Securities Law & Instruments


Fund to sell operating entity to third party - sale of operating entity a "business combination" within meaning of Rule 61-501 - operating entity has existing management agreement with Clarke - Clarke a "related party" of the Fund within meaning of Rule 61-501 - termination of management agreement with Clarke to generate termination fee that constitutes a "collateral benefit" to Clarke within meaning of Rule 61-501 - Clarke therefore an "interested party" and units of fund held by Clarke to be excluded under Part 8 of Rule 61-501 in determining minority approval - significant shareholder of Clarke indirectly entitled to only de minimis portion of termination fee - significant shareholder of Clarke permitted to include its fund units in determining minority approval under Part 8 of Rule 61-501.

Rules Cited

Rule 61-501 Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions Securities, Parts 1, 4, 8, 9.

December 20, 2006







RULE 61-501 ("Rule 61-501")






(section 9.1)

WHEREAS Halterm Income Fund (the Fund) has applied to the Director (the Application) for a decision pursuant to Section 9.1 of Rule 61-501 that, in connection with a business combination (the Proposed Transaction) involving the sale of all of the common shares (the Shares) and 12% unsecured, subordinated promissory notes (the Notes) and certain other indebtedness of Halterm Limited (Halterm), a wholly owned subsidiary of the Fund, to 6461433 Canada Limited (the Purchaser), a company formed and wholly owned by Macquarie Infrastructure Partners, followed by the redemption of all of the outstanding trust units of the Fund (Units), the Fund shall not be subject to the requirements in Section 4.5 of Rule 61-501 excluding the Units held by Geosam Investments Limited (Geosam) from determining minority approval for the Proposed Transaction, provided that the Fund complies with the other applicable provisions of Rule 61-501;

AND WHEREAS defined terms contained in Rule 61-501 have the same meaning in this decision unless they are defined in this decision

AND WHEREAS the Fund has represented to the Director as follows:

1. The Fund is a limited purpose trust established under the laws of the Province of Nova Scotia. The Fund is a reporting issuer (or equivalent) in each of the provinces of Canada and is not in default of any requirement of the Securities Act (Ontario) or the regulations or rules made thereunder.

2. The issued and outstanding capital of the Fund consists of 8,072,850 Units. The Units are listed and traded on the Toronto Stock Exchange.

3. As at December 6, 2006, Geosam owned 1,262,992 Units, representing approximately 15.64% of all outstanding Units, and Clarke Inc. (Clarke) owned 295,408 Units, representing approximately 3.66% of all outstanding Units

4. As at December 6, 2006, Geosam owned approximately 19.35% of the outstanding common shares of Clarke. For the purposes of Rule 61-501, Geosam is a related party of Clarke.

5. Under the terms of the Proposed Transaction, Geosam can expect to receive approximately $23,983,700 for its Units.

6. The Fund owns all of the issued and outstanding Shares and Notes of Halterm. Halterm operates a container terminal and cargo handling facility located on a 72-acre site in the Port of Halifax, Nova Scotia.

7. Halterm and Clarke are party to a management agreement (the Management Agreement) dated May 13, 1997, as amended, pursuant to which Clarke provides management and advisory services in respect of Halterm's business. Consequently, Clarke is a related party of the Fund for purposes of Rule 61-501.

8. On October 12, 2006, in order to facilitate a possible transaction, the Fund, Halterm and Clarke entered into an agreement providing Halterm with the right to terminate the Management Agreement in the event that the Fund enters into an agreement for the sale of all of the outstanding Shares.

9. On November 6, 2006, the Fund and the Purchaser entered into a purchase agreement (the Purchase Agreement), pursuant to which the Fund agreed to sell to the Purchaser all of the outstanding Shares and Notes and certain other indebtedness of Halterm, which represent substantially all of the assets of the Fund.

10. It is a condition precedent in the Purchase Agreement for the benefit of the Purchaser that the Fund cause Halterm to terminate the Management Agreement. In connection with such termination, Halterm would be required to pay Clarke a termination fee (the Termination Fee) of approximately $537,000 under the Management Agreement. The Termination Fee is a collateral benefit under Rule 61-501. Geosam's indirect pro rata interest (the Indirect Interest) in the Termination Fee as a shareholder in Clarke amounts to approximately $103,910. The Termination Fee has been disclosed in the management information circular prepared in connection with the Proposed Transaction.

