Exemption Orders (Discretionary)
TOYOTA MOTOR CORPORATION
2001 BCSECCOM 971
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – relief granted from the registration and prospectus requirements to permit a Japanese issuer to distribute warrants under a warrant based stock option plan and to issue shares to employees and executives of Canadian joint venture corporation that is not technically an affiliate – relief granted from the registration requirement for first trades in shares acquired by employees and executives of the joint venture corporation provided a de minimis Canadian market and trade executed on an exchange outside of Canada.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 34(1)(a), 48, 61 and 76
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO AND BRITISH COLUMBIA
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
TOYOTA MOTOR CORPORATION,
TOYOTA MOTOR MANUFACTURING CANADA INC.,
TOYOTA CREDIT CANADA INC.,
CANADIAN AUTOPARTS TOYOTA INC. AND
TOYOTA CANADA INC.
MRRS DECISION DOCUMENT
WHEREAS the securities regulatory authorities (the “Decision Makers”) in Ontario and British Columbia (the “Jurisdictions”) have received an application from Toyota Motor Corporation (“Toyota Japan”), its wholly-owned subsidiaries Toyota Motor Manufacturing Canada Inc. (“TMMC”), Toyota Credit Canada Inc. (“TCCI”) and Canadian Autoparts Toyota Inc. (“CAPTIN”) (collectively, the “Subsidiaries”) and Toyota Canada Inc. (“TCI”) (all of the above collectively, the “Applicants”) for a decision pursuant to the securities legislation (the “Legislation”) of the Jurisdictions that certain trades in warrants (“Warrants”) to purchase common shares of Toyota Japan (“Shares”), in Shares and options to acquire Warrants (“Options”) in connection with Toyota Japan’s Global Warrant Based Stock Option Plan (the “Plan”) shall be exempt from the requirements under the Legislation to be registered to trade in a security, and to file a preliminary prospectus and a prospectus in respect of a distribution or primary distribution to the public of a security (collectively, the “Registration and Prospectus Requirements”, as applicable in the Jurisdictions unless otherwise specified);
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS the Applicants have represented to the Decision Makers that:
1. Toyota Japan is a limited liability, joint-stock company governed by the Commercial Code of Japan (the “Commercial Code”). Its principal and executive office is located at 1 Toyota-cho, Toyota City, Aichi Prefecture 471-8571, Japan. Toyota Japan is the largest producer of automobiles in Japan and the third largest automobile producer in the world. Toyota Japan’s automotive operations include the design, manufacture, assembly and sale of motor vehicles and related parts and accessories. As of March 31, 2001, Toyota Japan and its consolidated subsidiaries and affiliated companies employed approximately 215,648 persons worldwide, including 26,808 employees in North America of which 3,436 are resident in the Jurisdictions.
2. As of August 31, 2001, Toyota Japan’s authorized share capital consisted of 9,815,185,400 Shares, of which 3,669,954,392 Shares with a par value of ¥50 per Share were issued and outstanding. Approximately 21,655,620 Shares are represented by American Depositary Receipts (“ADRs”). Each ADR represents two Shares.
3. The Shares are widely held and are listed for trading on the Nagoya, Osaka and Tokyo Stock Exchanges under the code “7203” and on the London Stock Exchange under the symbol “TYT”. The ADRs trade on the New York Stock Exchange under the symbol “TM”.
4. The Shares are not listed on any stock exchange in Canada nor is there any other market for the Shares in Canada and none is expected to develop. None of the Applicants is a reporting issuer in any jurisdiction in Canada and none of the Applicants has any present intention of becoming a reporting issuer under the securities laws of any jurisdiction in Canada.
5. As at August 24, 2001, in each Jurisdiction the number of Shares held by shareholders of record with addresses in each of the Jurisdictions represented less than 1% of the number of outstanding Shares, and the number of shareholders of record with addresses in each of the Jurisdictions was less than 1% of the total number of shareholders of record. It is expected that the operation of the Plan will not result in any material change to the number of outstanding Sharesheld by shareholders of record with addresses in each of the Jurisdictions or the number of shareholders with addresses in each of the Jurisdictions.
6. The Shares carry the standard rights applicable to shares of Japanese companies, including a right to receive dividends as and when declared by the board of directors, and a right to one vote per Share provided that the holder holds at least 100 Shares.
