OBMVL: Oyster Bay Marlborough Vineyards Limited

15 June, 2005 Application for Waiver from NZAX Listing Rule B4.1

NZXR Regulation Decision
Oyster Bay Marlborough Vineyards Limited
Application for Waiver from NZAX Listing Rule B4.1

Background

1. Oyster Bay Marlborough Vineyards Limited ("OBV") are undertaking an annual negotiation to establish the sale price of OBV's grapes to Delegat's Wine Estate Limited ("Delegat's").

2. OBV is party to certain agreements with Delegat's including certain grape purchase agreements ("Purchase Agreements") entered into by OBV and Delegat's, under which Delegat's agrees to purchase and OBV agrees to sell all of the grapes produced by OBV.

3. NZX Regulation ("NZXR") is advised that the price at which each season's grapes are to be sold and purchased under the Purchase Agreements is negotiated between the parties each year. The negotiations are conducted between representatives of Delegat's and the independent Directors of OBV (currently being Mr W. J. Falconer, the Hon. Ruth Richardson, and Mr Ross Keenan) on an arm's length basis and upon those independent Directors obtaining the advice of an independent viticultural consultant (Dr David Jordan of Vine to Wine to Market Limited). NZXR is also advised that, historically, the negotiations between OBV and Delegat's have never been concluded without the requirement of various ongoing discussions between the parties.

4. The transaction is a Related Party transaction because OBV propose to sell all grapes it grows to Delegat's, which holds approximately 32% of the shares in OBV.

5. NZXR has been supplied with pages 18 to 20 of the OBV Disclosure Document, being the document required to be completed prior to OBV listing on the NZAX market, which sets out information in relation to the Purchase Agreements and the pricing negotiations. The form of the Purchase Agreements was also disclosed in the Prospectus prepared for OBV's initial public offering in 1999.

6. The Disclosure Document also outlines OBV's intention to seek a waiver each year from NZX in respect of the requirement in NZAX Listing Rule ("Listing Rule") B4.1 concerning the grape price negotiations under the Purchase Agreements.

Application

7. OBV has applied to NZXR for a waiver from Listing Rule B4.1 of the Listing Rules, on substantially the same terms as the waiver applied for and granted in 2004, that it not be required to go to shareholders in respect of the sale of the grapes to Delegat's.

8. In support of its application OBV submits:

a. The price negotiation process has already been accepted by shareholders of OBV when they subscribed for shares in OBV during the initial public offering. Any change to this process that NZX may seek to have imposed will be impractical, costly and potentially detrimental to OBV.

b. The independent Directors of OBV will provide a certificate to NZX confirming that, in their view, the price achieved for grapes was fair, that the price negotiation has been conducted on an arm's length basis and that they have not been influenced by Delegat's position as a substantial shareholder of OBV.

c. The price negotiations between OBV and Delegat's are held on an arm's length basis, are not affected by the relationship between the parties and their outcome is commercial and fair to shareholders.

d. The annual price negotiations constitute, in effect, an annual renewal of a contract already approved by shareholders (in the acceptance of the prospectus on which their subscription for shares during the initial public offering was based).

e. The price negotiations involve intense and complex commercial negotiations, the outcome of which are matters of commercial sensitivity and confidence to OBV. Therefore, the process of such negotiations should not be made public, other than in the general terms outlined in the Disclosure Document. The overall outcome of the grape price negotiations (being the total revenue and total tonnes in respect of all grape varieties) will, however, be disclosed to the market pursuant to the continuous disclosure requirements of the Listing Rules and in OBV's annual financial statements. OBV's annual financial statements are, of course, made available to shareholders and the market.

f. The outcome of past price negotiations have been consistent with those in the market and the negotiation process engaged in by the independent Directors is the same as that engaged in between Delegat's and its other contract wine growers in the Marlborough region (of which there are at least 30).

g. In the opinion of OBV, it would not be practicable to have the annual price negotiations approved by OBV's shareholders (because the information to be provided to shareholders would necessarily need to be limited so as to avoid commercial prejudice to OBV when OBV's competitors obtain that same information). In addition, the next annual general meeting of the company is not due to be held until late this year. OBV considers that the expense and inconvenience of convening an extraordinary meeting of shareholders to seek approval would be unduly onerous and costly to OBV, particularly given that there will be little benefit obtained.

h. A waiver was granted by NZXR in respect of OBV's 2004 grape price negotiations on substantially the same terms as the waiver sought in this application.

