Transactions

BEFORE THE TAKEOVERS PANEL

Introduction

[1]   Otago Power Limited ("OPL") is a co-operative company based in Balclutha. It was formed in 1992 when, as a requirement of the Electricity Companies Act 1992, the then Otago Electric Power Board was obliged to corporatise. It became a co-operative owned by the consumers. In 1998 OPL was obliged by law to divest either its line business or its generation and electricity retail business. It sold the latter.

[2]   For a number of reasons the board of OPL considered various restructuring proposals from July 2001 to February 2002. In February 2002 the board of OPL received an offer of $73.5 million from Dunedin Electricity Limited ("DEL") for its network assets. The matter was put before OPL's shareholders and at a meeting on 27 February 2002 the shareholders approved a special resolution to sell the network assets for a minimum price of $73.5 million.

[3]   The board of OPL then entered into a sales process for the network. It issued an Information Memorandum to interested bidders in April 2002, seeking indicative bids by 10 May 2002, to be followed by due diligence and final bids by 10 June 2002.

[4]   As from 1 September 2001 OPL's network has been managed by Powernet Limited ("Powernet"), a company jointly owned by Electricity Invercargill Limited ("EIL") and The Power Company Limited ("TPC").

[5]   On 24 April 2002 EIL and TPC announced an offer for 20% of the share capital of OPL at a price of $3.10 per share on a "first come, first served" basis. On the same day EIL and TPC, acting through four companies they jointly owned, Bluesparks Limited, Lightswitch Limited, Power Surge Limited and Shockwave Limited ("EIL/TPC") gave notice of their intention to make a full takeover offer for OPL at a price of $3.10 per share.

[6]   On 7 May 2002 One Otago Limited ("OneOL"), a subsidiary of DEL made an offer to all shareholders in OPL for 20% of the shares in OPL at a price of $3.10 per share. That offer included a clause which said that if the consideration in a subsequent full takeover was above that amount any acceptors of the initial offer would receive the benefit of the later higher Code offer.

[7]   On Saturday 11 May 2002 EIL/TPC distributed the offer document for their full offer for all the shares in OPL dated 8 May 2002 at a price of 3.10 per share. On the same day OneOL gave notice of its intention to make a full takeover for OPL at a price of $3.15 per share.

[8]   The Panel received a number of complaints in relation to various actions by the directors of OPL taken in response to the EIL/TPC offer. The Panel also, at its own initiative, raised issues in relation to the offer made by EIL/TPC, and the offer to be made by OneOL.

[9]   The Panel convened four meetings under s32 of the Takeovers Act 1993, all held concurrently on Friday 17 May 2002. The Panel issued its determinations arising from those meetings on Sunday 19 May 2002. In general terms the Panel determined that the actions of the directors of OPL in refusing to register transfers in favour of EIL/TPC amounted to defensive tactics for the purposes of rule 38 of the Code and restrained the directors from continuing to refuse registration. The Panel found that the shares in OPL described as "rebate shares" were in fact and in law "ordinary shares". Actions by the directors of OPL in relation to a notice of meeting of shareholders were resolved on the basis of changes, that were proposed shortly before the hearing, being made to the notice. Actions by the directors of OPL in relation to the apparent acceleration of the timetable for its assets sales process were resolved on the basis of commitments given to the Panel by the directors of OPL not to accelerate the assets sales programme. The Panel determined that the acceptance forms for the offer by EIL/TPC, and the proposed offer by OneOL, incorporated an acquisition of voting rights by appointment of power of attorney that did not comply with the Code. The Panel made restraining orders preventing EIL/TPC from asserting any claim to vote the rights attached to the share acceptance forms it had obtained under the Code offer. EIL/TPC was directed to write to the affected shareholders explaining the position relating to their voting rights.

[10   On the late afternoon of Wednesday 22 May 2002 the Panel received separately from the legal representatives of OneOL and OPL a copy of an offer document addressed to a major shareholder in OPL which contained the conditional offer. That letter records (hereinafter referred to as "the 22 May letter"):

OTAGO POWER LIMITED

1. This letter records the agreement between Bluesparks Limited, Lightswitch Limited, Power Surge Limited and Shockwave Limited ("the Bidders") and [ ] ("the Shareholder").

