Copy of Enforceable Undertaking

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1.

Introduction

1.1

This undertaking is offered to the Securities Commission for acceptance under section 69J of the Securities Act 1978 by:

(a)

Carlin Enterprises Limited (535692) ("Company"), a company incorporated on 24 February 1992, whose registered office is at:

c/- Malloch McClean
45 Don Street
Invercargill;

And by

(b)

the sole director of the Company, Kevin David Carlin ("Mr Carlin") whose address is:

171 Gardiners Road
Christchurch;

And by

(c)

The Styx Mill Country Club Incorporated (1491982) ("Society"), an incorporated society registered on 9 March 2004, whose address is:

160 Hussey Road
Harewood
Christchurch.

2.

Background

2.1

The Company is the developer of various adjoining subdivisions comprising The Styx Mill Country Club in Christchurch ("Development"). Various common facilities, including a country club facility have been established for the benefit of residents of the Development and are situated on the Development ("Common Facilities"). The Society was incorporated on 9 March 2004 for the purpose of, inter alia, establishing and enforcing bylaws of the Development; exercising control over the design of homes and landscape designs in the Development; and owning, maintaining and ensuring the proper use of the Common Facilities.

2.2

A large proportion of the Common Facilities is situated on that portion of the land that has already been subdivided. The country club itself is situated on that land. A small proportion of the Common Facilities comprising a tennis court will be situated on that portion of the land that has yet to be subdivided. Such land will be subdivided after the following events:

(a)

approval of the engineering plan and resolution of stormwater issues with the Christchurch City Council (which is expected during the week commencing 20 December 2004);

(b)

completion of civil works as per the resource consent and other works which includes the tennis courts for the villas;

(c)

issue of a certificate pursuant to section 224 of the Resource Management Act 1991;

(d)

survey approval by Land Information New Zealand;

(e)

the issue of new titles which we are advised is expected in March 2005.

2.3

There are approximately 290 residential properties in the Development:

(a)

108 residential properties have been sold on the area of the land that has already been subdivided;

(b)

there are 3 unconditional sale agreements over properties in the Development that are due to settle by 20 April 2005;

(c)

there are 2 conditional sale agreements over properties in the Development due to settle between April and September 2005;

(d)

there are approximately 177 properties including villas (for which a land use consent is being sought) in the Development that remain unsold, including properties on land that has not been subdivided.

2.4

The agreements for sale and purchase of properties in the Development are conditional on the purchaser taking title subject to a Memorandum of Encumbrance. The Memorandum of Encumbrance provides that the purchaser is to become and to remain a member of the Society ("Member"), the effect of which is that properties in the Development cannot be sold without the successor in title becoming a Member of the Society.

3.

Contravention of Securities Act 1978

3.1

Membership in the Society confers a right to participate in ownership and use of the Common Facilities in the Development. Accordingly, persons who enter into sale agreements to purchase property in the Development are also offered participatory securities through membership of the Society ("Securities"). Securities have been offered to the public for subscription, and allotted, without a registered prospectus or an investment statement, in contravention of the requirements of the Securities Act 1978 and the Securities Regulations 1983. The offers and allotments fell within the terms of the Securities Act (Residential Property Developments) Exemption Notice 1999 ("Exemption Notice"). However, subscribers were not provided with all documentation required by the Exemption Notice and the Common Facilities were not transferred to the Society prior to the settlement of the sale agreements as required by the Exemption Notice.

3.2

The Company and Mr Carlin were, at the time of offer and allotment of the Securities, unaware that such offers and allotment were made in contravention of the Securities Act 1978. Nor were they aware that any advertisements in respect of the Development ought to comply with the advertising requirements set out in the Securities Act 1978 and the Securities Regulations 1983. This is a situation where the Company and Mr Carlin had taken legal advice as to the requirements in relation to the sale of properties in the Development and had been advised by their lawyers that the Securities Act 1978 did not apply. Accordingly, the breach of the Securities Act 1978 occurred despite steps they had taken to ensure compliance. Those steps included Mr Carlin seeking two peer reviews of the incorporated society structure from other law firms. It was the second peer review which he initiated which identified the issue which is the subject of this offer of an enforceable undertaking.

