Securities Law & Instruments

Headnote

MRRS application for relief from registrationand prospectus requirements in connection with trades in securitiesof a retailer-owned co-operative to members of another co-operativeand to certain customers of that co-operative - purpose of thetrades is to foster proposed business alliance between the twoco-operatives - members not investors in a conventional senseand share issuance not primarily a financing vehicle for theapplicant - relief granted subject to conditions, includingfirst trade restrictions.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 25, 53 and 74(1).

Applicable Rules

Multilateral Instrument 45-102: Resale of Securities.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

MANITOBA AND ONTARIO

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

TRUSERV CANADA CO-OPERATIVEINC.

 

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof the Provinces of Manitoba and Ontario (the "Jurisdictions")has received an application filed on behalf of Truserv CanadaCo-operative Inc. (the "Filer") for a decision underthe securities legislation of the Jurisdictions (the "Legislation")that the registration requirement and prospectus requirementcontained in the Legislation (the "registration and prospectusrequirements") shall not apply to trades in securitiesof Truserv to GROWMARK, Inc. ('GROWMARK"), Ontario GROWMARKMembers (as defined below) and Country Depot Dealers (as definedbelow) pursuant to a proposed business alliance between Truservand GROWMARK.

AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),The Manitoba Securities Commission is the principal regulatorfor this application;

AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions;

AND WHEREAS the Filer has representedto the Decision Makers that:

1. TruServ is a co-operative originally incorporatedunder the Canada Cooperatives Association Act by Articlesof Association dated January 31, 1992 under the name "CotterCanada Hardware and Variety Cooperative". The Articlesof Association of TruServ were amended by Articles of Amendmentdated December 29, 1997 and Articles of Amendment dated May21, 1999. Pursuant to the Certificate of Supplemental Registrationdated July 6, 1999, the name of the cooperative was changedto "TruServ Canada Cooperative Inc." Pursuant toArticles of Amendment dated September 27, 2001, TruServ wascontinued under the Canada Cooperatives Act. Pursuantto Articles of Amendment dated November 18, 2002, TruServamended its authorized share capital. TruServ's registeredand head offices are located in Winnipeg, Manitoba.

2. TruServ is a 100% retailer-owned co-operativewith more than 575 member stores across Canada operating underthe trade names of True Value Hardware, V&S DepartmentStores, V&S Options and Pet Junction. TruServ supplieshardware, tools, paint, electrical, plumbing, lawn and garden,automotive, sporting goods, housewares, stationary, toys,pet food and supplies, domestics, apparel and crafts to itsmember stores.

3. TruServ is not a reporting issuer in anyjurisdiction and none of its securities are listed for tradingon any stock exchange.

4. The authorized capital of TruServ is comprisedof the following:

(a) an unlimited number of Class A MembershipShares,

(b) an unlimited number of Class B InvestmentShares,

(c) an unlimited number of Class C InvestmentShares,

(d) an unlimited number of Class D InvestmentShares, and

(e) an unlimited number of Class E InvestmentShares.

5. As at the date hereof, there are 9,880Class A Membership Shares and 62,327 Class B Investment Sharesissued and outstanding.

6. Class A Membership Shares evidence membershipin TruServ. Holders of such shares have a right to vote, areentitled to receive dividends when, as and if declared thereonby the board of directors of TruServ and, in the event ofliquidation, dissolution or winding up of TruServ, are entitledto share the property and assets of TruServ ratably with theholders of Class B Investment Shares, subject to the preferenceof holders of Class C Investment Shares, Class D InvestmentShares and Class E Investment Shares. Class A Membership Sharesare also redeemable by TruServ at any time upon payment ofthe issue price of such shares ($100.00).

7. Class B Investment Shares represent thepatronage returns paid to holders of Class A Membership Shares.Holders of such shares have no right to vote (except as providedunder the CCA), are not entitled to receive dividends and,in the event of liquidation, dissolution or winding up ofTruServ, are entitled to share the property and assets ofTruServ ratably with the holders of Class A Membership Shares,subject to the preference of holders of Class C InvestmentShares, Class D Investment Shares and Class E Investment Shares.Class B Investment Shares are also redeemable by TruServ atany time upon payment of the issue price for such shares ($100.00).

8. Class C Investment Shares are evidenceof capital contributions to TruServ. Holders of such shareshave no right to vote (except as provided under the CCA),are entitled to receive dividends when, as and if declaredthereon by the board of directors of TruServ, and, in theevent of liquidation, dissolution or winding up of TruServ,are entitled to receive an amount equivalent to the redemptionprice for each share, together with all dividends declaredand remaining unpaid on such shares, in priority to amountsdistributed to holders of any Class A Membership Shares, ClassB Investment Shares or Class D Investments Shares. The ClassC Investment Shares are also redeemable by TruServ at anytime upon payment of the issue price for such shares. No ClassC Investment Shares are issued and there is no intention atthis time for such issuance.

