of the Trust and the
directors and officers of the Corporation is contained in the Information Circular dated March 15,
2006 of the Trust relating to the annual meeting of holders of Trust Units to be held on May 11,
2006. Additional financial information is also provided in the 2005 Annual Report of the Trust.

Additional information relating to the Trust, including copies of this Annual Information Form, the
Trust’s Information Circular dated March 15, 2006 and the 2005 Annual Report, are available on the
Trust’s website at www.eee.ca and on SEDAR at www.sedar.com or may be obtained upon request by
contacting Esprit Energy Trust, Suite 900, 606 – 4th Street S.W., Calgary, Alberta T2P 1T1 or by
facsimile at (403) 213-3735.

 

56

GLOSSARY OF TERMS

The following is a glossary of certain terms used in this Annual Information Form.

“Administration Agreement” means the administration agreement entered into between the Trust and
the Corporation dated as of August 16, 2004, as amended and restated June 30, 2005.

“Board of Directors” means the board of directors of the Corporation.

“Board of Trustees” means the board of trustees of the Trust.

“Business Day” means a day, other than a Saturday, Sunday or statutory holiday, when banks are
generally open in the City of Calgary, in the Province of Alberta, for the transaction of banking
business.

“CBCA” means the Canada Business Corporations Act, as amended, including the regulations
promulgated thereunder.

“Class A Trust Units” means the class A trust units in the capital of the Trust in existence prior
to the Reclassification.

“Class B Trust Units” means the class B trust units in the capital of the Trust in existence prior
to the Reclassification.

“Common Shares” means the voting common shares in the capital of the Corporation.

“Current Market Price” means, in respect of a Trust Unit on any date, the weighted average trading
price of the Trust Units on the TSX for the five (5) trading days preceding that date, or, if the
Trust Units are not then listed on the TSX, on such other stock exchange or automated quotation
system on which the Trust Units are listed or quoted, as the case may be, as may be selected by the
Board of Directors for such purpose; provided, however, that if in the opinion of the Board of
Directors the public distribution or trading activity of Trust Units for that period does not
result in a weighted average trading price which reflects the fair market value of a Trust Unit,
then the Current Market Price of a Trust Unit shall be determined by the Board of Directors, in
good faith and in its sole discretion, and provided further that any such selection, opinion or
determination by such board of directors shall be conclusive and binding.

“Distributable Cash” means all amounts available for distribution during any applicable period to
holders of Trust Units.

“Distribution” means a distribution paid by the Trust in respect of the Trust Units, expressed as
an amount per Trust Unit.

“Distribution Payment Date” means any date that Distributable Cash is distributed to Trust
Unitholders, generally being the 15th day of the calendar month following any Distribution Record
Date (or if such day is not a Business Day, on the next Business Day thereafter).

“Distribution Record Date” means the last day of each calendar month or such other date as may be
determined from time to time by the Trustees, except that December 31 shall in all cases be a
Distribution Record Date.

“Esprit Arrangement” means the arrangement, effective October 1, 2004, under the provisions of
section 192 of the CBCA, among the Trust, the Corporation, Esprit Acquisition Corp., ExchangeCo.
and others.

 

57

“Exchange Ratio”, at any time and in respect of each Exchangeable Share, shall be equal to 1.00000
as at October 1, 2004 and shall be cumulatively adjusted thereafter by (i) increasing the Exchange
Ratio on each Distribution Payment Date between October 1, 2004 and the time as of which the
Exchange Ratio is calculated by an amount, rounded to the nearest five decimal places, equal to a
fraction having as its numerator the Distribution, expressed as an amount per Trust Unit, paid on
that Distribution Payment Date, multiplied by the Exchange Ratio immediately prior to the
Distribution Record Date for such Distribution and having as its denominator the Current Market
Price of a Trust Unit on the first Business Day following the Distribution Record Date for such
Distribution and (ii) decreasing the Exchange Ratio on each dividend record date between October 1,
2004 and the time as of which the Exchange Ratio is calculated by an amount, rounded to the nearest
five decimal places, equal to a fraction having as its numerator the dividend declared on that
dividend record date, expressed as an amount per Exchangeable Share multiplied by the Exchange
Ratio immediately prior to that dividend record date, and having as its denominator the Current
Market Price of a Trust Unit on the date that is seven Business Days prior to that dividend record
date.

