First Choice Products Inc.
Headnote
Application for partial revocation of a cease trade order -- issuer cease traded due to failure to file certain continuous disclosure documents required by Ontario securities law -- issuer has applied for partial revocation of the cease trade order to permit the issuer to proceed with a private placement and debt settlement with accredited investors -- issuer will use proceeds from private placement to prepare and file continuous disclosure documents and pay related fees -- partial revocation granted subject to conditions.
Statutes Cited
Securities Act, R.S.O. 1990, c. S.5, as am., s. 144.
National Policy 12-202 Revocation of Certain Cease Trade Orders.
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED (the Act) AND IN THE MATTER OF FIRST CHOICE PRODUCTS INC.
ORDER (Section 144)
WHEREAS the securities of First Choice Products Inc. (the Applicant) are subject to a cease trade order issued by the Director dated February 22, 2013 (the Cease Trade Order"), pursuant to paragraph 2 of subsection 127(1) and subsection 127(4.1) of the Securities Act (Ontario) (the Act), directing that all trading in the securities of the Applicant cease until the Cease Trade Order is revoked by the Director;
AND WHEREAS the Applicant has applied to the Ontario Securities Commission (the Commission) for a partial revocation of the Cease Trade Order pursuant to section 144 of the Act;
AND UPON the Applicant having represented to the Commission that:
1. The Applicant was incorporated in the province of Alberta under the Companies Act (Alberta) on January 12, 1989 and continued into the Province of British Columbia on April 4, 2014.
2. The Applicant's registered office and principal place of business is located at Simpson Tower, 401 Bay Street, Suite 2100, Mailbox #55, Toronto, Ontario, M5H 2Y5.
3. The Applicant is a reporting issuer under the securities legislation of the provinces of Ontario, British Columbia, and Alberta. The Applicant is not a reporting issuer in any other jurisdiction in Canada.
4. The Applicant's authorized share capital consists of 200,000,000 common shares, voting and participating without par value (the Common Shares). The Applicant currently has 30,800,214 Common Shares issued and outstanding.
5. The Applicant's Common Shares are not listed on any stock exchange or quotation system.
6. The Cease Trade Order was issued against the Applicant, pursuant to paragraph 2 of subsection 127(1) and subsection 127(4.1) of the Act, as a result of the Applicant's failure to file (i) audited financial statements for the year ended September 30, 2012, (ii) management's discussion and analysis (MD&A) relating to the audited annual financial statements for the year ended September 30, 2012, and (iii) certification of the foregoing filings as required by National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (collectively, the Unfiled Documents).
7. The Unfiled Documents were not filed in a timely manner as a result of financial difficulties.
8. Subsequent to the failure to file the Unfiled Documents, the Applicant also failed to file the following documents:
i. annual audited financial statements for the year ended September 30, 2013 and each of the periods ended on September 30 of each year to September 30, 2022;
ii. interim unaudited financial statements for the interim periods ended December 31, 2012 to March 31, 2023;
iii. MD&A relating to the financial statements referred to in subparagraphs i and ii above; and
iv. Certificates required to be filed in respect of the financial statements referred to in subparagraphs i, ii and iii above under National Instrument 52-109 Certification of Disclosure in Filing Annual and Interim Filings
(together, with the Unfiled Documents, the Unfiled Continuous Disclosure).
9. The Applicant is also subject to a cease trade order dated February 4, 2013, issued by the British Columbia Securities Commission (the BCSC), pursuant to subsection 164(1) of the Securities Act (British Columbia) (the BC Act), directing that all trading in the securities of the Applicant cease until the order is revoked by the Executive Director (the BC Cease Trade Order)
10. In addition, the Applicant's securities are also subject to a cease trade order dated May 15, 2013 issued by the Alberta Securities Commission (the ASC), pursuant to paragraph 2, subsection 172(1) of the Securities Act (Alberta) (the Alberta Act), directing that all trading in the securities of the Applicant cease until the order is revoked or varied (the AB Cease Trade Order, together with the BC Cease Trade Order and Cease Trade Order, are collectively referred to as the Cease Trade Orders).
