UNAICO - AUSTRALIA - One Page Opinion (English Version)

8/3/2019 UNAICO - AUSTRALIA - One Page Opinion (English Version)

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21 June 2011

Mr Frank RickettsVice PresidentUnaico Holding Pte Ltd

Dear Mr Ricketts

Marketing advice (Australia)

We refer to our conferences with you on 13 May 2011 and 6 June 2011 in relation to the proposedmarketing opportunity to be offered by Unaico Holding Pte Ltd (and associated entities) ("Unaico") to

prospective participants in Australia, having regard to applicable Australian laws.

This advice is given for the benefit of and may only be relied upon by Unaico. No third party should

rely upon this advice, including anActive Member, prospective member or participant in the marketingopportunity. If a third party is concerned about legal issues relating to the proposed marketingopportunity offered by Unaico, they should seek independent legal advice.

We confirm that you have requested our advice regarding the following 3 specific questions:

(a) Does the Unaico Compensation Plan contravene Australian law?

(b) Does the remuneration of Active Members through the Unaico online accountcontravene Australian law?

(c) Does the issue of Options for Future Certificates/Incentive Papers ("OFC") to ActiveMembers and their subsequent trading by Active Members contravene Australianlaw?

Our advice in relation to the above questions is set out below.

1 COMPENSATION PLAN

1.1 The relevant question under Australian law is whether the Unacio compensationplan is a prohibited "pyramid scheme" (which may also be known as a "snowballscheme" in other jurisdictions) within the meaning of Part 3-1, Division 3 of Schedule2 of the Competition and Consumer Act 2010 (Cth) ("CCA"). We refer in particularto the document entitled "Unaico Compensation Plan" attached to the email that wereceived from DrOlesch on 11April 2011 at 5:36pm.

1.2 A pyramid scheme is a scheme with both of the following characteristics:

1.2.1 to take part in the scheme, some or all new participants must provide afinancial or non-financial benefit to another participant or participants inthe scheme (a participation payment); and

1.2.2 the participation payments are entirely or substantially induced by the

prospect held out to new participants that they will be entitled, in relationto the introduction to the scheme of further new participants, to beprovidedwith financial or non-financial benefits (a recruitment payment).

1.3 A scheme may be a pyramid scheme even if it involves the marketing of goods orservices (or both). In these circumstances, a court must have regard to thefollowing matters (and may have regard to other matters) in working out whether



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participation payments under the scheme are entirely or substantially induced by theprospect held out to new participants of entitlement to recruitment payments:

1.3.1 whether the participation payments bear a reasonable relationship to thevalue of the goods or services that participants are entitled to besupplied with under the scheme (as assessed, if appropriate, byreference to the price of comparable goods or services availableelsewhere); and

1.3.2 the emphasis given in the promotion of the scheme to the entitlement ofparticipants to the supply of goods or services by comparison with theemphasis given to their entitlement to recruitment payments.

1.4 Active Members are entitled to purchase either a Bronze or Gold advantagepackage offered by Unaico, the price for which includes a €35.00 'handling fee'.This 'handling fee' can be paid by an Active Member using cash or BV that has beenaccumulated by the Active Member's personal purchases or purchases made by theActive Member's sponsored Sitetalk users. However, if a person is not legally oreffectively obliged to purchase an advantage package to become an ActiveMember, the handling fee is not a "participation payment".

1.5 The first key issue is whether new participants must provide a financial or non-financial benefit to another participant or participants to take part in thecompensation plan and become an Active Member. You have instructed us thatthere is no fee payable by a person to become a Sitetalk user generally, or tobecome anActive Member entitled to a position in the Unaico compensation plan. Itis also difficult to identify any specific non-financial benefit that must be provided inorder to take part. In these circumstances, there does not appear to be any"participation payment".

1.6 The second key issue is whether the participation payments (if any) are entirely orsubstantially induced by the prospect held out to new Active Members that they willbe entitled, in relation to the introduction of further new Active Members, to beprovided with financial or non-financial benefits (a recruitment payment).

1.7 On the face of it, it appears that the payment of commissions and bonuses underthe compensation plan are entirely conditional on the purchase of a product orservice by a Sitetalk user, as opposed to the mere introduction of a new ActiveMember. However, we have considered the following particular features of thecompensation plan:

1.7.1 The capping of the weekly commission at a maximum payout of €500 forActive Members with a Basic advantage package, €2,500 for ActiveMembers with a Bronze advantage package and €12,500 for ActiveMembers with a Gold advantage package.

