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BEFORE THE TAKEOVERS PANEL
IN THE MATTER OF the Takeovers Act 1993 and the Takeovers Code
IN THE MATTER OF a request received by the Takeovers Panel on 23 January 2003 from Richmond Limited for the Panel to convene a meeting under section 32(1) of the Takeovers Act 1993 in relation to two aspects of the takeover offer dated 21 January 2003 made by PPCS Limited for all the shares in Richmond Limited it did not already hold, and of a meeting held under section 32 of the Act to determine these two matters which are:
 Whether PPCS Limited is acting in compliance with rule 25(1) of the Code in relation to a takeover offer despatched to the shareholders of Richmond Limited on 23 January 2003 under rule 44 of the Takeovers Code by reason of the inclusion in the offer document of clause 4.1 allowing PPCS to waive a stated minimum acceptance clause of 90% on certain terms;
 Whether PPCS Limited is acting in compliance with the rule 8(2) of the Code by making a full offer for all the shares in Richmond Limited that it does not already hold, and by not including in that takeover offer an offer to the holders of Optional Convertible Notes issued by Richmond Limited in October 2001.
MEETING: 30 January 2003 at Auckland
MEMBERS: J C King (Chairperson)
D O Jones
C G Giffney
APPEARANCES: W M Wilson QC, R Stewart, J Horner, and A Morrison representing Richmond;
A R Galbraith QC, A Harmos, and G Horton, representing PPCS;
R A Dobson QC, and R Bell, representing a number of shareholders in Richmond, "the Bell Group";
P D McKenzie QC as counsel assisting the Panel
IN ATTENDANCE: K G Morrell, J H van Amelsfort (from Panel Executive)
DETERMINATION: 1 February 2003
 Richmond Limited ("Richmond") is a New Zealand incorporated company based in the Hawke's Bay and is party to a listing agreement with the New Zealand Stock Exchange. As such, Richmond is a code company for the purposes of the Takeovers Act 1993 ("the Act") and the Takeovers Code ("the Code").
 On 6 January 2003 PPCS Limited ("PPCS"), a New Zealand incorporated co-operative company based in Dunedin gave notice under rule 41 of the Code of its intention to make a full offer (under the Code) for all the shares in Richmond which it did not already hold ("the takeover offer"). On 23 January 2003 PPCS sent its offer documents to the shareholders of Richmond, to Richmond and to the Takeovers Panel ("the Panel").
 PPCS is an existing shareholder of Richmond. This shareholding, the means of its acquisition, and the manner of the disclosure of that shareholding under the Securities Markets Act 1988 (formerly the Securities Amendment Act 1988) has been the subject of recent and continuing litigation involving a group of shareholders of Richmond, known as the "Bell Group" as well as Richmond and PPCS.
 Justice William Young in the High Court in Christchurch (Richmond Ltd v. PPCS Ltd High Court, Dunedin CP10/02, 22 November 2002) held that PPCS had acted in breach of the disclosure regime provided by the Securities Markets Act 1988 and made a number of orders which are summarised in paragraph. of the judgment:
" With effect from 4pm on 2 December 2002, I make the following orders:
1. A declaration that, between February 1998 and July 2000, PPCS was a 'defaulter' for the purposes of Richmond's 1996 constitution.
2. Forfeiting all shares in Richmond held by PPCS and Twain Investments Ltd (a total of 6,867,468 shares).
3. Pursuant to s 41, Takeovers Act 1993, excusing Hawkes Bay Meat and Active Equities (including any subsidiaries or associates of those companies involved in the shareholding in Richmond registered in the name of Hawkes Bay Meat) for contravention of the Takeovers Code caused by the proportionate increase in voting rights in Richmond shares held or controlled by them as a consequence of the forfeiture order.
4. Prohibiting the exercise of the rights to vote attached to the 14,663,080 shares in Richmond held by Hawkes Bay Meat and Active Equities and any bonus or other shares issued on account of the ownership of those shares (the 'Active Equities parcel'); this subject to the following terms and conditions:
(a) Except as hereinafter provided, this order will come into effect on 28 February 2003.
(b) This order shall not come into effect provided:-
(i) Prior to 1 January 2003, PPCS makes a takeover offer for all the ordinary shares in
(ii) That offer is sufficiently accepted to result in PPCS holding ordinary shares in
Richmond which, together with the Active Equities parcel, represents at least 90% of
the ordinary shares in Richmond."
