Statement of reasons of Takeovers Panel
This notice applies to acts or omissions occurring on or after the day after the date of its notification in the Gazette and expires on the close of 31 December 2010.
This notice exempts the outperformance share (OPS) holders from rule 6(1)(a) and (b) of the Takeovers Code (the Code).
Issue of OPS
On 14 December 2001, mandatory convertible notes were issued by Jade Software Corporation Limited (Jade) to certain parties. The terms and conditions of the OPS were determined as part of the contractual negotiations that involved the issuing of mandatory convertible notes.
This exemption applies to the bonus issues of ordinary shares (OSBIs) that may be triggered under the terms and conditions of the OPS. The OSBIs are the potential issue of an additional 21 million ordinary shares (in 3 possible tranches of 7 million ordinary shares) to OPS shareholders, according to their beneficial interest in the OPS.
The OSBIs will be triggered should earnings before interest, taxes, depreciation, and amortisation (EBITDA) of Jade, in any of the 8 financial years beginning from 1 January 2002, reach certain targets. These targets are $55 million, $65 million, and $75 million.
In order to comply with the exemption, allotments made under an OSBI must be made in the same proportions as the beneficial interests set out in Schedule 2.
Jade is intending to conduct an initial public offer during 2003 subject to market conditions. One effect of the initial public offer will be that shareholders will invest in Jade who were not shareholders at the time that the OPS was issued.
As a result of the issue of ordinary shares under an OSBI, it is likely that 1 or more OPS shareholders will become the holder or controller of an increased percentage of voting rights in Jade. Without the present exemption, an OPS shareholder that holds 20% or less and that increases its holding or control above 20%, or that holds in excess of 20% and that increases its holding or control, would probably be in breach of rule 6 of the Code.
Takeovers Code (Class Exemptions) Notice (No 2) 2001
Clause 7 of the Takeovers Code (Class Exemptions) Notice (No 2) 2001 provides a class exemption from rule 6(1) in respect of issues of shares within 6 months of an initial public offering subject to, amongst other matters, disclosure in the relevant prospectus and investment statement. It is not possible for Jade to rely on the exemption provided in clause 7 of the Takeovers Code (Class Exemptions) Notice (No 2) 2001 with respect to the OPS, as the OSBIs will not occur within 6 months of the initial public offer.
Rule 7(d) of Code
It is not appropriate for Jade to rely on the exception provided in rule 7(d) of the Code. Under rule 7(d) of the Code, any allotment of ordinary shares would need to be approved at a shareholders' meeting by ordinary resolution of Jade. Under rule 17(2) of the Code, no OPS shareholders or their associates would be able to vote on the resolution. There is no certainty that such a resolution would be approved. By voting against the issue of ordinary shares under the OSBI, the future shareholders in Jade would be able to avoid the dilutionary effect of the OSBIs despite the fact that the existence of the OPS was disclosed as part of the initial public offer.
As part of this exemption, Jade is required to disclose the terms and conditions of the OPS and the potential impact of the OSBIs in—
The Takeovers Panel considers that it is appropriate to grant the exemption from rule 6(1)(a) and (b) of the Code because, while shareholders at the time of an OSBI will not have an opportunity to vote to approve the allotment or allotments of ordinary shares to the OPS shareholders that might otherwise have occurred under rule 7(d) of the Code, those shareholders have the opportunity to express their approval (or otherwise) of the OPS in deciding whether or not to invest in Jade through the initial public offer or at a future time.
The Takeovers Panel considers that the exemption is consistent with the objectives of the Code because—
it ensures that the holders of securities in Jade are fairly treated; and
it recognises that potential investors in Jade will ultimately decide for themselves the merits of the potential allotments when deciding whether to invest in the initial public offer.