Bridegcorp Capital Limited - Reasons for Determination
Published 7 September 2004
BEFORE THE TAKEOVERS PANEL
|IN THE MATTER OF||the Takeovers Act 1993 and the Takeovers Code|
|IN THE MATTER OF||a meeting held under section 32 of the Act to determine:
(1) Whether Bridgecorp Capital Limited, by acquiring 19.99% of the voting rights in Dorchester Pacific Limited from Brent Douglas King and companies under his control and from other shareholders on or about Friday 13 August 2004, at the same time that it entered into a "Lock-up Deed" with Brent Douglas King and Snowdon Peak Investments Limited concerning a further 5.05% of the voting rights in Dorchester Pacific Limited, did not comply with rule 6(1) of the Code because, as a consequence of, among other things, entering into the Lock-up Deed, Bridgecorp Capital Limited, King and Snowdon Peak Investments Limited became associates for the purposes of rule 4 of the Takeovers Code and the aggregate of the shareholding of Bridgecorp Capital Limited and its associates was in excess of 20% of the voting rights in Dorchester Pacific Limited after the acquisition of shares and the entry into the "Lock-up Deed";
(2) Whether Brent Douglas King, by acquiring some 0.9% of the voting shares in Dorchester Pacific Limited from Alexander Eric Vink and Natasha Maree Vink on or about Monday 16 August 2004, did not comply with rule 6(1) of the Code because at the time of the acquisition he was an associate of Bridgecorp Capital Limited and Brent Douglas King and Bridgecorp Capital Limited between them held or controlled more than 20% of the voting rights of Dorchester Pacific Limited.
|MEETING:||6 and 7 September 2004 at Auckland|
|MEMBERS:||J C King (Chairperson)
C G Giffney
A N Frankham
D J Quigg
|APPEARANCES:||J W Turner, C E J Rowling and S G Vodanovich appearing for Bridgecorp Capital Limited and Bridgecorp Holdings Limited
J R F Fardell QC and W D Bygrave appearing for B D King and Snowdon Peak Investments Limited
A R McRae appearing for Dorchester Pacific Limited
R A Dobson QC as counsel assisting the Panel
|IN ATTENDANCE:||B D King representing himself and Snowdon Peak Investments Limited
R M Petricevic, E J O'Sullivan and Z S McHerron representing Bridgecorp Capital Limited and Bridgecorp Holdings Limited
M C Radford representing Dorchester Pacific Limited
R P Vink and L L Vink as parents of A E and N M Vink
K G Morrell and A C Doone (from Panel Executive)
|DETERMINATION:||8 September 2004|
|REASONS FOR DETERMINATION:||14 September 2004|
 Dorchester Pacific Limited ("Dorchester") is a New Zealand incorporated company based in Auckland and is party to a listing agreement with the New Zealand Exchange Limited ("NZX"). As such, Dorchester is a code company for the purposes of the Takeovers Act 1993 ("the Act") and the Takeovers Code ("the Code").
 Bridgecorp Capital Limited is a New Zealand company formed in August 2004 as a wholly-owned subsidiary of Bridgecorp Holdings Limited, a finance and investment company based in Auckland but incorporated in Australia (referred to collectively as "Bridgecorp"). Rodney Michael Petricevic ("Petricevic") is the Managing Director of Bridgecorp. Bridgecorp is not party to a listing agreement with NZX.
 On Friday 13 August 2004 Bridgecorp acquired 19.99% of the voting shares of Dorchester.
 Brent Douglas King ("King") is the Managing Director of Dorchester and until Friday 13 August 2004 (subject to the sale of 0.88% to Dorchester by Alexander Eric Vink and Natasha Maree Vink (see below)) was the holder or controller of some 20.14% of the voting shares in Dorchester. King's interests in Dorchester were held by himself and through a number of companies including Snowdon Peak Investments Limited ("Snowdon Peak"), Askridge Holdings Limited ("Askridge"), Fulcrum Securities Limited and AIS Limited.
 On Friday 13 August 2004 King sold some 3,158,546 shares (15.09%) in Dorchester to Bridgecorp for a reported $4.04 per share.
 On Friday 13 August 2004 "the Baker interests" sold some 1,025,002 ordinary shares in Dorchester to Bridgecorp. "The Baker interests" were the Grant Baker Trust (Grant K & Donna J Baker, P A Smithies) holders of 600,000 shares, Baker Family Trust (G K & D J Baker, P A Smithies) holders of 294,049 shares, S F & M J McKillen, M Q Fine holders of 110,609 shares and the St Albans Trust (S J & J M Sinclair & Trustee Services) holders of 20,344 shares. The share transfers indicated these sales were transacted at $4.00 per share.
 Between Thursday 12 and Monday 16 August 2004, Alexander Eric Vink and Natasha Maree Vink sold 183,740 ordinary shares in Dorchester (0.88%) to SnowdonPeak at $3.30 per share. Alexander Eric Vink (14 years old) and Natasha Maree Vink (11 years old) are the children of Ronald Paul Vink and Linda Louise Vink, of Epsom, Auckland. Ronald Paul Vink ("Vink") and Linda Louise Vink attended the hearings as parents of the children.
 Following the sale to Bridgecorp and the acquisition from the Vink children King held or controlled 5.93% of the voting shares in Dorchester.
 The acquisitions of shares in Dorchester were announced to the NZX in various notices on Monday 16 August 2004.
Initial actions by the Panel
 Following the announcement by King and Bridgecorp to the NZX on Monday 16 August 2004 the Panel executive asked King on Tuesday 17 August 2004 for a copy of the "Lock-up Deed" (hereinafter referred to by the Panel as the "option deed") that was referred to in his announcement. This was provided by King's legal advisers on Thursday 19 August 2004.
 On Friday 20 August 2004 the Panel executive sought comment from King and Bridgecorp on aspects of the option deed, in particular the exercise of the option by Bridgecorp contained in the option deed. The executive had noted that the exercise was not made conditional on compliance with the Code. Responses were received from both parties on Monday 23 August 2004 giving assurances that the participants in the option deed intended to comply with the Code.
 Subsequently the Panel decided to meet to further consider the issues arising from the option deed and the various related transactions.
 On Monday 30 August 2004 the Panel resolved:
On or about 13 August 2004 Bridgecorp, SnowdonPeak and King entered into a lock-up deed relating to some 5.05% of the voting rights in Dorchester. The deed conferred certain rights and obligations on the parties to the Lock-up in the period up to 30 June 2005 in exchange for payment of $600,000 by Bridgecorp. On the same day Bridgecorp acquired some 14.9% of the voting rights in Dorchester from King and companies associated with him giving Bridgecorp a total holding of some 19.99% of the voting rights in Dorchester.
On or about 16 August 2004 King purchased some 0.9% of the voting rights in Dorchester from A E Vink and N M Vink.
The Panel considers that:
(a) Bridgecorp, by acquiring 19.99% of the voting rights in Dorchester from King and his associated interests and from other shareholders at the same time that it entered into the Lock-up with King and Snowdon Peak concerning a further 5.05% of voting rights in Dorchester, may not have acted or may not be acting or may intend not to act in compliance with rule 6(1) of the Code because, as a result of entering into the Lock-up, Bridgecorp and King and Snowdon Peak may have become associates for the purposes of rule 4 of the Code and the aggregate shareholding of Bridgecorp and its associates was in excess of 20% of the voting rights in Dorchester following the acquisition and entry into the Lock-up;
(b) King, by acquiring some 0.9% of the voting rights of Dorchester from A E Vink and N M Vink on or about 16 August 2004, at which time King may have been an associate of Bridgecorp, may not have acted or may not be acting or may intend not to act in compliance with rule 6(1) of the Code because in aggregate King and Bridgecorp held or controlled in excess of 20% of the voting rights in Dorchester following the acquisition.
The Panel resolved to convene a meeting under section 32 of the Takeovers Act 1993 for the purpose of determining whether to exercise its powers under that section in relation to these matters.
