Securities Law & Instruments

Headnote

Canadian joint venture corporation of Japaneseissuer 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.

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 the Ontario SecuritiesCommission (the Commission) for a ruling pursuant to subsection74(1) of the Act that certain trades in options (Options) andunderlying common shares of Toyota Japan (Shares) in connectionwith Toyota Japan's 2003 share option plan (the Plan) shallnot 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 31,2003, Toyota Japan and its consolidated subsidiaries and affiliatedcompanies employed approximately 264,096 persons worldwide,including 30,775 employees in North America, of which lessthan 3,608 are resident in Ontario.

2. As of March 31, 2003, Toyota Japan's authorizedshare capital consisted of 9,740,185,400 common shares (Shares),of which 3,609,997,492 Shares were issued and outstanding.Toyota Japan's paid-in capital is JPY 397,049,999,885. Approximately18,582,144 Shares are represented by American Depositary Receipts(ADRs). Each ADR represents two Shares.

3. The Shares are widely held and are listedfor trading on the Tokyo, Nagoya, Osaka, Fukuoka and SapporoStock Exchanges under the code "7203" and on theLondon Stock Exchange under the symbol "TYT". TheADRs trade on the New York 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 May 15, 2003, 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 at a shareholders' meeting,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 KantoFinance Bureau. Toyota Japan also complies with the reportingrequirements of the U.S. Securities Exchange Act of 1934 withrespect to the ADRs and files reports, proxy statements andother information required under applicable U.S. law withthe Securities and Exchange Commission ("SEC").

8. Toyota Motor Manufacturing Canada Inc.(TMMC), Toyota Credit Canada Inc. (TCCI) and Canadian AutopartsToyota Inc. (CAPTIN, and together with TMMC and TCCI, theSubsidiaries) are wholly-owned subsidiaries of Toyota Japanand are corporations governed by the Canada Business CorporationsAct. TMMC and TCCI have their principal and executiveoffices in Ontario. CAPTIN has its principal and executiveoffice 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 owners who purchasefrom TCI's dealers; and CAPTIN manufactures aluminum wheelsfor Toyota Japan's manufacturing facilities in Canada, theUnited 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, distributionand supply systems are integrated with those of Toyota Japan.TCI also imports and distributes products of a joint venturebetween Toyota Japan and General Motors Corporation as wellas a small number of other manufacturers. Toyota Japan providescertain staff members to TCI on an ongoing basis to coordinateToyota Japan's and TCI's marketing, distribution and supplysystems.

11. Toyota Japan has adopted the Plan on aworldwide basis to encourage its Japanese secondees abroad(the Secondees) and its foreign subsidiaries' executives (theLocal Executives, and together with the Secondees, the Participants)to further promote the best interests of Toyota Japan andits subsidiaries by providing them with options, which whenexercised, will result in such Participants holding Shares.The Secondees are employed by Toyota Japan and a certain numberof Local Executives are employed by each of the Subsidiariesand by TCI. The proposed Participants are all residents ofOntario and British Columbia. Proposed Participants who areLocal Executives of TCI are all resident in Ontario.

12. Each Participant will enter into a writtenagreement with Toyota Japan (Option Agreements) pursuant towhich the Participant will be granted options (Options) toacquire Shares. The grant of Options to the Local Executivesof TCI is conditional upon the granting of the relief requestedherein.

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, 2005 to July 31, 2009. The Options are non-transferable.

15. The Option Agreements provide for thegrant of Options to each Participant. Entering into the OptionAgreement and participating in the Plan is voluntary on thepart of the Participant and Participants are not induced toenter the Option Agreement or participate in the Plan by expectationof employment or continued employment. No payment is requiredby the Participant to enter the Option Agreement or for thegrant of the Options, although upon exercise of the Options,Participants will pay the exercise price 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 by a foreign-listedissuer of securities of its own issue to its executives andpursuant to exemptions under subsections 35(1)(12)(iii) and72(1)(f)(iii) of the Act for trades by an issuer in securitiesof its own issue distributed pursuant to a right to purchase,convert or exchange securities previously granted by the issuer.Such exemptions are not available for the grants of Optionsby Toyota Japan and the issue of Shares by Toyota Japan uponexercise of Options to the Local Executives of TCI as TCIis not an "affiliated entity" of Toyota Japan becauseit 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;

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, both Toyota Japan and TCI are not 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 ownmore than 10% of the outstanding Shares and did not representin number more than 10% of the total number of holders ofShares; and

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

July 29, 2003.

"W.S. Wigle"
"P.K.Bates"