1.7.2 The requirement for an Active Member to personally sponsor a minimumof four Active Members that have purchased Bronze or Gold advantagepackages to qualify for the matching bonus.

1.7.3 The allowance for 100% of an Active Member's personal purchases (BV)and 25% of an Active Member's sponsored Sitetalk users purchases tobe counted towards the BV qualification for the Bronze and Gold

advantage packages.

1.8 These features are potentially problematic from a legal perspective because theyeffectively encourage or require new Active Members to personally purchase theBronze or Gold advantage packages, or induce their own sponsored Sitetalk users



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to do so, in order to achieve the additional network commissions and matchingbonuses in the compensation plan that are only available to Active Members thathave purchased the Bronze or Gold advantage packages.

1.9 These issues may be further magnified if the majority of persons who purchasegoods and services via the Unaico network are also Active Members. A court wouldalso be required to consider:

1.9.1 whether the cost of the Basic, Bronze or Gold advantage packages(€149, €500 and €2,500 respectively) bears a reasonable relationship tothe value of the goods or services that participants are entitled to besuppliedwith; and

1.9.2 the relative emphasis given in the promotion of the opportunity is to theentitlement of participants to receive recruitment payments forintroducing new participants, as opposed to the supply of goods orservices for fair value.

1.10 In relation to paragraph 1.9.1, you have instructed us that the value of the productscontained in the Basic, Bronze and Gold advantage packages exceeds the cost ofthe packages and that this has been independently tested.

1.11 In relation to paragraph1.9.2, you have confirmed your belief that the promotion ofthe opportunity is approriate, and that Unaico will monitor compliance with theserequirements by Active Members.

1.12 Any person or corporation who establishes or promotes a pyramid scheme (whetheralone or together with another person), takes part in a pyramid scheme in anycapacity, or induces or attempts to induce another person to participate would beliable for a contravention and penalties under the Act. This would almost certainlyinclude Unaico and its officers, and would also potentially include Active Members, ifthe compensation plan and opportunity was found to be illegal.

1.13 A contravention of the pyramid selling provisions may also give rise to additionalcontraventions of the more general prohibitions against misleading or deceptiveconduct (or conduct which is likely to be misleading or deceptive) under the Act.

1.14 Based on your instructions and the information provided to us, our view is that it isunlikely that the Unaico Compensation Planwould be found to be an illegal pyramidselling scheme under Australian law. However, the legality or otherwise of the planmay be heavily influenced by the manner in which it is marketed and promoted,especially by Active Members. Unaico will need to be particularly vigilant to ensurethat the plan is marketed and promoted in compliance with these legal requirements.

2 UNAICO ONLINE ACCOUNT

2.1 Clause 5 of the Standard Terms and Conditions of Unaico ("STC") states that 75%of the commissions and bonuses payable to an Active Member will be paid into aUnaico online account.

2.2 On the information that has been provided, an Active Member's Unaico onlineaccount appears to be allocated 'funds' as a result of the personal purchases or thepurchases of their sponsored Sitetalk users of goods and services from the Unaico

shop or the Sitetalk mall. The 'funds' in a Unaico online account may be used bythe Active Member to purchase goods and services from the Unaico shop or theSitetalk mall. You instructed us that the Unaico online account is backed byphysical currency and an Active Member may withdraw the amount of credits in theUnaico online account in the form of physical currency.



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2.3 Under Australian law, a person that makes a payment or causes a payment to be

made otherwise than through the physical delivery of Australian or foreign currency

has made a non-cash payment ("NCP").

2.4 The provision of certain 'facilities' in Australia, including NCP's, are regulated by the

Corporations Act 2001 ("Corporations Act"). Generally speaking, 'facilities' are

treated as 'financial products' under the Corporations Act and are subject to strict

and onerous licensing, conduct and disclosure requirements.

2.5 Under the Corporations Act, the Australian Securities and Investments Commission

("ASIC") has the power to declare that certain 'facilities' are not 'financial products'

for the purposes of the various licensing, conduct and disclosure requirements.

2.6 In 2005, ASIC made an unconditional class order ("Class Order") declaring that

'Loyalty Schemes' are not 'financial products' for the purposes of the Corporations

Act provided that they have the following characteristics:

(a) the facility[loyalty scheme] is issued as part of a scheme the sale or

main purpose of which is to promote the purchase of goods from, or the

use of the services of, the issuer of the facility or another person;

(b) a person who holds the facility is allocated credits (however

described and whether or not a monetary value is expressly attributed to

the credits) as a result of the purchase of goods from, or the use of the

services of, the issuer of the facility or the other person;

(c) the credits allocated under the facility can be used to make a

payment or part payment for goods or services or to obtain some other

benefit;

(d) the facility is not part of another financial product.