The Panel resolved to issue interim restraining orders under section 32(4) of the Takeovers Act 1993 to the following effect:
(a) Restraining Bridgecorp from exercising or permitting the exercise of the voting rights attached to any of the shares it holds or controls in Dorchester;
(b) Restraining King and SnowdonPeak from exercising or permitting the exercise of any of the voting rights attached to any of the shares they hold or control in Dorchester;
(c) Restraining Bridgecorp from acquiring or disposing of any voting shares in Dorchester;
(d) Restraining King and SnowdonPeak from acquiring or disposing of any shares in Dorchester;
(e) Restraining Dorchester from issuing or allotting any shares to Bridgecorp and its associates or King, SnowdonPeak and their associates, whether on conversion of any September 2005 warrants issued by Dorchester or for any other reason.
The interim restraining orders will expire on Wednesday 8 September 2004.
The Panel resolved to issue summonses under section 31N of the Takeovers Act 1993 to require the attendance of a number of parties at the Panel's meeting.
 Summonses were issued to King, Petricevic, Murray Charles Radford ("Radford") (Chairman of Dorchester) and Alexander Eric Vink (known to have been a holder of Dorchester shares) requiring their attendance at the Panel's meeting and the production of relevant documents.
 When service of the summons on Alexander Vink was attempted it was indicated that he was a child of some 14 years and that "N M Vink" was Natasha Maree Vink, also a child. Subsequently the Panel issued summonses to Vink and Linda Louise Vink of Auckland, the parents of Alexander and Natasha Vink.
 Submissions were received from or on behalf of King and Bridgecorp on Thursday 2 and Friday 3 September 2004. Documents sought under summons were provided to the Panel on Thursday 2 September by Dorchester and Bridgecorp and on Sunday 5 September by King. Vink produced documents at the commencement of the Panel's meeting. The Panel is grateful to those parties who made early provision of their documents.
 During the meeting evidence was received under oath from King, Radford, Petricevic, Zachary Scott McHerron ("McHerron"), Eric John O'Sullivan ("O'Sullivan"), Vink and Linda Vink, and Warren Douglas Bygrave ("Bygrave"). Legal submissions were received from legal advisers to King, Bridgecorp and Dorchester.
The first issue considered by the Panel was whether Bridgecorp, by acquiring 19.99% of the voting rights in Dorchester from King and companies under his control and from the Baker interests on Friday 13 August 2004, at the same time that it entered into the option deed with King and Snowdon Peak concerning a further 5.05% of the voting rights in Dorchester, did not comply with rule 6(1) of the Code because, as a consequence of, among other things, entering into the option deed, Bridgecorp, King and Snowdon Peak became associates for the purposes of rule 4 of the Code and the aggregate of the shareholding of Bridgecorp and its associates was in excess of 20% of the voting rights in Dorchester after the acquisition of shares and the entry into the option deed
Formulation of the transaction
 Written submissions, confirmed in evidence, show that discussions in respect of the acquisition of King's interest in Dorchester by Bridgecorp were initiated in early July 2004. On Friday 9 July 2004 King, Petricevic and Stuart Cairns, of Totaranui Management Limited ("Totaranui"), met to discuss the feasibility of the transaction. Totaranui was to act as broker between the parties and representing both of them.
 In an agreement not formalised until the end of the transaction, each party paid Totaranui a fee of $212,000 plus GST as consideration for introducing and advising on the transaction. Totaranui may also receive payment of 1% plus GST of the purchase price of any shares purchased under the option deed for advising on that document.
 On Thursday 21 July 2004 the parties (King, Petricevic and Cairns) met in Queensland to inspect a property, Posada, which it had been suggested might constitute part of the consideration for the transaction. While early references to Posada seemed to envisage transfer of the property itself as consideration, Bridgecorp's interest in Posada was actually a mortgage over the property.
 On Friday 22 July 2004 a board meeting of Bridgecorp Holdings Limited was held in North Sydney. Minutes of the meeting included the following:
Mr Petricevic tabled that he had been having discussions with Brent King of Dorchester and Stuart Cairns who is broking a deal whereby Bridgecorp would acquire Mr King's interest in Dorchester being 4 million shares of a total 21 million shares on issue, plus warrants at a price of $4 per share against a current market of $3.
Payment would be way of Posada at NZ$8 million plus $12 million cash.
Mr Petricevic held concerns over the warrants and whether Mr King would stay on for a period of time.
Dorchester made NZ$6million last year and NZ$8 million was projected for the coming year.
Mr Petricevic added that due diligence still needed to be done on Dorchester.
IT WAS AGREED that Mr Petricevic and Mr O'Sullivan would meet with Brent King on Sunday to go through Dorchester's Board Papers, that Mr Petricevic to proceed with negotiations and report by phone next week and that Mr O'Sullivan would update Mr Steigrad.
 On Sunday 25 July 2004 Petricevic, Cairns, King and O'Sullivan met at Bridgecorp's offices to discuss specific deal terms for the first time.
 On Monday 26 July 2004 Cairns provided Petricevic with a draft Sale and Purchase agreement. That agreement covered the sale of 4,045,506 shares at $4.00 per share, 1,011,376 September 2005 warrants at $2.30 per warrant, and 891,376 September 2006 warrants at $2.80 per warrant, all from King to Bridgecorp. In that draft agreement the value of the Queensland property to be purchased by King was shown as $7 million.
 On Tuesday 27 July 2004 McHerron, Special Projects Manager for Bridgecorp, sent an email to O'Sullivan, Bridgecorp's Finance Director, relating to the project. The covering message indicated that Bridgecorp had taken legal advice on the content of the email. The email included:
We've discussed the possibility of trying to bring Baker and Green into the transaction somehow, but our view is that such an arrangement is almost certain to trigger the Takeovers Code. We've thrown around a number of scenarios (including the loan scenario suggested previously) and don't see a workable solution at this stage. We're content to proceed on the basis that we don't have a formal arrangement with Baker or Green. We'd be happy to meet with both of them once the deal is signed and share with them our thoughts on DPC.
Board representation is critical to Bridgecorp. Accordingly it will need to be a condition of the transaction. The mechanics of the appointment can happen in one of 2 ways:
1. Have the current board appoint Bridgecorp's nominee to fill a casual vacancy now, and have shareholders re-appoint that nominee at the August AGM; or
2. Immediately following the AGM have the board appoint a Bridgecorp nominee to the DPC board (that nominee will need to offer himself for re-election at next year's AGM.)
We'd like to see BK to stay on at DPC in his capacity as MD until 31 March 2005.
We propose that part of the purchase price (equivalent to the amount due on the warrants) be deferred, becoming payable on the date BK leaves DPC's employment.
We'd be looking for some kind of restrictive covenant preventing BK from undertaking similar activities to Bridgecorp/DPC for a period of time following his departure.
 On Wednesday 28 July 2004 a confidentiality deed between King and others, identified as the Vendor, and Petricevic as the recipient, was executed by Petricevic and McHerron.
 Also on Wednesday 28 July 2004 Petricevic, O'Sullivan, Cairns and McHerron met at the offices of Martelli McKegg, King's lawyers, to undertake a limited due diligence on Dorchester. We discuss this further in the next section of this statement (see The conduct of limited due diligence in respect of Dorchester below).
 On Wednesday 28 July 2004 an email from Cairns to McHerron suggested that the parties used code words in their documentation to preserve the confidentiality of the transactions. Dorchester was "World Cup", King was "Hadlee", Bridgecorp was "Bradman", the interests of Grant and Donna Baker, holders or controllers of just below 5% of Dorchester's voting rights, were "Fleming", and the interests of Hugh Green was "Styris".
 Also on Wednesday 28 July 2004 Cairns sent an "update" on the World Cup project to Petricevic. That update included:
1. Bradman [Bridgecorp] to purchase from Hadlee [King] 19.9% (4,164,590 shares) of the capital of World Cup [Dorchester] for $4 per share ($16,658,359) paid on the settlement date $8m in property and management company and $8.658 cash. In the event that the property is not able to be transferred on the settlement date …
2. Bradman purchase from Hadlee 1,013,382 Sept 05 warrants and 893,383 Sept 06 warrants to be paid at $2.30 and $2.80 respectively to be paid on the settlement date 60c and $1.10 respectively and, and $1.70 on 31 March 05 or the date of termination of employment of Hadlee whichever is the earlier. Hadlee to retain security over the warrants until settlement.
