AFM Hospitality to delay annual 2003 and first quarter 2004 filings
Cease Trade Order in respect of the Management & Insiders of AFM Hospitality Corporation, Atlantis Systems Corp., Alegro Health Corp
OSC - Cease Trade Order in respect of the Management & Insiders of AFM HOSPITALITY CORPORATION
The SEC, AFM, CCWIPP and UFCW Today
The Ontario Security Commission today announced that it has issued a Cease Trade Order in respect of the Management & Insiders of AFM Hospitality Corporation. Apparently, AFM hasn't filed its 2003 financials or its first quarter 2004 financials.
Two of the 'insiders,' Eugene Fraser and Wayne Eldon Hanley, are both closely tied the Canadian Commercial Workers Industry Pension Plan (CCWIPP). Mr. Fraser is on CCWIPP's Investment Committee and Mr. Hanley, a CCWIPP Director, took over as president of UFCW Local 175 from Mike Fraser when he moved over to become UFCW Canada's Director some time after his uncle Cliff Evans stepped down to devote more time to investing CCWIPP funds.
The CCWIPP has been pumping money into AFM for years, but AFM never seems able to make a profit. In fact, it usually has trouble paying CCWIPP. (See: http://www.ufcw.net/articles/CCWIPP_-_Full_Disclosure/ccwipp-full_disclosure-002.php?s=1&p=6 )
AFM is now on its third Chief Financial Officer in just over a year. And CCWIPP is no longer mentioned in the AFM Annual Reports. However, its money is still buried deep in investment of no returns.
To give you an idea of how the dealing started, we'll take you back to an excerpt from interview Ron Kelly gave the Toronto Star in 1997:
[Ronald Hubert Kelly] risked everything - his life savings, his inheritance, his condo. Family matched his $200,000 stake and he pulled together financing from banks and pension funds. 'It was a leap of faith (and) luck. I don't think anybody comes out of university or out of the priesthood and makes a miracle in real estate,' he muses.
Enter Stephen Phillips, now president of the 500-hotel U.S.-based Howard Johnson reservation chain. At the time, Phillips was trying to rejuvenate HoJo's image under his Accommodex Franchise Management (AFM) company. After he offered Kelly a franchise, Phillips told Kelly of an emerging upswing in hotel management; Kelly saw his chance in property. With consultant Ed McConnell, they brought seven hotels under the Howard Johnson banner. Most were picked up under power of sale. They bought a former Red Oak Inn on Windsor's main drag, a hotel on Yonge St. in Aurora, the Empire Hotel and Conference Centre in North Bay, as well as hotels in Morrisburg, Ottawa and Edmonton, Alta. In December 1993, Kelly bought the Royal Connaught in Hamilton under power of sale from Montreal Trust for $4.2 million.
Kelly himself bought properties in Toronto, London and Etobicoke. And when AFM's steady growth pushed it into going public, he sold his shares and moved on.
By the fall of 1994, four years after he quit the priesthood, Kelly was on the verge of the big time. He put down $220,000 on the $580,000 purchase of a palatial Newmarket home - complete with a huge indoor pool - once owned by Magna International honcho Frank Stronach.
Around this time he formed RHK Capital and bought 2 Lombard St. outright, knowing it was not only perfect for his business headquarters but also a prime spot for future condos. He sought out a team of hard-working, intelligent go-getters. Treat them well and give them incentives, he reasoned, and they will produce.
'I don't think I'm a greedy person,' he offers…. (Toronto Sun, July 20, 1997, Final Edition, p.38.)
Greedy or not, Ron Kelly has done well with the help of the Canadian Commercial Workers Industry Pension Plan (CCWIPP). He bought a substantial number of hotels and CCWIPP through its 'Propcos' was always there for him. CCWIPP financed the deals and the UFCW signed up the employees. (See: http://www.ufcw.net/files/pdf/kelloryn2.pdf )
Accommodex Franchise Management eventually turned into AFM Hospitality, and CCWIPP and UFCW Local 175's pension plan soon became the major shareholders of the company. Cliff Evans wasted no time in grabbing seats as a Director on Kelloryn Hotels (Hamilton) Inc. and Kelloryn Holdings Inc. He also sat as a Director on AFM Hospitality's Board.
