Phillips' optioiffl may mean Pacer breach

Press, 16 August 1988, Page 24

Phillips ' optioiffl may mean Pacer breach

PA Wellington Pacer Kerridge Corp may have breached the Companies Act 1955 by not disclosing in last year’s annual report an option the company’s chairman, Mr David Phillips, held to buy more shares.

Pacer Kerridge told the Stock Exchange on August 4 that Mr Phillips had on July 29 exercised an option under an agreement dated August 29, 1983, for 1,911,764 shares in the company at a price of 50c each.

On that day the company’s shares were changing hands on the sharemarket at 640 c. At those prices it would have cost $12,235,289 to buy the same number of shares that Mr Phillips bought for $955,882. The eighth schedule of the Companies Act’s clause nine requires that a company’s annual accounts should show: "The number, description and amount of any shares in the company which any person has an option to subscribe for, together with the following particulars of the option, that is to say: (a) the period during which it is exercisable. (b) the price to be paid for shares subscribed for under it.”

The Society of Accountants believes the options should have ’ been disclosed in the annual report.

“That issue has a significant effect on other shareholders so you would expect it to be disclosed,” the society’s research and standards board chairman, Mr John Hagen, said.

The 1987 annual report, issued when the company

was known as Pacer Pacific Corp, was given a clean bill of health by its auditors Coopers and Lybrand.

In February, Pacer Kerridge told the Stock Exchange its shares had a net asset backing of 1278 c each.

Using these figures the issue of the 1.9 million shares to Mr Phillips would have reduced the net asset backing of the company’s shares to about 1155 c each.

This effectively means the tangible worth of each share has been reduced by more than 120 c each. The sharemarket has responded to the issuing of these shares by sharply marking down the Pacer Kerridge share price. The price dropped steeply to reach a low of 510 c on Thursday last week before climbing back to 550 c on Friday — but this was still 90c down on the week.

Analysts spoken to in Wellington were annoyed the option to buy the shares had not been disclosed in the annual report. They said without such information it was impossible to do an accurate assessment of the company’s position. Mr Phillips could not be contacted for comment.

The option agreement he held appears to date back to when Pacer Pacific had its 1983 public issue of shares and was listed on the exchange. In those days it was known as National Bloodstock and was a breeder of standardbred and thoroughbred horses. Mr Phillips who was the managing director of the company, was the promoter of that 1983 share issue.

As the promoter of the issue and in consideration for selling as assets to the company, Mr Phillips received 1 million shares in National Bloodstock and an option to subscribe for cash at 50c each shares equivalent to 15 per cent of the company’s capital. The option expired on July 31 this year. The wording of the clause setting out the terms of the Option indicates that it would entitle Mr Phillips to take up shares representing 15 per cent at the time those shares were issued. If it is assumed that this was the option Mr Phillips exercised on July 29, then it appears by waiting until two days before the option expired Mr Phillips was entitled to far more shares than if he had exercised the option earlier.

When the company first appeared on the exchange, it had 6 million shares on issue. Before Mr Phillips’ acquisition of the 1.9 million shares, there were 16.5 million on issue.

The 1.9 million are equivalent to just over 10 per cent of the enlarged issued capital, of more than 18.4 million shares.

Pacer Kerridge was formed last year when Pacer Pacific took over Kerridge Odeon Corp.

The takeover was achieved by Pacer Pacific first buying 50 per cent of Kerridge Odeon and then issuing shares in Pacer Pacific to the remaining Kerridge Odeon shareholders.

The Kerridge Odeon shareholders picked up their Pacer Pacific shares at an effective price of 1500 c each.