Tyco International Limited HC Wellington CIV 2008-485-2707

[2011] NZHC 204

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2008-485-2707

UNDER  the Declaratory Judgments Act 1908

AND UNDER                 the Securities Act 1978

IN THE MATTER OF     an application for declaratory orders

AND IN THE MATTER OF an application under section 37AA for relief orders under section 37AH in respect of the application of section 37 of the Securities Act 1978

BETWEEN  TYCO INTERNATIONAL LIMITED, TYCO ELECTRONICS LIMITED AND COVIDIEN LIMITED

Applicants

Hearing:         18-19 October 2010

Further written submissions 23 November 2010

Counsel:         I J Thain and C Clayton for Applicants

P J Andrew, N P Patel and L Mason for Securities Commission as party served

J S McHerron (amicus curiae) Judgment:  11 March 2011

JUDGMENT OF SIMON FRANCE J

TYCO INTERNATIONAL LIMITED, TYCO ELECTRONICS LIMITED AND COVIDIEN LIMITED HC WN CIV 2008-485-2707 11 March 2011

[1]      Tyco is a large international company which is listed on the New York Stock Exchange.  Its website records it as having over 100,000 employees worldwide and earnings  in  2009  of  $17 billion.  From  1997  Tyco  owned  some  New Zealand subsidiaries.

[2]      This case concerns whether share schemes offered and run by Tyco for its employees were in breach of the Securities Act 1978, and if so, what relief can and should be given. Two types of scheme are in issue - an employee share purchase plan (ESPP) and employee incentive schemes (EIS).

[3]      The ESPP involved employees committing part of their monthly salary to purchasing Tyco shares on the open market. Tyco topped up the employees’ monthly contributions  by  a  pre-set  amount  –  originally  9.9 percent,  and  then  latterly

15 percent.  Those who worked for the New Zealand subsidiaries were offered the opportunity to join this scheme and 306 employees did so.

[4]      The EIS involved Tyco paying discretionary bonuses to selected employees either by way of shares or options to buy shares. The bonus payments were incentivised in that they were often deferred to ensure the employee worked for the company for, say, another three years before the bonus vested. Unlike the ESPP, the company met these commitments by issuing new shares.

[5]      As a result of company restructuring in June 2007, Tyco stopped operating the schemes. It wants, however, to resume them and entered into discussions with the Securities Commission. It was as a result of that process that the issue arose about past compliance and these proceedings seek clarification as to whether there has been non-compliance.  In particular, whether the schemes come within s 37 of the Securities Act 1978 such as to require Tyco to have a New Zealand registered prospectus.

a)        first, for declarations that it was not in breach of the Act;

b)alternatively, for relief pursuant to s 37AH of the Act.   The relief sought is validation of what will be void allotments if s 37 of the Act applies.

[7]      Originally the Securities Commission was named as a defendant. It applied, without opposition, to have that status changed. It thereafter appears as a party served. I record this was done in awareness that it limited its options to take the matter further.

[8]      There is no prescribed statutory procedure for the type of relief sought here. In consultation with the Commission, a process for notifying affected persons was agreed upon.  It is unnecessary to give the detail but I am satisfied it was a full and thorough process.

The ESPP scheme

[9]      Different issues arise in relation to the different schemes so it is convenient to address them separately.

[10]     The employee share purchase plan was registered with the US Securities and Exchange Commission.    Participating employees would authorise monthly deductions from their pay to purchase shares.  The company added a contribution. Initially it was 9.9 percent of the employee’s contribution, but from 1997 the figure was 15 percent.

[11]     The money collected by Tyco from the employees’ wages was transmitted on the 15th of each month to a broker who then used it to buy Tyco shares on the open market.  The share purchases were all to be made on the one day. However, if that was not possible, the purchases were completed as soon as possible on successive days. If the need to buy on different days led to shares being bought at different

prices, the purchase prices were averaged out across all employees so that everyone paid the same price each month for a share.

[12]     The default position was that the shares were bought in the name of the broker or nominee, and remained that way. Each employee, however, had an individual account which recorded how many shares, or fractions thereof, he or she owned. The acquisition costs of purchasing the shares in this way were met by Tyco. However, it was open to an employee to have his or her shares put directly into their own name each month. If they chose this option, the employee was required to bear the extra cost involved.