“Exchangeable Shares” means the exchangeable shares in the capital of the Corporation.

“ExchangeCo” means Esprit Exchangeco Ltd., a corporation incorporated under the CBCA and a
wholly-owned subsidiary of the Trust.

“GLJ” means GLJ Petroleum Consultants, independent reserves evaluators of Calgary, Alberta.

“GLJ Report” means the independent engineering evaluation of the Corporation’s oil, natural gas
liquids and natural gas reserves prepared by GLJ, dated February 23, 2006, with a preparation date
of February 9, 2006 and effective December 31, 2005.

“Income Tax Act” or “Tax Act” means the Income Tax Act (Canada), R.S.C. 1985, c. 1. (5th Supp), as
amended, including the regulations promulgated thereunder.

“Insolvency Event” means the institution by the Corporation of any proceeding to be adjudicated to
be a bankrupt or insolvent or to be wound up, or the consent of the Corporation to the institution
of bankruptcy, dissolution, insolvency or winding-up proceedings against it, or the filing of a
petition, answer or consent seeking dissolution or winding-up under any bankruptcy, insolvency or
analogous laws, including without limitation the Companies Creditors’ Arrangement Act (Canada) and
the Bankruptcy and Insolvency Act (Canada), and the failure by the Corporation to contest in good
faith any such proceedings commenced in respect of the Corporation within 15 days of becoming aware
thereof, or the consent by the Corporation to the filing of any such petition or to the appointment
of a receiver, or the making by the Corporation of a general assignment for the benefit of
creditors, or the admission in writing by the Corporation of its inability to pay its debts
generally as they become due, or the Corporation not being permitted, pursuant to solvency
requirements of applicable law, to redeem any retracted Exchangeable Shares pursuant to the terms
of the Exchangeable Shares.

“Market Redemption Price” means the price per Trust Unit equal to the lesser of (i) 95% of the
“market price”, as calculated under the Trust Indenture, of the Trust Units on the principal market
on which the Trust Units are quoted for trading during the 10 trading day period commencing
immediately after the date on which Trust Units are surrendered to the Trust for redemption and
(ii) the “closing market price”, as calculated under the Trust Indenture, on the principal market
on which the Trust Units are quoted for trading on the date that the Trust Units are so surrendered
for redemption.

“NPI” means the net profits interest granted under the NPI Agreement.

“NPI Agreement” means the net profits interest agreement entered into between the Corporation and
the Trust.

 

58

“Non-Resident” means (i) a Person who is not a resident of Canada for the purposes of the Tax Act
or (ii) a partnership that is not a Canadian partnership for the purposes of the Tax Act.

“Note” or “Notes” means the unsecured, subordinate promissory notes issued by the Corporation to
the Trust.

“Note Indenture” means the note indenture entered into between the Corporation and Computershare
Trust Company of Canada governing the issuance of the Notes.

“Note Trustee” means Computershare Trust Company of Canada.

“Performance Unit Incentive Plan” means the performance unit incentive plan of the Trust.

“Person” means any individual, partnership, association, body corporate, trustee, executor,
administrator, legal representative, government, regulatory authority or other entity.

“Post-Arrangement Entitlement” means the right of a holder to receive from the Trust a Trust Unit
upon contacting the transfer agent of the Trust.

“Redemption Notes” means the promissory notes issuable by the Trust under the Trust Indenture
having terms and conditions substantially identical to those of the Notes.

“Special Resolution” means a resolution proposed to be passed as a special resolution at a meeting
of Unitholders (including an adjourned meeting) duly convened for that purpose and held in
accordance with the provisions of the Trust Indenture at which two or more holders present in
person either holding personally or representing as proxies not less in the aggregate than 5% of
the aggregate number of Trust Units then outstanding and passed by the affirmative votes of the
holders of more than
662/3% of the Trust Units represented at the meeting and voted on a poll upon
such resolution. For the purposes of determining such percentage, the holder of any Special Voting
Unit who is present at the meeting shall be regarded as representing outstanding Trust Units
equivalent in number to the votes attaching to such Special Voting Unit.

