Securities Law & Instruments

Headnote

MRRS - Relief from prospectus requirement grantedin connection with the first trade of securities previouslygranted to certain dealer-owners of the issuer in the jurisdictionsunder discretionary rulings or orders. The issuer has been areporting issuer in the Province of Quebec since 1984, and isoffering its common shares (to be so designated after a capitalreorganization which is occurring simultaneously with the offeringof common shares under the prospectus) in all provinces, viatreasury issuance and secondary offering by selling securityholders.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am.,section 53 and subsection 74(1).

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ONTARIO, NOVA SCOTIA, PRINCEEDWARD ISLAND AND

NEWFOUNDLAND AND LABRADOR

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

RONA inc.

 

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof the Provinces of Ontario, Nova Scotia, Prince Edward Island,and Newfoundland and Labrador (the "Jurisdictions")has received an application from RONA inc. (the "Filer"or "RONA") for a decision under the securities legislationof the Jurisdictions (the "Legislation") that therequirement contained in the Legislation to prepare a prospectus(the "Prospectus Requirement") shall not apply inthe Jurisdictions to certain trades in Common Shares (as definedbelow) following the closing of the Offering (as defined below);

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 Québec Commission Notice14-101;

AND WHEREAS the Filer has representedto the Decision Makers that:

1. The Filer is a validly subsisting companyresulting from the amalgamation of Marchands Ro-Na Inc. andLe Groupe Ro-Na Inc. through articles of amalgamation datedJanuary 2, 1984 under Part 1A of the Companies Act(Québec). The Filer's head office is located at 220chemin du Tremblay, Boucherville, Quebec J4B 8H7.

2. The Filer is a reporting issuer in theProvince of Québec and is not in default of the requirementsof the Securities Act (Québec) or the regulationsthereunder. The Filer became a reporting issuer in the Provinceof Québec when it distributed its Class A preferredshares, series 1 and 2 in Québec via prospectus datedOctober 24, 1984. RONA is therefore subject to the continuousdisclosure requirements of the Securities Act (Québec).RONA securityholders receive interim unaudited and annualaudited financial statements, proxy-related materials andannual information forms of RONA, all of which are filed withthe Commission des valeurs mobilières du Québec(the "CVMQ") in accordance with the relevant provisionsof the Securities Act (Québec).

3. The Filer is an electronic filer withinthe meaning given to such term under National Instrument 13-101System for Electronic Document Analysis and Retrieval (SEDAR).

4. The Filer has filed the French versionof its annual information form dated May 20, 2002, as requiredby section 159 of the Regulation respecting securities(R.R.Q. chap. V-1.1, r.1) on SEDAR. The Filer will file onSEDAR an English version of such annual information form shortlyfollowing the closing of the Offering.

5. The Filer is engaged in the purchase anddistribution of goods and services primarily in the areasof hardware, home building, renovations and landscaping, allon behalf of independent merchants ("Dealer-Owners").As of June 30, 2002, the Filer's issued and authorized sharecapital consisted of the following:

(i) an unlimited number of Class A, series5 preferred shares (the "Class A Preferred Shares"),of which there were 4,085,053 issued and outstanding;

(ii) an unlimited number of Class B preferredshares (the "Class B Preferred Shares"), noneof which were issued;

(iii) an unlimited number of Class C, series1 preferred shares (the "Class C Preferred Shares"),of which 1,306 were issued and outstanding;

(iv) an unlimited number of Class D preferredshares (the "Class D Preferred Shares"), of which10,000,000 were issued and outstanding;

(v) an unlimited number of Class E preferredshares (the "Class E Preferred Shares"), noneof which were issued;

(vi) an unlimited number of Class A commonshares (the "Class A Shares"), of which 5,752,826were issued and outstanding;

(vii) an unlimited number of Class C commonshares (the "Class C Shares"), of which 1,346,296were issued and outstanding;

(viii) an unlimited number of Class D commonshares (the "Class D Shares"), of which 1,802,450were issued and outstanding; and

(ix) an unlimited number of Class E commonshares (the "Class E Shares"), of which 360,490were issued and outstanding.

