Prime Restaurants Inc.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Issuer granted relief from requirements under National Instrument 41-101 General Prospectus Requirements and National Instrument 51-102 Continuous Disclosure Obligations to refer to restricted securities using prescribed restricted security term -- relief subject to condition that specified alternate term is used -- exemption granted from requirements of section 12.3 of NI 41-101 in respect of future distributions of certain restricted shares -- relief subject to conditions.

OSC Rule 56-501 Restricted Shares -- Exemption granted from requirements to refer to restricted securities using prescribed restricted security term -- relief subject to condition that specified alternate term is used -- exemption granted from requirements of section 3.2 of OSC Rule 56-501 in respect of future exempt distributions of certain restricted shares -- relief subject to conditions.

Applicable Legislative Provisions

National Instrument 41-101 General Prospectus Requirements, ss. 12.2, 12.3.

National Instrument 51-102 Continuous Disclosure Obligations, s. 10.1.

OSC Rule 56-501 Restricted Shares, ss. 2.3, 3.2.

June 1, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

PRIME RESTAURANTS INC.

(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction (the Decision Maker) has received an application from Prime Restaurants Royalty Income Fund (the Fund) and the Filer, as the successor reporting issuer to the Fund, for a decision under the securities legislation of the Jurisdiction of the Decision Maker (the Legislation) that:

(a) the requirement under section 12.2(4) of National Instrument 41-101 General Prospectus Requirements (NI 41-101) that restricted securities be referred to in a prospectus using a term or a defined term that includes the appropriate "restricted security term" (as defined under NI 41-101) shall not apply to any future distributions of class A limited voting shares or class B limited voting shares by the Filer (the 41-101 Disclosure Exemption);

(b) the requirement under section 10.1 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) that restricted securities be referred to in prescribed continuous disclosure documents using a term that includes the appropriate "restricted security term" (as defined under NI 51-102) shall not apply to any future references to class A limited voting shares or class B limited voting shares in the prescribed continuous disclosure documents of the Filer (the 51-102 Disclosure Exemption);

(c) the requirements under section 12.3 of NI 41-101 for a prospectus distribution of restricted securities shall not apply to the Filer in connection with any future distributions of class A limited voting shares, class B limited voting shares and class C non-voting shares (the 41-101 Offering Exemption and, together with the 41-101 Disclosure Exemption and the 51-102 Disclosure Exemption, the Passport Exemption Sought);

(d) the requirement under section 2.3 of Ontario Securities Commission Rule 56-501 Restricted Shares (OSC Rule 56-501) that restricted shares be referred to in offering documents using a term or defined term that includes the appropriate "restricted share term" (as defined in OSC Rule 56-501) shall not apply to any future distributions of class A limited voting shares or class B limited voting shares by the Filer (the 56-501 Disclosure Exemption); and

(e) the requirements under section 3.2 of OSC Rule 56-501 for a prospectus exemption to be available for a stock distribution of securities shall not apply to the Filer in connection with any future stock distributions of class A limited voting shares, class B limited voting shares and class C non-voting shares (the 56-501 Private Placement Exemption and, together with the 56-501 Disclosure Exemption, the Ontario Exemption Sought).

In respect of the Passport Exemption Sought, under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer was created under the Business Corporations Act (Ontario) (the OBCA) pursuant to articles of arrangement dated April 5, 2010. The Filer's head office is located in Mississauga, Ontario. The Filer has been a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland since April 5, 2010.

2. The Fund was a limited purpose trust established pursuant to a declaration of trust dated July 22, 2002 and was governed by the laws of the province of Ontario. On April 5, 2010, the Fund was effectively converted into the Filer pursuant to a plan of arrangement under the OBCA (the Conversion Transaction). The Conversion Transaction was approved at a meeting of unitholders and limited voting unitholders of the Fund (Voting Unitholders) in accordance with the Fund's declaration of trust and by a majority of the "disinterested" Voting Unitholders pursuant to Multilateral Instrument 61-101 Protection of Security Holders in Special Transactions. In connection with the meeting, the Fund prepared and delivered an information circular to its Voting Unitholders that contained the disclosure regarding the Conversion Transaction required by applicable securities laws (the Information Circular). Following the approval of the Conversion Transaction by Voting Unitholders, the Conversion Transaction was approved by the Superior Court of Justice of Ontario. As part of the Conversion Transaction, the Fund was dissolved pursuant to a Trust Distribution and Dissolution Agreement dated April 5, 2010.

3. Pursuant to the Conversion Transaction, the Voting Unitholders of the Fund exchanged their respective units and limited voting units for class A limited voting shares of the Filer (the Class A Limited Voting Shares) on a one-for-one basis. Upon completion of the Conversion Transaction, the Filer became the successor reporting issuer to the Fund, and the Class A Limited Voting Shares were listed on the Toronto Stock Exchange under the symbol "EAT".

4. Additionally, as part of the Conversion Transaction, the Filer issued 1,571,143 class B limited voting shares (the Class B Limited Voting Shares) and 611,000 class C non-voting shares (the Class C Non-Voting Shares, and together with the Class B Limited Voting Shares, the Convertible Shares) to Prime Restaurant Holdings Inc. (PRH), a company owned by certain members of management of the Filer. As further explained below, the Convertible Shares are convertible into Class A Limited Voting Shares upon the Filer meeting certain financial targets.