 In making his judgment, William Young J stated that these orders were structured around the contingency that there is a complete takeover of Richmond by PPCS in order to avoid a situation in which PPCS had practical control of Richmond but there remained a substantial body of disgruntled shareholders. At paragraph., His Honour stated:
"…I am of the view that the best solutions involve either a complete takeover or a complete divestment. As will become apparent, I propose to put in place orders which are intended to clear the situation and which leads to one or other of these results."
That judgment was issued on 22 November 2002.
 The parties returned to the Court on 21 January 2003 for clarification of the judgment. In particular, the Court was asked whether PPCS might reserve to itself the right to proceed with its takeover offer if the level of acceptances received is less than 90%. In his oral judgment (Richmond Ltd v. PPCS Ltd, CP10/02 and R J Bell v. PPCS Ltd, CP11/02, High Court, Dunedin, 21 January 2003), William Young J held that it was not contrary to the terms of his previous order for PPCS, in its takeover offer, to reserve to itself the right to waive the 90% acceptance condition.
 One of the consequences of this order, which was referred to in argument before the Panel, is that PPCS could waive the 90% acceptance condition prior to the expiry of its current offer on 26 February 2003. In the absence of any further order by the Court, PPCS would subsequently, if it had not received acceptances in respect of at least 90% of the relevant shares by 28 February 2003, face the loss of voting rights on the 14,663,080 shares in Richmond held by Hawkes Bay Meat and Active Equities.
 William Young J, at paragraph  of his judgment, in relation to the application of the provisions of the Takeovers Code to the terms of the proposed offer and the implications of the Takeovers Code on the orders made in his judgment, stated that "if there are to be arguments on these points it will be on another day and probably before another Tribunal. It is best if I say nothing more about these issues." It is those issues which have now been brought before the Panel for determination.
The issues raised by Richmond Limited for consideration by the Panel
 On 23 January 2003 the Panel received a request from Richmond (through Quigg Partners, barristers and solicitors), requesting that the Panel convene a meeting under section 32(1) of the Act in relation to two aspects of the takeover offer which Richmond alleged may not comply with the Code. These issues were:
(a) Does clause 4.1 of the PPCS Offer breach rule 25(1) of the Code?
(b) Should the PPCS Offer have included an offer to the holders of the Optional Convertible Notes ("OCNs") in accordance with the requirements of rule 8(2) of the Code?
 The Panel was told that Richmond had received legal advice that the answer to both of these questions was "yes" and therefore that PPCS was not acting in compliance with the Code.
 In the morning of 24 January 2003 the Panel received a letter from Anderson Lloyd Caudwell, barristers and solicitors of Dunedin, legal advisers to PPCS, conveying an undertaking pursuant to section 31T of the Act from PPCS that it would neither:
(a) Declare its offer unconditional for a period of ten working days from the date of the letter; or
(b) Waive any conditions to the offer during that period.
 The Panel met on 24 January 2003 to consider the request from Richmond and the undertakings offered by PPCS. After consideration the Panel resolved as follows:
On or about 6 January 2003 PPCS gave notice under rule 41 of the Code of its intention to
make a full offer under the Code for all the shares in Richmond which it did not hold. On or
about 23 January 2003 PPCS sent its offer document under rule 44 of the Code to Richmond's
In response to a request by Richmond Limited that the Panel hold a meeting in relation to:
(a) the minimum acceptance condition; and
(b) the extent of the offer,
the Panel has decided to convene a meeting under section 32 of the Takeovers Act 1993.
PPCS has of its own volition, given undertakings to the Panel under section 31T of the Takeovers
Act that it will neither:
(a) declare its offer unconditional for a period of ten working days from 24 January 2003; or
(d) waive any conditions to the offer during that period.
The Panel has accepted these undertakings. The Panel has decided not to issue any restraining
 The Panel gave notice on 24 January 2003 of its intention to hold the meeting. Richmond and PPCS were requested to provide submissions to the Panel by 9.00 a.m. on Wednesday 29 January 2003.
