The Ontario Securities Commission (OSC) granted Pharmasave Drugs (East) Ltd. (Pharmasave) an exemption from the prospectus requirements under section 53 of the Securities Act (Ontario), pursuant to subsection 74(1) of the same Act. This exemption allows Pharmasave to issue and transfer shares without a prospectus to its franchisees under certain conditions.
Pharmasave is a member-owned organization operating as a franchisee of Pharmasave Drugs (National) Ltd., and it is not a reporting issuer nor does it intend to become one. Its shares are not publicly traded and are restricted to franchisees.
The exemption was sought in connection with Pharmasave’s intention to amend its Articles to create a new class of non-voting, fully-participating common shares (Class B Common Shares) alongside the existing voting common shares (Class A Common Shares). This amendment addresses issues arising from the consolidation of regions and the need for a capital structure that accommodates franchisees owning more than five franchises.
The OSC’s decision is based on representations by Pharmasave, including that its shares are not listed on any exchange, there is no active trading market for its shares, and the shares are subject to restrictions on issuance, ownership, and transfer. Pharmasave has over 50 shareholders and cannot benefit from the private issuer exemption. The trades in question will not always be made to accredited investors, and other exemptions are not applicable.
The exemption is contingent on Pharmasave meeting several conditions, including providing franchisees with relevant corporate documents, financial statements, and a statement regarding the loss of certain protections and rights under the Act. Share certificates must bear a legend describing transfer restrictions, and any amendments to relevant documents must receive notice and consent from the Director of the OSC.
The OSC concluded that the exemption would not be prejudicial to the public interest and would support a fair and efficient capital structure for Pharmasave. Consequently, the OSC also revoked the previous ruling from April 24, 1998, replacing it with the current decision.