3. Hadlee undertakes to retain a minimum shareholding of 4.9% of the existing capital of World Cup being 1,046,379 shares and to continue as MD for World Cup under existing employment agreement.
4. Bradman agrees to loan Hadlee $4.185m secured against the 1,046,379 shares on the following main terms;
a. Drawdown: On settlement date
b. Interest rate: 12% capitalised
c. Term: 12 months
d. Dividend: to the lender
5. Condition of the agreement is that Bradman nominee (who would this be?) to be appointed to the board or agreed to be appointed by the board. Settlement is as soon as this condition is satisfied.
6. Hadlee warrants that during the period between signing and completion not knowingly to do anything in his capacity as MD that will negatively impact on the value of the business.
 On Tuesday 3 August 2004 Petricevic, O'Sullivan, Cairns and King met to discuss the transaction. An attachment to an email sent by Cairns to Petricevic at 1.20 p.m. was similar to the memorandum of Wednesday 28 July except for the parts now highlighted:
Update 3 August 2004
1. Hadlee [King] to arrange for Bradman [Bridgecorp] to purchase 19.9% (4,164,590 shares) of the capital of World Cup [Dorchester] for $4 per share ($16,658,359) paid on the settlement date $8m in property and management company and $8.658 cash. In the event that the property is not able to be transferred on the settlement date …
2. Bradman purchase from Hadlee 1,013,382 Sept 05 warrants and 893,383 Sept 06 warrants to be paid at $2.30 and $2.80 respectively to be paid on the settlement date
3. Hadlee undertakes to retain a minimum shareholding of 4.9% of the existing capital of World Cup being 1,046,379 shares and to continue as MD for World Cup under existing employment agreement
4. Bradman to be granted a call option over the Hadlee shares above. Call to be on the following basis
a. Option fee: TBA non refundable but deductible from exercise price
b. Term: Six months or termination of employment whichever is the later
c. Exercise Price: $4
d. Other standard terms.
5. Condition subsequent of the agreement is that Bradman nominee (who would this be?) to be appointed to the board or agreed to be appointed by the board. For every month that this condition remains unsatisfied from the date of settlement, then Hadlee pays Bradman a fee of $500k.
6. Hadlee warrants that during the period between signing and completion not knowingly to do anything in his capacity as MD that will negatively impact on the value of the business.
 On Wednesday 4 August 2004 O'Sullivan sent an email to Cairns which included a detailed analysis of the deal structure. His email included:
To clarify the use of "Property $5m $3m upside" in the spreadsheet under "consideration for the shares", this is a response to Hadlee's request for a package price including the Fleming parcel. At my meeting with him yesterday we talked about an all cash consideration for Fleming versus cash property for Hadlee and agreed that Flemings price should be lower. I've used $3m (totally arbitrary) which would give a cash equivalent of $3.29 for Fleming. The spreadsheet is intended to help explain the price differential to Fleming [Baker].
 On Friday 6 August 2004 Cairns sent Bygrave, legal adviser to King, a set of draft contractual documents for his review. The sale and purchase agreement included a clause stating that King would use his best endeavours to assist in having an appropriate nominee of Bridgecorp appointed to the board of Dorchester. The draft document included a clause that King would pay Bridgecorp $500,000 by way of a rebate of the purchase price on a monthly basis until Bridgecorp secured representation of the board of Dorchester. Bygrave had written on the draft obtained from King, "Whole idea Very dangerous!!" He had also written”Who can appoint D/ors - BK will ask sols."
 The board of Bridgecorp met in North Sydney at 11.30 a.m. on Tuesday 10 August 2004. The meeting was solely concerned with Dorchester. The meeting considered a paper dated Tuesday 10 August 2004 from O'Sullivan, Finance Director of Bridgecorp which included:
As previously advised we have the opportunity to acquire a significant interest in the Dorchester Pacific Group. Discussions, due diligence and draft documentation have proceeded over the past two weeks to the point that a deal could be concluded this week.
Board approval is therefore requested.
DPG is a finance company listed on the NZ stock exchange with a market capitalisation of $60 million. The only other listed finance company is Dominion following an IPO last month.
Brent King is DPG's major shareholder at 20.1%. He wishes to sell his shares and over the next few months move out of his CEO role. In addition to his own shareholding he is able to deliver a further 5.3% of the company if required giving a purchaser 25.4%. The spread of remaining shareholding is such that this would give effective control.
The proposal is that BHL acquires a 19.9% shareholding (the maximum permitted before a takeover bid is required). BHL will also take an option to purchase the balance of King's shares (5.5%).
DPG also has listed share warrants on issue - effectively an option to subscribe for new shares over the next 2 years. As these are well "in the money" at present, BHL would also acquire King's warrants to avoid the possibility of future dilution. King holds 18.3% of the outstanding warrants.
The price for the 19.9% of shares and the warrants will be NZ20.5m. Consideration will be the transfer to King of the Posada property for the full amount of Bridgecorp's debt (NZ8m) plus $12.5m cash.
This equates to $3.90 per share (a margin of 35% over the current stock exchange price of $2.85, reflecting a control premium and an excess value on the Posada property). If the value placed on Posada is reduced by 50% the per share cost is $3.25.
For our option over the extra 5.3% we will pay NZ600k non-refundable fee to secure a 12 month right. If exercised, the option fee will be credited against the purchase to leave NZ$3.8 to pay.
Acquiring King's shares provides the opportunity to:
- Clear our loan to Posada at book value, avoiding the need for a probable write down.
- Gain strategic advantage through a possible merger of DPG and Bridgecorp NZ. The merged companies would rank No 2 in size of non-bank financial institutions in NZ. There is certain to be some rationalisation of the finance industry in the near future and this is a unique opportunity for BHL to take a lead position.
- Obtain stock exchange listing for Bridgecorp, using DPG as the vehicle.
- Significantly increase shareholder value for BHL shareholders.
- If all else fails we have some downside protection as the 20-25% strategic stake would be of strong interest to other industry players with growth ambitions.
We have told King we will require a BHL nominee to be appointed to the DPG board after acquiring 19.9% of the company. This is a matter for the DPG board to approve. The board does not know of King's intentions, but King is confident he will be able to deliver us a board seat. He has offered to reduce the price of his shares by $500k for every month he cannot deliver.
 The minutes of the Tuesday 10 August meeting of directors included:
Mr Steigrad raised concerns in relation to management / Board retention and whether there was any ability to tie them in for a period.
In response Mr O'Sullivan advised that it would be condition that Brent King continue as MD for at least 6 months but as Bridgecorp is only acquiring 19.9% that we cannot control the retention of other executives or Directors.
Mr Steigrad then questioned whether 19.9% reflected control as the share price at $4 per share reflected a premium for control. After some discussion and taking into account that the consideration was $12 million plus Posada at $8 million then it was agreed that it was a fair price.
12.20 pm Mr Petricevic joined the meeting by telephone.
Mr Petricevic commented that he was looking to strike a deal by Friday. Subsequently Mr King will advise other major shareholders and the Board.
Mr Petricevic added that he saw synergies between Bridgecorp and Dorchester and that he and Mr O'Sullivan had reviewed the last 3 months Board papers.
Mr Steigrad enquired whether Mr King would seek Board approval before concluding the deal. Mr Petricevic and Mr O'Sullivan advised that Mr King was constrained by Stock Exchange rules that would require the DPC board to make an announcement as soon as they became aware of the possibility of a sale and therefore he wanted an unconditional deal prior to advising the Dorchester Board.
Mr Petricevic added that he did not predict a mass walk-out by staff.
Mr Davidson [Chairman of Bridgecorp] added that he had two concerns
- Willingness of Board to continue on a business as usual
- Brent King committed to being as managing director
Mr Petricevic advised that Mr King had undertaken to procure one seat on the Board for Bridgecorp which Mr O'Sullivan would fill.
Mr Steigrad and Mr Davidson requested that the decision to approve Mr Petricevic and Mr O'Sullivan to complete the deal be deferred to the next day.
The meeting closed at 1.10 p.m.