 On 27 January 2003 the Panel received a request from Bisson Moss, barristers and solicitors of Napier, representing the "Bell Group" of shareholders of Richmond, for leave to appear at the Panel's hearing. The Panel agreed to this request. Bisson Moss also raised a further concern relating to the explanatory note to clause 4.1 of the offer document which they alleged was misleading.
 Bisson Moss was asked to provide submissions in support of its own allegations, and in relation to the other matters before the Panel, by 9.00 a.m. on Wednesday 29 January 2003. All parties provided their submissions as requested and these were exchanged between the parties prior to the hearing. At the hearing further written and oral submissions were received by the Panel.
The first issue considered by the Panel was whether the takeover offer made by PPCS for Richmond, by including a provision allowing PPCS to waive a stated minimum acceptance condition of 90%, was in compliance with the Code.
 16. Rule 25(1) of the Code states:
1. An offer may be subject to any conditions, except those that depend on the judgement of the offeror or any associate of the offeror, or the fulfilment of which is in the power, or under the control, of the offeror or any associate of the offeror.
 Clause 4.1 of PPCS's offer for Richmond's shares dated 21 January 2003 states:
This offer and any contract arising from acceptance of it are conditional upon PPCS
receiving acceptances in respect of Shares that, when taken together with voting rights
in Richmond then held or controlled by PPCS, will result in PPCS holding or controlling 90%
or more of the voting rights in Richmond. This condition is for the sole benefit of PPCS and,
accordingly, may be waived in whole or in part by PPCS in its sole discretion to the extent
permitted by the Takeovers Code or any exemption granted by the Takeovers Panel provided
that (subject to any exemption granted by the Takeovers Panel) after any such waiver the
number of voting rights acquired by PPCS, when taken together with voting rights in Richmond
then already held or controlled by PPCS, will confer more than 50% of the voting rights in Richmond.
 In order for a condition in a takeover to comply with rule 25(1) it must not be a condition that depends on the judgement of the offeror (or any associate of the offeror) nor can the fulfilment of the condition be in the power of, or under the control of, the offeror (or any associate of the offeror).
 The Panel has not issued any exemptions in relation to the takeover offer.
 It was argued inter alia by Richmond and the Bell Group that:
 PPCS, in its submissions, claimed inter alia:
 It is the Panel's view the minimum acceptance condition used in the offer document is not a condition which depends on the judgement of the offeror, or the fulfilment of which is in the power of, or under the control of, the offeror. Whether or not the condition is fulfilled is a matter for the decision of third parties, namely the offerees. We agree with the submission put forward on behalf of PPCS that the offeror has the ordinary power, possessed by a party to a contract, to reserve the right to waive a condition of this kind that has been inserted in the contract for that party's benefit.
 The kinds of condition contemplated by rule 25(1) are stipulations which the offeror requires to be fulfilled in order that there be a binding contract between the parties, eg the conduct of due diligence, the obtaining of some governmental or local authority approval or the non-payment or declaration of any dividend, bonus or other distribution. The Panel doubts that minimum acceptance conditions come within rule 25(1). These are conditions of a different kind to which rule 25(1) is unlikely to apply.
 The Panel finds support for this view from the structure of the Code itself. Rule 23 refers to a minimum acceptance condition and requires that every offer must be conditional on the offeror receiving acceptances that confer more than 50% of the voting rights in the target company. An offeror may not take up any equity securities unless that minimum condition is satisfied by the end of the offer period. Rule 25(5) distinguishes a minimum acceptance condition from the kind of condition which is dealt with in rule 25(1). Rule 25(5) states:
If an offer has become unconditional, both in respect of any minimum acceptance condition referred to
in rule 23 and in respect of any conditions referred to in this rule, the offeror must immediately send a
written notice [to certain persons]."
The wording of this provision distinguishes minimum acceptance conditions under rule 23 from "conditions under rule 25(1)". Notwithstanding that a minimum acceptance condition is referred to as a "condition", it is not one of the conditions contemplated as coming under rule 25(1).
Waiver "in whole or in part"
 Clause 4.1 of PPCS' takeover offer refers to the 90% minimum acceptance condition as being for the sole benefit of PPCS "and accordingly may be waived in whole or in part by PPCS in its sole discretion". There was extended argument before the Panel as to the meaning or significance of the words "whole or in part". It was argued on behalf of Richmond that these words conferred on PPCS the ability to substitute some lower percentage than 90%, eg 75%, and to do so as part of a staged process of lowering the threshold for acceptances. It was argued, with some force, that any attempt to substitute another percentage for 90% constituted a variation of the contract and this would be in breach of rule 27 of the Code.
