Appendix E

ILLUSTRATION OF OWNERSHIP RULES

This section provides some examples of the ownership rules that apply to Bidders. As with the other auction rules, the ownership restrictions apply from submission of Applications until the end of the Auction, or the permanent withdrawal of the Bidder from the Auction.

The examples supplied below do not purport to cover all possible situations that might arise, but merely seek to illustrate the application of the rules. For example, where relationships are compared below between competing Bidders, these might equally apply between a Bidder and an Existing Licensee. An Existing Licensee will include those companies awarded Licences in the 28GHz Auction of November 2000, also any who may be granted a Licence in this process at a point before a new Applicant places a bid for any remaining Licence.

The draft Notice defines three categories of parties that are connected to a Bidder: Insiders, Candidates and Relevant Members (a subset of candidates).

Insiders are those parties to whom the Bidder has disclosed Confidential Information. Candidates are those parties linked to the Bidder through certain levels of ownership and/or provision of support to the Bidder for the bid. Relevant Members are a subset of Candidates, used in determining whether Bidders should be pre-qualified. Candidates, including Relevant Members and the Bidder make up the "Candidate Group".

Definition of "Candidate"

The draft Notice states that the:

"Candidate Group" in relation to a Bidder means the Bidder and any person who is a Connected Person in relation to that Bidder.

"Candidate" in relation to a Bidder means a person, other than the Bidder, who is a member of the Candidate Group in relation to the Bidder

"Connected Person" means a person who:

1. controls a Bidder

In defining control the draft Notice states that:

A person is deemed to control a body corporate if:

1. he has a controlling interest in it;

2. he has a controlling interest in a body corporate which has a controlling interest in the body corporate; or

3. although he does not have such an interest in the body, or in any body corporate which has a controlling interest in the body corporate, it is reasonable, having regard to all the circumstances, to expect that he will be able, by whatever means, to achieve the result that the affairs of the body corporate are conducted in accordance with his wishes;

and for this purpose a person has a controlling interest in a body if he holds, or is beneficially entitled to hold, 50% or more of the equity share capital in the body corporate, or possesses 50% or more of the voting power in it.

The draft Notice also states that a Connected Person means a person who:

2. is a Participant in a Bidder and is concerned with that Bidder's application for a Licence;

Participant and concern are illustrated next. In relation to Participant the draft Notice states that:

"Participant" means a person who, in relation to a body corporate, holds or is beneficially entitled to shares in that body corporate, has a right to acquire or subscribe for shares in that body corporate, or possesses voting power in that body corporate, other than a person who:

1. does not hold and is not beneficially entitled to more than 10% of any class of shares in the body corporate which are listed or traded on a Recognised Stock Exchange;

2. does not have a right to acquire or subscribe for such shares which, together with any such shares which he holds or to which he is beneficially entitled, represent or would represent more than 10% of such class of shares; and

3. does not possess voting power in respect of more than 10% of any such class of shares;

It should be noted that, in relation to an unlisted class of shares, any level of ownership in an unlisted body corporate would classify the owner as a Participant.

The diagrams above show examples of where the relevant person (A) is a Participant in the Bidder. However, participation (unless it involves control) does not in and of itself lead to the Participant being classed as a Candidate. The Participant (unless he controls a Bidder) must also be concerned with the Bidder's Application.

In relation to concern the draft Notice also states that:

a person is concerned with a Bidder's application for a Licence if he:

1. is in possession of Confidential Information relating to the Bidder; or
2. has entered into any agreement or understanding with the Bidder, or any other member of the Candidate Group in relation to the Bidder, to finance the Bidder, or assist the Bidder in any other way, in connection with bidding for a Licence;

Therefore, if a person is a Participant in a Bidder, and is also concerned with the bid, that person is a member of the Candidate Group in relation to that Bidder.

In each case, A is a Candidate in relation to the Bidder. However B, despite owning more than 10% of a class of listed shares, has no Confidential Information in relation to the Bidder, and has no agreement with the Bidder, or any other Candidate in relation to the Bidder, to finance the Bidder, or assist in any way in bidding for a Licence. B is therefore not a Candidate in relation to the Bidder.

