Comment on Exemptions

Published 1 May 2002

CodeWord 2 (June 2001) explained the first class exemptions from the Code and CodeWord 4 (December 2001) summarised the first five individual exemptions granted by the Panel.

Since December 2001 the Panel has granted two class exemptions and six individual exemptions which are summarised below.

Class exemptions:

Trustee Corporations (2001/397)

The Panel granted a class exemption for trustee corporations and their associates from compliance in certain circumstances with rule 6(1) of the Code. The exemption recognises the special circumstances of trustee corporations who may hold voting securities on behalf of totally unrelated trusts. Consequently, in principle, the exemption allows unrelated trust holdings to be treated as separate entities. There are consequential exemptions for associates.

Offers unconditional as to level of acceptances (2002/87)

The Panel granted a class exemption for full offers unconditional as to the level of acceptances from rule 29(1) in respect of variations extending the offer period. Rule 29(1) requires 14 days’ notice of any variation of an offer. The exemption waives that notice period for variations extending the offer period. The exemption applies to full offers where ;

  • the offeror controls over 50% of the target company’s voting securities and does not impose a minimum acceptance condition; or
  • the offer has become unconditional as to the level of acceptances during the offer period (i.e. the minimum level of acceptances, as set out in the offer, has been reached).

The exemption is appropriate because it provides a uniform period for extending an offer period for a full offer that is already unconditional as to the level of acceptances and no other party is likely to make a competing Code offer for the target company.

The exemption should promote speedier completion of the offers to the benefit of offerors, offerees, target companies and the market generally.

The exemption is consistent with the Code’s objectives because the Code already recognises that, in some circumstances, offers that are unconditional as to the level of acceptances may be extended without notice. This exemption provides for consistent treatment of these offers, regardless of when they become unconditional in that respect.

Exemptions relating to Notices of Meeting

E-cademy Holdings Limited (2001/377)

E-cademy Holdings Limited was seeking to issue options to Beconwood Securities Pty Limited and Beconwood Superannuation Pty Limited.

The Code does not affect the issuing of options as options themselves do not carry voting rights. However when the options are exercised, voting rights are created. Increases in the holding or controlling of voting rights are subject to rule 6 of the Code. This rule does not permit Beconwood to increase its control of E-cademy above 20% unless it complies with one of the exceptions provided in rule 7.

E-cademy and Beconwood sought to obtain shareholder approval under rule 7(d) of the Code to enable Beconwood to exercise all the options in full. However rule 16 required E-cademy to state, in the shareholders’ meeting notice, the specific percentage of voting rights to be allotted to Beconwood on exercise of the options and the specific percentage of voting rights in E-cademy that Beconwood would hold after the allotment. E-cademy could not state these percentages as they depended on the number of options exercised and movements in E-cademy’s capital structure before the options were exercised.

 E-cademy was granted an exemption from the requirements of rule 16(b) and (d) in respect of the notice of meeting and Beconwood was exempted from rule 7(d) to the extent that it required compliance with rule 16(b) and (d).

The exemption was granted subject to the conditions that:

  • the notice of meeting contains particulars of the voting securities to be allotted on the exercise of the options, including –
  • the maximum number of voting securities that could be allotted to both Beconwood Securities and Beconwood Superannuation on the exercise of all of the options;
  • the percentage of the aggregate of all existing securities (including the 280 million voting securities that will initially be allotted under the agreement) and the maximum number of voting securities that could be allotted to both Beconwood Securities and Beconwood Superannuation on the exercise of all of the options that that maximum number represents;
  • the maximum percentage of all voting securities that could be held or controlled by both Beconwood Securities and Beconwood Superannuation (including the 280 million voting securities that will initially be allotted under the agreement) after completion of the allotment of that maximum number of voting securities;
  • full particulars of the options, including the exercise price and the period during which the options are exercisable; and
  • that there is no change in the effective control of either Beconwood Securities or Beconwood Superannuation between the date of the meeting and the date on which any allotment of securities is made to either of them on the exercise of any of the options.

The Panel considered that an exemption was appropriate because

  • the issuing of options is an accepted means of raising equity capital in New Zealand and the Panel should facilitate these arrangements by exemption; and
  • if the shareholders in E-cademy approve the maximum possible increase in the percentage of voting rights held by both Beconwood Securities and Beconwood Superannuation as a result of the allotment to them under the initial offer and on the exercise of any of the options, then, by implication, they can be taken to have also approved that Beconwood Securities and Beconwood Superannuation may increase their percentage of voting rights by a lesser amount.

The exemption is consistent with the objectives of the Code because the non-associated shareholders of E-cademy will have an opportunity to vote on the immediate and potential allotment of voting securities to Beconwood Securities and Beconwood Superannuation.

Infinity Group Limited (2001/396)

Infinity Group Limited was making a pro-rata offer to existing shareholders underwritten by its largest shareholder Active Equities Limited. Infinity and Active sought to obtain shareholder approval under rule 7(d) for the potential increase in Active’s control of voting rights.