[13]     These rules were set out in Articles 8 and 9 of the Plan which provided:

ARTICLE 8

PURCHASE OF SHARES

All shares purchased under the Plan shall be purchased on the open market by a broker designated from time to time by the Committee.  On a monthly basis, as soon as practicable following the 15th day of each month, the   Company  shall  remit   the  total  of   the   employee   and   Company contributions  to  the  broker  for  the  purchase  of  the  Shares  (or  fractions thereof) to each participant’s individual account.  In the event the purchase of the Shares takes place over a number of days and at difference prices, then each participant’s allocation shall be adjusted on the basis of the average price per share over such period.  Employees may designate that the amounts deducted be used to purchase Shares in the name of any third party they designate.   Upon the employee’s authorisation, separate accounts will be established in the name of such third parties.

ARTICLE 9

INSSUANCE OF SHARES

The Shares purchased under the Plan shall be held by the broker or its nominee.   Participating employees and designated third parties shall receive quarterly statements which will evidence all activity in the accounts that have been established on their behalf.  Such statements will be issued by the broker.  In the event a participating employee or designated third party wishes to hold certificates in his/her own name, the employee or such third party must instruct the broker independently and bear the costs associated with the issuance of such certificates and pay to the broker, in addition, a small fee for each certificate so issued.  Certificates for fractional Shares will not be issued.  Fractional Shares shall be liquidated on a cash basis only in lieu of the issuance of certificates for such fractional Shares upon the employee’s withdrawal.

[14]     Section 37(1) of the Securities Act 1978 provides:

37       Void irregular allotments

(1)       No allotment of a security offered to the public for subscription shall be made unless at the time of the subscription for the security there was a registered prospectus relating to the security.

[15]     By the time of the hearing it was common ground that the ESPP potentially came within s 37(1).  It was an offer to the public (the employees) for subscription of a security.

[16]     Accordingly, the original focus at the hearing was on the issue of whether it was appropriate to grant relief pursuant to s 37AH of the Securities Act 1978. That section allows relief where it is just and equitable to grant it, and sets out mandatory factors  to  be  considered.    However,  as  a  result  of  discussion  at  the  hearing,  I requested further submissions on whether s 6(1) of the Act applied so as to exclude the ESPP from the ambit of s 37.

[17]     Section 6(1) of the Act provides:

6        Previously allotted securities

(1)      Subject  to  this  section,  nothing  in  sections  33,  34,  37 to 38A,

38C to 44, and 44B to 59 of this Act shall apply in respect of a security that has previously been allotted.

[18]   Tyco submits the ESPP comes within this exemption.   The Securities Commission disputes this but, in the alternative, argues that s 6(3) applies so as to bring Tyco back within s 37.  Section 6(3) provides:

6        Previously allotted securities

...

(3)       All the provisions of this Act shall apply in respect of an equity security or a security convertible into an equity security if the holder or offeror, not being the original allotter, offers the security for sale to  the  public …  and  the  original  allotter  advises,  encourages,  or knowingly assists the holder or offeror in connection with the offer or sale of the security.

Is section 6(1) applicable?

[20]     There can be no dispute that what the employee buys is a previously allotted security.  In order to assess the Commission’s position, it is necessary to break down the method of acquisition into more detail.

[21]     The money is collected.   The scheme requires an employee to authorise deduction from his or her salary.  This is the only payment method permissible.  The money is transmitted to the broker once a month.  Given that not everyone is paid monthly on the same day, there is obviously a need for Tyco to collect the money and hold it.   Also, there are of course numerous Tyco entities collecting money –

16 subsidiaries in New Zealand alone.   So each Tyco entity makes the deductions and advises Tyco who transmits the total to a broker.   If a Tyco entity is late transmitting advice of its monthly collection, Tyco buys the necessary shares at a later date and charges the employee the same monthly price all scheme members have paid.

[22]     The money is sent.  The money goes to a broker on the 15th of each month. The standing instructions are to purchase all the shares which that sum of money will buy on the one day.  However, if the order cannot be met on one day, then purchase is to be on successive days.

[23]     The cost of the shares.  If the shares are all bought at the one price, no issue arises.    If the circumstances led to different prices in the same month, the price is equalised across all members.

[24]     The shares are allocated.   Undoubtedly the broker will have placed bulk orders.   Once the money is spent and shares purchased, Tyco was advised.   The shares were then allocated to each employee’s individual account.   It appears it would take three to five days for the allocation process to be complete.  Unless the employee had requested shares to be in his or her name, the shares remained in the name  of  the  broker  or  nominee.    The  employee  was,  however,  entitled  to  the

dividends, and to exercise the voting rights attached to the shares.   The employee could convert the shares into his or her individual name at any time, could trade them, and received all investor information that the company sent shareholders from the moment of acquisition of the first share.