 PPCS, on the other hand, argued that the words "whole or in part" were not strictly necessary to interpret the tenor of clause 4.1 and indicated only that PPCS could waive the 90% condition at any percentage level which acceptances had reached at the time of the waiver, eg the waiver could be exercised if PPCS had received part only of the 90% target. PPCS disclaimed any intention of seeking to substitute some lower threshold than 90% and argued that if the condition were waived the whole condition must go, and the offer be read as then being subject only to the requirement in the proviso to clause 4.1 of the offer that PPCS must, after the waiver, hold voting rights which confer more than 50% of the voting rights in Richmond, when taken together with the voting rights already held or controlled. This proviso has been included in compliance with rule 23 of the Code.
 The Panel is of the view that the words "in whole or in part" are an attempt to cover all circumstances in which the bidder may wish to waive the 90% minimum acceptance condition. These words cannot be used as a basis to include different percentages as suggested by Richmond. Such words add nothing to the effectiveness of the power to waive. They are confusing and the Panel discourages their use in minimum acceptance clauses.
 Counsel for Richmond produced several letters from concerned shareholders and referred to a number of circumstances in which the exercise of a power to waive the 90% minimum acceptance condition could lead to market uncertainty and could place pressure on offerees to accept the offer in order to avoid being locked-in in the event that PPCS waived the 90% condition and decided to proceed with its bid if it held some lesser percentage over 50%. It was pointed out that under rule 25(3) a condition could be waived up to 14 days after the offer had closed. Reference was made to a number of other jurisdictions where there are statutory or code provisions which require an offeror seeking to waive a minimum acceptance condition, to do so not less than 14 days, or in some cases not less than seven days, before the close of the offer.
 The New Zealand Takeovers Code must be interpreted having regard to its own terms and the integrity of that Code. It is of limited assistance, in interpreting the Code, to refer to the different approaches which are taken on some matters of detail in the takeovers process, by codes and legislation in other jurisdictions.
 It is also important for the Panel, when interpreting the Code in the present case, to avoid the danger of seeking to read provisions of the Code so as to cover a difficult and unusual factual situation. The High Court proceedings have generated a great deal of publicity and have no doubt created differing expectations on the part of shareholders in what is a complex situation. Orders of the Court have been made which involve forfeiture of certain shares and the loss of voting rights in relation to a significant parcel of shares. The uncertainty and difficulty surrounding these circumstances has resulted in the parties returning to the Court for clarification of the orders. This difficult set of circumstances should not be allowed to control the interpretation of the Code. As the Courts have often observed, there is a danger of hard cases making bad law, creating difficulties for the future.
 A further factor which counsel for Richmond recognised, in the course of discussion with the Panel, is that every minimum acceptance condition contains an element of coercion, even at the minimum statutory acceptance level of 50%. The element of coercion, in the present case, should not be allowed to become a controlling factor in interpreting the relevant provisions of the Code. It is also of relevance, in this respect, that the Code requires the directors of the target company to issue a statement to offerees which includes their recommendation to shareholders concerning the offer. The directors have an important role to inform shareholders, having regard to the information available to directors, of the implications of the offer for shareholders.
 One of the concerns raised by the Bell Group is that if PPCS was able, consistently with the Code, to waive its 90% minimum acceptance condition prior to the present closing date of the offer on 26 February 2003, it could do so on the basis that it then held sufficient acceptances to control 50% of the voting shares of Richmond. Many shareholders might then feel "coerced" into accepting the bid believing that otherwise they would be locked-in as minority shareholders. However, if by 28 February 2003 PPCS fails to obtain acceptances in respect of 90% of the voting rights of Richmond, it would lose its votes on the 14 million shares acquired from Hawkes Bay Meat Limited ("the HBML shares"). This is the effect of the Court order (unless that order is varied). This in turn would mean that PPCS would have had to have received a significantly greater number of acceptances to reach what would then be the 50% level to achieve ongoing majority control. It was argued that shareholders are likely to believe at the earlier date (during the offer period) that they might be locked-in if they did not transfer their shares to PPCS. They should not be put in this position if, at that date, PPCS did not in fact hold sufficient shares to give it over 50% of the voting power in Richmond were PPCS to lose its voting rights on the 14 million HBML shares on 28 February 2003.