9. Class D Investment Shares are evidenceof capital contributions to TruServ by the members of a federation(a cooperative of cooperatives). Holders of Class D InvestmentShares are entitled to vote for the election of directorsof TruServ in conjunction with the holders of Class A MembershipShares and, in the event of liquidation, dissolution or windingup of TruServ, the holders of Class D Investment Shares areentitled to receive an amount equivalent to the redemptionprice for such share, together with all dividends declaredand remaining unpaid on such Class D Investment Shares, inpriority to amounts distributed to the holders of any ClassA Membership Shares or Class B Investment Shares, but afterpayment to holders of Class C Investment Shares. The ClassD Investment Shares are also redeemable by TruServ at anytime upon payment of the issue price for such shares.

10. Class E Investment Shares are evidenceof capital contributions to TruServ. Holders of Class E InvestmentShares have no right to vote, other than the right to electone director of TruServ as a separate class in the event theaggregate dollar value of the products purchased by the membersof the holder of the Class E Investment Shares from TruServin either of the two (2) twelve-month fiscal periods of TruServpreceding the election of directors represents at least ten(10%) percent of the total revenue of TruServ in respect ofthe applicable preceding twelve-month fiscal period. The ClassE Investment Shares are also redeemable by TruServ at anytime upon payment of the issue price for such shares.

11. GROWMARK is a corporation, which was incorporatedunder the laws of the State of Delaware in 1962 under thename "FS Services Inc." ("FS Services Inc."changed its name to "GROWMARK, Inc." in 1980. GROWMARKis based in Bloomington, Illinois and has a distribution centerand Canadian office located in Mississauga, Ontario.

12. GROWMARK is an "accredited investor"within the meaning of Ontario Securities Commission Rule 45-501("OSC 45-501").

13. GROWMARK carries on business as a federatedagricultural co-operative, primarily in the states of Illinois,Wisconsin and Iowa and in the Province of Ontario. It providesproducts and services to its Agronomy and Consumer Divisionco-operative members and to Country Depot dealers locatedin Ontario (the "Country Depot Dealers").

14. The member companies of GROWMARK consistof approximately 327 agricultural co-operatives located primarilyin Illinois, Wisconsin, Iowa and Ontario. As of the date hereof,there are 27 members of GROWMARK resident in Ontario ("OntarioGROWMARK Members"), each of which is a corporation incorporatedunder the Co-operative Corporations Act (Ontario) (the"OCCA") and approximately 40 Country Depot Dealerslocated in Ontario.

15. Pursuant to an agreement to be dated onor about January 6, 2003 (the "Agreement"), Truservwill purchase certain assets (primarily the inventory andgoodwill of the consumer products business carried on in Canadaby GROWMARK), and assume specified liabilities (primarilyongoing contracts), of GROWMARK.

16. In connection with the business alliance,each of the Country Depot Dealers will be offered 20 ClassA Membership Shares of TruServ at a price of $100 per share.In addition, each of the Ontario GROWMARK Members will beoffered one (1) Class D Investment Share of TruServ at a subscriptionprice of $2,000 per share or, in the event that TruServ determinesthat issuing Class D Investment Shares to Ontario GROWMARKMembers would result in unfavourable tax consequences to TruServ,each of the Ontario GROWMARK Members will be offered 20 ClassA Membership Shares at an aggregate subscription price of$2,000. The purpose of the Country Depot Dealers becomingmembers of TruServ and the Ontario GROWMARK Members becomingshareholders (or members) of TruServ is to facilitate thebusiness alliance and commercial relationship between TruServand the Country Depot Dealers and between TruServ, GROWMARKand the Ontario GROWMARK Members.

17. The purchase price will be paid by TruServto GROWMARK partially in cash, and a short term promissorynote, partially by way of the assumption of specified liabilitiesof GROWMARK and partially by way of the issuance of certainsecurities of TruServ to GROWMARK as follows:

(a) Class B Investment Shares will be issuedto GROWMARK as principal at an issue price of $100.00 pershare for 40% of the value of the inventory purchased byTruserv from GROWMARK. The balance of the purchase pricewhich is not paid in cash, or short term promissory notes("Promissory Notes"), will be satisfied throughthe assumption of liabilities and through the issuance ofshares referred to in paragraphs (b) through (d) below;

(b) 20 Class A Membership Shares will beissued to GROWMARK as principal at an issue price of $100.00per share; and

(c) 1 Class E Investment Share will be issuedto GROWMARK at an issue price of $2,000 per share.