[25]     The  Securities  Commission  accepts  that  upon  allocation  the  employee becomes a beneficial owner of the shares.  It accepts that generally the scheme could be seen as falling within s 6(1) but contends that how it was structured means that at two stages the employees are to be seen as being part of a participatory fund that creates a new participatory security to which s 37 attaches.

[26]     The  first  point  on  which  the  Commission  focuses  is  the  pre-purchase comingled fund.   The Commission says this is not a collection of individual contributions but in fact a comingled pool from which shares are bought and divided up.  It bases this claim primarily on the fact that share prices are equalised within a month, or can be.  This inevitably involves cross-subsidisation between employees, and shows it is a new participatory fund.  Likewise, if there was late reporting of a monthly contribution, the affected employees were entitled to shares at the same monthly price.  This showed it was not a direct link between broker and purchaser for individual orders.

[27]     Touching first on the last point, I consider it is irrelevant.  If internal flaws caused Tyco to take the view it had to rectify a mistake, that does not affect the fundamental nature of what was happening.   The employee made a payment (by wage deduction) to purchase shares.   Had a Tyco entity not made a mistake, the employee would have bought the shares on the nominated day at that day’s price.  In accepting its responsibility for the error, Tyco was not changing the nature of the employee’s activity.

[28]     Nor is the cross-subsidisation point correct.  Where shares are bought across say two days, the better analysis is that each employee bought each day in proportion to his or her order.  Thus, imagine 100 shares were bought on day one and 100 on day two.  There were four employees each buying 50 shares.  The correct analysis is that each employee bought 25 shares on day one and 25 on day two.   There is no

reason to analyse it as if two randomly selected employees got all their shares on day one, and the other two had to buy them on day two at a different price.

[29]     Properly analysed, the position is that the employee pays money to the broker and requests the broker to buy him or her as many shares as that money will buy. The amount the employee pays is the amount the vendor sold them for.   It is a standard open market transaction.

[30]     Other considerations reinforce this analysis:

a)       there is nothing in the Plan documentation to suggest that there is comingling or a participatory fund.   The standard language is individualised – the broker is “buying for you”.  Likewise, everything about the scheme and its documentation suggests the employee would

have intended and believed that they were individual purchasers;[1]

b)if the employee withdraws from the scheme after deduction but before purchase, they are entitled to a refund of their deduction.  There is no suggestion of a proportionate refund.

[1] In DFC Financial Services Ltd (in statutory management) v Abel [1991] 2 NZLR 619, the awareness of the investor as to whether they were being offered a “security” was seen as relevant. Here the employees had no reason to believe they were joining a participatory fund.

[31]     This latter point highlights the nature of the comingled money.  Its existence as a single pool of money is a banking convenience, but the contributions that make up the whole can be easily traced and individualised.

[32]     The Commission’s second point of focus is the block of shares that exists after purchase and before allocation.  The arguments are essentially the same as in relation to the comingled money.  If the pool of purchase money is a participatory

fund, then until allocation is done and the price fixed, so is the block of shares.

[33]     For the same reasons I disagree.  The broker has bought a block of shares, but in my view, beneficial ownership in the shares rest with the individual purchaser from the time of purchase.  The logistics of updating paperwork may lead to delay before there is formal acknowledgement of that ownership, but that delay does not alter the essence of the transaction.

[34]     Tyco advanced, alternatively, that even if the Commission were technically correct, the creation of a participatory security of the type described was ancillary to the individual purchase of shares.  It was a temporary by-product of implementing the scheme for large numbers of employees at the same time.  Relying on Culverden

Retirement Village v Registrar of Companies,[2]  it argued that the incidental creation

of a transitory security did not take the scheme as a whole outside the ambit of s 6(1).   I consider this is correct and the existence of a temporary participatory security could be disregarded for the purposes of analysis.

[2] Culverden Retirement Village v Registrar of Companies [1997] NZLR 257 (PC).

[35]     Subject then to the Commission’s submission regarding s 6(3) of the Act, I

hold that s 6(1) applied to the ESPP, such as to make s 37 inapplicable.

Is section 6(3) of the Act applicable?

[36]     For convenience I set out again the terms of s 6(3):

6         Previously allotted securities

...