7. Toyota Japan is subject to the reporting requirements of the Securities and Exchange Lawof Japan and files annual, semi-annual and, if appropriate, extraordinary reports required under applicable Japanese law with the Kanto Local Finance Bureau. Toyota Japan also complies with the reporting requirements of the U.S. Securities Exchange Act of 1934 with respect to the ADRs and files reports, proxy statements and other information required under applicable U.S. law with the U.S. Securities and Exchange Commission.
8. All of the Subsidiaries are wholly-owned subsidiaries of Toyota Japan and are corporations governed by the Canada Business Corporations Act. TMMC and 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 following businesses: TMMC manufactures automobiles and four-cylinder engines; TCCI provides finance and credit services to TCI’s dealers and to vehicle owners who purchase from TCI’s dealers; and CAPTIN manufactures aluminum wheels for Toyota Japan’s manufacturing facilities in Canada, the United States and Japan.
10. TCI is a 50/50 joint venture between Toyota Japan and Mitsui & Co. Ltd., a Japanese international trading company. TCI is the exclusive importer and distributor in Canada of Toyota Japan’s motor vehicles, industrial equipment, replacement parts and accessories. TCI primary business is importing and distributing Toyota Japan’s products. As such, TCI’s business operations including its marketing, distribution and supply systems are integrated with those of Toyota Japan. TCI also imports and distributes products of a joint venture between Toyota Japan and General Motors Corporation as well as a small amount of other manufactures. Toyota Japan provides certain staff members to TCI on an ongoing basis to coordinate Toyota Japan’s and TCI’s marketing, distribution and supply systems.
11. Toyota Japan has adopted the Plan on a worldwide basis to encourage certain directors, officers and senior employees of Toyota Japan and its subsidiaries and related businesses (the “Participants”) to further promote the best interests of Toyota Japan and its subsidiaries and related businesses by providing them with Options, which when ultimately exercised, will result in such Participants holding Shares.
12. Participation in the Plan by Participants is voluntary and such persons are not induced to participate in the Plan by expectation of employment or continued employment with any of the Applicants.
13. Under the Plan, Toyota Japan will issue Warrants that contain the right to subscribe for Shares. Toyota Japan will sell a certain number of Warrants to each Subsidiary and TCI pursuant to written agreements (“Warrant Purchase Memoranda”).
14. The Warrants carry the right to subscribe for new Shares of Toyota Japan (“Warrant Rights”). The holders of the Warrants may exercise the Warrant Rights at anytime during the period from August 1, 2003 to August 3, 2005, except that Warrant Rights may not be exercised if certain circumstances occur including a default in payment by Toyota Japan under certain bonds issued by Toyota Japan, the occurrence of certain events of bankruptcy or insolvency respecting Toyota Japan, or default under certain other indebtedness of Toyota Japan. The Warrant Rights in respect of an individual Warrant may not be partially exercised. The Shares issued pursuant to the exercise of the Warrants shall be Shares with a par value of ¥50, or if Toyota Japan issues Shares with no par value, the Warrant Rights shall be for Shares with no par value.
15. The Warrant Purchase Memoranda restrict the ability of the Subsidiary and TCI to exercise the Warrant Rights themselves or deal with the Warrants other than to transfer them to the Participants upon the due exercise of Options.
16. Each Participant will enter into a written agreement with the applicable Subsidiary or TCI (“Option Agreements”) pursuant to which the Participant will be granted an Option to acquire Warrants. No payment is required by the Participant to enter the Option Agreement or exercise the Option and acquire Warrants, although payment is required by the Participant upon exercise of the Warrants. The exercise of an Option by a Participant will result in the simultaneous exercise of the corresponding number of Warrants. Options are non-transferable. On exercise of the Warrants, Shares will be issued to the Participant by Toyota Japan in accordance with the terms of the Warrants. Participants may exercise Options only during the period from August 1, 2003 to July 31, 2005.
17. The Plan will be administered by Toyota Japan, the Subsidiaries, TCI and their agents. All Warrants purchased by the Subsidiaries and TCI will be held through brokerage accounts established in the names of the Subsidiaries and TCI at a securities brokerage firm in Japan until transferred to the Participant’s brokerage account with the same firm in Japan in accordance with the Plan.
18. The reports, proxy statements and other information that Toyota Japan is required to provide to its shareholders will be provided or made available upon request to Participants.