Subsequently on 12 August Messrs Davidson and King both advised Mr O'Sullivan their agreement to proceed with the purchase. They asked for it to be noted that Mr Petricevic and Mr O'Sullivan are confident that Bridgecorp has sufficient management resources should it be necessary to react to loss of senior DPC staff. Mr Urwin also advised his agreement.
 Later on Tuesday 10 August 2004 Cairns sent updated contracts to McHerron. He referred to Bradman (Bridgecorp) purchasing Fleming (the Baker interests) at $4.00 per share. The draft sale and purchase agreement attached to his email included (despite the annotated reservations of Bygrave):
6.1 The Principal Vendor [King] agrees to use his best endeavours to assist in having an appropriate nominee of the Purchaser appointed to the board of directors of the Company [Dorchester] as an additional director appointed in accordance with clause 71 of the Company's constitution
6.2 Until such time as the Purchaser secures representation on the board of directors of the Company, the Principal Vendor agrees to pay to the Purchaser $500,000 by way of rebate of the Purchase Price on each of the dates determined in accordance with clause 6.3.
6.3 The first payment under clause 6.2 will become due the date being 6 weeks after the date on which the Purchaser notifies the Principal Vendor of the name of its nominee …
6.5 Except for the 1,146,868 shares in the Company which the Lock-Up Vendor will continue to own as a consequence of the Lock-Up Agreement and the warrants which it might hold as a consequence of any arrangements with Fleming, the Principal Vendor agrees that he, and any party associated or related to him in any way, will not subscribe for, accept an allotment of, or otherwise acquire or own by any other means, or enter into any other arrangement with another party creating an interest in securities in the Company for a period of 6 months from Settlement.
 On Wednesday 11 August 2004 Petricevic, O'Sullivan, McHerron, King, Cairns, and Simon Vodanovich, a partner in Buddle Findlay, who was acting for Bridgecorp, met at Buddle Findlay's offices in Auckland to discuss deal terms and documentation. Following this meeting a revised set of documents was produced. While clause 6.5 remained in substantially the same form, all references to obtaining a seat on the board of Dorchester were removed. Also an earlier proposal that the $600,000 payment included in the option deed be set off against the exercise price for the option was dropped.
 On Friday 13 August 2004 Petricevic, O'Sullivan, Cairns, King, Bygrave, and Vodanovich met at the offices of Buddle Findlay and, between 7.30 p.m. and 9.30 p.m. in the evening, executed a number of documents including:
(a) Agreement for Sale and Purchase of Shares in Dorchester Pacific between King and others, and Bridgecorp;
(b) Option deed between SnowdonPeak, King, and Bridgecorp;
(c) Documentation regarding the transfer of Facility Agreement and associated land covering the Queensland property known as Posada.
 The final sale and purchase agreement provided for the transfer of a total of 3,158,546 shares, 1,011,375 September 2005 warrants, and 891,375 September 2006 warrants from King and others to Bridgecorp for total purchase price of $17,150,381. The purchase price was stated to be paid in cleared funds on settlement. However this was not correct since there was a set off for the $8 million attributed to the assignment of the loan on the Queensland property.
 Apart from the standard warranties, the agreement provided for King's continued employment with Dorchester and for a restraint of trade. The specific terms included:
Notwithstanding the terms and conditions contained in the Principal Vendor's employment agreement dated 21 October 2002 (as amended), the Principal Vendor agrees:
5.1.1 to use his best endeavours to continue in the employment of the Company until at least 31 March 2005;
5.1.2 not to give to the Company notice of termination of employment before 31 December 2004;
5.1.3 not to do or omit to do anything to cause the Company to terminate his employment agreement;
5.1.4 to comply in all other respects with all terms and conditions of his employment agreement at all times; and
5.1.5 not to take any sabbatical, annual leave or long service leave where the period of that leave shall be no more than three weeks at any one time and to ensure that the business of the Company is properly maintained during his absence.
Restraint of Trade
6.1 Notwithstanding the restraint of trade contained in the Principal Vendor's employment agreement dated 21 October 2002, the Principal Vendor agrees that he will not in New Zealand, or for a period of 6 months from the date of termination of his employment agreement with the Company, without the prior approval of the Purchaser, either directly or indirectly:
6.1.1 become a director, officer or employee of any entity involved in or carrying on business in the financial services industry which has assets greater than $2,000,000;
6.1.2 become a substantial (more than 5%) member or shareholder of or holder of any other security in or from any entity involved in or carrying on business in the financial services industry and which has assets greater than $2,000,000;
7.1 Except for the 1,056,960 shares in the Company which are subject to the Lock-Up Agreement and 585,900 warrants in the Company which the Lock-Up Vendor holds, the Principal Vendor agrees that he, and any party associated or related to him in any way, will not subscribe for, accept an allotment of, or otherwise acquire or own by any other means, or enter into any other arrangement with another party creating an interest in securities in the Company for a period of 12 months from Settlement.
 The option deed acknowledges that SnowdonPeak is the holder or controller of 1,056,960 shares in Dorchester (such number excluding the shares purchased from the Vink children) and states that SnowdonPeak has granted an option to Bridgecorp to acquire those shares.
 The option deed provides that for the payment of a non-refundable fee of $600,000 by Bridgecorp to Snowdon Peak the vendor will not until 30 June 2005 sell, encumber or otherwise dispose of, or agree to sell, encumber or otherwise dispose of, or have any discussions with a third party with a view to selling, encumbering or otherwise disposing of, any of the shares covered by the option deed.
 The option deed further provides that in the event that Bridgecorp or a nominee wishes to acquire any or all of the shares covered by the option deed during the Restricted Period (up to 30 June 2005) then the purchaser must give the vendor written notice of this and the vendor is to transfer the shares to the purchaser on the following terms:
(a) Purchase price of $3.30 per share;
(b) Settlement date to be specified in the notice, being at least 10 days after the date of the notice;
(c) On settlement date the vendor delivers an executed transfer to the purchaser in exchange for payment in cleared funds.
 The option deed also provides that in the event that the purchaser makes a takeover offer for Dorchester in the period up to 30 days before 30 June 2005 in which the consideration per share is not less than $3.30 per share, SnowdonPeak irrevocably agrees to accept the offer within 10 business days of the offer being made.
 The option deed also provides that nothing within it confers voting rights on Bridgecorp unless and until the shares subject to the option deed have been acquired.
 Also executed on Friday 13 August 2004 were a series of share transfers covering the Baker interests. These share transfers were all for $4.00 consideration per share and involved the following transferees with a total of 1,025,002 shares:
(a) S J Sinclair, J M Sinclair and Trustee Services Limited as trustees of the St Albans Trust, for 20,344 shares;
(b) G K Baker, D J Baker and P A Smithies as trustees of the Baker Family Investment Trust, for 294,049 shares;
(c) G K Baker, D J Baker and P A Smithies as trustees of the Grant Baker Family Trust, for 600,000 shares;
(d) Shane Fulton McKillen, Megan Joy McKillen and Martin Quinton Fine, for 110,609 shares.
 An initial intention by Bridgecorp to buy warrants from the Baker interests (evidenced by the inclusion and subsequent crossing-out of warrants from each transfer form) was changed at a late stage and King ended up acquiring the Baker's warrants.
Market announcement of the sale of shares to Bridgecorp
 On Monday 16 August 2004 Bridgecorp filed two substantial security holder notices with the NZX. The second notice, filed at 11.24 a.m., disclosed that Bridgecorp had acquired beneficial ownership of 4,183,548 shares in Dorchester, being 19.99% of the total voting rights. The notice also disclosed that Bridgecorp had a non-beneficial interest in 1,056,960 shares in Dorchester, being 5.05% of the total voting rights.
 These notices covered the total of 1,025,002 shares Bridgecorp had acquired from the Baker interests (also referred to as the "Fleming" interests in the project documentation).
 The first notice (filed at 11.17 a.m.) disclosed that the consideration for the 15.09% of shares acquired from King and his interests was $4.04 per share. The second notice disclosed that the consideration for the non-beneficial interests obtained pursuant to the option deed was $600,000.
 Following the conclusion of the acquisition of shares and the entry into the option deed Bridgecorp and King and entities under their control between them had an aggregate of 25.04% of the voting shares of Dorchester.