“Special Voting Units” means the special voting units of the Trust, issued and certified under the
Trust Indenture for the time being outstanding and entitled to the benefits and subject to the
limitations set forth therein.

“Support Agreement” means the support agreement entered into between the Trust, the Corporation and
ExchangeCo. dated as of September 30, 2004, as amended and restated June 30, 2005.

“TSX” means the Toronto Stock Exchange.

“Trust” means Esprit Energy Trust, a trust established under the laws of the Province of Alberta
pursuant to the Trust Indenture.

“Trust Indenture” means the trust indenture dated as of August 16, 2004, as amended and restated
September 30, 2004 and June 30, 2005, pursuant to which the Trust was created, as amended from time
to time.

“Trust Units” or “Units” means the Trust Units of the Trust.

“Unitholders” means holders from time to time of the Trust Units.

 

59

“Trustee” means, at any time, an individual who is, in accordance with the provisions of the Trust
Indenture, a trustee of the Trust at that time including without limitation, so long as they remain
as trustees and “Trustees” means, at any time, all of the individuals each of whom at that time is
a Trustee.

“Voting and Exchange Agreement Trustee” means the trustee chosen by the Trust to act as trustee
under the Voting and Exchange Agreement, being a corporation organized and existing under the laws
of Canada and authorized to carry on the business of a trust company in all provinces of Canada,
and any successor trustee appointed thereunder.

“Voting and Exchange Trust Agreement” means the voting and exchange trust agreement relating to the
Exchangeable Shares entered into among the Trust, the Corporation, ExchangeCo and the Voting and
Exchange Agreement Trustee.

 

 

SCHEDULE A

FORM 51-101F2

REPORT ON RESERVES DATA

BY

INDEPENDENT QUALIFIED RESERVES

EVALUATOR OR AUDITOR

 

 

SCHEDULE B

FORM 51-101F3

REPORT OF

MANAGEMENT AND DIRECTORS

ON OIL AND GAS DISCLOSURE

This is the form referred to in item 3 of section 2.1 of National Instrument 51-101 Standards of
Disclosure for Oil and Gas Activities (“NI 51-101”). This form does not apply in British Columbia.

	1.	 	Terms to which a meaning is ascribed in NI 51-101 have the same meaning in this form.
	 
	2.	 	The report referred to in item 3 of section 2.1 of NI 51-101 shall in all material respects
be as follows:

Report of Management and Directors

on Reserves Data and Other Information

Management of Esprit Exploration Ltd. (the “Corporation”), as administrator of Esprit Energy
Trust, are responsible for the preparation and disclosure of information with respect to the
Corporation’s oil and gas activities in accordance with securities regulatory requirements.
This information includes reserves data, which consist of the following:

	 	 	 	 	 	 	 
	 

	 	(a)
	 	(i)
	 	proved and proved plus probable oil and gas reserves estimated as at
December 31, 2005 using forecast prices and costs; and
	 
	 	 	 	 	 	 
	 

	 	 	 	(ii)
	 	the related estimated future net revenue; and
	 
	 	 	 	 	 	 
	 

	 	(b)
	 	(i)
	 	proved oil and gas reserves estimated as at December 31, 2005 using
constant prices and costs; and
	 
	 	 	 	 	 	 
	 

	 	 	 	(ii)
	 	the related estimated future net revenue.

An independent qualified reserves evaluator has evaluated the Corporation’s reserves data.
The report of the independent qualified reserves evaluator will be filed with securities
regulatory authorities concurrently with this report.

The Board of Directors of the Corporation has:

	 	(a)	 	reviewed the Corporation’s procedures for providing information to the
independent qualified reserves evaluator;
	 
	 	(b)	 	met with the independent qualified reserves evaluator to determine whether any
restrictions affected the ability of the independent qualified reserves evaluator to
report without reservation; and
	 
	 	(c)	 	reviewed the reserves data with management and the independent qualified
reserves evaluator.