(3)       All the provisions of this Act shall apply in respect of an equity security or a security convertible into an equity security if the holder or offeror, not being the original allotter, offers the security for sale to the public … and the original allotter advises, encourages, or knowingly assists the holder or offeror in connection with the offer or sale of the security.

[37]     It is common ground that if the employee is seen as buying directly from the market, with or without the aid of a broker, s 6(3) is not engaged.   However, the Commission contends this is not what is happening.  The argument is a variant on

that rejected under the s 6(1) analysis, but requires separate consideration.

[38]     Originally Tyco administered the scheme.   The original documentation, as has been referred to, was consistent in its language of the broker executing the purchase orders on account of each individual participant.   However, from 2001

Tyco engaged a “Plan Administrator” to administer the scheme.  The Commission’s basic submission is that, thereafter, the broker bought the shares for “the Plan or the Plan Administrator” which then on-sold them to the employee at the point of allocation.

[39]     Underlying this analysis is the contention that equalisation happens, at the post purchase phase, so that the price paid for a share is not necessarily the price charged to an employee.   Hence there must be a second sale involved.   The Plan Administrator is selling a security to the employees with the aid of Tyco.

[40]     I do not accept this.  The Plan Administrator, if it has bought the shares in its own right, has done so with the employees’ money.   Presumably that has to be treated as a loan by the employees to the Plan and then the loan is repaid by the Plan “selling shares” to the employee.

[41]     It is, in my view, an artificial analysis.  There is some support for it in the revised Plan documents after they were revised to incorporate a Plan Administrator. However, it ignores the true essence of the scheme.  I do not consider the insertion of a Plan Administrator can change that basic nature of the scheme, or what the employees signed up to.

[42]     As noted the Commission’s submission is very dependent on acceptance of its analysis of price equalisation.  It is only if that is accepted that one can say that the employee is not purchasing shares on-market because the employee is not paying the same price as the vendor received.  For reasons given earlier, I prefer a different analysis.

[43]     I remain of the view that the employee is purchasing on-market and is paying the price at which the shares were sold.  The logistics of giving effect to such a large scale scheme do not change the essence of it.   Nor does the addition of a Plan Administrator alter it so that there are seen to be two transactions.

[44]     For these reasons I am of the view that s 37 of the Securities Act 1978 did not apply to the ESPP.  Tyco seeks a declaration to that effect, and it is granted.

Employee Incentive Schemes

[45]     Under these schemes the company awarded bonuses in the form of shares, options to buy shares, or restricted stock units.  When taken up by the employee, the company issued new shares.  Section 37 therefore potentially applies.

[46]     There are many areas of agreement.  At the point that the bonus is offered, regardless of the form it takes, there is no question of s 37 applying because there is no subscription by the employee.   However, issues may arise where the grant is ultimately not a gift, or where it appears to be but is contingent on the employee continuing to provide services.

[47]     There are two main scenarios.  First, those grants that consisted of “options to purchase shares”.  It is common ground that at the time the employee exercises the option, and buys shares at the set price, s 37 is engaged.  Tyco will meet that action of the employee by allotting new shares.  Second, and the only matter in dispute, is when the grant consists not of options to purchase shares, but of shares themselves. If the shares are given immediately no issue arises, but typically the grant did not vest until the employee has remained in employment for a further period, usually one, two or three years.

[48]     The shares involved in these grants were called restricted stock units (RSUs). RSUs were not options to purchase.   They were actual shares, although in very limited circumstances, a cash equivalent could be provided as an alternative.   The format of RSUs varied.  In the United States, some were granted immediately and the employee received dividends but could not trade them until vesting.   At that point they became full shares.   In New Zealand everything appeared to always be deferred.  There were two types of deferral – progressive deferral where one-third of the grant vested each year, or “cliff” deferral where none vested for three years and then the entire grant vested at that time.

[49]     The Commission’s submission is that the period in which the employee is required to remain in employment amounts to subscription for the purposes of the Act.  Obviously the employee is paid their normal salary during this period.  But it is possible  to  conceptualise  the  fact  of  remaining  in  employment  as  providing something over and above the standard work for pay component.  The Commission’s contention is that it is this “loyalty” component that amounts to subscription.

[50]   Underlying  this  submission  is  the  proposition  that  non-monetary consideration can amount to subscription.   Tyco contended otherwise, but I agree with the Commission.  The definitions of subscription are wide, and there is no good policy reason to be restrictive.  Subscription is defined in s 2 of the Act as:

Subscribe includes purchase and contribute to, whether by way of cash or otherwise; and subscription and subscriber have corresponding meanings.