2. The shareholder holds [ ] shares in Otago Power Limited ("OPL"). The Bidders have made a takeover offer (dated 8 May 2002) for all the shares in OPL at a price of $3.10 per share (the"Offer").

3. The Bidders will, if the condition in paragraph 5 is satisfied or waived, vary the Offer so that the price per share is increased to $3.25.

4. Within one working day after the Bidders vary the Offer in accordance with paragraph 3, the Shareholder will accept the Offer by completing and delivering to the Bidders the acceptance and transfer form enclosed with the Offer.

5. The agreement in this letter is conditional upon agreements in similar form being entered into by the following OPL shareholders in respect of the following numbers of shares [9 shareholders and their respective shareholdings were listed]; not later than 5 p.m. on Thursday May 23, 2002. This condition may however be waived by the Bidders. Unless the Bidders notify the Shareholder by 6 p.m. on Thursday May 23, 2002 (by fax message to the facsimile number recorded below, or by telephone) that those agreements have been entered into, or that this condition has been waived, this condition will be deemed not to be satisfied, and the agreement in this letter will terminate.

6. The agreement in this letter is confidential. The Shareholder must not without the consent in writing of the Bidders disclose or permit to be disclosed the existence or contents of this letter to any person, or acquire shares in OPL or any interest in shares in OPL.

[11]   The letter was signed by the "Bidders" and provided space for the recipient to sign and return the document.

[12]   On the morning of Thursday 23 May 2002 the Panel received a formal request from the legal representatives of OneOL to convene a s32 meeting and make restraining orders in relation to the 22 May letter. The Panel sought the urgent views of EIL/TPC's legal representatives on the content of the 22 May letter. The Panel convened twice in the afternoon of 23 May 2002. The Panel took advice from counsel. At 3.30 p.m. the Panel formed the view that it considered that EIL/TPC may not have complied, may not be complying, or may intend not to comply with the Code by issuing of the 22 May letter. The Panel issued interim restraining orders to EIL/TPC restraining them from soliciting or acting on any responses received in response to the 22 May letter. The Panel's fax log shows that this order was transmitted to EIL/TPC's legal advisers at 5.10 p.m.

[13]   On 24 May 2002 the Panel was informed by EIL/TPC's legal representatives that the Panel's letter and restraining order had been received in the office at 5.16 p.m. but that it had not come to the attention of the responsible partners of the firm until after 6.00 p.m. In the meantime the committee of representatives responsible for the EIL/TPC takeover had met at 5.00 p.m. There had been one acceptance of the offer in the 22 May letter, from Clutha District Council.

[14]   The EIL/TPC committee decided not to waive the condition which required all the recipients of the offer in the 22 May letter to accept that offer before EIL/TPC would increase the consideration payable under its Code offer. The committee decided to extend the offer period for the Code offer until 30 June 2002 (notice of which was given on 24 May 2002) but not to increase the consideration payable at that time. EIL/TPC did not communicate with the Clutha District Council before 6.00 p.m. that evening so, in accordance with the terms of the offer in the 22 May letter, it lapsed.

[15]   OneOL responded to the actions of EIL/TPC. On the evening of 23 May 2002 it released a statement saying that it would immediately pay $3.25 per share to anyone who accepted its initial offer for 20% of OPL and would make its full takeover offer at $3.25.

[16]   Newspaper reports on Friday 24 May 2002 indicated that one of the largest shareholders in OPL, GRD McCraes Limited, had accepted OneOL's $3.25 offer.

[17]   Newspaper reports on Saturday 25 May 2002 indicated that OneOL was rethinking its strategy in view of EIL/TPC's decision not to increase its offer price above $3.10 at the time it extended its offer period.