2.7 Unaico engages Active Members to promote the Sitetalk social networking platform

that allows Active Members to purchase goods and services from the Unacio shop

and both Sitetalk users and Active Members to purchase goods and services from

the Sitetalk mall. In these situations, the actual sale of the goods and services will

be between the retail customer, as purchaser, and the Unaico merchant partner, as

seller.

2.8 The definition of Loyalty Scheme, as outlined above, is somewhat ambiguous

because it does not make clear whether the person that is to be allocated credits in

a facility, must also be the same person who purchases the goods from the issuer of

the facility or other person.

2.9 When the definition of Loyalty Scheme is applied to the Unaico online account, it is

unclear if an Active Member is entitled to be allocated 'funds' in their Unaico online

account for the purchase of goods by a third party and not by the Active Member

themselves.

2.10 However, if the allocation of credits is nevertheless as a result of the purchase of

goods by a purchaser (even if the purchaser is not the Active Member) it is open to

interpretation that the definition of Loyalty Scheme is broad enough to cover the

Unaico online account and that the Class Order exemption applies.

3 OFC'S -ISSUING AND TRANSFER

3.1 Clause 7 of the STC's states that Unaico can, at its discretion, issue OFC's to an

Active Member as recognition of achieving certain sales results. The OFC's are not



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intended to be financial instruments and Unaico places no value, voting rights ordividends on the OFC's. The Active Member holding OFC's has nothing more thana conditional prospect to participate in any future initial product offering { " IPO") atthe complete discretion of Unaico.

3.2 Additionally, the STC's indicate that the OFC's can be traded between ActiveMembers, however must not be traded to the general public.

3.3 Under Australian Law, the issuing and transfer of options over securities in acompany is regulated by the Corporations Act. Although the Corporations Act doesnot specifically define the meaning of an option, the definition of 'financial products'includes options. The Corporations Act imposes strict and onerous licensing,conduct and disclosure requirements on the issuing and transfer of 'financialproducts' including options.

3.4 In determining if the OFC's are 'options' within the meaning of 'financial products'that will be regulated by the Corporations Act, an Australian court would considerthe actual nature of the OFC's that are issued to Active Members. The fact that theSTC's state that the OFC's are not 'financial instruments' is only one factor thatAustralian courts would consider.

3.5 On the information that has been provided to us and having considered theAustralian common law, we believe that the OFC's issued by Unaico are not optionswithin the definition of 'financial products'. We believe that the OFC's are not'options' because they do not grant an Active Member a legal right to acquire anyunderlying shares in Unaico.

3.6 As such, the strict licensing, conduct and disclosure requirements of theCorporations Act should not apply to the OFC's issued by Unaico or transferredbetween Active Members.

3.7 Claims and Representations in relation to OFC's

3.7.1 The manner in which the OFC's can be promoted by Unaico is heavilyregulated under Australian law and policed by Australian consumerauthorities.

3.7.2 The CCA prohibits companies from engaging in conduct that ismisleading or deceptive or is likely to mislead or deceive (section 18 ofschedule 2). There are also similar prohibitions under fair tradinglegislation in the Australian states and territories which apply tocorporations and individuals alike. It is not necessary to prove thatanyone has in fact been misled - a likelihood that the relevant conduct ismisleading or deceptive is all that is required.

3.7.3 These provisions have particular application to Unaico in the context ofthe promotion of the OFC's and the rights and benefits which the OFC'smay contain.

3.7.4 We have been provided with instructions that the OFC's contain novaluable rights. Unaico expressly points out that the OFC's are not freelytradeable and may only be exchanged among the business partnerswithin the back office made available at no cost. OFC's may only be

given to registered business partners. Furthermore, it is expresslypointed out that the OFC's do not grant any company, voting or similarrights. However this appears to be inconsistent with the fact that ActiveMembers readily transfer the OFC's to other Active Members forconsideration.



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3.7.5 The fact that the OFC's can be traded for value, albeit only with other

Active Members, may create the legitimate expectation amongst Active

Members that the OFC's do in fact create rights to be issued shares in a

future IPO. If that expectation is actually incorrect or not fulfilled by the

granting of securities to OFC holders on a future IPO, then Unaico (and

possibly Active Members) who participate in trading OFC's may be

found to have engaged in conduct that is misleading or deceptive in

breach of Australian law.

Please let us know if you have any questions.

Yours faithfully

UNAICO - AUSTRALIA - One Page Opinion (English Version)

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