3.3

The Company and Mr Carlin have advised the Commission of the breaches, and they and their solicitors acknowledge the Commission's concerns about this. The Company, Mr Carlin and the Society wish to remedy the situation, and to ensure that no further breaches occur. They have offered the undertakings set out below.

4.

Future offers of Securities

4.1

The Company and the Society have applied for exemptions from sections 33(3), 37, 37A, 38A and 54 of the Securities Act 1978 and from the Securities Regulations 1983 (except regulation 8) in respect of future offers of Securities. A specific exemption is required because, prior to March 2005, it is not possible to comply with the condition in the Exemption Notice that all communal facilities be transferred to the Society prior to the settlement of sales of the properties in the Development. This is because the communal facilities include the tennis court that is to be situated on the land in the Development that is yet to be subdivided.

5.

Undertakings

5.1

The Company, Mr Carlin and the Society will not offer further Securities to the public for subscription, other than in an investment statement, registered prospectus, or authorised advertisement that complies with the Securities Act 1978 and the Securities Regulations 1983, or in accordance with any applicable exemption granted by the Commission.

5.2

The Company, Mr Carlin and the Society will put procedures in place to ensure any advertisements containing an offer of further Securities comply with the Securities Act 1978 and the Securities Regulations 1983, subject to any applicable exemption granted by the Commission.

5.3

In relation to the Securities already offered to persons who have entered into sale agreements to purchase properties in the Development, whether settled or unsettled, prior to the publication of the specific exemption granted by the Commission, the Company:

(a)

will give written notice to each such person of the contravention of the Securities Act 1978 and provide each such person with all documentation that was required to be provided before subscription under the Exemption Notice or as set out in the specific exemption granted by the Commission;

(b)

advise each such person that the Common Facilities have now been transferred to the Society, except for the tennis court that is to be situated on the land in the Development that is yet to be subdivided and undertake that such land will be transferred to the Society forthwith following subdivision and the issue of a separate certificate of title for an estate in fee simple;

(c)

offer each such person membership of the Society by way of registration as a Member of the Society;

(d)

request that each such person subscribe for membership in the Society by consenting to their registration as a Member on the register of members of the Society by completing a form of subscription and consent;

(e)

invite such persons to advise Saunders Robinson if they have any queries in relation to any matter contained in this enforceable undertaking.

5.4

In circumstances where the persons referred to in paragraph 5.3 do not consent to their registration as a Member of the Society, the Company and the Society will enter into discussions and/or mediation with such persons. If resolution is not able to be achieved by discussions and/or mediation, the Company and the Society will apply to the Court for relief in respect of the application of section 37 to the allotment of the Securities to such persons pursuant to the procedures set out in the applicable provisions of sections 37AA to 37AL of the Securities Act 1978.

6.

Acknowledgments

6.1

The Company, Mr Carlin and the Society acknowledge that the Commission:

(a)

may issue a media release referring to the undertaking and to the concerns of the Commission which led to the undertaking being executed;

(b)

may from time to time publicly refer to the undertaking; and

(c)

will make this undertaking available for public inspection.

6.2

The Company, Mr Carlin and the Society acknowledge that this undertaking does not derogate from the rights and remedies available to the Commission or to any other person or entity arising from the conduct described in this undertaking.

6.3

The Company, Mr Carlin and the Society acknowledge that the Commission's acceptance of an enforceable undertaking under section 69J of the Securities Act 1978 does not affect the Commission's power to investigate future conduct of any person, to take any action or to exercise any power under the Securities Act 1978 or any other legislation, or to refer any matter for criminal prosecution or seek any civil penalty.

Signed for and on behalf of Carlin Enterprises Limited by its duly authorised officer:

[Kevin David Carlin]

Signed for and on behalf of The Styx Mill Country Club Incorporated by its duly authorised officer:

[signature]

Signed by Kevin David Carlin

[Kevin David Carlin]

Accepted by the Securities Commission pursuant to section 69J of the Securities Act 1978
by its authorised delegate:

[Liam Mason]
General Counsel

Dated this 22^nd day of December 2004.

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