Advanced Fiber Technologies (AFT) Income Fund and Aikawa Iron Works Co., Ltd. - MRRS Decision

Headnote

Mutual Reliance Review System -- OSC Rule 61-501 -- take-over bid and subsequent business combination -- Rule 61-501 requires sending of information circular and holding of meeting in connection with second step business combination -- target's declaration of trust provides that a resolution in writing executed by unitholders holding more than 662/3% of the outstanding units is valid and binding as if such voting rights had been exercised in favour of such resolution at a meeting of Unitholders -- second step business combination to be subject to minority approval, calculated in accordance with section 8.2 of Rule 61-501 -- relief granted from requirement that information circular be sent and meeting be held.

Applicable Ontario Rule

OSC Rule 61-501 Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions, ss. 4.2, 9.1.

February 8, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUÉBEC AND ONTARIO

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF THE

POTENTIAL TAKE-OVER BID FOR

ADVANCED FIBER TECHNOLOGIES (AFT) INCOME FUND BY A

WHOLLY-OWNED SUBSIDIARY OF AIKAWA IRON WORKS CO., LTD.

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of Québec and Ontario (the "Jurisdictions") has received an application from a wholly-owned subsidiary of Aikawa Iron Works Co., Ltd. (the "Applicant"), in connection with a potential take-over bid (the "Bid") for Advanced Fiber Technologies (AFT) Income Fund ("AFT"), for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation") that:

1. the requirement of the Legislation that (a) the Subsequent Acquisition Transaction (as defined below) be approved at a meeting of the unitholders of AFT (the "Unitholders"), and (b) an information circular be sent to the Unitholders in connection with the Subsequent Acquisition Transaction, be waived; and

2. the application and this MRRS Decision Document granting waiver of such requirement be maintained confidential until the earlier of:

(a) 90 days from the date of this Decision Document;

(b) such time as the Bid is announced; and

(c) one business day after notice to the Applicant and Stikeman Elliott LLP of the Autorité des marchés financiers du Québec ("AMF") or the Ontario Securities Commission's intention to remove confidentiality.

(collectively, the "Requested Relief").

Under the Mutual Reliance Review System for Exemptive Relief Applications

(a) the AMF is the principal regulator, for this application, and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 -- Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following representations by the Applicant:

1. The outstanding units of AFT (the "Units") are held by The Canadian Depository Securities Limited in book-entry only form.

2. If the Applicant decides to proceed with the Bid, it is currently expected that:

(a) the Bid would be for all of the outstanding Units in consideration for a specified amount in cash to represent a premium to the market price of the Units at a level to be determined;

(b) a condition of the Bid, among other conditions, would be that there shall have been validly deposited under the Bid and not withdrawn at the expiry of the Bid that number of Units (including the Units held at the date of the Bid by or on behalf of the Applicant or an affiliate or associate of the Applicant) representing at least 662/3% of the Units, on a fully-diluted basis, at the time Units are taken up under the Bid (the "Minimum Condition");

(c) in the event that the conditions to the Bid are satisfied (or waived by the Applicant) and the Applicant takes up and pays for Units deposited pursuant to the Bid, the Applicant may proceed with a compulsory acquisition of the Units not deposited to the Bid (the "Compulsory Acquisition") as permitted by AFT's declaration of Trust (the "Declaration of Trust") and acquire such Units, for the same consideration per Unit as was paid under the Bid, if within 120 days after the date of the Bid, the Applicant has taken up and paid for not less than 90% of the Units (other than Units held at the date of the Bid by or on behalf of the Applicant or an affiliate or an associate of the Applicant).

(d) If the Compulsory Acquisition permitted under the Declaration of Trust is not available to the Applicant, the Applicant may proceed with a subsequent acquisition transaction (the "Subsequent Acquisition Transaction") by seeking a resolution to amend the Declaration of Trust to provide that a Compulsory Acquisition may be effected if the Applicant, after take-up and payment of Units deposited under the offer, holds not less than 662/3% of the Units calculated on a fully-diluted basis, provided that if the Subsequent Acquisition Transaction is not pursued in such form, the Applicant reserves the right, subject to compliance with applicable securities laws, to acquire the assets of AFT or the balance of the Units as soon as practicable by way of a statutory arrangement, amalgamation, merger, reorganization, consolidation, recapitalization, repurchase, redemption, Trust Agreement amendment, liquidation, winding-up or other transaction , including a sale of all or any material part or parts of the assets, involving AFT and/or its subsidiaries and the Applicant, Aikawa Iron Works Co., Ltd. or any of their respective subsidiaries;

(e) in order to effect the Subsequent Acquisition Transaction, rather than seeking the Unitholders' approval at a special meeting of the Unitholders to be called for such purpose, the Applicant intends to rely on Section 7.8 of the Declaration of Trust, as it may be amended from time to time, which specifies that a resolution in writing executed by Unitholders holding more than 662/3% of the outstanding Units at any time is for all purposes as valid and binding as if such voting rights had been exercised in favour of such resolution at a meeting of Unitholders;

(f) notwithstanding Section 7.8 of the Declaration of Trust, in certain circumstances the Legislation requires that the Subsequent Acquisition Transaction be approved at a meeting of Unitholders called for that purpose; and

(g) to effect the Subsequent Acquisition Transaction, the Applicant will obtain minority approval, as that term is defined in the Legislation, calculated in accordance with the terms of Section 8.2 of AMF Policy Q-27, and Section 8.2 of OSC Rule 61-501 (the "Minority Approval"), albeit not at a meeting of Unitholders, but by written resolution.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that Minority Approval shall have been obtained, albeit not at a meeting of Unitholders, but by written resolution.