 King also filed two notices on Monday 16 August 2004 as a director of Dorchester. These were the "Disclosure of Directors and Officers Relevant Interests" in securities of Dorchester.
 These notices disclosed that King had acquired 183,740 ordinary shares, being 0.88% of the voting shares of Dorchester and had sold 3,158,546 shares. The only specified consideration for the transactions, apparently for both the sale and the purchases, was at $4.04 per share. The 183,740 shares were the acquisition from the Vink children, and the Panel was told that the consideration paid for these shares was $3.30 per share.
 These notices also disclosed that King had undertaken significant sale and purchase transactions in September 2005 and September 2006 warrants issued by Dorchester.
 Some 1,011,375 September 2005 warrants were sold by King, SnowdonPeak, Askridge and AIS Limited at $2.30 per warrant, to Bridgecorp. Some 229,914 September 2005 warrants were purchased by King, also apparently at $2.30 per warrant (based on his notices to the NZX), from the Baker interests. Following these transactions King's notice said he held 272,414 September 2005 warrants.
 King also is shown to have sold some 916,376 September 2006 warrants at $2.30 each to Bridgecorp. He also bought, through SnowdonPeak, 349,914 September 2006 warrants from the Baker interests, again apparently at $2.30 per warrant. The notice disclosed King then had 392,414 September 2006 warrants.
 The combination of the shares acquired by King from the Vink children, together with the other shares he already held or controlled, resulted in King and those companies he controlled, together with interests he holds in Dorchester's Director and Employee Share Purchase Scheme, when aggregated with Bridgecorp's holdings, having a combined total of 25.92% of Dorchester's total voting rights.
Further evidence produced during the hearing on aspects of the transactions
The conduct of limited due diligence in respect of Dorchester
 There are a number of references in the preceding material to King making available to Bridgecorp copies of Dorchester's board papers (see above). The Panel was told that this material was reviewed during a meeting held at the offices of Martelli McKegg on Wednesday 28 July 2004.
 King and Petricevic entered into a Confidentiality Deed on Wednesday 28 July 2004. This document included the following:
C. The Vendor [King] will disclose to the Recipient [Petricevic] the whole or part of the Confidential Information for the strict purposes of carrying out the due diligence of the Company's [Dorchester] business.
E. The parties have agreed to execute this Deed to acknowledge the strict confidentiality of the Confidential Information disclosed and made available by the Vendor and further acknowledge their intention to act in good faith.
F. The Recipient acknowledges that any unauthorised disclosure of the Confidential Information could be injurious to the Vendor and the Company and of commercial value to its competitors and potential competitors.
3.1 The Recipient acknowledges the strict confidentiality of the Confidential Information and shall at all times act in good faith.
3.2 The Recipient agrees that the Recipient will only use the Confidential Information for the Purpose [carrying out due diligence and evaluating the information] and will not use, whether directly or indirectly, or turn to the Recipient's advantage in any way or profit from the use of the Confidential Information or any part thereof for any other Purpose.
"Confidential Information" was defined to mean "all business, financial and other information (whether written or oral or in any other form) relating to the Company's business which is or has been or will be disclosed or made available by the Vendor and all or any other documents and information whatever relating to the business and its operation."
The option deed included other provisions relating to the limitation on reproducing or disclosing the confidential information.
 An "Information List" compiled as a request by Bridgecorp for King included:
1.1 Copies of minutes of meetings of the company's board of directors and board committees for the last 6 months;
2.1 Monthly management accounts for April-04, May 0-4, and June 04.
2.2 Any budget, forecast or business plan for the year ending March 05.
3.1 A schedule of loans with group exposure of greater than $1 million.
3.2 A schedule of impaired and past due loans.
3.3 A schedule of specific doubtful debt provisions.
 It is apparent that Bridgecorp did not get all the information it had requested. O'Sullivan told the Panel that they had only received management accounts for the latest month. It is not clear exactly what information was made available to Bridgecorp during this due diligence process.
 Handwritten notes prepared by McHerron included a breakdown of "Business Plan 2005" which included 2005 profit and various components, including some detailed division-specific information.
 An analysis on Totoranui letterhead headed "Agreement Queries after Due Diligence 28/7/04" listed 12 matters for follow-up with King.
 King, in his evidence to the Panel, said that all information provided to Bridgecorp was “consistent with matters in the public arena under continuous disclosure, if there was any variance then that would have been disclosed to the public."
The "commitment" to procure a member on the Dorchester board
 The internal Bridgecorp material discussed earlier, including early emails, the minutes of the board meeting of 10 August 2004 and O'Sullivan's memorandum to that meeting, and the initial drafts of the sale and purchase agreement (see above) indicated the significance for Bridgecorp of the procuring of a board seat. However there was no reference to this requirement in the final signed agreement for sale and purchase.
 King was questioned about this requirement. He said:
Q. Is it fair to infer that at the 3rd of August … that you were to procure the appointment of a Bridgecorp nominee to the Dorchester Pacific board"
King: Once again, its O'Sullivan writing to Cairns saying that's what he wants. But there's no agreement from me on this, is there?
Q. Well, what I am asking you, Mr King, what had you indicated was your position on it at this time?
King: I can't recall what I indicated on the 3rd. I can't recall whether on the 3rd or 4th I actually had discussions with him on the matter. It wasn't a matter in the final agreement, and yes, it had been in previous drafts, I have accepted it had been in previous drafts, but it was not a matter that we ever agreed to in final form. We all know how negotiations go, parties on either side ask for various matters, that is something they asked for.
 Petricevic was questioned on this matter. He said:
Q. Well you'd gone a good distance down the negotiation track with a provision in the drafts requiring him to procure a board nominee for your company, you are told that's not acceptable, I understand not acceptable because of the risk from the Takeovers Panel perspective, did you have any discussion with Mr King about him favourably disposed in an informal way to a nominee of your company being supported for the Dorchester Pacific board?
Petricevic: Certainly not.
Q. Why not?
Petricevic: A directorship is something that we wouldn't be prepared just to jump into something like that if offered with a 20 per cent shareholding. There are too many risks for a director.
Q. Well, at the outset of this transaction, it is described by Mr McHerron as a critical requirement.
Petricevic: At the outset it was.
Q. And …
Petricevic: If we were to get 25 per cent.
Q. And on the 10th of August it is still a prominent feature of Mr O'Sullivan's analysis of the proposal. No written word going back to the rest of the board of it ceasing to be a condition. Isn't it the position that you were still hopeful at least that Mr King would honour it in an informal way?
Petricevic: No, no, that's not right at all. Our relationship with Brent King is strictly a business one. …
 O'Sullivan was also questioned on this matter. He said:
Q. He [McHerron] reports to you the second bullet point "board representation is critical to Bridgecorp"; do you see that?
Q. Did you agree with that characterisation of that condition at that time?
O'Sullivan: Yes, at that time, "critical" is probably a strong word, but it was an important part of it and it had been suggested by Mr King that as a 20 per cent or 19 per cent shareholder we would expect to have representation on the board. We initially wanted to make that a condition of the purchase of 19.9 per cent, realised he is not in a position to actually deliver, so we took it out of the agreement. But it remains an important part of the process for us.
O'Sullivan: I can't remember exactly when that condition disappeared out of the draft agreement. It was probably around about that time, this was three days before the deal was finalised. I think at that stage he [King] was still happy to leave it in, as a condition. It came back subsequently to say no, he couldn't live with that, and I think we realised it wasn't a practical thing to do, either.
Q. Well, you recorded him as offering to reduce the price by $500,000 for every month he cannot deliver?
O'Sullivan: Yes. We were quite keen for him to slow down. He offered that, which was a surprise, but that I guess was a measure of how confident he was, and is, that he could do that. He made that offer.
Q. So does that suggest that you recognise he can't commit to it, but the spirit of completing the transaction has an ongoing recognition that he will do what he can without doing anything improper to support a nominee of yours through whatever process is involved?
O'Sullivan: Yes. I mean we are not entitled to representation on the board simply by virtue of our shareholding, but we still hope that that will be offered to us.
 King, who was asked by Radford in a letter of Wednesday 18 August 2004 if he knew "the purchaser's aspirations regarding board representation", is recorded by Radford to have responded (at a meeting with Dorchester directors) "don't know".
