Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications - Canadian joint venture corporation ofJapanese issuer not technically an "affiliate" - distributionof options by Japanese issuer as part of share option plan exemptfrom registration and prospectus requirements - distributionof shares underlying options to local executives of Canadianjoint venture corporation exempt from registration and prospectusrequirement - first trade in shares deemed a distribution unlessde minimis Canadian market and trade executed on an exchangeoutside of Canada

Applicable Statutory Provisions

Securities Act R.S.O. 1990, c. S.5, as am.,ss. 25, 53, 74(1).

Applicable Rules

OSC Rule 45-503 Trades to Employees, Executivesand Consultants (1998) 22 OSCB 117.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, CHAPTER S. 5,AS AMENDED (the "Act")

AND

IN THE MATTER OF

TOYOTA MOTOR CORPORATION

 

RULING

(Subsection 74(1))

UPON the application (the "Application")of Toyota Motor Corporation ("Toyota Japan") to theOntario Securities Commission (the "Commission") fora ruling pursuant to subsection 74(1) of the Act that certaintrades in options ("Options") and underlying commonshares of Toyota Japan ("Shares") in connection withToyota Japan's 2002 share option plan (the "Plan")shall not be subject to sections 25 or 53 of the Act;

AND UPON considering the Applicationand the recommendation of the staff of the Commission;

AND UPON Toyota Japan having representedto the Commission that:

1. Toyota Japan is a limited liability, joint-stockcompany governed by the Commercial Code of Japan. Its principaland executive office is located at 1 Toyota-cho, Toyota City,Aichi Prefecture 471-8571, Japan. Toyota Japan is the largestproducer of automobiles in Japan and the third largest automobileproducer in the world. Toyota Japan's automotive operationsinclude the design, manufacture, assembly and sale of motorvehicles and related parts and accessories. As of March 31,2002, Toyota Japan and its consolidated subsidiaries and affiliatedcompanies employed approximately 246,702 persons worldwide,including 27,192 employees in North America, of which lessthan 3,481 are resident in Ontario.

2. As of March 31, 2002, Toyota Japan's authorizedshare capital consisted of 9,780,185,400 common shares ("Shares"),of which 3,649,997,492 Shares with a par value of ¥50per Share were issued and outstanding. Approximately 15,047,220Shares are represented by American Depositary Receipts ("ADRs").Each ADR represents two Shares.

3. The Shares are widely held and are listedfor trading on the Nagoya, Osaka and Tokyo Stock Exchangesunder the code "7203" and on the London Stock Exchangeunder the symbol "TYT". The ADRs trade on the NewYork Stock Exchange under the symbol "TM".

4. The Shares are not listed on any stockexchange in Canada nor is there any other market for the Sharesin Canada and none is expected to develop. Toyota Japan isnot a reporting issuer in any jurisdiction in Canada and doesnot have any present intention of becoming a reporting issuerunder the securities laws of any jurisdiction in Canada.

5. As at July 31, 2002, the number of Sharesheld by shareholders of record with addresses in Canada representedless than 10% of the number of outstanding Shares, and thenumber of shareholders of record with addresses in Canadawas less than 10% of the total number of shareholders of record.It is expected that the operation of the Plan will not resultin any material change to the number of outstanding Sharesheld by Shareholders of record with addresses in Canada orthe number of shareholders with addresses in Canada.

6. The Shares carry the standard rights applicableto shares of Japanese companies, including a right to receivedividends as and when declared by the board of directors,and a right to one vote per Share provided that the holderholds at least 100 Shares.

7. Toyota Japan is subject to the reportingrequirements of the Securities and Exchange Law of Japan andfiles annual, semi-annual and, if appropriate, extraordinaryreports required under applicable Japanese law with the KantoLocal Finance Bureau. Toyota Japan also complies with thereporting requirements of the U.S. Securities Exchange Actof 1934 with respect to the ADRs and files reports, proxystatements and other information required under applicableU.S. law with the Securities and Exchange Commission.

8. Toyota Motor Manufacturing Canada Inc.("TMMC"), Toyota Credit Canada Inc. ("TCCI")and Canadian Autoparts Toyota Inc. ("CAPTIN", andtogether with TMMC and TCCI, the "Subsidiaries")are wholly-owned subsidiaries of Toyota Japan and are corporationsgoverned by the Canada Business Corporations Act. TMMCand TCCI have their principal and executive offices in Ontario.CAPTIN has its principal and executive office in British Columbia.

9. The Subsidiaries are engaged in the followingbusinesses: TMMC manufactures automobiles and four-cylinderengines; TCCI provides finance and credit services to ToyotaCanada Inc.'s ("TCI") dealers and to vehicle ownerswho purchase from TCI's dealers; and CAPTIN manufactures aluminiumwheels for Toyota Japan's manufacturing facilities in Canada,the United States and Japan.

