Vault Options
55 Vault has issued a number of options to subscribe for shares in Vault to its employees, executives and directors as follows:
(a) 4,090,000 options issued to employees pursuant to the employee incentive plan (Employee EIP Options);
(b) 1,750,000 options issued to Mr Todd Perkinson, Mr Miguel Nasar and Mr Verdon Kelliher (who are non-director executives of Vault) (Executive EIP Options);
(c) 3,300,000 options issued to Mr Ross Jenkins and Mr Robert Kirtlan (who are non-executive directors) (Non-Executive Director Options); and
(d) 5,200,000 options issued to Mr David Moylan and Mr David Rose (who are executive directors) (Executive Director Options).
56 As noted earlier, the options are not quoted on the ASX or any other financial market. The options are governed by the terms which accompanied the options when they were issued. In essence, if the options vest in the holder (which is dependent on satisfaction of stipulated vesting conditions), they entitle the holder to acquire a fully paid ordinary share in Vault on a one for one basis.
57 The Employee EIP Options and the Executive EIP Options were issued under the Vault employee incentive plan. The Non-Executive Director Options and Executive Director Options were issued on stand-alone terms approved by Vault Shareholders, other than 700,000 which were issued to David Rose and Robert Kirtlan in 2017 under the employee incentive plan.
58 One of the conditions precedent to the Scheme coming into effect is that, before 8:00 am on the second Court date, each holder of a Vault option has entered into an agreement with Vault and Damstra to deal with their Vault Options on terms acceptable to Vault and Damstra (each acting reasonably), such that no Vault options are in existence from the implementation date. On 8 July 2020, Vault and Damstra entered into an agreement in relation to this condition precedent. Clause 2.1 of this agreement sets out a number of terms which must be reflected in the individual agreements referred to in the condition precedent.
59 In relation to the Employee EIP Options, each optionholder has accepted an offer from Vault that, subject to the Scheme becoming effective, each of those options will be cancelled prior to the Scheme implementation date in return for a cash payment of $0.42 less the exercise price of the relevant options. This cash consideration will be paid within one business day of shareholder approval of the proposed Scheme, bringing forward the exercise period and providing certainty of value for the holders of those options. The cash payment of $0.42 is slightly less than the implied value of the consideration for each Vault share under the Scheme calculated immediately prior to the announcement of the Scheme. Taking the closing price of Damstra shares on 6 July 2020 (being the last trading day prior to the announcement of the Scheme), which was $1.345, and dividing by the exchange ratio of 2.9 new Damstra shares for each Vault share, generates an implied value of the Scheme consideration of $0.464.
60 In relation to the other three categories of options, Vault intends to enter into agreements with the holders of those options providing that, if the Scheme becomes effective, these options will be exchanged on the implementation date for Damstra options on the following terms:
(a) the exchange ratio will be 1 new Damstra option for every 2.9 Vault options held;
(b) the new Damstra options will be subject to the same vesting conditions as the Vault options for which they are exchanged;
(c) the new Damstra options are to have the same expiry date as the Vault options for which they are exchanged; and
(d) the exercise price for each new Damstra option will be equal to the exercise price of the relevant Vault options for which it is exchanged, multiplied by a factor of 2.9 (rounded down to the nearest cent).
61 ASX Listing Rules 6.23.2 and 6.23.4 require shareholder approval for certain actions in relation to options. In particular, ASX Listing Rule 6.23.2 requires shareholder approval for the cancellation of options for consideration, and ASX Listing Rule 6.23.4 prohibits the making of a change in relation to options, not otherwise prohibited by ASX Listing Rule 6.23.3, without obtaining approval from the holders of ordinary securities in the company. Vault is liaising with the ASX in relation to these matters, and has applied for a waiver from the requirements of shareholder approval to the extent necessary.
62 The proposed treatment of the Vault options pursuant is disclosed in section 4.8 of the Scheme Booklet.
63 Two questions arise for consideration in relation to the options held by employees and directors.
64 The first question is, in so far as any optionholder is also a shareholder, whether the proposed transactions relating to the options held by that person directly or indirectly confer additional benefits as a result of the Scheme that will not be enjoyed by other shareholders pursuant to the Scheme such that the optionholder and the other shareholders do not have a common interest when meeting to consider the Scheme. Sub-sections 411(1) and (4) of the Act refer to a compromise or arrangement between, relevantly, members or a class of members. The word "class" is not defined in s 411. As observed by Bowen LJ in Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583:
The word 'class' is vague, and to find out what is meant by it we must look at the scope of the section, which is a section enabling the court to order a meeting of a class of creditors to be called. It seems plain that we must give such a meaning to the term 'class' as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to a common interest
65 In my view, s 411 does not require any of the optionholders to be treated as a separate class of shareholder. The optionholders who are also Vault shareholders will participate in the Scheme on the same basis and receive the same consideration as Vault shareholders who are not optionholders. The Employee EIP Options will be exchanged for cash consideration at a rate slightly less than the implied value of the consideration for each Vault share under the Scheme calculated immediately prior to the announcement of the Scheme. All other Vault options will be transferred to Damstra options on their existing terms, which will entitle the optionholders to acquire shares in Damstra having the same rights as all other shareholders.
66 The second question is, in so far as any optionholder is a director, whether the proposed transactions relating to the options held by the director confer additional benefits as a result of the Scheme such that it would be unfair to shareholders for the director to make a voting recommendation on the Scheme. For the reasons already given, the rights and benefits to be received by the directors on conversion of their Vault option to Damstra options are not such as to make it inappropriate for those directors to make a voting recommendation to members.