 King was asked by counsel assisting the Panel what he meant:
Q. … Radford appears to have recorded you saying you didn't know. Is that what you said?
King: No. I believe I actually said that they - of course they wanted to promote somebody and there was no obligation to do it.
Q. So you didn't - Mr Radford's got that answer wrong if that is what it is intended to be if he recorded you saying you don't know?
King: Yes. Like all these things, if you look at line two and speculate, and then come back to the purchaser's intentions, under "don't know" on that side. …
 Radford was asked about King's response to the directors. He said:
Q. In respect of 7, the purchasers aspirations regarding board representation … can you expand at all on the "don't know" that's there?Radford: I am pretty sure that's what he said, "I don't know".Q. That's what is written there.Radford: What I mean is, I don't recall that being my abbreviation of a longer response. What it meant was he doesn't know, he said "I don't know what their aspirations are". …
King's interest in the shares and warrants of Grant and Donna Baker
 In the material traversed earlier it was indicated that King (Hadlee) had been responsible for liaising with the Baker (Fleming) interests in relation to the acquisition of the Baker's nearly 5% of shares of Dorchester (see above).
 The actual share transfer forms disclosed that the Baker interests had received $4.00 for their shares from Bridgecorp, and this is confirmed in the Bridgecorp internal documentation. However King was adamant in his evidence to the Panel that the Bakers had been paid $3.30 for their shares.
 The settlement of the transactions occurred through Martelli McKegg's trust accounts on the evening of Friday 13 August 2004. It has been confirmed to the Panel by Bygrave (following the hearing) that Baker's interests were paid $3.30 for the Dorchester shares while the balance of 70 per share (approximately $700,000) was paid to SnowdonPeak, King's company. This indicates King had a significant economic interest in the sale of the shares belonging to the Baker interests.
Announcement of the changed terms of the warrants
 Dorchester held its annual general meeting on Tuesday 24 August 2004. On Wednesday 25 August 2004 Dorchester announced to the NZX that the terms of its September 2005 warrants had been changed after shareholders had asked the company if the warrants could be converted early. King announced on behalf of Dorchester that the directors had agreed to allow these warrants to be converted in the period 1 September 2004 to 30 September 2004. However, there was no compulsion on holders to convert in that period. The exercise price of the warrants was $1.70 per warrant, with each warrant converting into one ordinary share.
 In documents provided to the Panel, and confirmed in evidence at the hearing, this change had been initiated some months prior to the annual meeting and arose out of concern by shareholders that Dorchester shares lacked liquidity.
Panel analysis of the Bridgecorp acquisition of interests in Dorchester
The relevant provisions of the Code
 Rule 6(1) of the Code (the fundamental rule) states:
(1) Except as provided in rule 7, a person who holds or controls-
(a) No voting rights, or less than 20% of the voting rights, in a code company may not become the holder or controller of an increased percentage of the voting rights in the code company unless, after that event, that person and that person's associates hold or control in total not more than 20% of the voting rights in the code company:
(b) 20% or more of the voting rights in a code company may not become the holder or controller of an increased percentage of the voting rights in the code company.
(2) For the purposes of subclause (1), if-
(a) a person and any other person or persons acting jointly or in concert together become the holders or controllers of voting rights, that person is deemed to have become the holder or controller of those voting rights:
(b) a person or persons together hold or control voting rights and another person joins that person or all or any of those persons in the holding or controlling of those voting rights as associates, the other person is deemed to have become the holder or controller of those voting rights:
(c) voting rights are held or controlled by a person together with associates, any increase in the extent to which that person shares in the holding or controlling of those voting rights with associates is deemed to be an increase in the percentage of the voting rights held or controlled by that person.
 "Associate" is defined in clause 4 of the Code as:
For the purposes of the code, a person is an associate of another person if -
(a) The persons are acting jointly or in concert; or
(b) the first person acts, or is accustomed to act, in accordance with the wishes of the other person; or
(c) the persons are related companies; or
(d) the persons have a business relationship, personal relationship, or an ownership relationship such that they should, under the circumstances, be regarded as associates; or
(e) the first person is an associate of a third person who is an associate of the other person (in both cases under any of paragraphs (a) to (d)) and the nature of the relationships between the first person, the third person, and the other person (or any of them) is such that, under the circumstances, the first person should be regarded as an associate of the other person.
 The operative rule is rule 6 of the Code, the fundamental rule. It provides that a person may not become the holder or controller of voting rights in a code company unless, after that event that person and that person's associates hold or control in total not more than 20% of the voting rights in the code company.
Analysis of the relationship between the parties following the review of evidence
 In the evening of Friday 13 August 2004 King and Petricevic together with executives of Bridgecorp and various advisers met at the offices of Buddle Findlay in Auckland where a number of documents, including the sale and purchase agreement and option deed, were executed.
 Following the execution of these documents Bridgecorp became the holder of 19.99% of the voting rights in Dorchester and King was left with 5.05% of the voting rights. If they are to be aggregated, these shareholding interests held in excess of 20% of the voting rights in Dorchester.
 When arrangements are negotiated over an extended period such as has occurred here and then culminate with the simultaneous signing of sale and purchase agreements as well as, in this case, an option over, and freeze in respect of other shares, then "that event" must comprise the totality of what occurred rather that just the sale and purchase or just the entry into such other commitments.
 The Panel's original resolution (see above), referring to King and Bridgecorp, said that the Panel considered that "… as a result of entering into the Lock-Up they may have become associates for the purposes of rule 4 of the Code..". The Panel has received extensive evidence and submissions on this issue from Bridgecorp and King. It is to be considered in light of a far more informed understanding of all the surrounding circumstances.
 The definition of "associate" in rule 4(1)(d) of the Code refers explicitly to relationships "under the circumstances". For this reason the Panel's summonses for documents requested (in the case of Bridgecorp, with the others being in similar form):
1 All board papers, minutes, correspondence, contracts or agreements, file notes or other documents in any form, (including electronic) concerning the acquisition of any interests in Dorchester Pacific Limited in the period since 1 January 2004; and
2 All correspondence and records in any form (including electronic) of any consideration by anyone bearing upon the change either in the control of or as to significant shareholdings in Dorchester Pacific Limited, Bridgecorp Capital Limited or Bridgecorp Holdings Limited from 1 January 2004.
 The documents provided under summons by Bridgecorp and the other parties covered these areas and addressed these issues. They have all been taken into account by the Panel in reaching its determination.
 Aggregating the level of voting control of associates with that of the acquiring shareholder is an important part of making the fundamental rule, rule 6, work. Once someone controls shares they are in a position to influence the governance of the code company. While the Code's primary emphasis is on the controller of shares, it is important to aggregate the holdings of associates with those of the primary acquiring controller to get a proper measure of the primary controller's true influence over or interest in the company.
 In considering in each case whether a relationship exists, all facets of the relationship between the parties must be considered, particularly taking into account the provisions of rule 4(1)(d). While the focus is on the relationship between King and Bridgecorp, it should always be borne in mind that the Panel is considering the nature of the relationship Bridgecorp, the largest shareholder in the company, has with King, where that shareholder and King together hold in excess of 20% of the voting rights in Dorchester. Associate status cannot be negatived merely by a contractual acknowledgement that the prospective purchaser will not control the voting rights until the prospective purchase is made (as the option deed effectively provided here).
 The Code has set the level of 20% of voting control as being the level above which one of the Code mechanisms must be used before additional voting rights can be obtained. This level is deliberately set at a level which in most cases is below where effective control begins. In the case of Dorchester, where the next largest shareholder has approximately 9% of the voting rights, a parcel of 25% might possibly confer effective control on the holder. That was the observation in O'Sullivan's memorandum to his directors of 10 August 2004, although it was later qualified in evidence. A price of $4.00 per Dorchester share certainly seems to include a premium, when the shares had been trading at around $2.85 per share. The Bridgecorp directors recognised it as a premium for control. The additional 5.9% held by King could be very significant in terms of the effective control of Dorchester.
 An analysis of the relationship between the parties for the purposes of rule 4(1)(d) of the Code involves both the documented contractual position, and all the other circumstances relevant to their dealings with each other in relation to shareholding interests in Dorchester.