10. TCI is a 50/50 joint venture between ToyotaJapan and Mitsui & Co. Ltd., a Japanese internationaltrading company, and is governed by the Canada BusinessCorporations Act. TCI is the exclusive importer and distributorin Canada of Toyota Japan's motor vehicles, industrial equipment,replacement parts and accessories. TCI's primary businessis importing and distributing Toyota Japan's products. Assuch, TCI's business operations, including its marketing,distribution and supply systems, are integrated with thoseof Toyota Japan. TCI also imports and distributes productsof a joint venture between Toyota Japan and General MotorsCorporation. Toyota Japan provides certain staff members toTCI on an ongoing basis to co-ordinate Toyota Japan's andTCI's marketing, distribution and supply systems.

11. Toyota Japan has adopted the Plan on aworldwide basis to encourage its Japanese secondees abroad(the "Secondees") and its foreign subsidiaries'executives (the "Local Executives", and togetherwith the Secondees, the "Participants") to furtherpromote the best interests of Toyota Japan and its subsidiariesby providing them with options, which when exercised, willresult in such Participants holding Shares. The Secondeesare employed by Toyota Japan and a certain number of LocalExecutives are employed by each of the Subsidiaries and byTCI. The proposed Participants are all residents of Ontarioand British Columbia. Proposed Participants who are LocalExecutives of TCI are all resident in Ontario.

12. Each Participant will enter into a writtenagreement with Toyota Japan ("Option Agreements")pursuant to which the Participant will be granted an option("Option") to acquire Shares. The grant of Optionsto the Local Executives of TCI is conditional upon the grantingof the relief requested herein.

13. The reports, proxy statements and otherinformation that Toyota Japan is required to provide to itsshareholders will be provided or made available upon requestto Participants.

14. The Options carry the right to subscribefor Shares of Toyota Japan. Upon the exercise of an Option,Toyota Japan will either issue new Shares or transfer existingShares to the Participants. The holders of the Options mayexercise the Options at any time during the period from August1, 2004 to July 31, 2008. The Options are non-transferable.

15. The Option Agreements provide for thegrant of an Option to each Participant. Entering into theOption Agreement and participating in the Plan is voluntaryon the part of the Participant and Participants are not inducedto enter the Option Agreement or participate in the Plan byexpectation of employment or continued employment. No paymentis required by the Participant to enter the Option Agreementor exercise the Options and acquire Shares, although uponexercise of the Options, Participants will pay the exerciseprice therefor.

16. The grants of Options by Toyota Japanand the issue of Shares by Toyota Japan upon exercise of Optionsto the Secondees and to the Local Executives of TMMC and TCCIare exempt from sections 25 and 53 of the Act pursuant tothe exemption contained in Ontario Securities Commission Rule45-503 ("Rule 45-503"), section 3.3 for trades bya foreign-listed issuer of securities of its own issue toits executives and pursuant to exemptions under subsections35(1)(12)(iii) and 72(1)(f)(iii) of the Act for trades byan issuer in securities of its own issue distributed pursuantto a right to purchase, convert or exchange securities previouslygranted by the issuer. Such exemptions are not available forthe grants of Options by Toyota Japan and the issue of Sharesby Toyota Japan upon exercise of Options to the Local Executivesof TCI as TCI is not an "affiliated entity" of ToyotaJapan because it is a 50/50 joint venture and not a "subsidiary"of Toyota Japan under Rule 45-503. The definition of "subsidiary"in Rule 45-503 refers to the beneficial ownership of morethan 50% of the voting securities of the subsidiary, whereasToyota Japan owns exactly 50% of the voting securities ofTCI. The "accredited investor" exemption containedin Ontario Securities Commission Rule 45-501, section 2.3for trades to such investors is also not available as someof the Local Executives of TCI do not meet the applicablecriteria for an "accredited investor".

17. The "de minimis" registrationexemption contained in Rule 45-503, section 3.5 with respectto trades by executives of the issuer or an affiliated entityof the issuer is not available to the Local Executives ofTCI as TCI is not an "affiliated entity" of ToyotaJapan under Rule 45-503.

AND UPON the Commission being satisfiedthat to do so would not be prejudicial to the public interest;

IT IS RULED pursuant to subsection 74(1)of the Act that:

1. sections 25 and 53 of the Act shall notapply to the issue of Options by Toyota Japan to the LocalExecutives of TCI;

2. sections 25 and 53 of the Act shall notapply to the issue of Shares by Toyota Japan to the LocalExecutives of TCI upon the exercise of Options in connectionwith the Plan, provided that the first trade in such Sharesshall be a distribution unless the requirements in subsection2.14(1) of Multilateral Instrument 45-102 Resale of Securitiesare satisfied; and

3. section 25 of the Act shall not apply toa first trade in Shares acquired pursuant to the Plan by theLocal Executives of TCI if:

(a) at the time of the granting of the correspondingOption, neither Toyota Japan and TCI are reporting issuersunder the Act;

(b) at the time of the granting of the correspondingOption, holders of Shares whose last address as shown onthe books of Toyota Japan as being in Canada did not owndirectly or indirectly more than 10% of the outstandingShares and did not represent in number more than 10% ofthe total number of owners directly or indirectly of Shares;and

(c) such first trades are executed throughthe facilities of a stock exchange outside of Canada.

August 23, 2002.

"Paul M. Moore"                    "RobertL. Shirriff"