Each RONA share is without par value, withthe exception of the Class B Preferred Shares, which eachhave a par value of $1.00.

6. The articles of incorporation of the Filer,as amended (the "Articles"), provide that immediatelybefore, but conditionally upon, the closing of the Offering:(i) each outstanding Class C Share, Class D Share and ClassE Share will be converted into one Class A Share (the "Conversion")and (ii) all Class C Shares, Class D Shares, Class E Sharesand Class E Preferred Shares will be cancelled (the "Cancellation").As well, all Class A Shares will be renamed "Common Shares"(the "Redesignation"). In addition, effective immediatelybefore, but conditional upon, the occurrence of the Conversionand the Cancellation, the Filer will subdivide the outstandingClass A, Class C, Class D and Class E Shares an a four forone basis (the "Share Split" and, together withthe Conversion, the Cancellation and the Redesignation, the"Capital Reorganization").

7. None of RONA's securities are listed onany stock exchange. After all necessary receipts and approvalshave been obtained in connection with the filing of the finalbase PREP prospectus for RONA's offering of its Common Shares(the "Offering"), the Filer intends to list theCommon Shares on the Toronto Stock Exchange.

8. RONA stores are operated under variouscollective trade-marks known as "banners". The RONAstores are either owned by RONA or by Dealer-Owners.

9. Upon joining RONA, each Dealer-Owner isrequired to enter into a commercial license agreement (the"License Agreement") with RONA pursuant to whichit undertakes to comply with RONA's standards, including theoperating conditions of the banner under which it operates.In addition, Dealer-Owners, in accordance with the terms ofthe License Agreement, are generally required to: (i) purchasea minimum number of Class A Shares when they begin to operatea store under a RONA banner and (ii) contribute on an annualbasis thereafter a percentage of their purchases from RONAto a subscription fund created and maintained by RONA (the"Fund"). The contributions made to the Fund in agiven year are used to purchase additional Class A Sharesthat are issued to the Dealer-Owners in the following year.The Dealer-Owner is also required to grant in favour of RONAa security interest in all the shares of RONA held by it ascontinuing security for the performance of its obligationstowards RONA.

10. If a License Agreement between a Dealer-Ownerand RONA is terminated, the Class A Shares held by such Dealer-Ownermay be: (i) with the consent of RONA, transferred to anotherDealer-Owner or to a purchaser qualified to become a Dealer-Owner,or (ii) purchased for cancellation by RONA. If a Dealer-Owner'sClass A Shares are purchased for cancellation by RONA, RONAmay: (i) pay the Dealer-Owner the cash value of those ClassA Shares, or (ii) issue to the Dealer-Owner Class C PreferredShares, Class B Preferred Shares or Class A Preferred Shares,depending on the date on which the Class A Shares were originallypurchased by RONA. The Filer intends to cease purchasing suchshares following the closing of the Offering and the listingof the Common Shares on the Toronto Stock Exchange.

11. By order dated November 5, 1999 (whichrevoked and replaced a previous ruling dated July 23, 1993),the Ontario Securities Commission ordered that the issuanceby the Filer of Class A Shares, Class B Preferred Shares andClass A Preferred Shares to Dealer-Owners was not subjectto the Registration and Prospectus Requirements provided that,inter alia, the first trade in the Class A Shares orClass B Preferred Shares, other than to another Dealer-Ownerin Ontario, a purchaser qualified to become a Dealer-Ownerin Ontario or RONA, is a distribution in accordance with theSecurities Act (Ontario) (the "OSC Order").

12. Similar rulings and orders were obtainedby RONA for the issuance to Dealer-Owners of Class A Sharesand Class B Preferred Shares in the Provinces of Nova Scotia,Prince Edward Island and Newfoundland on September 15, 1999,January 28, 1998 and January 5, 1998, respectively (the "OtherRulings and Orders" and, together with the OSC Orderand Other Rulings and Orders, the "Rulings and Orders").On January 6, 1998, a similar discretionary order was grantedin New Brunswick, absent resale restrictions.