11. Following completion of the sale of Halterm to the Purchaser, the Fund intends to use the proceeds of the sale, net of certain expenses of the Fund, to redeem all of the outstanding Units. The Fund will be wound up following the redemption of the Units.

12. The Fund has called a special meeting (the Meeting) of holders of Units (Unitholders) for December 21, 2006 at which the Unitholders will be asked to approve the Proposed Transaction.

13. For the Proposed Transaction to be approved in accordance with the Fund's declaration of trust, it must be approved by the votes of Unitholders representing more than 66?% of the Units represented at the Meeting. Geosam, Clarke and Harry R. Steele (who held 1,148,992 Units or approximately 14.23% of all outstanding Units as at December 6, 2006) have entered into agreements with the Purchaser requiring them to vote to approve the Proposed Transaction.

14. A committee of trustees of the Fund and directors of Halterm (the Special Committee) was established by the Fund to supervise the potential sale of Halterm and to examine other alternatives aimed at maximizing Unitholder value. The Special Committee is independent of each of the Purchaser, Clarke and Geosam.

15. The Special Committee retained National Bank Financial Inc. as an independent financial advisor. National Bank Financial Inc. has delivered a fairness opinion dated November 3, 2006 to the trustees of the Fund and the Special Committee to the effect that the consideration to be paid by the Purchaser under the Purchase Agreement is fair, from a financial point of view, to the Fund.

16. The members of the Special Committee unanimously resolved to recommend to the trustees of the Fund that they approve the Proposed Transaction and recommend the Proposed Transaction to Unitholders. In addition, the Special Committee determined that it would be appropriate for the Fund to apply for the relief requested in this application after considering the relative size of Geosam's indirect interest in any collateral benefit received as a consequence of the Proposed Transaction.

17. The Proposed Transaction constitutes a business combination under Rule 61-501. Unless discretionary relief is granted, the Units held by Geosam would be excluded under Part 8 of Rule 61-501 in determining minority approval for the Proposed Transaction because Geosam is a related party of Clarke, which is an interested party for purposes of Section 8.1 of Rule 61-501.

18. Subject to certain conditions, the definition of collateral benefit in Rule 61-501 excludes a benefit received by a related party of an issuer that is received solely in connection with the related party's services as a consultant of the issuer or an affiliated entity of the issuer, provided that the value of the benefit is less than 5% of the amount the related party expects it will be beneficially entitled to receive under the terms of a business combination (the "de minimis exemption").

19. The value of the Indirect Interest is less than 0.5% of the amount of consideration Geosam can expect to receive under the terms of the Proposed Transaction. However, Geosam cannot rely on the de minimis exemption because the exemption is calculated only with reference to the collateral benefit received by Clarke and not with reference to Geosam's indirect interest in the collateral benefit received by Clarke.

AND WHEREAS the Director is satisfied that to do so would not be prejudicial to the public interest;

IT IS DECIDED, pursuant to Section 9.1 of Rule 61-501, that in connection with the Proposed Transactions, the Fund is exempt from section 4.5 of Rule 61-501 provided that

(a) minority approval is obtained from the holders of every class of affected securities of the Fund, in each case voting separately as a class, and

(b) in determining minority approval, the Fund excludes the votes attached to affected securities that, to the knowledge of the Fund (including, for the purpose of this paragraph (b), any underlying operating entity of the Fund) or any interested party or their respective directors or senior officers, after reasonable inquiry, are beneficially owned or over which control or direction is exercised by

(i) the Fund;

(ii) an interested party;

(iii) a related party of an interested party (other than Geosam), unless the related party meets that description solely in its capacity as a director or senior officer of one or more entities that are neither interested parties nor issuer insiders of the Fund; or

(iv) a joint actor with a person or company referred to in paragraph (ii) or (iii) in respect of the Proposed Transaction.

"Naizam Kanji"
Ontario Securities Commission