Restriction on actions by the board of the offeree company

Incentive and retention arrangements

1. The Panel will normally consider the proposed grant of options over, or awards in respect of, shares to be in the ordinary course of the offeree company’s business if the timing and level are in accordance with:

   1. the offeree company’s normal practice under an established incentive scheme; or

   2. the offeree company’s proposed practice under a new incentive scheme, provided that the proposed practice was publicly disclosed before the relevant period,

   or if the grant of options over, or awards in respect of, shares is in connection with a genuine promotion or new appointment or hire.

2. The Panel will normally consider the issue of new shares or the transfer of shares from treasury to satisfy the exercise of options or the vesting of awards under an incentive scheme to be in the ordinary course of the offeree company’s business.

3. The Panel must be consulted where the board of the offeree company proposes to put in place offer-related retention arrangements (other than arrangements that are considered to be in the ordinary course of the offeree company’s business under Note 1(a) or Note 1(b)) that will relate to a period that is (in whole or in part) prior to the end of the offer period, whether in cash or in the form of options over, or awards in respect of, shares in the offeree company. Where those arrangements are significant in value or relate to directors or management, the Panel may regard entering into those arrangements as a restricted action.

Redemption or purchase of own shares

A redemption or purchase of its own shares in line with defined limits announced or established before the relevant period will normally be in the ordinary course of the offeree company’s business.

Assets of a material amount

1. In assessing whether a disposal or acquisition is of assets of a material amount, the Panel will normally have regard to:

   1. the value of the consideration to be received or given compared with the market value of the equity share capital of the offeree company; and, where appropriate,

   2. the value of the assets compared with the value of the assets of the offeree company; and

   3. the operating profit (i.e. profit before tax and interest and excluding exceptional items) attributable to the assets compared with the operating profit of the offeree company.

   For these purposes:

   “assets” will normally mean total assets less current liabilities (other than short-term indebtedness); and

   “equity share capital” will be interpreted by reference to Note 3 on Rule 14.1.

2. The figures to be used for these calculations must be:

   1. for the market value of the equity share capital of the offeree company, the value at the close of business:

      1. on the business day immediately preceding the start of the offer period; or

      2. if there is no offer period, on the business day immediately preceding the announcement of the transaction; and

   2. for assets and profits, the figures stated in the latest published audited consolidated accounts or, where appropriate, a subsequent preliminary statement of annual results or half-yearly financial report.

3. The Panel may have regard to additional or alternative indicators of materiality that it considers appropriate either in the context of the relevant industry or in order to take into account the particular circumstances of the offeree company or the nature of the relevant assets.

4. A relative value of 10% or more will normally be of a material amount. A relative value of less than 10% may also be of a material amount if the assets are of particular significance to the offeree company.

5. If a number of disposals and/or acquisitions (other than disposals or acquisitions in the ordinary course of the offeree company’s business) are or, following the last proposed action, will be, in aggregate, of a material amount, the last relevant disposal or acquisition and any subsequent relevant disposal or acquisition will be treated as a restricted action. Disposals and acquisitions will be aggregated together disregarding any negative values.

Service contracts

The Panel will regard entering into or amending a service contract with, or creating or varying the terms of employment or appointment of, a director or manager as entering into or amending a material contract outside the ordinary course of the offeree company’s business for the purpose of Rule 21.1 if the new or amended contract or terms constitute an abnormal increase in the director’s or manager’s emoluments or a significant improvement in the terms of service, unless the increase or improvement results from a genuine promotion or new appointment or hire.

Inducement fees

The Panel will normally consider an inducement fee arrangement proposed to be entered into by the offeree company (other than an inducement fee arrangement in relation to an offer permitted under Note 1 or Note 2 on Rule 21.2) to be a material contract outside the ordinary course of the offeree company’s business if the aggregate value of the inducement fee or fees that may be payable is:

1. where the inducement fee arrangement is entered into prior to the announcement by an offeror of a firm intention to make an offer, more than 1% of the market value of the equity share capital of the offeree company (as determined in accordance with Note 3); or

2. where the inducement fee arrangement is entered into after the announcement by an offeror of a firm intention to make an offer, more than 1% of the value of the offeree company calculated by reference to the price of the offeror’s offer (or, if there are two or more offerors, the first offer) at the time of the announcement.

Details to be included in circular or announcement

Any circular sent to shareholders under Rule 21.1(f)(iii) or announcement published under Rule 21.1(g) must contain the following:

1. full details of the proposed action;

2. the opinion of the board of the offeree company on the proposed action and the board’s reasons for forming its opinion;

3. if Rule 21.1(f)(i) applies, the substance of the advice given to the board of the offeree company;

4. information about the current status of the offer or possible offer; and

5. any other information necessary to enable shareholders to make an informed decision.

The offeree company must also publish the circular or announcement, and any contracts entered into in connection with the proposed action, on a website. (See also Rule 26.1(a).)

Competing offerors

Where there is more than one offeror, the Panel will normally treat the relevant period for any new offeror or potential offeror as beginning upon an approach by that offeror to the board of the offeree company or, if earlier, when that offeror is publicly identified in an announcement.

Reverse takeovers

Where an offer is, or a possible offer would be, a reverse takeover, Rule 21.1 will also apply during the relevant period to the board of the offeror as if the offeror were an offeree company and vice versa.

Relevant period where the offeree board is seeking a potential offeror or where a purchaser is sought for a controlling interest

1. Where the board of an offeree company is seeking one or more potential offerors (whether by way of a formal sale process or otherwise), the relevant period for a potential offeror will not normally begin until that potential offeror makes a proposal with indicative offer terms.

2. The Panel should be consulted at an early stage to determine when the relevant period will begin for a potential offeror where a purchaser is being sought for interests in shares carrying in aggregate 30% or more of the voting rights of a company.

Sanction of a scheme of arrangement in a competitive situation

Other than in exceptional circumstances, the Panel will consent to the restrictions in Rule 21.1(a) not being applied where the board of the offeree company seeks to sanction a scheme of arrangement in a competitive situation.