Shoppers Drug Mart Corporation - MRRS Decision
Headnote
Mutual Reliance Review Systemfor Exemptive Relief Applications - Relief from prospectus andregistration requirements in connection with the distribution,from time to time, of securities to associates (pharmacy owners)under a share incentive plan - associates not technically employeesor consultants but required to devote their full time and attentionto pharmacy business - relief from prospectus requirement forfirst trade of securities acquired under previous orders byassociates - relief from prospectus requirement for first tradeof securities acquired by employees under various stock plans- relief from issuer bid requirements where issuer repurchasessecurities acquired under plans from associates.
Applicable Ontario Statutes
Securities Act, R.S.O. 1990,c. S.5, as am., ss. 25, 53, 74(1) and 104(2)(c).
Applicable Ontario Rules
Multilateral Instrument 45-102Resale of Securities.
Ontario Securities CommissionRule 45-503 Trades to Employees, Executives and Consultants.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC,NOVA SCOTIA,
PRINCE EDWARD ISLAND, NEWFOUNDLANDAND LABRADOR,
NEW BRUNSWICK, NORTHWEST TERRITORIES,YUKON AND
NUNAVUT
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
SHOPPERS DRUG MART CORPORATION
MRRS DECISION DOCUMENT
WHEREAS the local securitiesregulatory authority or regulator (the "Decision Maker")in each of British Columbia, Alberta, Saskatchewan, Manitoba,Ontario, Quebec, Nova Scotia, Prince Edward Island, Newfoundlandand Labrador, New Brunswick, Northwest Territories, Yukon andNunavut (the "Jurisdictions") has received an applicationfrom Shoppers Drug Mart Corporation (the "Company"or "Shoppers") for a decision under the securitieslegislation of the Jurisdictions (the "Legislation")that the requirements contained in the Legislation to be registeredto trade in a security ( the "Registration Requirement")and to file and receive a receipt for a prospectus (the "ProspectusRequirement" and, together with the Registration Requirement,the "Prospectus and Registration Requirements") donot apply to certain proposed distributions, from time to time,of securities of the Company issued by it pursuant to its ShareIncentive Plan dated November 21, 2001 (the "Plan"),including options, shares, performance shares and other share-basedawards not inconsistent with the Plan, that the Prospectus Requirementdoes not apply to first trades of securities acquired upon theconversion of non-voting shares of the Company (the "Non-VotingShares") previously acquired under exemptions from theProspectus and Registration Requirements or pursuant to thePrevious Orders (as defined below), that the Prospectus Requirementdoes not apply to first trades in Ontario of employees of theCompany of securities acquired under the Plan or under predecessoremployee stock purchase and option plans of the Company (the"Predecessor Plans"), that the requirement containedin the Legislation to comply with the rules governing issuerbids (the "Issuer Bid Requirement") does not applyto the Company with respect to certain repurchases by the Companyof securities issued under the Plan or prior to the adoptionof the Plan, and that certain relief from the Issuer Bid Requirementpreviously granted be rescinded;
AND WHEREAS under theMutual Reliance Review System for Exemptive Relief Applications(the "System"), the Ontario Securities Commissionis the principal regulator for this application;
AND WHEREAS Shoppershas represented to the Decision Makers that:
1. Shoppers is a corporationcontinued under the laws of Canada.
2. Shoppers is a reportingissuer or the equivalent in each of the Jurisdictions, andis not in default of any of the requirements contained inthe Legislation.
3. The authorized capitalof Shoppers consists of an unlimited number of common shares("Shares") and an unlimited number of preferredshares issuable in series.
4. The Shares are listed onThe Toronto Stock Exchange.
5. Shoppers is a holding companywhose only business is holding the securities of the entitieswhich operate the Shoppers Drug Mart/Pharmaprix business.
6. The Shoppers Drug Mart/Pharmaprixbusiness includes the licensing of retail operations consistingof approximately 830 drug stores. Each drug store is operatedby a pharmacist (an "Associate") who, through awholly-owned corporation, has entered into a licensing agreementwith a wholly-owned subsidiary of the Company. Each such licensingagreement requires that the Associate devote their full timeand attention to the operation and management of the drugstore that is the subject of the license. As a result, eachAssociate has detailed knowledge of the Shoppers Drug Mart/Pharmaprixbusiness.
7. Shoppers proposes to issuesecurities from time to time pursuant to the Plan to directorsand employees of the Company and to Associates.
8. Shoppers also proposesto allow Associates to purchase securities through a RegisteredRetirement Savings Plan ("RRSP") of which they arethe beneficiary.
