REASONS FOR JUDGMENT
1 Before the Court is an application under s 411 of the Corporations Act 2001 (Cth) for orders convening meetings of ordinary shareholders of Barbeques Galore Ltd ('the Company') and holders of options to subscribe for unissued shares in the Company. The Company is incorporated and domiciled in Australia. The Company is a public company with an issued capital. The liability of the holders of shares is limited. The present directors of the Company include Mr Sam Ruben Linz, who is Executive Chairman, and Mr Robert Barry Gavshon, who is Deputy Executive Chairman.
2 Through its subsidiaries, the Company is primarily engaged in the business of selling barbecues, other backyard products and heating products in the United States and Australia. In the United States, the Company, through its subsidiaries, is involved in the retailing, through company owned and franchised stores, of barbecues and related accessories, fireplace equipment and backyard products. In Australia, the Company, through its subsidiaries, is involved in the retailing of barbecues and related accessories, home heaters, outdoor furniture and backyard products through stores that are both owned by the Company and licensed by the company. To a lesser extent, the Company is involved in the manufacture of home heaters, the wholesaling of home heaters and barbecues, and the exporting of barbecues.
3 In November 1997, the Company was admitted to the official list of the National Association of Securities Dealers automated quotation stock market ('NASDAQ'). That stock market is conducted by NASDAQ Stockmarket Incorporated, which is incorporated in the United States of America. American depository shares ('ADS'), each representing an ordinary share in the capital of the Company, are quoted on NASDAQ. The ordinary shares in the capital of the Company represented by ADS, which are quoted and traded on NASDAQ, are held by Westpac Custodian Nominees Ltd ('Westpac'), as custodian.
4 Each ADS represents the right of the holder of the ADS to receive one ordinary share in the Company deposited under a deposit agreement with Westpac. The ADSs are evidenced by American depository receipts, which are issued to holders of ADSs by JP Morgan Chase Bank NA ('the Depository') pursuant to the provisions of a deposit agreement made between the Depository and Westpac.
5 Westpac is the legal holder of the ordinary shares and acts in accordance with the directions of the Depository, which in turn receives directions from the holders of ADSs concerning, amongst other things, the manner in which the shares represented by their ADSs should be voted. The Depository is responsible for day-to-day communications with the holders of ADSs.
6 As at 15 September 2005, the issued securities of the company consisted of 4,683,841 shares, approximately 65 per cent of which are represented by ADSs and 481,540 options to subscribe for unissued shares. The options are exercisable at various prices expressed in the United States dollars. There are eight different classes of options. The options were issued to eligible individuals employed by the Company pursuant to the Barbeques Galore Ltd 1997 Share Option Plan.
7 On 10 August 2005, the directors of the Company announced a transaction under which Ironbridge Capital Pty Ltd ('Ironbridge') would acquire all of the issued shares and options, other than certain excluded shares. Certain shares in the Company represented by ADSs held by Barbeques Galore Incorporated, a subsidiary of the Company, are to be bought back by the Company from Westpac for a total consideration of $10, pursuant to a buyback under s 257A of the Corporations Act 2001 (Cth).
8 Ironbridge proposes to implement the intended transaction through its wholly owned subsidiary BBG Australia Pty Ltd ('BBGA'). The transaction is the subject of an agreement between BBGA and the Company made on 10 August 2005 (the 'Implementation Agreement'). By the Implementation Agreement, the Company agrees to propose a share scheme upon and subject to the terms and conditions specified in the Implementation Agreement and BBGA agrees to assist the Company in proposing that share scheme.
9 The Company agrees by clause 2.2 to use all reasonable endeavours to procure that each option holder enters into an agreement pursuant to which the option holder agrees to be bound by the Option Arrangement, as defined. Option arrangement is defined as meaning an agreement between the Company and option holders in a form agreed by BBGA in writing pursuant to which all options will be cancelled in return for payment of the consideration set out in a schedule to the Implementation Agreement.
10 Clause 3 sets out certain conditions precedent to which the obligations of BBGA are made subject. They relate to regulatory approvals, shareholder approval, option holder approval, Court approval, absence of restraints by courts of competent jurisdiction or other legal restraint, prescribed occurrences and breach of obligations, certain representations and warranties by the Company being true and correct, finance conditions and the consent of the Company's financiers. By clause 3.2(a), the Company and BBGA agree to use their best endeavours to procure that the conditions are satisfied as soon as practicable and that there is no occurrence that would prevent the conditions being satisfied.