[51]     Fisher J in DFC Financial Services Ltd (in statutory management) v Abel[3] noted the width of the concept and in particular that the use of “contribute” suggests the form of valuable consideration may be varied.

[3] Above n1.

[52]     Accordingly,  conceptually I consider  that  remaining in  paid  employment could amount to subscription.  It is something being provided by the employee over and above the agreement to work for money.  It is plainly stretching the scope of the Act for s 37 to apply to this situation, and one would envisage the road to relief would be very short, but I acknowledge relief is a separate issue.

[53]     A  difficulty  with  holding  that  remaining  in  employment  amounts  to subscription is that, as the Commission fairly points out, it is not really capable of valuation.  If the allotment were invalidated, what compensation is repayable to the subscriber employee?  Another factor is that it appears that, although the employee “accepted”  the  grant  at  the  time  the  bonus  was  initially  offered,  thereafter  the

employee had to do nothing to receive the shares once the period had expired.

[54]     These latter reasons lead the Commission to agree that if s 37 does apply, any invalid allotment of RSUs should be validated under s 37AH.   It is difficult to conceive how an investor (the employee) would be assisted by the allotment being declared void.

[55]     Mr McHerron put the matter a different way which I consider has merit.  If three years after the offer, the company reneged on it, could it resist a claim by the employee on the basis that consideration had not been given?  I agree with him that it   could   not,   for  the  reason   that   remaining  in   employment   could   provide consideration that is over and above the salary.  Further, although the employee only technically subscribes at the end of the three years, I considered the gap between grant of the issuer and subscription by the purchaser can provide relevant subscription.

[56]     It seems quite a stretch to me to suggest that remaining in work amounts to subscription, but there is an argument that technically it is.  The parties agree that if the circumstances did come within s 37 relief should be given, so it is unnecessary to dwell on the matter further.

Relief

[57]     There are therefore three situations of invalidity caused by the fact that Tyco never had a registered New Zealand prospectus that may require relief.  They are:

a)       definitely,  the  allotment of new shares  when  employees  exercised options to purchase shares;

b)definitely, the taking up of RSUs by the one employee who had a contractual right to them upon attaining a qualification.  It was agreed her circumstances amounted to subscription;

c)       potentially, the taking up of RSUs, being new shares issued by the company, at the end of a vesting period that attached to the grant.

[58]     I received some careful submissions on relief from all counsel, and I am grateful for them.  The context has changed somewhat in that the submissions were made against the background that the ESPP might be in breach.   For example, Mr McHerron urged that no relief be granted because it was premature.  Although the Act allowed an issuer to seek relief, he submitted it was preferable to wait until an investor (employee) actually sought to act upon the invalidity.  Then the actual facts of that person’s situation could be considered.

[59]     In relation to the ESPP  I had come to be persuaded there was merit in Mr McHerron’s  approach.    Some of the  members who  had  been  contacted had consented to validation and concerning them orders would have been made. Otherwise, I consider a case by case consideration could have been relevant, and therefore a blanket validation inappropriate.   However, the issue no longer arises since I have held the scheme was not in breach.

[60]     It is less clear that blanket relief is inappropriate in relation to the categories that remain.  The circumstances are that:

a)        as regards RSUs, the employees received shares for no cash outlay.

They may have provided subscription in the form of remaining at work for one, two or three years, but otherwise the shares were given to them as a bonus;

b)those who exercised options to purchase shares would have done so only if the option price was favourable in relation to the then existing public share price.  It cannot be known what they have subsequently done with the shares – on-sold immediately for profit, on-sold subsequently for profit or loss, or still own them.

[61]     Concerning RSUs I have reviewed the submissions of all counsel.  Tyco and the Commission are in agreement that the allotments, if invalid, should be validated. I also cannot see any tenable argument against validation.  Allowing the allotment of the shares to be invalid will not assist the employees who were the beneficiaries of them.  The capacity to quantify the value of “staying with the company” is limited,

and unlikely to equate to more than the value of the RSUs they received as a bonus. I therefore consider validation, if required, appropriate.

[62]     The position is less clear concerning options to purchase.  Here the employee has paid cash for the shares.  Whilst at the time that may have seemed a favourable decision, there is a further important case specific fact that now requires consideration.

[63]     From  December 1999  to  June 2002,  Tyco  suffered  major  internal  losses through the illegal actions of its Chief Executive.  The scale of the fraud was thought to be around US$1 billion.  Shareholders later brought a class action against Tyco because of the impact of the defalcation on the Tyco share price.   New Zealand employees were eligible to join in the class action.  It is not known if they did.  The Court proceedings were settled in 2007 for $3.2 billion.