9. Associates who acquiresecurities, either directly or through an RRSP of which theyare the beneficiary, will be required to enter into certainagreements (the "Governing Agreements") which willrestrict their ability to deal with the securities so acquired.Among other things, the Governing Agreements will place certaintransfer restrictions on the securities and will give theCompany the right to repurchase the securities from the Associatein certain circumstances, including in the event that thelicensing agreement respecting the Associate is terminated.The Governing Agreements will also provide drag-along rightsto certain institutional holders of Shares and will providecertain "piggy-back" rights to holders of the securities.Generally, these securities may only be transferred or soldafter a prescribed period of time from the date of issue unlesstransferred or sold pursuant to various exceptions, whichinclude sales pursuant to the exercise of drag-along rightsor "piggy-back" rights.
10. Prior to any purchaseof securities by Associates, Associates will be provided witha full description of the attributes of the securities, copiesof the Governing Agreements, a summary of the provisions ofthe Governing Agreements and full information concerning thecontractual transfer restrictions applicable to the securities.
11. Prior to the adoptionof the Plan, Non-Voting Shares were issued to Associates (ortheir RRSPs) under exemptions from the Prospectus and RegistrationRequirements or pursuant to the Previous Orders (as definedbelow), and Shares were issued to employees under exemptionsfrom the Prospectus and Registration Requirements. In connectionwith such issuances Associates and employees were requiredto enter into certain agreements, substantially similar tothe Governing Agreements, which imposed restrictions on thetransferability of their securities.
12. On January 14, 2000, priorto the Company's initial public offering of Shares (the "IPO"),an MRRS Decision Document was issued by the Alberta SecuritiesCommission on behalf of all Decision Makers (the "FirstOrder") granting relief to the Company (a) except inOntario, from the Prospectus and Registration Requirementswith respect to a one time distribution of Non-Voting Sharesto Associates (or to their RRSPs), and (b) from the IssuerBid Requirement with respect to any repurchases by the Companyof Non-Voting Shares from Associates (or their RRSPs), providedthat at the time of the repurchase there was no publishedmarket for the Non-Voting Shares.
13. On March 14, 2001, priorto the Company's IPO, an MRRS Decision Document was issuedby the Alberta Securities Commission on behalf of all DecisionMakers (the "Second Order" and, together with theFirst Order, the "Previous Orders") granting reliefto the Company, from time to time, (a) from the Prospectusand Registration Requirements with respect to the distributionof Non-Voting Shares to Associates (or to their RRSPs), and(b) from the Issuer Bid Requirement with respect to any repurchasesby the Company of Non-Voting Shares from Associates (or theirRRSPs), provided that at the time of the repurchase therewas no published market for the Non-Voting Shares.
14. On November 12, 2001,Shoppers filed a prospectus in connection with the IPO andits Shares became listed for trading on The Toronto StockExchange on November 21, 2001, the date of closing.
15. Pursuant to provisionsin the articles of the Company, on the closing of the IPO,all of the Non-Voting Shares were automatically convertedinto Shares.
16. The Predecessor Planswere repealed on November 9, 2001 and replaced by the Plan.Following such date, no securities were issued or will beissued pursuant to such Predecessor Plans.
17. The participation of directorsand employees of the Company and Associates in any distributionof securities pursuant to the Plan will be voluntary. No suchperson will be induced, directly or indirectly, to purchasesecurities by expectation of maintaining or continuing theirstatus with the Company or as an Associate.
18. Currently, there are Associatesresident in each of the Jurisdictions except Nunavut.
19. As Associates are notemployees of the Company, no exemption from the Prospectusand Registration Requirements exists under the Legislationto allow the Company to issue securities to Associates.
20. By the terms of the PreviousOrders, the Non-Voting Shares issued to Associates thereunderwere subject to resale restrictions contained in the Legislation,where applicable. A first trade by Associates in the Sharesissued to Associates on the automatic conversion of Non-VotingShares into Shares on the closing of the IPO may be subjectto the resale restrictions in the Legislation, where applicable.
21. There have been no tradesof Shares issued by the Company to Associates (or their RRSPs)as of the date hereof, except for trades made to the Companyas described below or trades made pursuant to a prospectusfiled under the Legislation in the Jurisdictions.
22. The issuer bid reliefgranted under the Previous Orders in respect of repurchasesby the Company of Non-Voting Shares issued to Associates (andtheir RRSPs) is no longer available because the Non-VotingShares have been converted into Shares and there is a publishedmarket for the Shares.