11. Other than the failure to file the Unfiled Continuous Disclosure, the Applicant is not in default of any of the requirements of the Cease Trade Orders or of the Act or the rules and regulations made pursuant thereto. The Applicant's SEDAR and SEDI profiles are up to date.
12. During the period where the Cease Trade Order was effect and between January to March 2014, the then directors of the Applicant distributed Common Shares to 19 investors for proceeds of $105,500 under a private placement. These distributions breached the BC Cease Trade Order, prohibiting any person from trading the Applicant's securities. The BC Cease Trade Order remains in force and a settlement was reached between the BCSC and such directors under the Order and Settlement Agreements: 2017 BCSECCOM 95, 2017 BCSECCOM 94. Although Common Shares were not issued by the Applicant to the investors, the Applicant acknowledges that this amount remains outstanding and owed to such investors.
13. The Applicant has accumulated debt of approximately $32,809 as of the date hereof (the Advanced Funds) owed to Gregory Prekupec (Chief Executive Officer, Chief Financial Officer, and director of the Applicant) and Jason Atkinson (a director of the Applicant) (together, the Purchasers). The Purchasers paid the Advanced Funds on behalf of the Applicant for the necessary accounting, audit, and filing fees in furtherance of seeking a partial revocation of the Cease Trade Order. No instruments were issued by the Applicant in connection with the Advanced Funds; however, such advances are reflected in the financial statements of the Applicant.
14. The Applicant is seeking a partial revocation of the Cease Trade Order to be able to complete a private placement (the Private Placement) in the province on Ontario, whereby the Purchasers will purchase unsecured convertible debentures (the Convertible Debentures) of the Applicant in the amount of up to $118,000. Each Convertible Debenture will be issued in principal amount of $1,000, bearing the interest at an annual rate of 5% payable in arrears in equal installments semi-annually, and maturing on the date that is 24 months from the date of issuance. The principal sum of the Convertible Debentures, or any portion thereof, will be convertible at the holder's option into Common Shares at a price of $0.00190 per Common Share. The Convertible Debentures may only be converted after the full revocation of the Cease Trade Order.
15. The Applicant is also seeking a partial revocation of the Cease Trade Order to be able to issue Common Shares in satisfaction of the debt accumulated from the Advanced Funds at a deemed price of $0.00190 per share owed to Purchasers referred to in paragraph 13 (the Debt Conversion).
16. The Private Placement and Debt Conversion are intended to take place in Ontario. Each distribution made in respect of the Private Placement and Debt Conversion with comply the accredited investor prospectus exemption contained in section 73.3 of the Act and section 2.3 of National Instrument 45-106 Prospectus Exemptions.
17. Each of the Purchasers, being directors and officers of the Applicant, is a "related party", as such term is defined in in Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) and each of the Private Placement and Debt Conversion constitutes a "related party transaction" pursuant to paragraphs (g) and (l) of the definition of that term in MI 61-101. The issuance of the Convertible Debentures to the Purchasers pursuant to the Private Placement is subject to the formal valuation and minority approval requirements in MI 61-101. The Debt Conversion is not subject to the formal valuation requirements in MI 61-101 however, it is subject to the minority approval requirement of MI 61-101. Regarding the Private Placement, the Applicant will rely on the exemption from the formal valuation requirement contained in paragraph 5.5(b) of MI 61-101, since the securities of the Applicant are not listed on any stock exchange. Regarding both the Private Placement and Debt Conversion, the Applicant will rely on the exemption from the minority approval requirement contained in paragraph 5.7(1)(e) of MI 61-101, the financial hardship exemption, which provides an exemption where the financial hardship criteria set out in paragraph 5.7(1)(g) of MI 61-101 are met and where there is no other requirement, corporate or otherwise, to hold a meeting to obtain any approval of the holders of any class of affected securities and (i) the Applicant is insolvent or in serious financial difficulty, ii) the Private Placement and Debt Conversion are designed to improve the financial position of the Applicant, iii) the provisions of paragraph 5.5(f) are inapplicable to the Applicant, iv) the Applicant has one or more independent directors in respect of the transaction, and v) the Applicant's board of directors, acting in good faith, determines, and at least two-thirds of the Applicant's independent directors, acting in good faith, determine that (A) subparagraphs (i) and (ii) apply, and (B) the terms of the Private Placement and Debt Conversion are reasonable in the circumstances of the Applicant. The foregoing shall be disclosed in the disclosure document for the Private Placement and Debt Conversion, being the news release and material change report which material change report will be in compliance with section 5.2 of MI 61-101.