 In the event of any such waiver being exercised during the offer period, it will be the responsibility of PPCS and the directors of Richmond to make the consequences of the waiver clear to all shareholders who have not accepted the offer at the time of the waiver.
 PPCS, in its submissions, drew attention to these two provisions in the Code which it was argued provide clear indications that the Code contemplates that a minimum acceptance condition may be waived in accordance with the general law of contract.
 The Panel sees little significance for the present case in rule 44(1)(b)(i) as it deals with conditions during the pre-offer period.
 The Panel agrees that clause 14(2) of Schedule 1 does provide some indication that the Code contemplates that a minimum acceptance condition may be waived. Paragraph (a) of the subclause expressly refers to a full offer conditional on the offeror receiving acceptances from 90% of the voting shareholders and paragraph (b) contemplates that there are circumstances in which such a condition could be "waived or varied". Mr Dobson QC sought to argue that the waiver contemplated could, consistently with rule 25(1), only refer to a waiver granted by the Panel or approved by resolution of shareholders (a power which the Panel considers shareholders do not have under the Code). There is, however, nothing to indicate that the clause should be read in such a restrictive way.
 The Panel determines that the 90% minimum acceptance condition in the offer is not a condition which is affected by rule 25(1) and that the offeror is entitled to reserve to itself the right to waive this condition. The Panel accordingly determines it is satisfied that in this respect clause 4.1 of the PPCS offer document complies with the Code.
The second issue considered by the Panel was whether PPCS's takeover offer for Richmond was required by rule 8(2) of the Code to include an offer to the holders of Optional Convertible Notes issued by Richmond in October 2001.
 PPCS's offer of 21 January 2003 is a full offer for the purposes of rule 8(1) of the Code. Rule 8(2) provides:
A full offer must include offers in respect of all the securities in each class of equity securities, whether
voting or non-voting, of the target company (other than those that are already held by the offeror).
 "Equity security" is defined in the Code as follows:
(a) means any interest in or right to a share in, or in the share capital of, a company (whether carrying
voting rights or not); and
(b) includes an option or right to acquire any such interest or right unless that option or right is exercisable
only with the agreement of the issuer; but
(c) does not include redeemable securities that are redeemable only for cash.
 In October 2001, Richmond executed a Master Trust Deed ("Deed"). The Deed provided for the establishment of certain schemes aimed at enabling selected employees of Richmond and its subsidiaries and associated companies to participate in a type of employee share scheme.
 The Deed specified that certain schemes were to be set up to enable the selected employees to acquire securities. "Securities" is defined in the Deed as "shares or other securities issued by the Company and includes, without limitation, convertible notes and other convertible securities which give the holder a right (whether contingent, mandatory or otherwise and whether exclusively or not) to acquire any such shares or securities".
 Pursuant to the Deed, Richmond established the Richmond Optional Convertible Note Employee Share Ownership Plan ("Plan"). This Plan provided for the issue of the OCNs to be either converted or redeemed during a set exercise period, with respect to a pre-specified "hurdle price". The issue for determination by the Panel is whether the OCNs are "equity securities" for the purposes of the Code.
 Relevant provisions of the "Convertible Note Master Agreement relating to The Richmond Optional Convertible Note Employee Share Ownership Plan" ("the Agreement") include:
(a) The Exercise Period is the period from 1 February 2003 until 31 March 2004 (both dates inclusive);
(b) The Hurdle Price means $4.00, as may be adjusted in accordance with the Agreement;
(c) The Noteholder is Paul David Collins and Samuel Amuri Robinson in their capacity as trustees of the Richmond Employee Share Trust;
(d) The provisions for redemption or conversion of the OCNs are set out in section 4 of the Agreement (and essentially replicated in section 5 of the Rules of the Plan) and include:
Redemption or Conversion
4.1 The Noteholder may, at any time during the Exercise Period, elect to redeem or convert into Shares
any Convertible Note by delivering to the Issuer during the Exercise Period an irrevocable Election Notice,
(a) the Noteholder may only convert Convertible Notes for Shares if, at the relevant time, the Share Price
is equal to or higher than the Hurdle Price; and
(b) the Noteholder may only redeem Convertible Notes for cash if, at the relevant time, the Share Price is
lower than the Hurdle Price.