In relation to the definition of Connected Person, in addition to control and Participation with concern, a person is a Connected Person if he:

3. has an Economic Interest of more than 10% in a Bidder and is concerned with that Bidder's application for a Licence;

The draft Notice states that:

"Economic Interest" means, in relation to a specified percentage, an indirect interest held by a person ("the first person"), through one or more bodies corporate, in the share capital of another body corporate ("the second person"), such that the percentage interest attributable to the first person in the share capital of the second person exceeds the specified percentage; and for this purpose, the first person, and every body corporate controlled by the first person, shall be treated as one person;

In relation to Economic Interest, the draft Notice goes on to state that:

for the purpose of the definition of "Economic Interest" the percentage interest attributable to the first person in the second person shall be calculated by multiplying the percentage interests in each intermediate corporate body, including that in the second person, provided that any such percentage interest which is 50% or more shall be treated for these proposes as if it were 100%;

A person with an Economic Interest in a Bidder is only classed as a Candidate if they are concerned with the bid - as set out above.

In concluding the definition of Connected Person, the draft Notice continues that a person is Connected Person if he:

4. controls, or is controlled by, a person falling within (a), (b) or (c) above;
5. is controlled by a person who controls a person falling within (a), (b) or (c) above; or
6. is controlled by a Bidder.

The principle of control in these latter three points functions as set out above.

An example of a Bidder, his owners, and the application of the ownership principles set out in the draft Notice is given below.

• A, B and C are all Participants in the Bidder, and are all concerned with the bid. They are therefore all Candidates.
• A is wholly owned by Ai, and is thus controlled by Ai. Ai is therefore a Candidate. Aii is controlled by Ai, and therefore he too is a Candidate in relation to the Bidder.
• Ci is a Participant with a 55% interest in C. He is therefore deemed to control C, and Ci is therefore a Candidate in relation to the Bidder.
• Cii is a Participant with a 45% interest in C. He does not control C, and would therefore not be a Candidate on this count. However, he has an Economic Interest in the Bidder of 13.5% (45% x 30%), and is "concerned" with the Bid. Cii is therefore a Candidate in relation to the Bidder.
• Cii is wholly owned by Ciii, who is therefore also a Candidate in relation to the Bidder.

Relevant Member

The draft Notice defines a Relevant Member of a Candidate Group as follows:

"Relevant Member" means a member of a Candidate Group other than a member who:

1. has no interest, whether direct or indirect, in the share capital of the Bidder;
2. possesses no voting power in the Bidder; and
3. possesses no Confidential Information relating to the Bidder.

Looking again at the example provided above, all of the Candidates fail one of test a) to c) above, except for Aii. On this basis, all the other Candidates in relation to the Bidder would also be Relevant Members.

It is likely that the definition of Relevant Member will only catch Candidates with a direct Participation or an Economic Interest in the Bidder.

Associated Bidders

Associations arise from an element of common ownership between otherwise separate Bidders, or where two or more Bidders have a common ownership of an Existing Licensee.

The draft Notice provides that:

a Bidder ("the first Bidder") is an Associated Bidder in relation to another Bidder ("the second Bidder") if:

1. a member of the Candidate Group in relation to the first Bidder:
   
   
1. is a Participant with more than a 15% interest in the second Bidder; or




Ai is a Candidate in relation to Bidder A (having a participation of 30% and being concerned with the bid). If Ai has a participation of greater than 15% in Bidder B, Bidder A and Bidder B will be associated.

2. has an Economic Interest of more than 15% in the second Bidder;
   
   

Ai, a Candidate in relation to Bidder A, also has an Economic Interest in Bidder B of 40% (40% x 100%; Bi's participation, being greater than 50%, is treated as 100% for the purposes of calculating Ai's Economic Interest in Bidder B). As this is greater than the 15% threshold, Bidder A and Bidder B are associated.

2. a person, not being a Candidate in relation to the first or second Bidders:
   
   
1. is a Participant with more than a 15% interest in both the first Bidder and the second Bidder;

Although not a Candidate in relation to either Bidder, Ai's presence as a Participant with greater than 15% interest in both Bidders leads them to be associated. The provisions of (ii), (iii) and (iv) below cover all combinations of participation and Economic Interest that might arise.

2. is a Participant with more than a 15% interest in the first Bidder and has an Economic Interest of more than 15% in the second Bidder;

3. is a Participant with more than a 15% interest in the second Bidder and has an Economic Interest of more than 15% in the first Bidder; or

4. has an Economic Interest of more than 15% in both the first and the second Bidder;

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