We sometimes wonder, was Cliff one of the 'hard-working, intelligent go-getters' Ron referred to in his Toronto Sun interview? If he was, we also wonder how he could have hitched CCWIPP's star to such a dog of an investment.
The CCWIPP is supposed to have an exit strategy for each of its investments. We wonder why CCWIPP hasn't bailed on this one?
We were shocked when we discovered that CCWIPP Director Bernard Christophe wound up entitled to 100,000 shares of another loser, Case Financial, that CCWIPP keeps dumping money into. (See: http://www.sec.gov/Archives/edgar/data/1096841/000118143104002373/xslF345X02/rrd28586.xml )
Now we see that CCWIPP Director Wayne Hanley and Gene Fraser not only are entitled to around $700 per AFM meeting (assumed from AFM Annual Reports), but they seem to also hold claim to Options (65,000 Common Shares) each in AFM. If you averaged each share at $5.50, these CCWIPP appointees could have $350 thousand each to plunk in the bank.
However, those shares can't be traded by either CCWIPP appointee until the Ontario Securities Commission gives an all clear to start trading again.
It's an abomination to union principles when pension monies get pissed into the abyss of bad investments, but while that's happening, union fat cats have deals that have the potential to make them rich beyond the wildest dreams of the average grocery clerk.
Maybe it's time to contact the UFCW and ask just what the hell is going on.
Wayne and Eugene make pretty good dough from their day jobs. If they get this too:
quote:
A.10 Compensation of Directors
Directors of the Company (other than salaried employees being Lawrence P. Horwitz, Chairman and Chief Executive Officer, and Stephen H. Phillips, Vice-chair and Managing Director - Business Development) are eligible to receive an annual retainer of $10,000.00 and receive a per diem fee of $700.00 for meetings of the board of directors attended.
they must be rollin' in the dough. Hey, and that's just from one company.
And then CCWIPP is so generous with its members' money too:
quote:
A.12 Interest of Insiders in Material Transactions Other than as previously disclosed in an information circular, since the commencement of the Company's last financial year, the material interest, direct or indirect, of any insider of the Company, any proposed nominee for election as a director of the Company or any associate or affiliate of such insider or proposed nominee in any transaction which has materially affected or would materially affect the Company or any of its subsidiaries are as follows:
(a) Restructuring of Existing Indebtedness
On November 28, 2002, the Company entered into a commitment letter with its principal lender, I.F. Propco Holdings (Ontario) 23 Ltd. (the "Lender"). The Lender is associated with the Canadian Commercial Workers Industry Pension Plan which, at such time, controlled over 10% of the voting securities of the Company. The transaction contemplated in the commitment
letter is in the ordinary course of the business of the Lender and its associates. Further, two outside
directors of the Company are associated with the Lender.
The commitment letter set out the terms upon which the Lender would agree to amend the terms of the existing indebtedness of the Company and to give its consent to the sale of all the assets of Ramada Franchise Canada Inc. The material terms of such commitment letter were:
(a) the principal repayments scheduled for 2002 would be satisfied in full by December 31, 2002;
(b) interest payments would be changes from semi-annually to monthly;
(c) the Company would redeem the outstanding Series II Preferred Shares held by the Lender between October 1, 2004 and October 1, 2005 at the redemption price set out in the articles of amendment creating such securities (i.e. redemption as the subscription price of $2.25 per preferred share);
(d) upon such redemptions, the prevailing interest rate of the outstanding indebtedness would be reduced in stages from 14.15% to 8.5% until its maturity in October 2005;
(e) the Company would obtain the right to pre-pay any or all of the outstanding indebtedness at any time without penalty or bonus;
(f) the Lender would obtain security over all the assets of the Company and each of its subsidiaries, subordinate only to the Company's acquisition financings and new operating lines of credit in the future;
(g) the Chief Executive Officer and the Managing Director - Business Development both would voluntarily agree to limits in compensation and will also covenant not to sell more than 5 per cent of their respective holdings of AFM securities within any 12 month period; and
(h) management would support the nomination as directors two individuals who are related to the Lender, these individuals being Wayne Hanley and Eugene Fraser.