4.2 A Convertible Note may only be redeemed or converted in full. A Convertible Note cannot be partially
redeemed and/or partially converted
4.3 Subject to clauses 4.1 and 4.4. on receipt of an Election Notice the Issuer will redeem or convert
the Convertible Notes specified in the Election Notice in accordance with the election made by the
(a) in respect of Convertible Notes to be redeemed for cash, by paying to the Noteholder an amount
equal to the aggregate of the Principal Amount [$3.00] of each of those Convertible Notes; or
(b) in respect of Convertible Notes to be converted into Shares, by issuing to the Noteholder the number
of Shares equal to the Conversion Number for each such Convertible Note,
in addition to paying to the Noteholder any money payable in satisfaction of accrued interest under
4.4 If the Noteholder specifies in its Election Notice that it wishes to convert Convertible Notes into Shares,
the Issuer may, at its discretion, notwithstanding the Noteholder's election, elect to redeem the relevant Convertible
Notes for cash, or to repurchase or procure a Subsidiary to repurchase those Convertible Notes, by paying to the
Noteholder an amount equal to the aggregate Share Price of the number of Shares into which the Convertible Notes
would have converted in accordance with the Conversion Number if the Noteholder's election to convert the Convertible
Notes into Shares had been given effect to (…).
4.5 [Provides for the same outcome in respect of any Notes not redeemed or converted during the Exercise Period]
 Clause 5 of the Agreement provides
5.1 If between the date of issue of any Convertible Note but before the Convertible Note is redeemed or converted:
(c) any offer is made or announced for the acquisition of Shares,
the Board may make such adjustments or alterations to the terms of the Convertible Notes (…) as in the reasonable
opinion of the Board are necessary to ensure that, so far as is reasonably possible, no benefit is conferred on the Noteholder
(an Employee Member) that is not conferred on shareholders of the issuer (and vice versa) as a result of the occurrence of the
event referred to in paragraph (a), (b) or (c) of this clause 5.1. Such arrangements or adjustments may include (without limitation)
all or any of the following:
- Adjustments to the Conversion Number;
- Adjustments to the Hurdle Price;
- Permitting the Noteholder to give an Election Notice earlier than would otherwise have been the case; or
- Arranging for the Noteholder to participate (on behalf of Employee Members) in any offer or issue of securities made by the Issuer.
 Richmond shares have been trading at well below the hurdle price for some time, and the current offer by PPCS is at $3.05. The Board of Richmond has not exercised its rights under clause 5 of the Agreement to amend the conditions of the OCNs. It is thus unlikely that the holders of the OCNs, of which there are some 39 executives and employees of Richmond, will have the option to request conversion of their OCNs to shares.
 Quigg Partners, legal advisers to Richmond, submitted in writing that:
9.2 The OCNs are equity instruments (i.e. value linked to the value of ordinary shares) and having a right (in specified circumstances) to obtain
ordinary shares subject to the Company's redemption right are:
"any interest in … the share capital of [Richmond]"
9.3 The OCNs, unlike debt instruments, have that critical "interest in" the share capital of Richmond (the value of the OCNs are directly linked
to the value of Richmond shares). We say the word interest must be given its ordinary common sense meaning (e.g. pecuniary stake, profit/advantage,
concern) in the context of the definition. …
8.1 It is acknowledged that the right of an employee holding OCNs to convert their notes into shares in Richmond is subject to the discretion of
Richmond to redeem the OCNs for cash but only so long as the employees right has not been exercised, and in any case until the company actually
exercises the exemption discretion then the equity interest remains. That equity interest is effective until then, and thus is currently effective (and
can be valued …).
 Legal advisers to PPCS, Harmos Horton Lusk, in their written submissions argued that the OCN's were not equity securities under paragraph (a) of the definition of "equity security". It was argued that paragraph (a) relates to an interest or right in shares that were already in existence and did not apply to options or rights to acquire such shares in the future which are dealt with in paragraph (b). As the Richmond shares to which the OCNs relate are not in existence paragraph (a) could not apply.