Infinity was unable to comply strictly with rule 16(b) which required the company to state in the notice of meeting the precise number of shares to be allotted to Active Equities Limited, and the exact percentage of voting rights that could be held or controlled by Active after the allotment of shares. This was not possible because Infinity would not know the precise number of shares or voting rights that would be allotted to Active as underwriter, until the offer was completed.

Infinity was exempted from complying with rule 16(b) in respect of the notice of meeting and Active was exempted from complying with rule 7(d) to the extent it required compliance with rule 16(b).

The exemption was subject to conditions that the notice of meeting contains particulars of the securities that may be allotted to Active under the offer and the agreement, including

(a) the maximum number of securities that could be allotted to Active under the offer and the agreement; and

(b) the percentage of the aggregate of all existing securities and all securities that could be allotted under the offer that that maximum number represents; and

(c) the maximum percentage of all voting securities that could be held or controlled by Active after completion of the allotment of that maximum number of securities that could be allotted to Active.

The reasons for granting the exemption were similar to the reasons for granting the E-cademy Holdings Limited exemption.

Force Corporation Limited (2001/422)

SkyCity Investments Limited was underwriting an offer of mandatory convertible notes to be made by Force Corporation Limited. As with the Infinity exemption Force could not comply with rule 16 because it did not know how many mandatory convertible notes SkyCity would be required to subscribe for under the underwriting arrangement.

Force was exempted from complying with rule 16(b) in respect of the notice of meeting. SkyCity was also exempted from complying with rule 7(d) in respect of any increase in its Force voting rights to the extent that the notice of meeting had to comply with rule 16(b).

These exemptions were subject to conditions that –

(a) the notice of meeting contained particulars of the voting securities to be allotted on the conversion of the notes, including –

(i) the maximum number of voting securities that could be held or controlled by SkyCity after the allotment to it of voting securities on the conversion of the notes acquired by it under the offer and the agreement (applying a conversion ratio of 50:1); and

(ii) the percentage of the aggregate of all existing voting securities and the maximum number of voting securities that could be allotted on the conversion of the notes issued under the offer (applying a conversion ratio of 50:1) that that maximum number represents; and

(iii) a statement that the number of voting securities on issue after the conversion of the notes could exceed the number of voting securities obtained by applying the conversion ratio of 50:1, depending on the market value of Force’s shares in the period leading up to the conversion as set out in the terms and conditions of the notes; and

(b) there is no change in the effective control of SkyCity between 14 December 2001 and the date on which any allotment of securities is made on the conversion of the notes.

The reasons for granting the exemption were similar to the reasons for granting the E-cademy Holdings Limited exemption.

Exemptions relating to upstream acquisitions

Newmont Mining Corporation (2002/27)

Otter Gold Mines Limited is a Code company which was the subject of a takeover offer from Normandy NFM Limited (an Australian company). Normandy NFM’s parent Normandy Mining Limited, was itself the subject of a takeover bid by Newmont Mining Corporation (a United States company). Consequently, as a result of both takeovers, Newmont would obtain indirect control of more than 20% of Otter’s voting rights. Accordingly, Newmont sought an exemption to enable its takeover bid for Normandy to proceed without breaching the fundamental rule.

It was appropriate to grant the exemption because any acquisition by Newmont of indirect control of Otter’s voting rights would be incidental to Newmont’s bid to acquire control of Normandy.

The exemption was consistent with the objectives of the Code because any acquisition by Newmont of control of the voting rights in Otter would be as a consequence of its bid for control of Normandy, which was not undertaken for the purpose of gaining control of voting rights in Otter. The bid for Otter by Normandy’s subsidiary valued Otter at less than 1% of Newmont’s valuation of Normandy.

Newmont Group Reorganisation (2002/76)

Newmont itself underwent a reorganisation and a change of control of the company occurred. The reorganisation involved the merger of Newmont, Normandy Mining Limited and FrancoNevada Mining Corporation Limited (a Canadian company). Newmont was the ultimate parent of Normandy NFM Limited which held in excess of 20% of the shares in Otter Gold Mines Limited.

Accordingly an exemption from the fundamental rule was required for the new parent company - Newmont Gold Company.

The reasons for granting the exemption were similar to the reasons for granting the Newmont Mining Corporation exemption.

Exemption relating to offer periods

Normandy NFM Limited (2002/29)

Normandy NFM Limited was making a takeover bid for Otter Gold Mines Limited. The offer, dated 3 December 2001, became unconditional on 28 December 2001.  The initial closing date of the offer was 29 January 2002. On that date the offer was extended without notice to 15 February 2002. This extension was in breach of rule 29(1) of the Code which specifies that an offer may not be varied, and a variation notice may not be sent, later than 14 days before the end of the offer period (unless rule 24(3) applies and the offer is extended beyond the 90 day period).

A retrospective exemption was subsequently granted to validate and permit the variation. The exemption was conditional on the offer closing on or before 2 April 2002.

This issue will not arise again as the class exemption for Offers Unconditional As To Level Of Acceptances will apply.