[18]   EIL/TPCs offer in the 22 May letter did not succeed. EIL/TPC did not immediately increase the offer price for its full takeover offer above the original level of $3.10 and at the date of the Panel's meeting on 29 May 2002 had not done so.

The first issue to be considered by the Panel was whether, by making the offer in the 22 May letter to nine shareholders of OPL the EIL/TPC consortium had acted, was acting, or was intending to act in compliance with the Code.

[19]   The Panel has already addressed a number of issues arising from the conduct of the parties involved in competing takeover bids for OPL, including actions of the directors of OPL itself. At its earlier meeting on 17 May 2002 the Panel considered whether the then proposed notice of a meeting of OPL's shareholders to be held to consider a number of resolutions in itself constituted defensive tactics on the part of the directors of OPL. After discussion at the Panel's meeting of 17 May 2002, shortly prior to which OPL had provided an amended draft notice of meeting, the Panel determined, on the basis of the amended draft notice of meeting, that the directors of OPL intended to act in compliance with the Code. The particular point at issue in the notice of meeting had been that the changes being proposed to the constitution of OPL would not take effect until 20 June 2002 or such later date as the directors of OPL could decide at their discretion. This discretion was removed in the revised draft notice of meeting considered by the Panel on 17 May 2002.

[20]   On or about 20 May 2002 the directors of OPL distributed a notice of a special meeting of the shareholders of OPL to be held in Balclutha on 6 June 2002.

[21]   On 27 May 2002 the legal representatives of EIL/TPC requested that the Panel hold a s32 meeting in relation to the notice of special meeting of OPL dated 20 May 2002. Of particular concern to EIL/TPC was the first resolution on the agenda. This resolution states:

Ordinary Resolution - Action of Directors Under Takeover's Code

That the action taken by the Directors since 27 February 2002 including the actions proposed in the resolutions below to the extent (if any) that those actions constitute defensive tactics in terms of Rules 38 and 39 of the Takeovers Code be approved.

Explanatory Note

The above resolution if passed confirms that the actions of the Board to the extent that they may be defensive tactics under the Takeovers Code (which is denied) are approved by shareholders.

[22]   While this resolution (which for convenience will be referred to as the "First Resolution (defensive tactics)") had been included in the notice of meeting provided to the Panel just prior to its meeting on 17 May 2002, and was discussed during the course of the meeting (where the representatives of EIL/TPC had expressed concern about aspects of the resolution) no specific determination was sought or made in relation to the resolution. During the course of the meeting on 17 May 2002 Panel members and Counsel assisting the Panel had expressed the view that a resolution under rule 40 of the Code could only operate to validate prospective actions by a board of directors - it could not operate retrospectively to validate past actions by directors.

[23]   The Panel met on the morning of 28 May 2002. It took advice from Counsel. The Panel considered that the directors of OPL, by distributing the notice of meeting containing the first resolution may not have acted, may not be acting, or may intend not to act in compliance with the Code. The particular issue was whether the resolution contained, or was accompanied by, full particulars of the proposed action to be taken by the directors of OPL that amounted to defensive tactics, the reasons for that action, and the consequences under the Code.

The second issue to be considered by the Panel was whether by sending the notice of meeting of shareholders dated 20 May 2002 containing the first resolution the directors of OPL had acted, were acting, or intended to act, in compliance with the Code.

First Issue - Did issuing the 22 May letter comply with the Code?

[24]   The relevant provisions of the Code are rules 27, 28, and 29. These are set out below:

27. Permissible variations

The offeror may vary the offeror's offer only if the variation is to do any of the following things:

(a) to increase an existing component or components of the consideration:
(b) to add a cash component to the consideration:
(c) to include in the offer a cash alternative (if the directors of the target company have given their prior written approval):
(d) to extend the offer period, but not beyond the maximum period permitted under rule 24.

28. Variation Notice

(1) Subject to subclause (2), an offeror must immediately send a written notice of any variation of the offeror's offer to-

(a) every offeree; and
(b) the target company; and
(c) the Panel; and
(d) the Stock Exchange (if any voting securities of the target company are quoted on the Stock Exchange).