19. The sales of Warrants by Toyota Japan to the Subsidiaries and TCI are subject to the Registration and Prospectus Requirements as each sale would constitute a “distribution” under the Legislation. The exemptions contained in the Legislation with respect to the “aggregate acquisition cost” of the securities are not available for the sales of Warrants as the cumulative value of Warrants to be sold to the Subsidiaries and TCI will be less than the prescribed amounts for such exemptions. The “isolated trade” exemptions contained in the Legislation may not be available in respect of the sales of Warrants as Toyota Japan proposes to sell Warrants to the Subsidiaries, TCI and to several of its subsidiaries and related businesses worldwide in connection with the Plan.
20. The grants of Options by the Subsidiaries and TCI to Participants who are employees of the Subsidiaries and TCI respectively are exempt from the Registration and Prospectus Requirements pursuant to the exemptions contained in the Legislation for trades by an issuer of securities of its own issue to its employees.
21. The grants of Options by TMMC, TCCI and TCI to Participants who are directors and officers of TMMC, TCCI and TCI respectively are exempt from the Registration and Prospectus Requirements pursuant to the “de minimis” exemptions contained in the Legislation for trades by an issuer of securities of its own issue to directors and officers of the issuer and its affiliates. The grants of Options by CAPTIN to Participants who are directors and officers of CAPTIN are also exempt under the “de minimis” exemption under the securities legislation of Ontario and under the securities legislation of British Columbia as a trade by an issuer in a security of its own issue to its directors and officers.
22. The issue of Shares by Toyota Japan to Participants who are employees of any of the Subsidiaries is exempt from the Registration and Prospectus Requirements pursuant to the exemptions contained in the Legislation for trades by an issuer of securities of its own issue to employees of an affiliated entity of the issuer. Such exemptions are not available for the issue of Shares to Participants who are employees of TCI as TCI is not an “affiliate” of Toyota Japan under the Legislation.
23. The issue of Shares by Toyota Japan to Participants who are directors or officers of Toyota Japan or any of the Subsidiaries is exempt from the Registration and Prospectus Requirements pursuant to the exemptions contained in the Legislation with respect to trades by a foreign-listed issuer of its own issue to directors and officers of the issuer and its affiliates. Such exemptions are not available for the issue of Shares by Toyota Japan to Participants who are directors or officers solely of TCI as TCI is not an “affiliate” of Toyota Japan under the Legislation.
24. The grant of Options by the Subsidiaries and TCI to the Participants and the issue of Shares by Toyota Japan to the Participants are both subject to (i) the reporting requirements under the securities legislation of British Columbia; and (ii) the fees prescribed by the Legislation.
AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each of the Decision Makers (the “Decision”);
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that:
1. the Prospectus and Registration Requirement shall not apply to the distribution of Warrants by Toyota Japan to the Subsidiaries and TCI in connection with the Plan, provided that the first trade of any Warrant so acquired, other than to the Subsidiaries or TCI, shall be deemed a distribution, or primary distribution to the public;
2. the Prospectus and Registration Requirement shall not apply to the distribution, from time to time, of Shares by Toyota Japan to Participants who are employees or executives of TCI upon the exercise of Warrants in connection with the Plan, provided that the first trade in any Shares so acquired by Participants who are employees or executives of TCI shall be deemed a distribution, or primary distribution to the public, unless:
(a) at the time of the granting of the corresponding Option, both Toyota Japan and TCI are not reporting issuers under the Legislation of any Jurisdiction;
(b) at the time of the granting of the corresponding Option, holders of Shares whose last address as shown on the books of Toyota Japan as being in the Jurisdictions did not own more than 10% of the outstanding Shares and did not represent in number more than 10% of the total number of holders of Shares; and
(c) such first trades are executed through the facilities of a stock exchange outside of Canada;
3. the Registration Requirement of the Legislation shall not apply to a first trade in Shares by employees or executives of TCI upon the exercise of Warrants in connection with the Plan if:
(a) at the time of the granting of the corresponding Option, both Toyota Japan and TCI are not reporting issuers under the Legislation of any Jurisdiction;
(b) at the time of the granting of the corresponding Option, holders of Shares whose last address as shown on the books of Toyota Japan as being in the Jurisdictions did not own more than 10% of the outstanding Shares and did not represent in number more than 10% of the total number of holders of Shares; and
(c) such first trades are executed through the facilities of a stock exchange outside of Canada;
4. the issue of Shares by Toyota Japan to Participants upon the exercise of the Options and Warrants shall be exempt from the reporting requirements of the securities legislation of British Columbia;
5. the issue of Shares by Toyota Japan to Participants upon the exercise of the Options and Warrants shall be exempt from the fee payable under the Legislation in Ontario with respect to such trades.
DATED this 1st day of October, 2001.
J.A. Geller R. Stephen Paddon