 As to the contracts, the agreement for sale and purchase contained much more than a simple buy and sell contract. Its provisions included several significant forward looking requirements:
(a) A separate employment commitment. This gives rise to ongoing obligations owed to the purchaser by King as CEO of the company whose shares were in issue covered in the period to 31 March 2005.
(b) A restraint of trade - preventing any competition with Dorchester's business for six months after leaving its employment.
(c) A restraint on buying any more shares in Dorchester for a period of 12 months.
(d) An explicit link to the other obligations assumed under the option deed.
 All these provisions have an on-going effect and are demonstrative of an ongoing relationship between Bridgecorp and King.
 The contemporaneous option deed is also very significant. To the extent that the description of a contract as a "lock-up" has developed as a term of art in relation to positions negotiated ahead of takeover offers, the present contract falls outside what the Panel identifies as the criteria for such "lock ups". The use of the label is not helpful in analysing the effect of this document on the Bridgecorp/King relationship. Its material elements included:
(a) The payment of $600,000;
(b) A standstill or freeze of King's shares;
(c) An option for Bridgecorp to purchase all or part of 5.05% of Dorchester shares at $3.30 per share.
(d) A relatively long time frame. The option is open for exercise for 10.5 months until 30 June 2005, and can be exercised in respect of all or any of the frozen shares.
(e) The possibility of a future takeover but no commitment. In the event of a takeover offer at not less than $3.30 per share, King was committed to accepting the offer.
 The Panel comments more generally on lock-ups arrangements <below> [The Panel has indicated that lock-up arrangements are permissible under the Code.].
 The payment of $600,000 was notionally to accept constraints freezing the shares in King's hands for some 10.5 months and to give Bridgecorp an option to buy the shares. The evidence at the hearing showed that the $600,000 payment was calculated to approximately make up the difference in price between the $4.04 paid for the shares being purchased contemporaneously, and the floor price for the purchase of any of the frozen shares, namely $3.30.
 King's evidence was that Bridgecorp wanted him to retain a shareholder commitment, to have "skin in the game". Counsel for King argued that the payment showed that King was free from any need to support Bridgecorp into the future as the deal had already delivered all the benefits he could reasonably expect. The reality is that King had not yet exited his shareholding and was committed to an option to Bridgecorp and could not encourage anyone else to acquire any interest in Dorchester shares. Therefore at least indirectly these provisions incentivise the CEO to work with Bridgecorp as the major shareholder.
 These contracts certainly qualify the parties to them as having a business relationship, and probably an ownership relationship, that relates to shares in Dorchester. These contractual provisions commit the parties to an ongoing relationship in respect of the King shareholdings. They derive out of dealings contemplating a change in control, and are sufficient on their own for the Panel to consider King and Bridgecorp as associates under rule 4(1)(d).
 However, the full assessment of the relationship that is appropriate under rule 4(1)(d) should also take account of all the circumstances surrounding the relationship between the parties. In this case, those circumstances substantially strengthen the grounds for attributing associate status to the Bridgecorp/King relationship. They give colour and context to the formal ongoing commitments that draw the parties considerably closer in relation to their respective interests in Dorchester shareholdings.
 For instance, the circumstances in which Bridgecorp and King jointly advanced procurement by Bridgecorp of interests in the parcel totalling 25% of Dorchester. King can be inferred to appreciate the significance to Bridgecorp of securing shares plus option rights over "a package" relating to 25%, and had extensive involvement in seeing that that was achieved. King appeared to have been responsible for securing, and had a direct financial interest in, the proceeds of the nearly 5% of Dorchester shares obtained from the Baker interests.
 Whilst no attention focused on this point at the hearing, this aspect of the relationship might also give rise to a finding that the parties were acting, in respect of the creation of a "package" of shareholding interests for Bridgecorp to acquire, jointly or in concert in terms of rule 4(1)(a). Had other elements of the relationship not drawn the Panel to analyse the presence of an associate relationship under 4(1)(d), this may have featured in a more central way in its reasoning.
 Similarly, there is the completion of the confidentiality agreement regulating disclosure and use of information confidential to Dorchester and the circumstances of the due diligence that subsequently occurred. Providing due diligence may of itself be no more than a conventional part of an arms length negotiation that does not alter the completely separate interests of vendor and purchaser.
 Without forming a view on relatively how sensitive the information disclosed was, or whether its disclosure was at or beyond the boundaries of the obligations owed by King to Dorchester, the provision of recent board papers and other non-public information, in the context of discussions about the company's prospects is relevant. The information provided to Bridgecorp included details of Dorchester's 2005 Business Plan. This is especially relevant when the purchaser was requiring the vendor to retain a stake in the company but subject to a freeze and the grant to the purchaser of an option, which infers recognition of ongoing obligations.
 The provision of confidential information reinforces the relationship between Bridgecorp and King and is even possibly relevant to the final pricing achieved (including the price under the option agreement fixed for a minimum period of 10.5 months).
 Considerable attention focused on proposals that King would procure a board seat on the Dorchester board for a Bridgecorp nominee. At the outset, this was described as a critical condition from Bridgecorp's perspective. With full knowledge of the Dorchester processes, and what would be involved, King was sufficiently confident of his ability to procure this that he was prepared to repay $500,000 of the purchase price for the shares, for each month he was unable to do so. It was removed from the agreement for sale and purchase at a late stage, in part at least because its inclusion was initially seen as "dangerous", probably on account of the inference of association that it could readily lead to. Bridgecorp Finance Director O'Sullivan was commercially realistic in his evidence, acknowledging that Bridgecorp still had a reasonable expectation that a board seat would be offered, implicitly expecting King's support in that, without anticipating that there would be any impropriety in King doing so.
 As with many parts of the ongoing relationship between Bridgecorp and King, how it might otherwise have played out has been disrupted by the attention given to it by virtue of the Panel's inquiry.
 Even if in the end there was no more than an acknowledgement by King of Bridgecorp's expectation of a board seat (and the Panel is inclined to think there is more), in the context of what had gone before, it adds another dimension to the relationship the parties contemplated when the agreement for sale and purchase was completed, and in respect of the ongoing situation thereafter.
 All of the negotiations were facilitated by the joint appointment of Cairns, as broker for both parties. Cairns was paid a commission by both King and Bridgecorp (in the full knowledge of the other) to facilitate negotiations, due diligence and completion for both sides. Whilst that may well be the way in which many straight sale and purchase transactions are negotiated, in the context of all other elements of this negotiation and the ongoing relationship, it gives further flavour to the way the business relationship was established.
 The Panel has carefully considered all of the wide-ranging and thorough submissions presented against any finding that the parties should be treated as associates for the purposes of the Code following completion of the transactions.
 The relationship between Bridgecorp and King was suggested in evidence and submissions as having elements of mutual distrust, without any ongoing mutual interest, and where King had already derived all the benefits from the deal he reasonably expected, so as not to be incentivised to co-operate further with Bridgecorp. The commitment to remain at Dorchester and not to compete with it was described as a matter of indifference to King, as he had every intention of doing just that.
 There is another view. It could be considered that the sale of the bulk of his stake, and the prospect of a new direction for Dorchester under Bridgecorp's influence, signals the probability of a complete exit for King. That was certainly an issue for Bridgecorp and was one motivation to get independently enforceable commitments that he stay for a defined period. On that view, the ongoing elements of the transaction may indeed incentivise King to ensure that Bridgecorp see their investment in positive terms and complete his take out by their acquiring his remaining shares in a takeover offer.
 Importantly, King has been paid $600,000 for an option over a further 5% of the shares for some 10.5 months, and to freeze his shareholding position at that level. The ongoing contractual provisions mean that the relationship is not at an end. He has a common shareholding interest in Dorchester (he has warrants and shares not covered by the option deed) and is chief executive officer. A relationship of trust and co-operation will not always be a pre-requisite to associate status. If separate commercial objectives cause parties to interact on terms that are relevant to their shareholding interests in the target company, then depending on all the circumstances, they may well be associates.
