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Summary of

Securities Act (The Grand Lakes Hotel) Exemption Notice 2004

2004/3

Gazetted on 15 January 2004.
Expires on 31 December 2008.

Effects of the exemption

The exemption relieves Perron Grand Lakes Limited (PGL) and Grand Lakes Management Limited (GLM) from the following requirements:

• to have raised the minimum subscription amount required for their development within 4 months of the date of the registered prospectus;
• to require a minimum payment of 10% of the nominal value of the security on subscription;
• to state the price of the securities in the prospectus;
• to set out the summary financial statements and financial statement requirements of the Third Schedule of the Securities Regulations; and
• to include a prospective statement of cash flows for the year from the date of the prospectus.

The exemption also allows the registered prospectus to remain current for 36 months.

Context/Background
PGL proposes to develop a hotel on land in Queenstown (the development). The scheme will be managed by GLM. The hotel will be managed by an operator appointed by GLM. The development will consist of self-contained apartments, retail stores, and common areas.

PGL proposes to offer the apartments for sale to the public. The development is in the nature of a timeshare, as apartments will not be available for personal occupation by an owner, except for limited usage rights.

After deducting certain operating costs, the net pooled income will be distributed to apartment owners. The rent payable to each owner of an apartment will be a proportion of the net pooled income less any ownership costs individually allocated to that apartment.

The exemptions
PGL and GLM are exempted, in respect of securities offered in the income pooling scheme to be offered with accommodation units as part of the development in Queenstown, from:

• sections 37(2), 37A(1)(c), and 37A(2) of the Securities Act 1978; and
• clauses 1(4), 6, 7(5), 7(6), 20 to 34, and 37 of the Third Schedule of the Securities Regulations 1983.

Conditions
The exemption from section 37A(1)(c) of the Act is subject to the following conditions:

• that the prospectus clearly states that:
  • if information in the prospectus becomes false or misleading by failing to refer, or give proper emphasis, to adverse circumstances, the prospectus will be immediately withdrawn or amended;
  • while the offer is open, the issuer will lodge certificates with the Registrar:
    • relate to the current prospectus;
    • are signed by at least two directors;
    • are dated not more than seven months after the date of the prospectus or after the date of the last certificate relating to the prospectus was lodged (whichever is the later);
    • state that, in the directors' opinion the prospectus is not false or misleading by failing to refer or give proper emphasis to adverse circumstances; and
    • state that the information in the prospectus complies with the Third Schedule except as permitted by any exemption granted by the Securities Commission;
  
  
  
• the exemption from section 37A(1)(c) is subject to the further condition that:
  • o no securities are allotted 36 months after the date of the first prospectus;
  • o each payment made towards an accommodation unit and interest on the payment, is held in trust until:
    • the subscriber receives a transfer memorandum; and
    • any other condition in the offer documents is satisfied;
  
  
  
• the trust accounts are audited each year and maintained by the statutory supervisor;
• every 6 months the project manager for the development provides a certificate to each subscriber, and to the statutory supervisor, that states:
  • whether the construction work is on time and within budget, and if not, why not; and
  • whether the accommodation units will be completed on time and within budget, and if not, why not.

• However:
  • if the contract between a subscriber and the promoter is terminated or cancelled, each payment made towards that accommodation unit, and any interest, may be paid to the person entitled to the payment under that contract; or
  • to the person who made the payment if the allotment would take place more than 36 months after the date of the first prospectus.

The exemption from clause 1(4) of the Third Schedule is subject to the condition that the prospectus states how the price for the accommodation units will be determined.

The exemptions from clauses 6, 20 to 34, and 37 of the Third Schedule are subject to the condition that the prospectus states that for each financial year after the scheme:

• financial statements that comply with the Financial Reporting Act 1993 will be prepared not later than 3 months after the relevant accounting period ends;
• the most recent financial statements are available free from the places set out in the prospectus; and
• each prospectus will be have the most recent financial statements for the scheme.

The exemption from clause 7(5) and (6) of the Third Schedule is subject to the condition that the prospectus has a prospective statement of cash flows for the year from the date that the scheme is to commence business.

The exemptions are subject to the further condition that when the securities are allotted the subscriber will receive a transfer memorandum relating to their accommodation unit.

Reasons
The exemptions recognise that different circumstances can apply to the promotion and marketing of some property-based investments compared with other investments;

These circumstances mean that several of the requirements of the Act and Regulations are impractical or impossible to comply with because:

• these schemes can require longer marketing timeframes than other investments;
• the scheme that makes up the security interest might not commence for some time after the initial offer of the securities;
• prices and terms of sale may need to be negotiable;
• selling interests in property may take longer than other types of securities, or the issuer may choose to adopt a longer-term marketing strategy.

The conditions of exemption aim to provide investors with timely and relevant information regarding the development.

Investors have the protection of their money being held in trust by the statutory supervisor until all conditions in respect of the purchase and allotment of the securities are satisfied.