Securities Law & Instruments

Headnote

Issuers within income trust structure deemed to be reporting issuers. Exemption granted from registration and prospectus requirements, in connection with distribution of shares and notes held by the fund to a holder of units upon a redemption in specie of the units effected in accordance with the declaration of trust. First trade relief granted in connection with trade in shares or notes received by a holder of units upon a redemption in specie, subject to certain conditions.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am. ss. 25, 53, 74 and 83.1(1).

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, CHAPTER S.5, AS AMENDED

AND

IN THE MATTER OF

GREAT LAKES CARBON INCOME FUND

AND CARBON CANADA INC.

 

RULING and ORDER

(Section 74 and Subsection 83.1(1))

UPON the application (the "Application") of Great Lakes Carbon Income Fund (the "Fund"), Carbon Canada Inc. ("Carbon Canada") and Huron Carbon ULC ("Carbon ULC") to the Ontario Securities Commission (the "Commission") for:

(a) orders pursuant to subsection 83.1(1)(a) of the Securities Act (Ontario) (the "Act") that each of Carbon Canada and Carbon ULC be deemed a "reporting issuer";

(b) a ruling pursuant to section 74 of the Act that the registration and prospectus requirements of Ontario securities law do not apply to the distribution of common shares of Carbon Canada (the "Carbon Canada Shares") and 16% unsecured subordinated notes of Carbon ULC (the "Carbon ULC Notes") held by the Fund to a holder of the Fund's trust units (the "Units") upon a redemption in specie of the Units effected in accordance with the Fund's declaration of trust dated June 25, 2003, as amended (the "Declaration of Trust"); and

(c) a ruling pursuant to section 74 of the Act that the first trade in the Carbon Canada Shares or Carbon ULC Notes received by a holder of Units upon a redemption in specie referred to in paragraph (b) shall not be a distribution, provided that:

(i) the issuer of the securities is a reporting issuer in Ontario at the date of such trade;

(ii) either the Fund or the issuer of the securities has been a reporting issuer in Ontario for the four months immediately preceding the trade;

(iii) no unusual effort is made to prepare the market or to create a demand for the securities that are the subject of the trade;

(iv) no extraordinary commission or consideration is paid to a person or company in respect of the trade; and

(v) if the selling security holder is an insider or officer of the Fund, the issuer or their respective subsidiary entities, the person has no reason to believe that any of such parties is in default of Ontario securities law;

AND UPON considering the Application and the recommendation of the staff of the Commission;

AND UPON the Fund and Carbon Canada representing to the Commission as follows:

1. The Fund is an unincorporated, open-ended, limited purpose trust established under the laws of Ontario pursuant to the Declaration of Trust. Its registered and head office is located in Toronto, Ontario.

2. The authorized capital of the Fund consists of an unlimited number of Units. The initial public offering of 18,500,000 Units was made pursuant to a prospectus dated July 29, 2003 (the "Prospectus"). The Fund is a reporting issuer or the equivalent in Ontario and each of the other jurisdictions in Canada and, to the best of its knowledge, information and belief, is not in default of any requirements of securities legislation in any of the jurisdictions in Canada. As at January 29, 2004, there were 20,350,000 Units issued and outstanding.

3. The Fund's assets consist solely of all of the 20,350,000 issued and outstanding Carbon Canada Shares and all of the $139,601,000 principal amount of Carbon ULC Notes issued and outstanding as at January 29, 2004. The Fund may, from time to time, subscribe for additional Carbon Canada Shares and Carbon ULC Notes but, as a "fixed investment trust", and consistent with other restrictions contained in the Declaration of Trust, it is precluded from directly owning any other securities or investments.

4. Through its ownership of Carbon Canada Shares and Carbon ULC Notes, the Fund indirectly owns a 38.55% economic interest in the business of Great Lakes Carbon LLC (the "Company"), a Delaware limited liability company whose business primarily consists of the production of anode and industrial grade calcined petroleum coke.

5. The Units are listed and posted for trading on the Toronto Stock Exchange (the "TSX") under the symbol "GLC.UN".

6. Carbon Canada is a corporation incorporated on June 18, 2003 pursuant to the Business Corporations Act (Ontario). Its registered and head office is located in Toronto, Ontario.

7. The authorized capital of Carbon Canada consists of an unlimited number of Carbon Canada Shares and no preferred shares. As at January 29, 2004, there were 20,350,000 Carbon Canada Shares and no preferred shares issued and outstanding.