 It was argued by PPCS that the OCNs could not come under paragraph (b) either. "…It is Richmond who decides whether conversion into shares will take place. It alone has the power to control whether this occurs and, therefore, in the language of the Code, the option or right to acquire shares in Richmond "is exercisable only with the agreement of the issuer" with the consequence that the OCNs are not equity securities under paragraph (b) of the definition of that term."
 During the course of the hearing counsel for Richmond acknowledged that the OCNs did not come within subparagraph (b) of the definition of "equity security" in the Code (see paragraph 39) and that their argument rested on subparagraph (a).
 In the Panel's view the OCNs are not an equity security within the meaning of the definition of "equity security" in rule 3. They do not confer any interest or right in the shares or share capital of Richmond under paragraph (a) of the definition. The word "interest" has been given a broad meaning for the purposes of securities legislation. However, the word cannot be read so broadly as to cover a mere value linked instrument which does not confer at least some claim upon or share or stake in the particular property referred to in the definition ie the shares or share capital of Richmond. In the present case the shares had not even reached the hurdle price which created the floor from which the OCNs might be capable of exercise.
 The Panel agrees with counsel for both PPCS and Richmond that the OCNs do not come within subparagraph (b) of the definition of equity securities. Subparagraph (b) qualifies subparagraph (a) by including within the definition of "equity securities" options or rights to acquire an interest or right under (a). Excluded from that definition is any security where the right to obtain any such interest or right is exercisable only with the agreement of the issuer. In the case of the OCNs, while the Noteholder has the right to request conversion to shares (if the hurdle price is exceeded) that conversion cannot occur without the consent of Richmond. If a security is precluded from being an equity security by (b) it cannot be an equity security under (a).
 The issue which the Panel is required to determine is whether the OCN's come within the definition of equity security stated in the Code. If the instruments do not come within that definition little assistance is gained by considering the economic character or substance of the OCN's.
Second determination relating to the need to make an offer to the holders of Optional Convertible Notes
 The Panel determines that PPCS did not need to make an offer to the holders of Optional Convertible Notes of Richmond as part of its full takeover offer for Richmond, and accordingly the Panel is satisfied that Richmond's takeover offer dated 21 January 2003 complies with rule 8(2) of the Code.
 When requesting leave to appear at the hearing Bisson Moss, for the Bell Group, raised concerns with the Panel about a further aspect of clause 4.1 of the offer document. Bisson Moss alleged that the terms of the explanatory note are "materially misleading". They added: "In hostile takeover situations, there is a real prospect of unfairness if shareholders are left to speculate on the percentage of acceptances that the acquirer may, at any time up to closure of the offer, declare to be enough to go unconditional.".
 In the course of argument before the Panel Mr Dobson QC, counsel for the Bell Group, referred to the requirement in clause 19 of the First Schedule to the Code. That clause requires certain officers and directors of the offeror to sign a certificate certifying that to the best of their knowledge and belief, after making due enquiry, the information contained in the offer document is, in all material respects true and correct and not misleading whether by omission or otherwise.
 Mr Dobson said during the course of his submissions:
It is my submission it does fall fairly and squarely within the jurisdiction of the Panel to analyse whether there is a materially misleading aspect
and to take it into account. …
Now, in addition, while misleading conduct might not of itself be a ground for restraining an offer, because there is no rule that directly requires it
not to be misleading, I submit that if the Panel was minded to it could get to that point by the following route.
The Panel will be mindful [of the] requirements of rule [sic] 19 of the First Schedule obliging the directors of the offeror company to certify that
in all material respects the offer is true and is not misleading.
Now if the Panel were to find in any case there were no reasonable grounds for belief in the accuracy of the detail that was found to be misleading,
then there would be non-compliance with the requirements of that schedule. And arguably that amounts to conduct not in compliance with the
Code, because a Code-compliant offer, by definition, has to comply with (the terms of the content) all the requirements of that schedule.
The Panel accepts this submission.
 Clause 4.1 of the offer document is set out above (see paragraph 17). The Explanatory Note to that clause states:
As at the date of this Offer, Richmond has 40,985,168 fully paid ordinary shares on issue, 21, 530,548 of which are held or controlled by PPCS, ….
As a result of a High Court Order (…) 6,867,468 of the shares held or controlled by PPCS as at the date of this Offer do not have currently
exercisable voting rights and under the Takeovers Code will therefore be excluded from consideration in determining whether the condition in
paragraph 4.1 is satisfied.