23. The Company may, or maybe required to, repurchase securities issued to Associates(or their RRSP's) under the Plan or prior to the adoptionof the Plan upon the terms set out in the applicable GoverningAgreements on the occurrence of certain events, includingtermination of an Associate's licensing agreement, or deathor disability of the security holder. In addition, the applicableGoverning Agreements permit the Company and the security holderto enter into a negotiated settlement with respect to suchrepurchases of securities. Any repurchase by the Company ofthe securities will constitute an issuer bid under the Legislation.The exemption from the Issuer Bid Requirement under the Legislationmay not be available with respect to such repurchases.
24. As of the date hereof,there have been no repurchases by the Company of (a) securitiesissued under the Plan, or (b) Shares issued to Associates(or their RRSPs) under exemptions from the Prospectus andRegistration Requirements or pursuant to the Previous Orders,except for purchases made pursuant to an exemption to theIssuer Bid Requirements under the Legislation, since the Companybecame a reporting issuer.
AND WHEREAS under theSystem, this MRRS Decision Document evidences the decision ofeach Decision Maker (collectively, the "Decision");
AND WHEREAS each of theDecision Makers is satisfied that the test contained in theLegislation that provides the Decision Maker with the jurisdictionto make the Decision has been met;
THE DECISION of the DecisionMakers under the Legislation is that the Prospectus and RegistrationRequirements shall not apply to the distribution, from timeto time, by the Company of securities under the Plan to Associatesor to RRSPs of which an Associate is the beneficiary providedthat:
(a) except in Quebec, thefirst trade of securities acquired pursuant to this Decisionwill be a distribution or a primary distribution to the public,unless the conditions in subsection 2.6(3), 2.6(4) or 2.6(5)of Multilateral Instrument 45-102 are satisfied;
(b) in Quebec, a French-languageoffering notice which describes in detail the operation ofthe Plan must be furnished to Associates; and
(c) in Quebec, the alienationof the securities acquired pursuant to this Decision is adistribution and cannot take place without a prospectus unlessShoppers is and has been a reporting issuer in Quebec andhas complied with the applicable requirements for the twelvemonths immediately preceding the alienation;
AND THE FURTHER DECISIONof the Decision Makers under the Legislation is that:
(a) except in Quebec, theProspectus Requirement shall not apply to the first tradesby current and former Associates of Shares acquired upon theconversion of Non-Voting Shares previously acquired underexemptions from the Prospectus and Registration Requirementsor pursuant to the Previous Orders, provided that the conditionscontained in subsection 2.6(3), 2.6(4) or 2.6(5) of MultilateralInstrument 45-102 are satisfied;
(b) in Quebec, the alienationby current and former Associates and employees of the Companyof (i) Shares acquired upon the conversion of Non-Voting Sharespreviously acquired under exemptions from Prospectus and RegistrationRequirements, in the case of current and former Associates,and (ii) Shares acquired at or after the time of the acquisitionof the Shoppers Drug Mart/Pharmaprix business and directlyor indirectly pursuant to the Predecessor Plans in the caseof current and former employees, cannot take place withouta prospectus or a prospectus exemption prior to the expiryof a 12-month period following the initial distribution ofthe securities, except between the holder of the securitiesand his or her associates, provided, in the latter case, thatthe Commission is advised five days prior to the distribution.After the 12-month period, the alienation may take place withouta prospectus or a prospectus exemption provided that the issueris a reporting issuer. Furthermore, if the seller is an insider,the reporting issuer must have complied with the applicabledisclosure requirements during the 12 months preceding thealienation.
AND THE FURTHER DECISIONof the Decision Maker in Ontario under the Legislation in Ontariois that the Prospectus Requirement shall not apply to the firsttrades in Ontario by current and former employees of the Companyof Shares acquired under the Plan or the Predecessor Plans providedthat the conditions contained in subsection 2.6(3), 2.6(4) or2.6(5) of Multilateral Instrument 45-102 are satisfied;
AND THE FURTHER DECISIONof the Decision Makers under the Legislation is that paragraph6.2 of the First Order and paragraph 6.2 of the Second Orderare rescinded as of the date hereof;
AND THE FURTHER DECISIONof the Decision Makers under the Legislation is that the IssuerBid Requirement shall not apply to any repurchase by the Companyof securities issued (a) under the Plan to current and formerAssociates (or their RRSPs), or (b) to current or former Associates(or their RRSPs) under exemptions from the Prospectus and RegistrationRequirements or pursuant to the Previous Orders, provided that:
(a) the value of the considerationpaid for the securities acquired does not exceed the marketprice (as determined pursuant to the applicable Legislation,where defined) of the securities at the date of the acquisition;and
(b) the aggregate number ofsecurities acquired by the Company within a period of twelvemonths does not exceed 5% of the securities that are issuedand outstanding at the commencement of the period.
July 12, 2002.
"Robert L. Shirriff" "H.Lorne Morphy"