After a full discussion of all the aspects of the commitment letter and the proposed transaction contemplated therein, the Audit Committee of the Company unanimously recommended the commitment letter to the Board for approval. Board subsequently unanimously approved the transaction as set out in the commitment letter.
On December 2, 2002, a press release was disseminate that set out the material terms
of this related party transaction and regulatory approval was subsequently obtained.
quote:
Further, two outside directors of the Company are associated with the Lender...
...On December 2, 2002, a press release was disseminate that set out the material terms of this related party transaction and regulatory approval was subsequently obtained.
Great example of how to almost disguise conflict of interest... if you can make it read legit, then it is legit?
There obviously isn't any law to prevent troughing or protect member from troughers but it's interesting how these documents attempt to reason what some might call a foul relationship.
Here's the 2002 news release: CCWIPP Gives a Helping Hand.
This stuff just makes me want to retch. These biz unionists treat their members' pension fund like their own personal stash of dough that they and the pals, the corporate snakes-in-the-grass, can play with.
What the hell do you think this means?
quote:
In addition, the lender's
security will be subordinate to acquisition financings and new operating lines of credit in the future.
Does this mean that CCWIPP will be in line after other lenders if AFM goes belly up?
sounds like a an investment officer didnt perform their due diligence.
I think a whole hoard of UFCW members should decend on 61 International Blvd. That's the home of CCWIPP and the UFCW International in Rexdale.
There should be a demonstration with TV cameras rolling and lots of print media in attendance too.
Wow! What a great Idea, weiser, I'll get right to work organizing that. 
From weiser's post above:
quote:
Now we see that CCWIPP Director Wayne Hanley and Gene Fraser not only are entitled to around $700 per AFM meeting (assumed from AFM Annual Reports), but they seem to also hold claim to Options (65,000 Common Shares) each in AFM. If you averaged each share at $5.50, these CCWIPP appointees could have $350 thousand each to plunk in the bank.
Let me see if I have this right: CCWIPP gives AFM even more generous breaks on the multi-million dollar loans AFM has had with the union pension fund for years. CCWIPP Trustee Wayne Hanley and CCWIPP Investment Committee Member Eugene Fraser each g et $350,000 worth of AFM stock. Isn't there something wrong with this picture?!!!
Does the FSCO know about this? Do they care? Is it right?
It's really interesting to look at the "Historical Prices" for AFM Hospitality. The trades are peanuts. Take May 6th for example; someone bought $157 worth of stock. That "boosted" the price of shares by about 1.5%. If someone bought the same amount posted at $1.55 per share on December 30, but paid $2 per share, that person would have spent a whopping $200. However, AFM might be able to report that at the close of business at year end that share prices had increased by 29%.
However, share prices mean little when trading is as sporatic and minute as AFM's historicals report. When you look at AFM's company profiile, you see a not-to-pretty profit statement. If you look at the competition's (listed at the bottom of AFM's company profile) historicals, you'll see a much different profit and trading pattern.
I'm always baffled by the amount of activity at AFM, by the continual losses suffered by it and the turnover of key executives.
However, I'm mostly baffled by why CCWIPP went there in the first place and why it's still in deep. It has a whole whack of shares, but the shares don't seem to pay any dividends--unlike solid competitors who pay dividends of anywhere up to 11 cents a share. When AFM seemingly couldn't repay CCWIPP loans, CCWIPP simply accepted a whack of shares.
If you'll look, you'll see that AFM has a history of simply releasing more shares.