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Volume Independent Purchasers' Stores Ltd. - MRRS Decision
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND AND NEWFOUNDLAND
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR
EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
VOLUME INDEPENDENT PURCHASERS' STORES LTD.
MRRS DECISION DOCUMENT
WHEREAS the Canadian securities regulatory authority or regulator (the "Decision Maker") in each of BritishColumbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island andNewfoundland (collectively the "Jurisdictions") has received an application (the "Application") from Volume IndependentPurchasers' Stores Ltd. ("VIP") for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation")that the requirements contained in the Legislation to be registered to trade in a security and to file and obtain a receiptfor a preliminary prospectus and prospectus (the "Registration and Prospectus Requirements") shall not apply to tradesby VIP of:
1. Class "A" Shares (the "Shares") of VIP and Shareholder Loans (as defined below) to Members (as definedbelow); or
2. Member Loans (as defined below) to Members (as defined below) and/or certain persons closely related to aMember (as defined below);
on and subject to the terms and conditions described herein;
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Saskatchewan Securities Commission is the principal regulator for the Application (the "PrincipalRegulator");
AND WHEREAS VIP has represented to the Decision Makers that:
1. VIP was incorporated pursuant to the laws of Saskatchewan on or about December 6, 1965 and continuedpursuant to the Canada Business Corporations Act by Certificate and Articles of Continuance dated June 17,1987;
2. The head office of VIP is in Saskatoon, Saskatchewan;
3. VIP is not a reporting issuer in any Jurisdiction, and it is not anticipated that it will become a reporting issuerin any Jurisdiction in the foreseeable future;
4. The authorized capital of VIP consists of a maximum of 2,000 shares of a single class, designated Class "A"Shares of which 169 Shares are presently issued and outstanding;
5. The securities of VIP are not listed or quoted for trading on any exchange or over the counter market;
6. Pursuant to VIP's Articles of Continuance, Shares may be transferred only with the consent of VIP's board ofdirectors (the "Board");
7. VIP's 169 outstanding Shares were issued at a price of $1 per Share to, and are held as to one Share eachby, 169 separate shareholders, each of which is an independently owned and operated retailer of furniture,household appliances and/or electronic products (the "Existing Members"). Existing Members are presentlylocated in all Jurisdictions (except Quebec) and in the Yukon;
8. Most Members are closely held private companies or issuers the securities of which are held by one or twoindividuals who are directly involved in the day to day operations of the Member and in some cases the spouseor other immediate family members of such security holders;
9. Membership in VIP is, subject to approval by the Board, open to any person or company who operates as aretailer of furniture, household appliances and/or electronic products (an "Applicant") and, upon acceptance of anapplication and compliance with VIP's Bylaws, an Applicant is issued one Share at a subscription price of $1,whereupon the Applicant becomes a Member of VIP ( the "Member" and as used herein the term refers toExisting Members (for so long as they remain as Members) together with Applicants whose application formembership is hereafter accepted by the Board);
10. Existing Members have made, and Applicants as a condition of Membership, are required to make, to VIP loansin amounts determined from time to time by the Board ("Shareholder Loans"). Pursuant to the Bylaws of VIPsuch Shareholder Loans may be used by VIP as general working capital as required, but the major purposeof such Shareholder Loans is to secure and guarantee the purchases of merchandise by Members from orthrough VIP. As at December 31, 1999, outstanding Shareholder Loans totaled $3,063,209 or, on average,$18,125 per Member. Interest on Shareholder Loans is paid annually at rates determined by the Board, andover the past five years has been paid at the prime rate less 2% per annum. Generally, however, the principalportion of a Member's Shareholder Loan is repaid only upon resignation or other termination of a Member. TheShareholder Loans are akin to the relationship that might exist between a Member (or any furniture retailer) anda manufacturer/wholesale supplier of merchandise who in the ordinary course of business may require theretailer/ buyer to deposit cash or other security to secure ongoing deliveries of inventory;