Accordingly, the total number of shares of Richmond that, at the date of this Offer, have currently exercisable voting rights, and are required to
be considered for the purpose of determining whether the condition in paragraph 4.1 is satisfied, is 34,117,700. The number of shares held or
controlled by PPCS for that purpose is 14,663,080 (representing 42.98% of the 34,117,700 shares of Richmond that have currently exercisable
voting rights). On that basis:
(a) to reach the 90% threshold in paragraph 4.1 PPCS must receive acceptances in respect of 16,042,850 Shares; and
(b) to satisfy the minimum 50% threshold in paragraph 4.1 PPCS must receive acceptances in respect of at least 2,395,771 shares.
If the Offer period is extended by PPCS in accordance with the Takeovers Code then the voting rights attaching to the [shares to
be acquired from Hawkes Bay Meat Limited under an option agreement] (…) may be suspended pursuant to the High Court order
referred to above and the number of Shares acquired by PPCS to reach the 90% and 50% thresholds respectively will increase
 There is no further explanation provided in the offer document as to the increased number of shares that PPCS would need to acquire to reach the 90% and 50% thresholds should the 14,663,080 HBML shares lose their voting rights on 28 February 2003 (see paragraph 4 for the relevant Court order.)
 The Panel noted that the target company statement issued by Richmond dated 24 January 2003 included the following at paragraph 14.2:
The explanatory note to paragraph 4.1 of the Offer states that to satisfy the minimum 50% threshold of the Offer, PPCS must receive
acceptances in respect of 2,395,711 shares. It should be noted that the orders of Justice Young made on 22 November 2002 and
29 November 2002 mean this note is correct only if by 28 February 2003, PPCS also attains acceptances in respect of 16,042,850 shares
(being the 90% threshold in paragraph 4.1 of the Offer). If PPCS does not attain the 90% threshold by 28 February 2003, it will lose the
voting rights on 14,663,080 shares meaning that the 50% threshold will be 9,727,311 shares.
 Mr Dobson QC contended that the explanatory note in the offer was misleading and made it appear that PPCS needed far fewer shares to obtain control of Richmond than would be the case if PPCS were to lose the voting rights on the HBML shares. He contended that some shareholders might be induced to sell to PPCS because they would not want to be minority shareholders in a company controlled by PPCS.
 Each party alleged that any confusion among shareholders was due to or contributed by misleading information issued by the other party.
 The High Court's orders have created a complex situation for PPCS, Richmond and Richmond's shareholders, particularly in respect of the conditional loss of voting rights on the HBML shares. The statement in the offer document as to the number of shares PPCS needs to obtain 50% of the voting rights of Richmond would be true at the current closing date of the offer. If PPCS were to attain less than the 90% threshold by that time, and pursuant to the Court order subsequently lose the voting rights on the HBML shares, then it could end up with a significantly lower percentage of the remaining voting rights in Richmond on 28 February 2003.
 With respect to clause 4.1 in the offer document the Panel is of the view that the explanatory note is not misleading. The Panel believes that PPCS made a conscious effort to properly describe what is a very complex situation with some quite uncertain outcomes.
 The Panel does not find it necessary in this case to comment on the rights or wrongs of either party with respect to public statements and disclosures about the takeover. The Panel does, however draw the attention of takeover participants generally to two matters-
(a) The Code requires officers and directors of both the offeror, in its takeover notice, and the target company, in the target company statement, to sign a certificate certifying as to the truth and correctness of these respective documents. That is an obligation which the Panel takes seriously and a non-complying certificate could give rise to consequences under the Code.
(b) The directors of both the offeror and target company have obligations to their shareholders and offerees in the takeover context in relation to any statements or publicity which may be issued. Those obligations are not limited to the formal takeover documents.
 The Panel determines that the explanatory note to clause 4.1 in the PPCS offer document dated 21 January 2003 in its present form is not misleading. Accordingly the Panel is satisfied that the certificate signed by the directors and senior officers of PPCS, insofar as it refers to the explanatory note to clause 4.1, complies with the Code.
 The Panel will deal with costs separately in terms of the Takeovers (Fees) Regulations 2001.
DATED at Auckland this 1st day of February 2003
SIGNED for and on behalf of the Panel
by the Chairperson
J C KING