UNIPCO Ltd. et al.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Application for relief from prospectus requirement in connection with the issuance from time to time of common shares and memberships to members -- The Filers operate a buying group program for the food services industry sector to reduce costs of procurement through volume purchasing and supplier rebates -- securities are not purchased from investment purposes -- members have no expectation of realizing an economic return in their capacity of securityholders -- there is no market for the securities -- relief granted subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53, 74(1).
January 19, 2015
IN THE MATTER OF THE SECURITIES LEGISLATION OF NEW BRUNSWICK AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF UNIPCO LTD., CANADIAN FOOD PURCHASING PROGRAM INC. AND UNIPCO PURCHASING PROGRAM (the Filers)
DECISION
Background
The security regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (the Legislation) that the prospectus requirement contained in the Legislation of the Jurisdictions (the Prospectus Requirement) shall not apply to the:
(i) distribution of common shares (each a UNIPCO Share) of UNIPCO Ltd. (UNIPCO) by UNIPCO to UNIPCO Members (as herein defined) or the first trade of UNIPCO Shares by a UNIPCO Shareholder to another UNIPCO Shareholder, or to a UNIPCO Member (as herein defined); and
(ii) distribution of memberships (each a UNIPCO Membership) in the UNIPCO Program (as herein defined) by the Partnership (as herein defined) to a UNIPCO Member or to a prospective UNIPCO Member or the first trade of a UNIPCO Membership by a UNIPCO Member to another UNIPCO Member, or to a prospective UNIPCO Member.
(the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Financial and Consumer Services Commission is the principal regulator for this application (the Principal Regulator);
(b) the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Quebec, Nova Scotia and Prince Edward Island; and
(c) the decision is the decision of the Principal Regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
Terms defined in National Instrument 14-101 Definitions have the same meaning as is used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filers:
UNIPCO
1. UNIPCO is a corporation incorporated under the Business Corporations Act (New Brunswick) (the NBBCA).
2. UNIPCO's head office and principal place of business is located at 860 Main Street, Moncton, New Brunswick, E1C 1G2.
3. The authorized capital of UNIPCO consists of an unlimited number of UNIPCO Shares with a par value of $100.00 per UNIPCO Share (including both issued and unissued shares); at any given time there shall not be issued and outstanding more than 300 UNIPCO Shares.
4. As of January 8, 2015, there were 210 holders of UNIPCO Shares (UNIPCO Shareholders) and 235 UNIPCO Shares issued and outstanding. Also as of August 21, 2014, the geographical breakdown of UNIPCO shareholdings was as follows:
<<Jurisdiction>>
<<Number of UNIPCO Shareholders>>
<<Number of UNIPCO Shares>>
New Brunswick
81
97
Ontario
0
0
Nova Scotia
80
85
Prince Edward Island
49
53
5. As of January 8, 2015 there were no UNIPCO Shareholders resident in Quebec, however, UNIPCO is intending to extend its operations to Quebec and may wish to issue UNIPCO Shares to residents thereof in the future.
6. All UNIPCO Shareholders are also UNIPCO Members.
7. UNIPCO is not at present, and does not intend to become, a reporting issuer in any jurisdiction.
8. There is no market for the UNIPCO Shares and the UNIPCO Shares are not traded on any market place as defined in National Instrument 21-101 Marketplace Operation.
9. UNIPCO Shares are only offered to UNIPCO Members and each UNIPCO Shareholder holds only one UNIPCO Share per location of operation.
10. UNIPCO Shares are only offered to participants in the food service industry.
11. UNIPCO does not qualify as a private issuer as defined in subsection 2.4(1) of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106).
12. Pursuant to section 38 of UNIPCO's General By-Law, UNIPCO Shares shall not be transferred without first obtaining the written consent of the board of directors of UNIPCO.
CFPP
13. Canadian Food Purchasing Program Inc. (CFPP) is a corporation incorporated under the NBBCA and is a wholly owned subsidiary of UNIPCO.
14. CFPP's head office and principal place of business is located at 860 Main Street, Moncton, New Brunswick, E1C 1G2.
15. The authorized capital of CFPP consists of an unlimited number of common shares (each a CFPP Share) with a par value of $100.00 per CFPP Share; at any given time there shall not be issued and outstanding more than one CFPP Share.