8. Carbon Canada is not a "reporting issuer" or the equivalent in any jurisdiction in Canada.

9. Carbon Canada is a wholly-owned subsidiary of the Fund and carries on no independent operations. It acts solely as a funding conduit between the Fund and its operating subsidiary entities.

10. Carbon ULC is an unlimited liability company organized under the laws of the Province of Nova Scotia on June 18, 2003. Its registered and head office is located in Halifax, Nova Scotia.

11. The authorized capital of Carbon ULC consists of 5,000,000 common shares and no preferred shares. As at January 29, 2004, one common share and no preferred shares were issued and outstanding.

12. Carbon ULC is not a "reporting issuer" or the equivalent in any jurisdiction in Canada.

13. Carbon ULC is a wholly-owned subsidiary of GLC Carbon USA Inc. ("GLC Carbon USA"), which is, in turn, a controlled subsidiary entity of the Fund and Carbon Canada. Carbon ULC carries on no independent operations. It acts solely as a funding conduit between the Fund and its operating subsidiary entities.

14. The Fund's subsidiary entities have significant U.S.-based operations and, as such, the Fund was established as a "fixed investment trust" for United States federal income tax purposes under U.S. Treasury Regulation section 301.7701-4(c). As a fixed investment trust, the Fund is disregarded for U.S. federal income tax purposes, and each holder of Units is treated as directly owning its proportionate share of the Fund's investments.

15. The Declaration of Trust contains a redemption in specie feature whereby holders of Units have the right to tender their Units to the Fund for redemption, with the redemption price paid by a distribution of a proportionate share of the Fund's assets (being a proportionate number of Carbon Canada Shares and Carbon ULC Notes).

16. The exercise of this redemption right was identified in the Prospectus as being subject to regulatory approval, as no general prospectus exemption would be available to permit the distribution of these securities (as the issuers of the Carbon Canada Shares and Carbon ULC Notes were not then reporting issuers). Moreover, the Prospectus identified that there would be no trading market for the Carbon Canada Shares and Carbon ULC Notes so distributed.

17. The Fund has determined that it would be desirable to ensure that there are no significant trading or other restrictions that would be imposed on a holder of Units that exercised its redemption right to obtain such Carbon Canada Shares and Carbon ULC Notes.

18. The Fund and Carbon Canada have been advised that the TSX would not be prepared to list the Carbon Canada Shares unless Carbon Canada were a reporting issuer under the Act. Under the Act, an issuer is a reporting issuer by virtue of a TSX listing only if its securities are listed and posted for trading (which, as noted below, may not be the case). As such, it would be necessary to obtain an order from the Commission pursuant to subsection 83.1(1)(a) of the Act deeming Carbon Canada to be a reporting issuer.

19. Initially, the Carbon Canada Shares may not satisfy the public distribution requirements established by the TSX, or a sufficient trading market in the shares may not exist. As such, it is possible that the Carbon Canada Shares would initially be listed, but not posted for trading, on the TSX until such time as a sufficient number of redemptions in specie have occurred.

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

IT IS HEREBY RULED pursuant to section 74 of the Act that the registration and prospectus requirements of Ontario securities law do not apply to the distribution of the Carbon Canada Shares and the Carbon ULC Notes held by the Fund to a holder of Units upon a redemption in specie of the Units effected in accordance with the Declaration of Trust;

AND IT IS FURTHER RULED pursuant to section 74 of the Act that the first trade in the Carbon Canada Shares or Carbon ULC Notes received by a holder of Units upon a redemption in specie referred to above shall not be a distribution, provided that:

(i) the issuer of the securities is a reporting issuer in Ontario at the date of such trade;

(ii) either the Fund or the issuer of the securities has been a reporting issuer in Ontario for the four months immediately preceding the trade;

(iii) no unusual effort is made to prepare the market or to create a demand for the securities that are the subject of the trade;

(iv) no extraordinary commission or consideration is paid to a person or company in respect of the trade; and

(v) if the selling security holder is an insider or officer of the Fund, the issuer or their respective subsidiary entities, the person has no reason to believe that any of such parties is in default of Ontario securities law.

March 19, 2004.

"Paul M. Moore"
"Wendell S. Wigle"

AND IT IS HEREBY ORDERED pursuant to subsection 83.1(1) of the Act that each of Carbon Canada and Carbon ULC is deemed to be a reporting issuer for the purposes of Ontario securities law.

March 19, 2004.

"Iva Vranic"