18. The Purchasers currently own no shares or debt of the Applicant. Following the Private Placement and Debt Conversion and on a fully diluted basis, each of the Purchasers will own 39,686,578 Common Shares (individually 36% and in aggregate 72%), which is calculated based on the sum of 62,105,263 Common Shares that are issuable to the Purchasers (31,052,631 Common Shares to each of the Purchasers) upon conversion of the Convertible Debentures under the Private Placement and 17,267,895 Common Shares that will be issued to the Purchasers in connection with the Debt Conversion (8,633,947 Common Shares to each of the Purchasers).
19. The Applicant intends to prepare and file the continuous disclosure documents and pay all outstanding fees within a reasonable period of time following the completion of the Private Placement and Debt Conversion. The Applicant also intends to apply to the Commission, the BCSC, and the ASC to have the Cease Trade Orders fully revoked.
20. The Applicant intends to allocate the proceeds from the Private Placement as follows:
Description
Cost
Accounting, audit and legal fees associated with the preparation and filing of the relevant continuous disclosure documents, as well as the preparation of the materials for the annual meeting, the Private Placement and the applications for the partial revocation order and the full revocation order;
$38,595.50
Filing fees associated with obtaining the partial revocation order and the full revocation order, including fees payable to the applicable regulators, including the Commission;
$68,595.50
Legacy accounts payable, including accounting and legal fees, consulting fees and outstanding transfer agent fees; and
$5,000
Working capital and general and administrative expenses.
$5,809
Total:
$118,000.00
21. The Applicant reasonably believes that the Private Placement will be sufficient to bring its continuous disclosure obligations up to date and pay all related outstanding fees and provide it with sufficient working capital to advance its business.
22. As the Private Placement and Debt Conversion would involve a trade of securities and acts in furtherance of trades, the Private Placement and Debt Conversion cannot be completed without a partial revocation of the Cease Trade Order.
23. The Private Placement and Debt Conversion will be completed in accordance with all applicable laws.
24. Prior to completion of the Private Placement and Debt Conversion, the Applicant will:
(a) provide each of the Purchasers with:
(i) a copy of the Cease Trade Order;
(ii) a copy of the partial revocation order for which the application has been made; and
(b) obtain from each of the Purchasers a signed and dated acknowledgment which clearly states that all of the Applicant's securities, including the securities issued in connection with the Private Placement and Debt Conversion, respectively, will remain subject to the Cease Trade Orders, and that the issuance of a partial revocation order does not guarantee the issuance of full revocation orders in the future.
25. Upon issuance of the partial revocation order, the Applicant will issue a press release announcing the order and the intention to complete the Private Placement and Debt Conversion. Upon completion of the Private Placement and Debt Conversion, the Applicant will issue a press release and file a material change report. As other material events transpire, the Applicant will issue appropriate press releases and file material change reports as applicable.
AND UPON considering the application and the recommendations of staff of the Commission;
AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED, pursuant to section 144 of the Act, that the Cease Trade Order is partially revoked solely to permit the trades in securities of the Applicant (including for greater certainty, acts in furtherance of trades in securities of the Applicant) that are necessary for and are in connection with the Private Placement and Debt Conversion, provided that:
(a) prior to completion of the Private Placement and Debt Conversion, the Applicant will:
(i) provide to each of the Purchasers a copy of the Cease Trade Order;
(ii) provide to each of the Purchasers a copy of this order; and
(iii) obtain from each of the Purchasers a signed and dated acknowledgment, which clearly states that all of the Applicant's securities, including the securities issued in connection with the Private Placement and Debt Conversion, will remain subject to the Cease Trade Orders and that the issuance of a partial revocation order does not guarantee the issuance of full revocation orders in the future.
(b) The Applicant will make available a copy of the written acknowledgements referred to in paragraph (a)(iii) to staff of the Commission on request; and
(c) This order will terminate on the earlier of the closing of the Private Placement and Debt Conversion and 60 days from the date hereof.
DATED this 8th day of May, 2023.