Mutual Reliance Review System for ExemptiveRelief Applications - Relief granted from the registration andprospectus requirements in respect of trades in shares of afederal co-operative where the shares evidence an interest inan automobile parts buying co-operative and are not purchasedas an investment.
Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 25, 35(2)8, 53, 73(1)(a), 74(1).
Multilateral Instrument 45-102 Resale of Securities.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
ONTARIO, ALBERTA, BRITISHCOLUMBIA, MANITOBA,
NEW BRUNSWICK, NEWFOUNDLANDAND LABRADOR, NOVA SCOTIA,
PRINCE EDWARD ISLAND AND SASKATCHEWAN
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
MODERN SALES CO-OP
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof Ontario, Alberta, British Columbia, Manitoba, New Brunswick,Newfoundland and Labrador, Nova Scotia, Prince Edward Island,and Saskatchewan (the "Jurisdictions") has receivedan application from Modern Sales Co-op ("the Filer")for a decision under the securities legislation of the Jurisdictions(the "Legislation") that the requirements containedin the Legislation to be registered to trade in a security andto file a preliminary prospectus and prospectus and to receivereceipts therefor (collectively, the "Registration andProspectus Requirements") shall not apply to the issuanceby the Filer of membership shares to its members.
AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario 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 or in Quebec Commission Notice 14-101;
AND WHEREAS the Filer has representedto the Decision Makers that:
1. The Filer is a cooperative continued underthe Canada Cooperatives Act (the "Canada Coop Act")on July 10, 2001. Prior to being continued under that Act,the Filer was a private company incorporated under the federallaws of Canada on April 11, 1936, which conducted businessunder the name Modern Sales Limited.
2. The Filer is an automotive parts buyinggroup. It is in the business of pooling its members' ordersfor automotive parts and purchasing and obtaining lines ofsupply from (predominately American) suppliers, as well asnegotiating discounts and credit terms based on large purchasevolumes.
3. The Filer is not a reporting issuer ora reporting issuer equivalent under the Legislation and nosecurities of the Filer are listed or quoted on any stockexchange or market.
4. The authorized capital of the Filer consistsof an unlimited number of membership shares without par value(the "Membership Shares") and an unlimited numberof investment shares (the "Investment Shares") withoutpar value. As of September 15, 2002, there were 680 MembershipShares and no Investment Shares issued and outstanding.
5. As a condition of membership in the Filer,each member must purchase five Membership Shares. MembershipShares may only be purchased, redeemed or otherwise acquiredat a fixed price of $100.00 per Membership Share. Upon terminationof the membership of a member, the Filer shall redeem andthe member shall sell the member's Membership Shares to theFiler at the fixed price of $100.00 per share.
6. Pursuant to the Canada Coop Act: (i) onlymembers can hold Membership Shares; (ii) membership is limitedto persons who can use the services of the Filer and acceptthe responsibilities of membership; and (iii) the Filer mustsend to each member and place before each annual meeting ofmembers its financial statements for its most recently completedfinancial year and each part year ended not more than sixmonths before such annual meeting. As such, all members arefamiliar with the business and operations of the Filer.
7. The by-laws of the Filer require that members:(i) have the requisite skill and knowledge of, and be engagedin, the distribution and sale of products; (ii) have a historyof successful relevant business operations; (iii) have sufficientsales volumes to benefit from membership; (iv) not cause theFiler any prejudice by its proposed membership; (v) be appropriatelyfinanced and capitalized to be financially sound and creditworthy;(vi) have suitable facilities to represent the Filer; (vii)be prepared and able, or be able to become prepared and able,to support the Filer's major suppliers to the benefit of theproposed member and the Filer; (viii) demonstrate by its historyof business that it will likely abide by the Filer's Codeof Ethics; and (ix) fulfill such other requirements or obligations,whether financial or otherwise, as the directors of the Filerdetermine.
8. The Filer may pay or credit members witha patronage dividend from all or part of the surplus arisingfrom its operations in a financial year in proportion to thebusiness done by each member with or through the Filer insuch year at a rate set by the directors. The Filer has notpaid and does not intend to pay any dividends other than patronagedividends on its Membership Shares since it is the Filer'spolicy to distribute all of its profits by way of patronagedividends.
9. Members may not transfer their MembershipShares without the previous consent of either: (i) the directorsof the Filer expressed by a resolution passed at a meetingof the directors or by an instrument or instruments in writingsigned by a majority of the directors; or (ii) at least fifty-onepercent of the members entitled to vote expressed by resolutionpassed at a meeting of the membership or by an instrumentor instruments in writing signed by such membership.
10. Prior to becoming a member, each prospectivemember is required to execute and deliver a subscription agreement(the "Subscription Agreement") pursuant to whichthe proposed member agrees to comply with the share transferrestrictions described above.
11. As of September 15, 2002, the Filer had136 members, all of which were resident in Canada and allof which were corporations.
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 Requirementsshall not apply to trades by the Filer of Membership Sharesto its members if
(a) at the time of the trade, the Fileris a cooperative continued under the Canada Coop Act;
(b) a Subscription Agreement which describesthe rights and responsibilities of a member is executedby each prospective member prior to such member becominga holder of Membership Shares and a copy thereof, as acceptedby the Filer, is delivered to such member;
(c) prior to, or concurrently with the executionof a Subscription Agreement by a prospective member, theFiler delivers to such prospective member a copy of thearticles of continuance and by-laws of the Filer, the financialstatements of the Filer for its most recently completedfiscal year, a copy of this MRRS Decision Document and astatement to the effect that as a result of this Decisioncertain protections, rights and remedies provided by theLegislation, including statutory rights of rescission ordamages, will not be available to recipients of MembershipShares and setting out the limitations on the dispositionof Membership Shares;
provided that the first trade of any MembershipShares acquired in reliance on this Decision, other than a redemptionby the Filer of Membership Shares in accordance with their terms,shall be deemed to be a distribution or primary distributionto the public unless the conditions in subsections (3) or (4)of section 2.6 of Multilateral Instrument 45-102 Resale ofSecurities are satisfied.
December 4, 2002.
"H. Lorne Morphy" "RobertW. Korthals"