16. As of August 21, 2014, UNIPCO was the only shareholder of CFPP, holding one CFPP Share.
The Partnership
17. UNIPCO and CFPP have entered into a partnership agreement dated April 1, 2011 and are operating as a partnership under the name UNIPCO Purchasing Program (the Partnership).
18. The Partnership was established to further economies of scale in the negotiation with suppliers and distributors (collectively, the distributors) of the purchase price of, and rebates on, food products purchased for the restaurant and food services industry in various Canadian provinces.
19. The Partnership operates the UNIPCO Foodservice Purchasing Program (the UNIPCO Program).
20. UNIPCO Memberships are offered only to participants in the food service industry. UNIPCO Memberships are marketed to potential UNIPCO Members by representatives of the Partnership.
21. Participants in the food services industry who purchase UNIPCO memberships are UNIPCO Members.
22. There is no limit to the number of UNIPCO Members in the UNIPCO Program. As of January 8, 2015 there were 393 UNIPCO Members, 210 of whom are also UNIPCO Shareholders.
<<Jurisdiction>>
<<Number of UNIPCO Members>>
New Brunswick
134
Ontario
89
Nova Scotia
98
Prince Edward Island
61
Québec
11
23. The Partnership does not qualify as a private issuer as defined in subsection 2.4(1) of NI 45-106.
UNIPCO Program
24. The UNIPCO Program is a pricing and rebate program. There are membership fees and minimum annual purchase requirements for UNIPCO Members.
25. The Partnership negotiates with certain distributors on behalf of UNIPCO Members for:
(a) improved product pricing (distributors charge all UNIPCO Members the same cost plus price);
(b) rebates based on volume purchases; and
(c) improved fuel surcharge rates.
26. Rebates that are obtained by the Partnership from distributors as a result of purchases made by UNIPCO Members are paid to the Partnership and passed onto UNIPCO Members based on their proportionate share of the purchases made.
27. The Partnership also receives administrative and management fees from the distributors based on the total purchases made by UNIPCO Members and CFPP Members.
28. In addition, the Partnership negotiates with some manufacturers for bonus payments to be paid to the Partnership based on the volume of purchases made by UNIPCO Members and CFPP Members. These bonuses are distributed to UNIPCO Members only based on their proportionate share of the purchases made.
29. UNIPCO Members receive a share of any surplus (management fees less operating expenses) allocated by the UNIPCO Partnership to UNIPCO based on their proportionate share of the purchases made.
30. As a result of surpluses being paid out to UNIPCO Members, capital is not available to distribute dividends to UNIPCO Shareholders in the form of dividends.
31. The Partnership charges administrative and management fees to the distributors as follows:
(a) 1.5% of total sales from UNIPCO Members in New Brunswick, Nova Scotia, Prince Edward Island and Quebec; and
(b) 0.5% of total sales from all UNIPCO Members in Ontario.
32. The Partnership provides enhanced financial analysis services to potential UNIPCO Members to demonstrate to them savings they could obtain through participation in the UNIPCO Program.
33. From time to time, UNIPCO Members are given the opportunity to also become UNIPCO Shareholders. When UNIPCO redeems the UNIPCO Share of a departing UNIPCO Shareholder, the longest standing UNIPCO Member who is not a UNIPCO Shareholder is eligible to subscribe for a UNIPCO Share.
34. There is no redemption process described in the constating documents of UNIPCO. UNIPCO Shareholders, however, wishing to redeem their UNIPCO Shares can, at any time, tender such shares to UNIPCO in consideration for $100 per UNIPCO Share, being the same price paid by such shareholder to acquire the UNIPCO Shares.