[64]     It is this fraud that causes the Securities Commission to oppose general relief. It also informs Mr McHerron’s submission, although his concerns about relief being premature are wider than just the fraud.

[65]     The  Commission’s  position  is  that  the  fraud  appears  to  mean  that  the company was in breach of its securities obligations in the United States.  This was one of the legal bases  for the class action, and although it was settled without accepting liability, the issue is plainly on the table.

[66]     The reality,  it  seems  to  me, is  that  throughout  this  period  there will  be numerous Tyco documents that are incorrect.  Unaware of the fraud, accounts will inevitably be wrong.  So, of course, would have been any prospectus Tyco would have registered in New Zealand which covered this period.

[67]     There is an argument to say that the fraud is irrelevant to an assessment of relief for non-compliance with s 37.   Had there been a prospectus the employee would have received incorrect accounting information for the affected periods, so would not have been any more informed.   Therefore, in terms of assessing the

significance of a breach of s 37, which concerns the absence of a prospectus, the fraud is a neutral factor.

[68]     Tyco advanced a number of other submissions concerning relief that also have  considerable  force.    Employees  in  fact  received  considerable  information. There would be considerable difficulties in Tyco repaying subscriptions (s 37(6) of the Act) when it is not known what the shareholder did with the shares, and whether they were on-sold at profit.   If they were, repayment of the original subscription would be an unmeritorious windfall.   Further, those who bought pursuant to an option must have had the immediate opportunity at the time of purchase to on-sell for profit (otherwise the option would certainly not have been exercised).

[69]     I have reviewed the grounds of opposition advanced by the six employees who gave notice of objection but did not wish to be heard.  None advanced reasons that were compelling.  Many were disgruntled either by a drop in share price, or with the company more generally.   I am also influenced by the very full notification process followed by Tyco.  In my view, notwithstanding no reference to the fraud, it gave  the  affected  employees  all  the  information  they  needed  to  assess  the application.  None wanted to be heard.  A significantly greater number consented to validation than opposed it.  Those who opposed did not provide reasons that cause me to doubt the propriety of giving general relief as regards options to purchase shares.

[70]     I have reflected on Mr McHerron’s submission about relief being premature. The Act does contemplate that an issuer may seek this type of general relief.   If granted there will always be a lack of information about individual investors, but that was presumably not considered to be an insurmountable obstacle.

[71]     In  the  very  limited  circumstances  now  relevant,  I  consider  a  general validation of those allotments made pursuant to the exercise of options to purchase is appropriate.   The key time for the breach is when the employees bought, and the company  issued,  the  new  shares.    It  is  inconceivable  that  an  employee  would exercise their options at that time at a higher price than that at which the share was

currently trading.   Thereafter, when it comes to trading or keeping the shares, the employee/investor was in the same position as everyone else.

Conclusions

[72]     For the reasons given I conclude:

a)       the ESPP scheme was covered by s 6(1) of the Act and no breach occurred.   Had there been one I would not have granted a general validation;

b)        the exercise of RSU options may amount to an offer for subscription.

However,  if  so,  the  transaction  was  inevitably  to  the  employee’s

benefit, and validation of such allotments is appropriate;

c)       the exercise of options to purchase shares engaged s 37(1).   In the circumstances of the case, general validation of allotments to meet the exercise of these options is also appropriate.

[73]     There will be a declaration that the ESPP was not in breach of the Securities Act 1978.   Concerning allotment of shares pursuant either to the exercise of an option to purchase shares or the vesting of RSUs, pursuant to s 37AH I consider it just and equitable to give relief and declare the allotments to be valid.  This decision of course applies only to the allotments made to employees of the New Zealand subsidiaries, and only up until 2007.

[74]     Concerning costs, I have previously indicated Tyco is to pay the costs of the amicus.  Otherwise I consider Tyco and the Commission should bear their own costs,

but memoranda may be filed.

Simon France J

Solicitors:

I J Thain, Partner, Phillips Fox, PO Box 160, Shortland Street, Auckland 1140 email:  [email protected]

C Clayton, Phillips Fox, PO Box 160, Shortland Street, Auckland 1140 email:  [email protected]

P J Andrew, Barrister, Auckland, email: peter.  [email protected]

N P Patel, Senior Solicitor, Securities Commission, Wellington email:  [email protected]