11. VIP operates a centralized buying and marketing group on behalf of its Members. As such, its principalbusiness and purpose is to purchase merchandise from suppliers on behalf of Members and resell thatmerchandise to Members. VIP currently deals with approximately 275 suppliers on behalf of the members.VIP additionally provides advertising and promotional, administrative and other ancillary services to itsMembers. Pursuant to VIP's Bylaws, all surplus revenues of VIP are allocated to Members on a pro rata basisaccording to the scale of purchases from approved suppliers over the period in which the surplus wasaccumulated;
12. In its fiscal year ended December 31, 1999, VIP had total sales, on a non consolidated basis, of approximately$178,729,000, all of which sales were made to the Members. Additionally, VIP has a wholly owned subsidiary,VIP Distributors Inc. ("Distributors"), which operates a similar centralized buying service on behalf of a separategroup of 268 members. Each member of Distributors is, like the Members, an independently owned andoperated retailer of furniture, appliances and electronics. However, unlike the Members, members ofDistributors have no equity interest in Distributors or VIP and do not participate in the revenues or profits ofDistributors. In the fiscal year ended December 31, 1999, Distributors had total sales of approximately$108,231,000, such that VIP's total sales, on a consolidated basis were approximately $286,960,000;
13. VIP proposes to establish a financing program (the "Program") pursuant to which it will offer for sale (the"Offering") and issue non-convertible debt instruments (referred to as "Member Loans") on substantially thefollowing terms and conditions:
a. Member Loans will be created and authorized for issue pursuant to a trust deed (the "Trust Deed")to be entered into between VIP and a trustee (the "Trustee") licensed to carry on business as a trustcompany in every Jurisdiction;
b. the Trust Deed will authorize VIP to create and issue Member Loans in an aggregate principal amountof up to $20 million, to be evidenced by Member Loan Certificates ("Certificates") to be issued indenominations of $5,000 and/or multiples thereof as VIP may from time to time determine. The termsand conditions of the Member Loans as to maturity dates (which may vary from one to ten years fromthe date of issue), instalment payments prior to maturity (if any) and interest rates may vary fromCertificate to Certificate as determined by the Board and agreed to by the respective subscribers forthe Loans. The Member Loans will not be secured, and it is not anticipated that the Member Loanswill be rated by any recognized rating agency;
c. the Member Loans shall be offered to, and may be subscribed for by, only the following persons andcompanies (collectively "Eligible Subscribers"):
i. Members;
ii. individual directors or senior officers of a Member;
iii. individuals who directly or indirectly "control" (as that term is defined in the Legislation) aMember;
iv. a spouse, spousal equivalent or child of a person mentioned in i, ii or iii above; or
v. a registered retirement savings plan of which an individual mentioned in i, ii, iii or iv aboveis the beneficiary;
d. the Member Loans will not be further tradable except:
i. to another Eligible Subscriber: or
ii. in circumstances where the further trade would be exempt from the Registration andProspectus Requirements;
e. the Offering will begin at a time determined by the Board and will continue for an indefinite period oftime as determined by the Board;
f. prior to accepting any specific subscription from an Eligible Subscriber for a Member Loan VIP shalldeliver to the subscriber a copy of:
i. the Certificate and Articles of Continuance and Bylaws of VIP as amended from time to time;
ii. VIP's most recent annual audited financial statements;
iii. this Decision; and
iv. a written summary of the material terms of the Trust Deed (including, if applicable, anysupplemental deeds) and Program;
g. the proceeds of the Offering will be used to establish a fund which will be drawn against by VIP and/orby Distributors, to pay for merchandise purchased by VIP and/or by Distributors on behalf of Membersand/or on behalf of members of the Distributors buying group and replenished with funds as and whenpayments are received from the respective Members and/or members of the Distributors buying groupon behalf of whom such purchases are made;
h. the Program will replace part of VIP's current revolving credit facilities;