35. UNIPCO Shareholders can terminate their relationship with UNIPCO by redeeming their shares as described above. In addition, as all UNIPCO Shareholders are required to be UNIPCO Members, any UNIPCO Member that ceases to be a UNIPCO Member must redeem his, her or its UNIPCO Shares. UNIPCO Members wishing to terminate their UNIPCO Membership do so by advising the Partnership of their decision; they, however, cease to be UNIPCO Members automatically if they do not meet certain minimum purchase requirements or if they fail to pay the UNIPCO Membership Fee when due. These minimum purchase requirements as follows:
All UNIPCO Members must agree to pay an initial fee (the UNIPCO Membership Fee) and must agree to make minimum annual purchases for the right to participate in the UNIPCO Program (there are no fees payable to participate in the CFPP Program). The UNIPCO Membership Fee is $4,500 for one location, $1,500 for a second location, $1,000 for a third location and $500 for any additional locations. The UNIPCO Membership Fee is not paid for at the outset, but is deducted from any rebates flowing to the UNIPCO Member until paid in full.
36. Other than as stated above, UNIPCO Shareholders and UNIPCO Members have the same rights and entitlements in relation to the UNIPCO Program. UNIPCO Shareholders, however, have additional rights pursuant to the NBBCA, including the right to vote on matters respecting UNIPCO.
37. UNIPCO Memberships are transferable only upon first obtaining the consent of UNIPCO.
No Investment Intent
38. The UNIPCO Shares and UNIPCO Memberships are being purchased for a business purpose, and not with any investment intent.
39. The Issuance of UNIPCO Shares and UNIPCO Memberships as described above in paragraphs 4 and 22 were not issued pursuant to available statutory or discretionary prospectus exemptions pursuant to the Legislation. The Filers are not in default of any other requirements under the Legislation.
Decision
Each of the Decision Makers is satisfied that the decision meets the test contained in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that the Exemption Sought is granted, provided that:
(a) prior to the distribution of a UNIPCO Share by UNIPCO to a UNIPCO Member, and prior to a first trade of a UNIPCO Share by a UNIPCO Shareholder to another UNIPCO Shareholder, or to a UNICPO Member, UNIPCO or the UNIPCO Shareholder, as the case may be, shall deliver to the transferee of the UNIPCO Shares, a copy of:
(i) the Articles and by-laws of UNIPCO and all amendments thereto;
(ii) the most recent annual Review Engagement Financial Statements (as defined in the Canadian Institute of Chartered Accountants Handbook) (the Review Engagement Financial Statements) of UNIPCO, and a copy of any subsequent interim financial statements;
(iii) this decision; and
(iv) a statement to the effect that, as a consequence of this decision, certain protections, rights and remedies provided by the Legislation, including the statutory rights of rescission or damages, will not be available to the UNIPCO Shareholder and that certain restrictions are imposed on the subsequent disposition of the UNIPCO Share.
(b) UNIPCO prepares and sends the Review Engagement Financial Statements to each UNIPCO Shareholder on an annual basis.
(c) the first trade of a UNIPCO Share by a holder thereof to a person other than a UNIPCO Shareholder or UNIPCO Member is deemed to be a distribution.
(d) prior to the distribution of a UNIPCO Membership by the Partnership to a UNIPCO Member or to a prospective UNIPCO Member and prior to a first trade of a UNIPCO Membership by a UNIPCO Member to another UNIPCO Member or to a prospective UNIPCO Member, the Partnership or the UNIPCO Member, as the case may be, shall deliver to the transferee of the UNIPCO Membership a copy of:
(i) the Partnership Agreement;
(ii) the most recent annual Review Engagement Financial Statements of the Partnership, and a copy of any subsequent interim financial statements;
(iii) this decision; and
(iv) a statement to the effect that, as a consequence of this decision, certain protections, rights and remedies provided by the Legislation, including the statutory rights of rescission or damages, will not be available to the UNIPCO Member and that certain restrictions are imposed on the subsequent disposition of the UNIPCO Membership.
(e) the Partnership prepares and sends the Review Engagement Financial Statements to each UNIPCO Member on an annual basis.
(f) the first trade of a UNIPCO Membership by a holder thereof to a person other than aUNIPCO Member is deemed to be a distribution.
(g) the exemptions contained in this Decision cease to be effective if any of the provisions of the articles of incorporation of UNIPCO, or the Partnership Agreement, relevant to the exemptions granted by this ruling are amended in any material aspect without written notice to, and consent of, the Decision Maker.
DATED at Saint John, New Brunswick this 19th day of January 2015.