(2) If the offer is unconditional and the variation only extends the offer period, the notice referred to in subclause (1) need not be sent to offerees who have already accepted the offer.

29. Timing of Variation

(1) 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.

(2) The offer must remain open for at least 14 days after a variation notice has been sent.

(3) Subclause (1) does not apply if, before the end of the offer period, the offer period is extended under rule 24(3).

Parties' Submissions

[25]   Written submissions on the issue had been received (and exchanged between the parties) from OneOL, EIL/TPC and OPL, as well as further submissions from each of OneOL and EIL/TPC responding to the others.

[26]   At the hearing, OneOL spoke to its submissions, emphasising the following points:

(a)  Referring to the factual situation, Mr Polson advised that OneOL felt compelled to respond very urgently to the 22 May letter once it was drawn to their attention. If the 22 May letter was accepted by its recipients, it would get EIL/TPC to within five to ten percent of majority control. If and when that position could be achieved and was publicised, OneOL predicted that EIL/TPC would be in a strong position to persuade sufficient other shareholders to accept at the higher price, given the obviously enhanced prospects of their bid succeeding. OneOL accordingly offered the same price to the recipients of the 22 May letter. They were apparently informed that a number of the recipients were favourably inclined to accept EIL/TPC's offer and some had apparently signed but not returned the executed letters. Mr Polson suggested that EIL/TPC's initiative would have had a real chance of succeeding, but for OneOL's intervention.

(b)  As to the status of the 22 May letter, it was submitted that it constituted an offer (evincing a willingness to be bound on terms certain or capable of being rendered certain) and was on different terms from EIL/TPC's Code offer. OneOL denied any relevant difference between an agreement to do something, and doing that thing - in essence emphasising that most contracts are executory, promising to perform certain acts in certain conditions in the future, and that the promise here by EIL/TPC was to pay $3.25 to all recipients of the 22 May letter if they all committed to sell to EIL/TPC by the end of 23 May, and if EIL/TPC's offer otherwise secured more than fifty percent of OPL's shares.

(c)  OneOL argued that because this subset of shareholders was being offered different terms to all other OPL shareholders, then that necessarily involved a variation of the Code offer made otherwise than in accordance with the Code.

[27]   OPL was inclined to think a variation of the Code offer was involved in the 22 May letter, but the company said it was relieved that the issue had become academic. It was concerned that the Panel should not permit a situation that foreclosed open and strongly competitive bids, implying that such was or could have arisen here, had the 22 May letter succeeded in its objectives.

[28]   EIL/TPC submitted that the issue was entirely academic because the offer in the 22 May letter had lapsed, but that in any event, it did not involve any breach of the Code. The 22 May letter would create, if accepted, an obligation on EIL/TPC to then vary the Code offer, which would then be sent in the same terms to all OPL shareholders. EIL/TPC submitted that the obligation to vary was a different thing from making the variation. In essence, EIL/TPC argued that the 22 May letter would have led to a distinct contract with reciprocal obligations in respect to the Code offer, but not amounting to a variation of it. This separate contractual status of the 22 May letter was also suggested as the answer to Panel concerns that it created an obligation on shareholders to accept within one day, whereas any Code offer had to be open for acceptance for not less than fourteen days - i.e. it was not the Code offer that was subject to very short time limitation, but a separate contract, if concluded, between EIL/TPC and the nine or less recipients.

[29]   The Panel's approach in resolving the arguments summarised above (that obviously may not do credit to the full detail of all those received) is to analyse the arrangements and then apply the Code to see whether there has been compliance. In doing so, the Panel does not take a narrow legalistic approach, but rather it interprets the requirements of the Code in accordance with the policy and principles to which the Panel was required by the Takeovers Act to have regard when formulating the Code. The Panel is mindful that the Code itself was drawn by and is enforced by members appointed on the basis of expertise as market participants in various relevant disciplines, as expressly required by the Takeovers Act. Accordingly, it is to be expected that the Panel will in applying the Code look to the commercial substance of events.