13. As a result of the discretionary reliefgranted in the Rulings and Orders, the first trades and, incertain Jurisdictions, certain subsequent trades (the "Trades")in securities issued under the License Agreements and in accordancewith the terms of the Rulings and Orders (the "PreviouslyAcquired Shares"), are distributions.

14. As a result of similar discretionary rulingsgranted by the CVMQ in 1994 and 1999, trades in Common Sharesby Dealer-Owners will not be subject to any resale restrictionsin the Province of Québec following the closing ofthe Offering.

15. Following the closing of the Offering,the License Agreements and related commercial arrangementsbetween RONA and the Dealer-Owners will remain unchanged,except that certain amendments will be made to modify, amongother things, the applicable contribution maximums and, subjectto certain conditions, permit the release of a certain numberof the Dealer-Owners' Common Shares from the pledge grantedto RONA (the "Excess Common Shares").

16. In connection with the amendments to LicenseAgreements and related commercial arrangements described above,RONA and National Bank Trust (the "Transfer Agent")have entered into escrow agreements with over 89% of the Dealer-Owners,representing 13,827,400 Common Shares (after giving effectto the Capital Reorganization), or 37% of the Common Sharesoutstanding as of September 30, 2002. Under the terms of theescrow agreements, any Dealer-Owner who holds Excess CommonShares and other shareholders (such as former Dealer-Owners,persons holding shares of a Dealer-Owner, members of a Dealer-Owner'sfamily, employees or former employees) have undertaken toplace such Excess Common Shares in escrow with the TransferAgent. Except for any such shares sold as part of a secondaryoffering made concurrently with the Offering, such sharesare to be released from escrow, subject to certain conditions,as follows: (i) 15% of the balance of the escrowed shares180 days following the closing date of the Offering (the "FirstRelease Date"); (ii) 30% of the balance of the escrowedshares on the first anniversary of the First Release Date;(iii) 50% of the balance of the escrowed shares on the secondanniversary of the First Release Date; and (iv) the balanceof the escrowed shares on the third anniversary of the FirstRelease Date. If the License Agreement entered into by a Dealer-Ownerterminates before the end of the escrow period, the escrowagreement also provides that the Common Shares released fromRONA's pledge as a result of such termination will be escrowedand released in accordance with the remaining time frame setout above. The release of any escrowed shares is subject tocertain conditions which relate to, among other things, theDealer-Owner complying with certain of its undertakings towardRONA under its License Agreement with RONA.

17. As of September 15, 2002, there were 84holders of Previously Acquired Shares in the Jurisdictions:74 in Ontario, 1 in Newfoundland, 3 in Nova Scotia and 6 inNew Brunswick. All 84 holders are current or past Dealer-Owners.

18. The Offering will consist of an offeringof Common Shares to be underwritten by BMO Nesbitt Burns Inc.,Scotia Capital Inc., National Bank Financial Inc., RBC DominionSecurities Inc. and Desjardins Securities Inc. The Offeringwill consist of a secondary offering of Common Shares to besold by 9118-9563 Québec Inc. (a subsidiary of RONA)and 9116-2263 Québec Inc. (an indirect subsidiary ofRONA).

19. No securities have been issued by theFiler in the Jurisdictions since April 30, 2002 and none willbe issued in the Jurisdictions between April 30, 2002 andthe date of the closing of the Offering.

20. Following the closing of the Offering,the Filer will be a reporting issuer (or the equivalent) inthe Jurisdictions and in all other provinces of Canada. Asa result, it will be subject to the continuous disclosureand other requirements imposed upon reporting issuers (orthe equivalent) under applicable provincial securities legislation.

AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(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 Prospectus Requirement shall notapply to Trades in Previously Acquired Shares.

November 4, 2002.

"Robert L. Shirriff"                    "RobertW. Korthals"