 It was also argued that the disclosure of confidential information by King to Bridgecorp was just to get Bridgecorp to commit to buy and did not imply any form of association between the parties. That may well be valid if seen in isolation. However, as a part of all the factual circumstances where the purchaser was buying from the managing director/CEO, and requiring him to remain, the sharing of confidential information that appears to have focused on the company's prospects provides an additional context to their dealings and relationship.
 Many of the arguments against these various factual matters constituting indications of an associate relationship were at their most persuasive when argued in isolation. However, in the end, the Panel stands back and views their overall combined impact. Cumulatively, in the circumstances of this case, they are elements of the relationship that provide strong support for the conclusion reached by the Panel.
 Further arguments were advanced that the essence of any relationship between Bridgecorp and King was reflected in the so-called lock-up, and that such agreements have been used in the past, without objection from the Panel. However, there are a number of important distinctions between the present situation, and what the Panel would see as the conventional features of any "lock-up".
 The Panel has indicated that lock-up arrangements are permissible under the Code. The key components of a lock-up that the Panel is referring to are:
(a) A commitment to make a code-compliant offer;
(b) A commitment to accept the offer when made for all the shares held;
(c) A commitment to relatively short time frames; and
(d) No acquisition of voting rights except pursuant to the Code-compliant offer.
 The fact that such lock-up arrangements are permitted does not mean that the parties to them are not associates under the Code. The lock-up will generally constitute the parties as associates. The Panel is comfortable that a lock up as described above does not of itself contravene the Code where it is entered into in anticipation of a Code offer that the offeror commits to, and which is to be made on the same terms to all shareholders. The parties are probably associates, but will not breach the Code if no acquisitions occur pending the making of the offer. It is the acquisition of voting rights, as occurred here, that will bring into question compliance with rule 6 of the Code.
 In the present case there is no commitment by Bridgecorp to make a Code compliant offer. Instead, the 5% of shares are "frozen" for 10.5 months, with Bridgecorp having an entitlement to acquire all or part of them in any circumstances. Bridgecorp has paid $600,000 for that option, which is intended to more or less equate to the difference between the $4.04 paid for the first 15% of King's shares, and $3.30 as the contemplated floor price for any subsequent offer (arguably the control premium enjoyed by King for the 25% of shares he could deliver to Bridgecorp). In that respect, the option agreement is a device that would deliver differential returns to one shareholder.
 It also takes a further 5% (above the 19.9% threshold) out of play for all purposes in relation to a company where the purchaser perceived that 25% might be sufficient to exert effective control. These features are to be seen in the context of other ongoing commitments between the parties, as recorded in the agreement for sale and purchase.
 The Panel's conclusion is that Bridgecorp and King became associates through the process of entering into the option deed and associated contracts with the accompanying commitments, expectations and common interests, and remain as associates. Accordingly the Panel is satisfied that by its acquisition of 19.99% of the voting shares of Dorchester on Friday 13 August 2004 Bridgecorp contravened rule 6(1) of the Code because after the acquisition Bridgecorp and its associate King held or controlled more than 20% of the voting rights of Dorchester.
The Panel determined that it was not satisfied that Bridgecorp Capital Limited and its controlling shareholder Bridgecorp Holdings Limited had acted in compliance with the Takeovers Code in the acquisition of 19.99% of the voting rights of Dorchester Pacific Limited from Brent Douglas King and the Baker interests on Friday 13 August 2004.
The second issue considered by the Panel was whether Brent Douglas King, by acquiring some 0.9% of the voting shares in Dorchester Pacific Limited from Alexander Eric Vink and Natasha Maree Vink between Thursday 12 and Monday 16 August 2004, did not comply with rule 6(1) of the Code because at the time of the acquisition he was an associate of Bridgecorp Capital Limited and King and Bridgecorp Capital Limited between them held or controlled more than 20% of the voting rights of Dorchester Pacific Limited.
Acquisition of shares by King from the Vink children
 In a substantial security holder notice filed with the NZX on Monday 16 August 2004 King disclosed that he had a beneficial interest in 5.93% of the voting rights of Dorchester, having held 20.14% at the time of his previous notice. His notice disclosed that he had sold shares, through his various companies, to Bridgecorp, but had also purchased shares from "A E Vink and N M Vink".
 In the preceding section the Panel concluded that Bridgecorp and King became associates through entry into the various contractual and other arrangements, expectations, understandings and common interests surrounding Bridgecorp. These events crystallised on Friday 13 August 2004.
 Before the entry into these various transactions King had just over 20% of the voting rights in Dorchester. As such he was not free to acquire any further voting rights in Dorchester without complying with the Code.
 Vink is an IT consultant who has worked for Dorchester for some 15 years. He estimated that about 50% of his time is spent on Dorchester work. The evidence given by Vink was that on Wednesday 11 August 2004, during the course of a discussion with King on another matter, King had mentioned to him that he was in the process of selling a significant portion of his investment in Dorchester. Vink said that he had decided that if King was leaving the company he should sell his children's shares also. On Thursday 12 August Vink said that he and King had made a verbal contract to sell the children's shares to King for $3.30 per share, conditional upon King first selling a significant portion of his shares.
 Once the sale of King's shares took place on Friday 13 August his contract with Vink became unconditional. Settlement took place on Monday 16 August at which time it was announced to the market.
 King's explanation for the transaction was that he decided close to settlement time that he needed more unencumbered Dorchester shares in order to fulfil his commitments to Bridgecorp under the sale and purchase agreement and option deed. However it is a condition of the sale and purchase agreement between King and Bridgecorp that he not buy any further Dorchester shares. King's acquisition of Dorchester shares from the Vink children seemed to be have been carried out without Bridgecorp's knowledge. If the acquisition had taken place before 13 August 2004 this would have been a direct breach of rule 6 because King already controlled in excess of 20% of the voting rights in Dorchester prior to 13 August 2004.
 The Panel is satisfied that after King acquired shares from the Vink children, assuming the time of acquisition was after the other contracts were executed on Friday 13 August 2004, he was an associate of Bridgecorp and in aggregate King and his associates held more than 20% of the voting rights of Dorchester.
The second determination
The Panel determined that it was not satisfied that Brent Douglas King acted in compliance with the Takeovers Code in his acquisition of voting shares in Dorchester Pacific Limited from Alexander Eric Vink and Natasha Maree Vink during the period Thursday 12 August 2004 to Monday 16 August 2004.
 The Panel held over the issue of remedies for further consideration. At the time that the Panel issued its determination it resolved, in terms of section 32(4)(b) of the Act, to continue in force the following restraining orders it had first made on 30 August 2004:
(a) Continuing to restrain King from:
(i) acquiring any voting shares in Dorchester or any interest in or rights relating to such voting shares;
(ii) disposing of any voting shares in Dorchester or any interest in or rights relating to such voting shares;
(iii) exercising or permitting the exercise of any of the rights to vote attaching to any of the voting shares in Dorchester which he holds or controls or any other right attaching to such voting shares;
(b) Continuing to restrain SnowdonPeak from:
(i) acquiring any voting shares in Dorchester or any interest in or rights relating to such voting shares;
(ii) disposing of any voting shares in Dorchester or any interest in or rights relating to such voting shares;
(iii) exercising or permitting the exercise of any of the rights to vote attaching to any of the voting shares in Dorchester which it holds or controls or any other right attaching to such voting shares;
(c) Continuing to restrain Bridgecorp Capital Limited from:
(i) acquiring any voting shares in Dorchester or any interest in or rights relating to such voting shares;
(ii) disposing of any voting shares in Dorchester or any interest in or rights relating to such voting shares;
(iii) exercising the right to vote attaching to all the voting shares in Dorchester which it holds or controls or any other right attaching to such voting shares;
(d) Continuing to restrain Dorchester from issuing or allotting any voting shares to:
(i) Bridgecorp Capital Limited;
(ii) Bridgecorp Holdings Limited;
(v) A E and N M Vink;
(vi) Askridge Holdings Limited;
(vii) Fulcrum Securities Limited; or
(viii) AIS Limited.
All these continuing orders are to expire at the close of Wednesday 29 September 2004.
 As recorded in the determination, the Panel will deal with costs separately in terms of the Takeovers (Fees) Regulations 2001.
DATED at Auckland this 14th day of September 2004
SIGNED for and on behalf of the Panel by the Chairperson
J C King