Listing Rule B4.1

9. Listing Rule B4.1 is aimed at regulating those transactions in which a person may gain favourable consideration because of their relationship with the Issuer. In addition to these transactions, the rule is intended to capture transactions that may be perceived to be favourable.

10. Listing Rule B4.1 provides that:

An NZAX Issuer shall not enter into a Material Transaction if a Related Party is, or is likely to become:

(a) a direct or indirect party to the Material Transaction, or to at least one of a related series of transactions of which the Material Transaction forms part; or
...
unless:
...
(d) that Material Transaction is approved by an Ordinary Resolution of the NZAX Issuer.

11. The annual grape price negotiations required under the Purchase Agreements amount to a Material Transaction with a Related Party pursuant to Listing Rule B4 as:

a. The purchase of OBV's grapes is likely to amount to the sale of assets of OBV having an Aggregate Net Value in excess of 10% of the Average Market Capitalisation of OBV (Listing Rule B4.2(a)); and

b. Delegat's is a Related Party of OBV by virtue of it being a Substantial Security Holder of OBV (Listing Rule B4.3(b)).

12. Footnote 1 to the Listing Rule states that:

"NZX may waive the requirement to obtain the approval of a resolution for the purposes of NZAX Listing rule B4.1, if it is satisfied that the personal connections with, or involvement or personal interest of a Related Party are immaterial or plainly unlikely to have influenced the promotion of the proposal to enter into the transaction or its terms and conditions."

Footnote 2 to the Listing Rule states that:

"NZX may waive the requirement to obtain the approval of a resolution for the purposes of NZAX Listing Rule B4.1 in respect of the annual or other renewal or re-negotiation of transactions which have been approved by a resolution under NZAX Listing Rule B4.1, if the NZAX Issuer produces a report from a suitable independent person as to the fairness of the terms of the renewal or re-negotiation."

Decision

13. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR grants OBV a waiver from Listing Rule B4.1 on the following conditions:

a. An independent viticulturalist's report is provided to NZXR stating that the negotiated grape prices are fair to OBV and the minority shareholders of OBV.

b. The waiver is disclosed in OBV's annual reports while the waiver is in force.

c. The Independent Directors of OBV provide certification to NZXR that the negotiation was undertaken on an arms' length basis and the price and terms of the agreement are commercial and fair to OBV and its minority shareholders.

d. OBV advises the market of the sale price of the 2005 grape harvest immediately upon the price being agreed by OBV and Delegat's.

Reasons

14. In coming to this decision, NZXR has considered the following matters:

a. These are existing arrangements which have been in place for some years.

b. The arrangements were disclosed in the Prospectus and Disclosure Document prepared when OBV listed so that shareholders will be aware of the arrangements and could take the arrangements into consideration when deciding whether to purchase OBV's shares.

c. The disclosure document also outlined OBV's intention to seek a waiver from NZXR each year in respect of the requirements in Rules B4 that shareholder approval be sought for the outcome of the grape price negotiation under the Purchaser Agreements.

d. OBV proposes to provide certification from independent Directors that terms are commercial and arms' length and in the best interests of OBV and its minority shareholders.

e. An independent viticulturalist's report will be provided on the appropriateness of the grape pricing. NZXR has been provided information that the viticulturalist has familiarity with grape growing in the Marlborough region which gives him adequate expertise to comment on the reasonableness of pricing negotiation outcomes.

g. The application fits into the policy set out in Footnotes 1 and 2 to Listing Rule B4.1.