 

B-2

The Board of Directors has reviewed the Corporation’s procedures for assembling and
reporting other information associated with oil and gas activities and has reviewed that
information with management. The Board of Directors has approved:

	 	(a)	 	the content and filing with securities regulatory authorities of the reserves
data and other oil and gas information;
	 
	 	(b)	 	the filing of the report of the independent qualified reserves evaluator on the
reserves data; and
	 
	 	(c)	 	the content and filing of this report.

Because the reserves data are based on judgments regarding future events, actual results
will vary and the variations may be material.

DATED this 15th day of March, 2006.

	 	 	 
	(signed) Stephen J. Savidant
	 	(signed) Stephen B. Soules
	President and Chief Executive Officer
	 	Executive Vice President and
	 
	 	Chief Financial Officer
	 	 	 
	(signed) D. Michael G. Stewart
	 	(signed) Donald R. Gardner
	Director
	 	Director

 

 

SCHEDULE C

MANDATE OF THE AUDIT COMMITTEE

Policy Statement

It is the policy of Esprit Energy Trust (the “Trust”) to establish and maintain an Audit Committee,
composed entirely of independent trustees, to assist the Board of Trustees (the “Board”) in
carrying out their oversight responsibility for the Trust’s and its subsidiaries and affiliates
(collectively “Esprit”) internal controls, financial reporting and risk management processes. The
Audit Committee will be provided with resources commensurate with the duties and responsibilities
assigned to it by the Board including administrative support. If determined necessary by the Audit
Committee, it will have the discretion to institute investigations of improprieties, or suspected
improprieties within the scope of its responsibilities, including the standing authority to retain
special counsel or experts.

Composition of the Committee

	1.	 	The Audit Committee shall consist of at least three trustees. The Board shall appoint the
members of the Audit Committee and may seek the advice and assistance of the Human Resources
and Corporate Governance Committee of its subsidiary Esprit Exploration Ltd. (the
“Corporation”) in identifying qualified candidates. The Board shall appoint one member of the
Audit Committee to be the Chair of the Audit Committee.
	 
	2.	 	Each trustee appointed to the Audit Committee by the Board shall be an outside trustee who is
unrelated. An outside, unrelated trustee is a trustee who is independent of management and is
free from any interest, any business or other relationship which could, or could reasonably be
perceived, to materially interfere with the director’s ability to act with a view to the best
interests of the Corporation, other than interests and relationships arising from
shareholding. In determining whether a director is independent of management, the Board shall
make reference to the then current legislation, rules, policies and instruments of applicable
regulatory authorities.
	 
	3.	 	Each member of the Audit Committee shall be “financially literate”. In order to be
financially literate, a director must be, at a minimum, able to read and understand basic
financial statements, and at least one member shall have “accounting or related financial
management expertise”, meaning the ability to analyze and interpret a full set of financial
statements, including the notes attached thereto, in accordance with Canadian generally
accepted accounting principles.
	 
	4.	 	A trustee appointed by the Board to the Audit Committee shall be a member of the Audit
Committee until replaced by the Board or until his or her resignation.
	 
	5.	 	The Chairman of the Board of Trustees shall be an ex officio member of the Committee.

Meetings of the Committee

	1.	 	The Audit Committee shall convene a minimum of four times each year at such times and places
as may be designated by the Chair of the Audit Committee and whenever a meeting is requested
by the Board, a member of the Audit Committee, the auditors, or a senior officer of the
Corporation. Meetings of the Audit Committee shall correspond with the review of the
quarterly financial statements and management discussion and analysis.

 

C-2

	2.	 	Notice of each meeting of the Audit Committee shall be given to each member of the Audit
Committee and to the auditors, who shall be entitled to attend each meeting of the Audit
Committee and shall attend whenever requested to do so by a member of the Audit Committee.
	 
	3.	 	Notice of a meeting of the Audit Committee shall:

	 	(a)	 	be in writing;
	 
	 	(b)	 	state the nature of the business to be transacted at the meeting in reasonable
detail;
	 
	 	(c)	 	to the extent practicable, be accompanied by copies of documentation to be
considered at the meeting; and
	 
	 	(d)	 	be given at least two business days prior to the time stipulated for the
meeting or such shorter period as the members of the Audit Committee may permit.

