National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – National Instrument 62-104 Take-Over Bids and Issuer Bids, s. 6.1 – An issuer requires an exemption from all issuer bid requirements in connection with a repurchase of its securities – The issuer is a cooperative in a specific industry; membership is limited to members within the same industry who have used the services of the issuer; members are familiar with the business and operations of the issuer; the investment shares of the issuer trade on a private marketplace that can only be accessed by members; inactive members are often unable to dispose of their investment shares due to low liquidity; the issuer will offer to repurchase investment shares from members who meet certain criteria; repurchases by the issuer within any 12 month period will not exceed 5% of shares outstanding at the beginning of the 12 month period.
Applicable Legislative Provisions
National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.
March 18, 2020
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
AGRIFOODS INTERNATIONAL COOPERATIVE LTD.
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) that the issuer bid requirements set out in Part 2 of National Instrument 62-104 Take-Over Bids and Issuer Bids (NI 62-104) do not apply to certain repurchases by the Filer of investment shares (Investment Shares) of the Filer in one or more transactions that meet certain conditions (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
- the British Columbia Securities Commission is the principal regulator for this application;
- the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, Manitoba and Saskatchewan (together with the Jurisdictions, the Relief Jurisdictions); and
- the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 62-104 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
- the Filer is a cooperative organized under the Canada Cooperatives Act (the Federal Co-Op Act);
- the Filer is not a reporting issuer in any jurisdiction and has no intention of becoming a reporting issuer;
- the members of the Filer are dairy producers located in each of the Relief Jurisdictions; the Filer offers its members the service of picking up milk from their farms and delivering the milk to dairies for processing; the ability of some members to use this service is limited by provincial milk board regulations or policies;
- the Filer’s capital structure consists of:
- an unlimited number of membership shares (Membership Shares) with a par value of $1.00 per Membership Share, owned by active dairy producers, and
- an unlimited number of Investment Shares without par value, owned by individuals or entities no longer active in dairy farming, including estates of deceased dairy farmers, and shareholders, partners and other participants of entities that own Membership Shares;
- the Filer currently has:
- approximately 800 members (Members) who are actively involved in dairy farming;
- approximately 2,100 auxiliary members (Auxiliary Members) who either:
- were previously, but are no longer, active in dairy farming but have a continuing interest in the Filer in the form of Investment Shares; or
- are shareholders of active or formerly active corporate Members or partners of or participants in active or formerly active unincorporated Members;
- under the Federal Co-Op Act and the Articles and By-laws of the Filer:
- only Members and Auxiliary Members are able to hold Investment Shares;
- membership is limited to current Members, and may be granted by the Filer to active dairy producers licensed by the provincial milk board in one of the Relief Jurisdictions who are (i) capable of using the services of the Filer, and (ii) use the Filer’s services unless prevented from doing so by provincial milk board regulations, orders or policies; and
- auxiliary membership is limited to current Auxiliary Members, Members who have ceased dairy farming but continue to hold Investment Shares, and shareholders, partners or other owners of Members and Auxiliary Members who are admitted to auxiliary membership in the Filer;
- there are currently Members in all Relief Jurisdictions and Auxiliary Members in all Relief Jurisdictions;
- the Articles of the Filer provide that Investment Shares may be issued and transferred only to:
- Members or Auxiliary Members;
- the executor or administrator of the estate of a Member or Auxiliary Member, provided that the executor or administrator may only hold and sell the Investment Shares owned by the deceased person at the time of his or her death and any additional Investment Shares issued to the deceased’s estate as a result of the mandatory investment of patronage returns (which are annual distributions to Members based on pro rata usage of the Filer’s services) to the deceased’s estate, but the executor or administrator may not otherwise acquire additional Investment Shares; and
- employees of the Filer;
- no person or shareholder group can hold more than five percent of the issued and outstanding Investment Shares; previously issued Investment Shares can be transferred only to a person who has been a Member or Auxiliary Member for at least 12 months before the date of transfer;
- pursuant to exemptive relief granted by the securities regulators in British Columbia, Alberta and Saskatchewan dated February 28, 2006, the Filer operates a private marketplace (Trading System) through which Members and Auxiliary Members may trade their Investment Shares;
- trading data on the Trading System is available only to Members and Auxiliary Members through a password protected website; as such, the trading data from the Trading System is not available to the public;
- the actual trading volume of Investment Shares on the Trading System is small (on average, no more than 0.06% of the Investment Shares trade in any month, and in some months there are no trades) and accordingly holders of Investment Shares (Investment Shareholders) who wish to divest of their Investment Shares are often unable to do so in a timely fashion or on terms acceptable to the sellers;
- each Member and Auxiliary Member is provided with the Filer’s annual financial statements and periodic newsletters with information regarding the Filer;
- each Member and Auxiliary Member has access to trading data and information about the Filer through the Trading System website;
- the inability of Investment Shareholders to divest of their Investment Shares has the greatest impact on Auxiliary Members who are no longer active dairy producers and, other than their Investment Share holdings, no longer maintain an interest in the dairy industry or the operations of the Filer, including estates of deceased Investment Shareholders which cannot be fully disgorged due to holding the illiquid Investment Shares;
- making an issuer bid to all Investment Shareholders (being both Members and Auxiliary Members) on a proportionate basis is unlikely to accomplish the objective of allowing the target group of Investment Shareholders who no longer have an interest in participating in the operations of the Filer, particularly elderly Auxiliary Members and estates, to fully divest of all their Investment Shareholdings on a timely basis or on acceptable terms;
- Section 4.9 of NI 62-104 provides an exemption (the Exemption) from the issuer bid requirements of Part 2 of NI 62-104 if:
- the offeree issuer is not a reporting issuer;
- there is no published market for the securities that are the subject of the bid; and
- the number of security holders of that class of securities at the commencement of the bid is not more than 50, exclusive of holders who (i) are in the employment of the offeree issuer or an affiliate of the offeree issuer, or (ii) were formerly in the employment of the offeree issuer or in the employment of an entity that was an affiliate of the offeree issuer at the time of that employment, and who while in that employment were, and have continued after that employment to be, security holders of the offeree issuer; and
- as the Filer has more than 50 holders of Investment Shares that are not current or former employees of the Filer or an affiliate of the Filer, and as there is a market for the securities that would be the subject of the bid (namely the Trading System), the Exemption is not available in respect of the Issuer Bid.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted, provided that:
- any offer by the Filer to repurchase Investment Shares (each, an Issuer Bid) is made only to the following:
- executors or administrators of the estates of deceased Members or Auxiliary Members; and
- Auxiliary Members who either:
- have been an Auxiliary Member for more than 10 years preceding the date of the commencement of the Issuer Bid,
- certify to the Filer that they have not been directly or indirectly (as a shareholder in a corporation, partner in a partnership or participant in another form of unincorporated organization) active in dairy farming for more than 10 years preceding the date of the commencement of the Issuer Bid, or
- are 70 years of age or older at the date of the commencement of the Issuer Bid;
- the repurchase price for an Issuer Bid is equal to the average of the trading price of Investment Shares in the Trading System during the most recent three months during which trading occurred preceding the commencement of the Issuer Bid; and
- the aggregate number of Investment Shares acquired by the Filer pursuant to one or more Issuer Bids within any 12‑month period does not exceed 5% of the Investment Shares outstanding at the beginning of the 12‑month period.
“Brenda M. Leong”
British Columbia Securities Commission