Policy applying to the application of the Code

[30]   This approach is consistent with the submissions made by both EIL/TPC and OneOL who suggested that various policy considerations should influence the interpretation and application of the Code. This is the first time that conduct by a bidder outside the confines of its Code offer has had to be considered, and it is appropriate to reflect on the policy motivations of the restraints the Code imposes, once a Code offer is made. In the formulation of the Code, the Panel has positively considered and is now reflecting so far as it is relevant to the present issue, each of the matters in section 21 (a)-(c) of the Takeovers Act 1993, namely:

(a) That advance notice and publicity should be given of takeovers:

(b) That in a takeover, the specified company and its security holders should be fully informed:

(c) That in a takeover, offers should be made to all security holders, that the consideration offered should be the same for all security holders, and that all security holders should have the same opportunity for acceptance:

[31]   The essence of the Code is a form of notice and pause regime. The reason for it is to allow for an auction, and to allow shareholders to make a fully informed decision in circumstances where they are not pressured by any requirement for decisions at short notice. All of this is within the fundamental tenet that shareholders be treated equally, and fairly.

Analysis of the 22 May letter

[32]   The Panel finds that the 22 May letter is an offer to the nine recipients to vary the Code offer made to all OPL shareholders which the recipients could transform into an agreement by acceptance by all of them, or sufficient of them for EIL/TPC to waive the requirement for acceptance by the rest.

[33]   Since the commitment to vary the offer to all shareholders is predicated on acceptance of a new price by the nine or less recipients, the letter constitutes a variation of the offer, as made to the nine recipients.

[34]   It is artificial to characterise the letter to the recipients as an agreement only to accept the variation of the Code offer once made to all shareholders. The letter is nothing more nor less than a commitment by EIL/TPC to increase the price, and by the recipients to accept that offer. In other words, it is a variation of the Code offer that had previously been made to them as well as to all other OPL shareholders.

[35]   That variation is made in a way that does not comply with the Code which:

• restricts permitted variations to only an extension to the offer period, and changes to the consideration offered under the offer (rule 27) - (the variation put to recipients of the 22 May letter insofar as it changes the acceptance period is not a permitted exception);
• requires any variation, when made, to be made to all shareholders immediately (rule 28) (which by definition must be made on the same terms to all) - (the variation put to recipients of the 22 May letter does not comply with this requirement);
• requires that the offer remain open for acceptance for 14 days after the variation has been sent (rule 29) - (insofar as the recipients of the letter would be required to accept within one day of the variation being put to all shareholders, rule 29 has not been complied with).

[36]   Even if the 22 May letter is not correctly construed as a variation of the Code offer, but rather as a separate contract (which the Panel considers to be untenable), then a shareholder signing the letter, when accepting the offer does so on terms which are different from those terms offered to other shareholders, namely subject to the requirement for acceptance within one day. That is discriminatory, and independently, contrary to the Code.

[37]   Further, if EIL/TPC were correct that it is a distinct contract standing outside the dealings in respect to the Code offer that are regulated by the Code, then its outcome would represent mutual commitments to buy and sell OPL shares at $3.25 per share, subject only to the bidders gaining any acceptances for more than fifty percent. As such, an issue would arise as to whether it would be an acquisition outside those permitted by rule 7 (relevantly here, purchase pursuant to a full offer).

[38]   This interpretation is supported by the relevant policy considerations outlined in paragraphs 30 and 31 above, which would otherwise be subverted if such conduct were permitted by bidders with a current Code offer in the market.

Determination

[39]   The Panel accordingly determines that it is not satisfied that EIL/TPC has acted in compliance with the Code, in its despatch of the 22 May letter to the nine recipients, in that the letter constituted a variation of EIL/TPC's Code offer made without complying with rules 27 - 29 of the Code.

Penalty

[40]   OneOL submitted that any non-compliance with the Code in this instance would warrant application by the Panel to the High Court for imposition of pecuniary penalties under s44 of the Act. The Panel considers that that course is not appropriate in the present case. It anticipates such applications would be relatively rare. The issue of compliance in respect of the relevant parts of the Code has not been considered by the Panel previously. The Panel accepts EIL/TPC's assurances that there was no intention to breach the Code, and notes that the action did fail.