	4.	 	A quorum for the transaction of business at a meeting of the Audit Committee shall consist of
a majority of the members of the Audit Committee. However, it shall be the practice of the
Audit Committee to require review, and, if necessary, approval of certain important matters by
all members of the Audit Committee.
	 
	5.	 	A member or members of the Audit Committee may participate in a meeting of the Audit
Committee by means of such telephonic, electronic or other communication facilities, as
permits all persons participating in the meeting to communicate adequately with each other. A
member participating in such a meeting by any such means is deemed to be present at the
meeting.
	 
	6.	 	In the absence of the Chair of the Audit Committee, the members of the Audit Committee shall
choose one of the members present to be Chair of the meeting. In addition, the members of the
Audit Committee shall choose one of the persons present to be the Secretary of the meeting.
	 
	7.	 	The Chairman of the Board, senior management of the Corporation and other parties may attend
meetings of the Audit Committee; however the Audit Committee (i) shall meet with the external
auditors independent of management as necessary, in the sole discretion of the Committee, but
in any event, not less than quarterly; and (ii) may meet separately with management.
	 
	8.	 	Minutes shall be kept of all meetings of the Audit Committee and shall be signed by the Chair
and the Secretary of the meeting.

Duties and Responsibilities of the Committee

	1.	 	The Audit Committee’s primary duties and responsibilities are to:

	 	(a)	 	identify and monitor the management of the principal risks that could impact
the financial reporting of Esprit;
	 
	 	(b)	 	monitor and, as required, evaluate the integrity of Esprit’s financial
reporting process and system of internal controls regarding financial reporting and
accounting compliance;
	 
	 	(c)	 	monitor the independence and performance of Esprit’s external auditors;
	 
	 	(d)	 	deal directly with the external auditors to approve external audit plans, other
services (if any) and fees;

 

C-3

	 	(e)	 	directly oversee the external audit process and results (in addition to items
described in Section 4. below);
	 
	 	(f)	 	provide an avenue of communication among the external auditors, management of
the Corporation and the Board;
	 
	 	(g)	 	ensure that an effective “whistle blowing” procedure exists to permit
stakeholders to express any concerns regarding accounting or financial matters to an
appropriately independent individual;
	 
	 	(h)	 	ensure that an appropriate Code of Conduct is in place and understood by
employees, directors and trustees of Esprit.

	2.	 	The Audit Committee shall have the authority to:

	 	(a)	 	inspect any and all of the books and records of Esprit;
	 
	 	(b)	 	discuss with the management of the Corporation, its subsidiaries and affiliates
and senior staff of the Corporation, any affected party and the external auditors, such
accounts, records and other matters as any member of the Audit Committee considers
necessary and appropriate;
	 
	 	(c)	 	engage consultants, independent counsel and other advisors as it determines
necessary to carry out its duties; and
	 
	 	(d)	 	set and pay the compensation for any advisors employed by the Audit Committee.

	3.	 	The Audit Committee shall, at the earliest opportunity after each meeting, report to the
Board the results of its activities and any reviews undertaken and make recommendations to the
Board as deemed appropriate.
	 
	4.	 	The Audit Committee shall:

	 	(a)	 	review the annual audit plan with the Trust’s external auditors and with
management of the Corporation;
	 
	 	(b)	 	discuss with management of the Corporation and the external auditors any
proposed changes in major accounting policies or principles, the presentation and
impact of significant risks and uncertainties and key estimates and judgements of
management that may be material to financial reporting;
	 
	 	(c)	 	review with management of the Corporation and with the external auditors
significant financial reporting issues arising during the most recent fiscal period and
the resolution or proposed resolution of such issues;
	 
	 	(d)	 	review any problems experienced or concerns expressed by the external auditors
in performing an audit, including any restrictions imposed by management of the
Corporation or significant accounting issues on which there was a disagreement with
management of the Corporation;

 

C-4

	 	(e)	 	review with senior management of the Corporation the process of identifying,
monitoring and reporting the principal risks affecting financial reporting;
	 