14. The Members and Eligible Subscribers are all engaged, directly or indirectly, in the furniture, householdappliance and/or electronic products retailing business and, therefore, possess substantial knowledge of thatbusiness and of VIP's operations and affairs, which operations are not carried on primarily with a view ofmaking a profit but rather as a means of combining the purchasing power of all Members to enable them toobtain, collectively, better prices and terms for the purchase of inventory used in their respective businesses,and otherwise to facilitate the respective business operations of the Members in an efficient manner and underthe control of the Members;
15. VIP prepares and sends and will continue to prepare and send on an ongoing basis to holders of its securitiesannual audited financial statements. These statements are currently prepared and sent in accordance with therequirements of the Canada Business Corporations Act. These statements will from the date of this DecisionDocument be prepared in accordance with the requirements of the Canada Business Corporations Act and theLegislation for annual audited financial statements and will be sent within 140 days from the end of eachfinancial year of VIP; and
16. Members receive notices of meetings and proxy and management information circulars of VIP on an ongoingbasis as required pursuant to the Canada Business Corporations Act;
AND WHEREAS pursuant to the System this Decision Document evidences the decision of each DecisionMaker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers are of the opinion that it would not be prejudicial to the publicinterest to make this Decision;
THE DECISION of the Decision Makers pursuant to the Legislation is as follows:
1. The proposed trade of Shares by VIP to, and taking of Shareholder Loans from, Members shall not be subjectto the Registration and Prospectus Requirements, provided that:
a. the Shares are issued at a nominal subscription price of $1 and only one Share is issued to eachMember;
b. prior to issuing a Share to, or taking a Shareholder Loan from, any specific Applicant VIP shall deliverto the Applicant a copy of:
i. the Certificate and Articles and Bylaws of VIP as amended from time to time;
ii. VIP's most recent annual audited financial statements;
iii. this Decision; and
iv. a statement to the effect that as a consequence of this Decision certain protections, rightsand remedies provided by the Legislation, including statutory rights of rescission ordamages, will not be available with respect to the acquisition of the Shares and ShareholderLoans and that certain restrictions are imposed on the disposition of the Shares andShareholder Loans;
c. the trade is carried out substantially in the manner described in this Decision; and
d. a subsequent trade in Shares and/or Shareholder Loans shall be deemed a "distribution" if made inthe Province of British Columbia, Alberta, Saskatchewan, Ontario, Quebec, Nova Scotia orNewfoundland, a "primary distribution to the public" if made in the Province of Manitoba or NewBrunswick and a "distribution to the public" if made in the Province of Prince Edward Island, unlesssuch trade is made to VIP or another Member; and
2. Except with respect to the Registration and Prospectus Requirements in the Legislation of Nova Scotia, theproposed trade by VIP of Member Loans to Eligible Subscribers shall not be subject to the Registration andProspectus Requirements, provided that:
a. the Member Loans are offered for sale on substantially the terms and conditions described in the Decision;
b. prior to accepting any specific subscription from an Eligible Subscriber for a Member Loan VIP shall deliver tothe subscriber a copy of:
i. the Certificate and Articles and Bylaws of VIP as amended from time to time;
ii. VIP's most recent annual audited financial statements;
iii. this Decision;
iv. a written summary of the material terms of the Trust Deed (including, if applicable, any supplementaldeeds) and Program; and
v. a statement to the effect that as a consequence of this Decision certain protections, rights andremedies provided by the Legislation, including statutory rights of rescission or damages, may not beavailable with respect to acquisition of the Member Loans and that certain restrictions are imposedon the disposition of the Member Loans; and
c. a subsequent trade in a Member Loan shall be deemed a "distribution" for the purposes of theLegislation if made in the Province of British Columbia, Alberta, Saskatchewan, Ontario, Quebec orNewfoundland, a "primary distribution to the public" if made in the Province of Manitoba or NewBrunswick and a "distribution to the public" if made in the Province of Prince Edward Island unless thetransferee is another Eligible Subscriber who is provided with substantially the same information thatVIP would be required to provide pursuant to this Decision if the transferee was acquiring the MemberLoan directly from VIP.
DATED at Saskatoon, Saskatchewan, on June 16, 2000.
Marcel de la Gorgendière, Q.C.