Under the Agreement, TruServ will agree notto redeem the Class A Membership Shares, the Class B InvestmentShares or the Class E Investment Shares held by GROWMARK unlessGROWMARK is in breach of a material membership obligationowed to TruServ. The Articles of TruServ provide that, inrespect of any proposed disposition of shares of TruServ bya shareholder other than a disposition of investment sharesfrom one member of TruServ to another, TruServ has a rightof first refusal to purchase shares for the redemption priceof such shares.

18. Upon completion of the transactions describedabove, from time to time TruServ will pay patronage returnsto the holders of Class A Membership Shares, including CountryDepot Dealers and GROWMARK. The patronage returns paid toGROWMARK will be based upon the aggregate of the patronageof the Ontario GROWMARK Members (who will acquire Class DInvestment Shares following the completion of the transactionsdescribed in the Agreement and upon the granting of the reliefrequested herein) with respect to Truserv's goods and services.Truserv will pay patronage returns through the issuance ofadditional Class B Investment Shares and, after certain capitalrequirements are met, paid in cash. Since the Class D InvestmentShares do not provide the holder thereof to the right to receivepatronage returns, the Ontario GROWMARK Members will participatein patronage returns to the extent that they are permittedto do so under their membership arrangements with GROWMARK.

19. The following is a summary of trades inTruServ securities in connection with the Agreement:

(a) TruServ's issuance to GROWMARK of ClassA Membership Shares (the "GROWMARK Class A Trades");

(b) TruServ's issuance to the Country DepotDealers of Class A Membership Shares (the "CountryDepot Class A Trades");

(c) TruServ's issuance to GROWMARK of ClassB Investment Shares (the "Class B Trades");

(d) TruServ's issuance of one (1) ClassD Investment Share or 20 Class A Membership Shares to eachOntario GROWMARK Member (the "Ontario GROWMARK MemberTrades");

(e) TruServ's issuance to GROWMARK of one(1) Class E Investment Share (the "Class E Trade");and

(f) TruServ's issuance to GROWMARK of thePromissory Notes (the "Promissory Notes Trades").

20. The primary purpose of the ownership ofthe shares of Truserv by GROWMARK, the Ontario GROWMARK Membersand the Country Depot Dealers is not for investment, but forthe purpose of facilitating the overall commercial relationshipand business alliance between TruServ, GROWMARK and the OntarioGROWMARK Members and between TruServ and the Country DepotDealers. The Ontario GROWMARK Members will be purchasing consumerproducts and other goods sold by TruServ for resale to theirmembers on a co-operative basis. The Country Depot Dealerswill become full members in TruServ and will purchase consumerproducts and goods sold by TruServ for resale.

21. The GROWMARK Members and the Country DepotDealers will be involved in a close business relationshipwith TruServ and, as such, the prospectus and registrationrequirements are not necessary with respect to the CountryDepot Class A Trades and the Ontario GROWMARK Member Trades.

22. Each of the Ontario GROWMARK Members andthe Country Depot Dealers will voluntarily choose whetheror not to subscribe, or accept, shares of Truserv.

23. The issue price for each of the ClassA Membership Shares and Class D Investment Shares is repayableby TruServ at the time that such shares are redeemed.

24. The Class D Investment Shares entitlethe holder thereof to notice of, to attend and to vote atthe election of directors of Truserv. Holders of such sharesare not entitled to receive any dividends. The Class D InvestmentShares have been created and, subject to TruServ determiningthat such issuance will not have unfavourable tax consequencesto it, will be issued to the Ontario GROWMARK Members in orderto provide such members with the right to vote at the electionof directors of TruServ.

25. In the absence of the relief requestedherein, the Country Depot Class A Trades and the Ontario GROWMARKMember Trades would not be exempt from the registration andprospectus requirements of the Legislation.

AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;

THE DECISION of the Decision Makers underthe Legislation is that the registration and prospectus requirementsdo not apply to the Country Depot Class A Trades and the OntarioGROWMARK Member Trades, provided that the first trade in sharesissued pursuant to such trades shall be deemed to be a distributionor a primary distribution to the public, as the case may be,unless the conditions in subsections (2) or (3) of section 2.5of Multilateral Instrument 45-102 Resale of Securities are satisfiedor unless such trade are otherwise exempt from the registrationand prospectus requirements of the Legislation.

January 31, 2003.

"Doug Brown"