5. The Class A Limited Voting Shares are held by PRH and the former public unitholders of the Fund. The holders of the Class A Limited Voting Shares are entitled to vote on all matters submitted to shareholders, other than the election of one or two directors to be elected by the holders of Class B Limited Voting Shares for a limited period of time (as described below). The Class A Limited Voting Shares will be entitled to dividends if, when and as declared by the board of directors of the Filer.

6. The Class B Limited Voting Shares are held solely by PRH. The holders of Class B Limited Voting Shares vote together with the holders of Class A Limited Voting Shares on all matters, provided that for a limited period of time (not to exceed the end of the 2013 financial year) the holders of Class B Limited Voting Shares have the right to elect one or two directors of the Filer. During such time, the holders of Class B Limited Voting Shares agree to vote all of their Class A Limited Voting Shares in favour of the slate of directors proposed by management. There is no limit on the number of directors the Class A shareholders are able to elect (so the Class B director right is not proportional to shareholdings). The holders of Class B Limited Voting Shares are not entitled to dividends (other than certain extraordinary dividends). The Class B Limited Voting Shares can be converted into Class A Limited Voting Shares upon the Filer achieving certain financial targets over the next five years, essentially operating similar to an "earn-out" in a conventional purchase transaction.

7. The Class C Non-Voting Shares are also held solely by PRH. For a period of approximately 2 1/2 years after the closing of the Conversion Transaction, the holders of the Class C Non-Voting Shares will have a consent right over change of control transactions entered into by the Filer (other than non-consensual transactions not sponsored by the Filer's board). This consent right is designed to ensure that PRH has the time to earn its right to convert Class C Non-Voting Shares into Class A Limited Voting Shares during the test period. This consent right can be overridden by the board of directors of the Filer by converting the Class C Non-Voting Shares into Class A Limited Voting Shares in order to pursue any change of control transaction. As with the Class B Limited Voting Shares, the Class C Non-Voting Shares can be converted into Class A Limited Voting Shares upon the Filer achieving certain financial targets over the next five years.

8. The Filer (as successor reporting issuer to the Fund) is seeking the 41-101 Disclosure Exemption, the 51-102 Disclosure Exemption and the 56-501 Disclosure Exemption in connection with the description of the Class A Limited Voting Shares and the Class B Limited Voting Shares to be issued in the future by the Filer. The designation "limited voting" is not one of the listed "restricted security terms" or "restricted share terms" under NI 41-101, NI 51-102 or OSC Rule 56-501. However, it is substantially similar to certain of the listed "restricted security terms" and "restricted share terms" as set out in NI 41-101, NI 51-102 and OSC Rule 56-501. The Filer desires to refer to such shares as "Class A Limited Voting Shares" and "Class B Limited Voting Shares" in any future offering documents, in any future prospectuses and in all future continuous disclosure documents of the Filer.

9. The Filer (as successor reporting issuer to the Fund) is seeking the 41-101 Offering Exemption and 56-501 Private Placement Exemption in connection with any future distributions of Class A Limited Voting Shares, Class B Limited Voting Shares and Class C Non-Voting Shares. The Fund was a reporting issuer at the time of the Conversion Transaction and it prepared and delivered the Information Circular to the Voting Unitholders in connection with the Conversion Transaction. The Conversion Transaction, being the restricted security reorganization pursuant to which the Class A Limited Voting Shares, Class B Limited Voting Shares and Class C Non-Voting Shares were created, received minority approval (as that term is defined in OSC Rule 56-501) by "disinterested" Voting Unitholders of the Fund.

10. The Filer was not technically a reporting issuer at the time that it issued the Class A Limited Voting Shares, Class B Limited Voting Shares and Class C Non-Voting Shares as part of the Conversion Transaction. Upon completion of the Conversion Transaction, the Filer became the successor reporting issuer to the Fund and the Voting Unitholders (who had approved the Conversion Transaction) became holders of Class A Limited Voting Shares and, in certain cases, Convertible Shares.

Decision

The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Maker under the Legislation is that the Passport Exemption Sought and the Ontario Exemption Sought are granted provided that:

(a) in respect of the 41-101 Disclosure Exemption, the 51-102 Disclosure Exemption and the 56-501 Disclosure Exemption, the Class A Limited Voting Shares and Class B Limited Voting Shares are referred to as the "Class A Limited Voting Shares" and "Class B Limited Voting Shares", respectively;

(b) in respect of the 41-101 Offering Exemption, any subsequent restricted security reorganization, if any, carried out by the Filer related to the Class A Limited Voting Shares, Class B Limited Voting Shares or Class C Non-Voting Shares complies with the provisions of section 12.3 of NI 41-101; and

(c) in respect of the 56-501 Private Placement Exemption, any subsequent reorganization, if any, carried out by the Filer related to the Class A Limited Voting Shares, Class B Limited Voting Shares or Class C Non-Voting Shares complies with the provisions of section 3.2 of OSC Rule 56-501.