[41]   This outcome will be reflected in an order as to costs against EIL/TPC under the Takeover (Fees) Regulations 2001, the terms of which will be determined by the Panel in due course.

Second Issue - Did the sending of the notice of meeting including resolution one dealing with the directors' defensive tactics comply with the Code?

[42]   The relevant provisions of the Code are rules 38, 39, and 40. These are set out below:

38. Defensive tactics restricted

(1) If a Code company has received a takeover notice or has reason to believe that a bona fide offer is imminent, the directors of the company must not take or permit any action, in relation to the affairs of the Code company, that could effectively result in-

(a) an offer being frustrated; or

(b) the holders of equity securities of the Code company being denied an opportunity to decide on the merits of an offer.

(2) Subclause (1) does not prevent the directors of a Code company taking steps to encourage competing bona fide offers from other persons.

(3) Subclause (1) is subject to rule 39.

39. When action permitted

The directors of a Code company may take or permit the kind of action referred to in rule 38(1) if-

(a) the action has been approved by an ordinary resolution of the Code company; or

(b) the action is taken or permitted under a contractual obligation entered into by the Code company, or in the implementation of proposals approved by the directors of the Code company, and the obligations were entered into, or the proposals were approved, before the Code company received the takeover notice or became aware that the offer was imminent; or

(c) if paragraphs (a) and (b) do not apply, the action is taken or permitted for reasons unrelated to the offer with the prior approval of the Panel.

40. Notice of meeting

The notice of meeting containing the proposed resolution for the approval of the action referred to in rule 39(a) must contain, or be accompanied by,-

(a) full particulars of the proposed action; and

(b) the reasons for it; and

(c) a statement explaining the significance of the resolution under this Code.

[43]   The Panel received submissions from both EIL/TPC and OPL before the hearing and heard further oral submissions about the First Resolution (defensive tactics) during the hearing. That resolution attempts to have the shareholders of OPL approve all actions taken by the directors of OPL between 27 February 2002 and 6 June 2002. The Panel considers that it is clear that shareholders cannot retrospectively approve defensive tactics under the Code. In forming this view the Panel noted that rule 39(a) of the Code allows action which has been approved by the shareholders. Rule 40(a) requires the notice of meeting to contain full particulars of the proposed action. OPL submitted that it was possible for the directors to take defensive actions conditional on later ratification by the shareholders. The Panel does not accept that submission. Once a defensive action is taken the damage is usually done. The Panel considers that to the extent that this resolution purports to retrospectively approve actions taken by the directors of OPL, it can be of no legal effect for the purposes of compliance with the Code. Whilst it did not formally rule on this point after the 22 May meeting, the view of the Panel was conveyed very clearly to OPL's representatives at that time.

[44]   The Panel also received submissions as to the extent to which the First Resolution (defensive tactics) sought to validate future prospective actions by the directors of OPL. The Panel sought to understand the motivation behind the proposing of the First Resolution. After discussion with the Panel, OPL said that one of the reasons why the First Resolution was being put before shareholders was to protect the directors of OPL if another party were to take a civil action against them. OPL also advised that the First Resolution was being put to shareholders to allow the directors to put forward two other resolutions, also to be considered at the shareholders' meeting on 6 June 2002, namely:

• an ordinary resolution to remove the voting cap;
• a special resolution to amend OPL's constitution in a number of significant ways characterised by the directors in the notice of meeting to facilitate the registration of share transfers.

(jointly referred to for convenience as the "Subsequent Resolutions").

However, there can be no issue that the Subsequent Resolutions might constitute defensive tactics, and EIL/TPC explicitly acknowledged that they have no such concerns. There is therefore no need for the First Resolution (defensive tactics), on this ground.