	 	(f)	 	review audited annual financial statements and related documents in conjunction
with the report of the external auditors and obtain an explanation from management of
the Corporation of all significant variances between comparative reporting periods;
	 
	 	(g)	 	consider and review with management of the Corporation, the internal control
memorandum or letter containing the recommendations of the external auditors and the
Corporation’s management’s response, if any, including an evaluation of the adequacy
and effectiveness of the internal financial controls of Esprit and subsequent follow-up
to any identified weaknesses;
	 
	 	(h)	 	review with management of the Corporation and the external auditors the
quarterly unaudited financial statements and management discussion and analysis before
release to the public;
	 
	 	(i)	 	before release, review and if appropriate, recommend for approval by the Board,
all public disclosure documents containing audited or unaudited financial information,
including any prospectuses, annual reports, annual information forms, management
discussion and analysis and press releases; and
	 
	 	(j)	 	oversee, any of the financial affairs of Esprit and, if deemed appropriate,
make recommendations to the Board, external auditors or management.

	5.	 	The Audit Committee shall:

	 	(a)	 	evaluate the independence and performance of the external auditors and annually
recommend to the Board the appointment of the external auditor or the discharge of the
external auditor when circumstances are warranted;
	 
	 	(b)	 	consider the recommendations of management of the Corporation in respect of the
appointment of the external auditors;
	 
	 	(c)	 	pre-approve all non-audit services to be provided to Esprit by its external
auditors’;
	 
	 	(d)	 	approve the engagement letter for non-audit services to be provided by the
external auditors or affiliates, together with estimated fees, and considering the
potential impact of such services on the independence of the external auditors;
	 
	 	(e)	 	when there is to be a change of external auditors, review all issues and
provide documentation related to the change, including the information to be included
in the Notice of Change of Auditors and documentation required pursuant to National
Policy 31 (or any successor legislation) of the Canadian Securities Administrators and
the planned steps for an orderly transition period; and
	 
	 	(f)	 	review all reportable events, including disagreements, unresolved issues and
consultations, as defined by applicable securities policies, on a routine basis,
whether or not there is to be a change of external auditors.

 

C-5

	6.	 	The Audit Committee shall:

	 	(a)	 	review with management of the Corporation at least annually, the financing
strategy and plans of Esprit; and

	 	(b)	 	review all securities offering documents (including documents incorporated
therein by reference) of Esprit.

	7.	 	The Audit Committee shall review the amount and terms of any insurance to be obtained or
maintained by Esprit with respect to risks inherent in its operations and potential
liabilities incurred by the trustees, directors or officers of the Corporation in the
discharge of their duties and responsibilities.
	 
	8.	 	The Audit Committee shall review the appointments of the Chief Financial Officer of the
Corporation and any key financial managers who are involved in the financial reporting
process.
	 
	9.	 	The Audit Committee shall enquire into and determine the appropriate resolution of any
conflict of interest in respect of audit or financial matters, which are directed to the Audit
Committee by any member of the Board, a unitholder of the Trust, the external auditors, or
senior management of the Corporation.
	 
	10.	 	The Audit Committee shall periodically review with management of the Corporation the need for
an internal audit function.
	 
	11.	 	The Audit Committee shall review Esprit’s accounting and reporting of environmental costs,
liabilities and contingencies.
	 
	12.	 	The Audit Committee shall establish and maintain procedures for:

	 	(a)	 	the receipt, retention and treatment of complaints received by Esprit regarding
accounting controls, or auditing matters; and

	 	(b)	 	the confidential, anonymous submission by employees of Esprit of concerns
regarding questionable accounting or auditing matters.

	13.	 	The Audit Committee shall review and approve Esprit’s hiring policies regarding employees and
former employees of the present and former external auditors.
	 
	14.	 	The Audit Committee shall review with Esprit’s legal counsel as required but at least
annually, any legal matter that could have a significant impact on the Esprit’s financial
statements, and any enquiries received from regulators, or government agencies.
	 
	15.	 	The Audit Committee shall assess, on an annual basis, the adequacy of this Mandate and the
performance of the Audit Committee.

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