[45]   The Panel sought comment from both OPL and EIL/TPC as to whether the First Resolution (defensive tactics), to the extent that it purports to approve prospective actions by OPL, complies with rule 40 of the Code. OPL argued that rule 39(a) and rule 40 are not rules of procedure which must be followed. Instead they submitted that rules 39 and 40 are permissive. OPL also stated that the First Resolution (defensive tactics), and the information which accompanied it, complied with rule 40 of the Code in that it specified the full particulars of the proposed actions, the reasons for them, and stated the significance of the resolution under the Code. By contrast, EIL/TPC submitted that the First Resolution (defensive tactics) does not comply with rule 40 of the Code in that it:

(a)  Does not specify the actions taken. EIL/TPC noted that First Resolution (defensive tactics) itself purports to refer to everything done by the directors, between 27 February 2002 and 6 June 2002 and beyond.

(b)  Does not specify the reasons for any actions taken. EIL/TPC also noted that there is no attempt to provide any particular reason for any particular action.

(c)  Does not clearly explain the significance of the First Resolution (defensive tactics) under the Code.

[46]   The Panel considers that rule 40 of the Code requires either the notice of meeting or a document accompanying the notice of meeting to contain clear statements of the full particulars of the proposed action or actions, the reasons for it or them, and a statement explaining the significance of the First Resolution (defensive tactics). The requirements of rule 40 cannot be satisfied by providing that information in an indistinct, confusing or unclear manner. The Panel considers that all the information required by rule 40 should be provided in the same place in the notice of meeting or in a document accompanying the notice of meeting, and should be in a form that can be readily understood by an ordinary shareholder.

[47]   The documents accompanying the First Resolution (defensive tactics) appeared to have at least some of the information required by rule 40 scattered throughout them. However, the Panel did not consider that the information was particularised in a clear manner that could be understood by an ordinary shareholder. The Panel considers that the text of the notice of meeting and the accompanying letter fell significantly short of what can reasonably be expected from a Code company presenting a resolution to shareholders which purports to comply with rule 40 of the Code.

[48]   OPL argued that it was not for the Panel to intervene to ensure compliance with rule 40 when that provision is self regulating. They noted that such a resolution will either be effective at law or it will not. They suggested that the Panel should only be concerned if the First Resolution (defensive tactics) was passed by OPL's shareholders and OPL sought to rely on it when it was ineffective. EIL/TPC submitted that it was misleading for OPL to put a resolution to shareholders if it cannot be effective to achieve its purpose. EIL/TPC argued that OPL should withdraw the First Resolution (defensive tactics) from the meeting. OPL did not offer to do this.

[49]   For all the reasons set out above, the Panel takes the view that the First Resolution (defensive tactics) does not meet the requirements of rule 40 of the Code. Because the Panel considers that it is not possible for a rule 40 resolution to retrospectively approve the actions of directors, the Panel's view is that it is not possible for the First Resolution (defensive tactics) to have legal effect to the extent that it purports to approve the past actions of the directors. The Panel also considers that it is misleading to put a resolution to shareholders which purports to do something which it cannot. The Panel appreciated that some shareholders may have already committed to vote on that resolution by way of proxy.

Determination

[50]   The Panel accordingly determines that it is not satisfied that OPL has acted, is acting, or intends to act in compliance with the Code by distributing to the shareholders of OPL, for the purposes of the meeting of OPL to be held on 6 June 2002, a resolution purporting to have the shareholders approve the actions taken by those directors since 27 February 2002 and up to and beyond 6 June 2002 to the extent that the directors actions constitute defensive tactics in terms of rules 38 or 39 of the Code. Orders

[51]   The Panel orders under section 32(4)(a) and section 33(b) of the Takeovers Act 1993 that OPL be restrained from putting to its shareholders for consideration the first resolution in its notice of meeting entitled - "Ordinary Resolution - Action of Directors under Takeovers Code".

Costs

[52]   The Panel will address matters in relation to costs by correspondence with the parties.

DATED at Auckland this 31st day of May 2002

SIGNED for and on behalf of the Panel by the Acting Chairperson