11 Clause 4 deals with the circumstances in which the Implementation Agreement will come to an end. By clause 5.1, the Company agrees to take all necessary steps to implement the share scheme and the option scheme as soon as is reasonably practicable. The clause then sets out the steps that it is contemplated will be taken pursuant to that obligation. Under 5.5, BBGA also agrees to take all steps reasonably necessary to assist the Company to implement the schemes as soon as reasonably practicable. The steps contemplated by BBGA are also set out in that clause. Clause 5.6 deals with the discharge of BBGA's obligations to pay or procure payment of the consideration contemplated by the proposed share scheme and the consideration payable pursuant to the proposed option scheme.
12 Clause 11 contains what is sometimes described as a 'break fee'. The Company agrees to reimburse BBGA in respect of its costs, to a maximum amount of $1.2 million, in certain circumstances involving the abandonment of the proposed schemes.
13 The proposal is that BBGA will acquire all of the issued shares in the Company, other than the excluded shares, for $A13 per share pursuant to the proposed scheme of arrangement. In connection with the scheme, it is proposed that any votes cast by Westpac in favour of the buyback will be disregarded in determining whether or not the resolution to approve the buyback is approved. If the buyback is approved, the excluded shares will be bought back on the date the proposed share scheme is implemented and then cancelled. If the share scheme is not approved, the buyback will not proceed.
14 If the share scheme is implemented, BBGA intends that the Company will apply for delisting from NASDAQ. Consequently, the ADS program will be terminated and the Company's reporting obligations under the Securities Exchange Act 1934 of the United States will cease.
15 It is also proposed that the options will be cancelled pursuant to a second scheme of arrangement, in exchange for the payment by BBGA of consideration of $A13, less the exercise price expressed in Australian dollars, of each option converted from United States dollars, using a conversion rate of one Australian dollar to 75 United States cents.
16 Of the eight classes of options, all are presently exercisable, except for two classes. The option plan provides that options that are not presently exercisable will become exercisable immediately prior to a corporate transaction, which is defined in terms that would include the share scheme becoming effective in accordance with the Corporations Act. Accordingly all options will have become exercisable prior to implementation of the option scheme.
17 It is proposed that there will be three meetings: a meeting of shareholders, for the purpose of considering the share scheme, is to be held at the Company's registered office on 14 October 2005 at 10 am, an extraordinary general meeting of shareholders, to consider the buyback, is to be held at the Company's registered office on that day commencing at 10.30 am or as soon after that time as the share scheme meeting is concluded or has been adjourned, and a meeting of option holders, for the purpose of considering the option scheme, is to be held at the Company's registered office on that date commencing at 11 am, or as soon after that time as the extraordinary general meeting has concluded or has been adjourned. It is proposed that Mr Gavshon, or failing him Mr Linz, or failing both, any director of the Company, be authorised to act as chairman of the share scheme meeting and the option scheme meeting.
18 Two deeds poll are proposed to be entered into by BBGA, in favour of the shareholders and option holders, respectively. The deeds poll are designed to impose enforceable obligations on BBGA to pay the consideration that would be payable to shareholders and option holders, on the assumption that the schemes are approved and become effective. The proposed schemes are conditional upon the satisfaction, or waiver, where applicable, of each of the conditions precedent set out in clause 3.1 of the Implementation Agreement, on or before the time specified in the Implementation Agreement for their satisfaction. They will also be conditional upon neither the Implementation Agreement nor the deeds poll being terminated before 8.00 am on the date of the proposed court hearing for approval of the schemes.
19 Under clauses 5.1 and 5.5 of the Implementation Agreement, the Company and BBGA are obliged, at the Court hearing for approval of the schemes, to provide to the Court a certificate confirming whether all of the conditions precedent, other than those relating to Court approval and conditions that could only be satisfied on or about the date on which the schemes are implemented, have been satisfied or waived. Under clause 3.3(c) of the Implementation Agreement, if option holders do not approve the option scheme by the required majorities under the Act, BBGA may elect to proceed with the share scheme, in which case the Company's and BBGA's obligations to proceed with the option scheme will be terminated.
20 Westpac is, in fact, the only relevant shareholder from a technical point of view in respect of the ADS shares. As a shareholder, Westpac will receive a copy of the proposed share scheme booklet. The Company will also cause to be sent to the Depository sufficient copies of the share scheme booklet for all the ADS holders and for the beneficial holders, for whom certain of the ADS holders hold their ADSs, but who are not registered with the Depository. The Depository will, as soon as practicable after receiving the booklets from the Company on 19 September 2005, cause the booklets, together with a card with specific voting instructions for the share scheme meeting, to be sent to registered holders of the ADSs.
21 The Depository will cause to be sent to non-registered ADS holders, share scheme booklets and instruction cards for non-registered ADS holders by 21 September 2005. It is proposed that the Depository will instruct Westpac to vote for the shares underlying the ADSs, in accordance with the instructions on the instruction cards that it receives from ADS holders and non-registered ADS holders by 7 October 2005. Westpac will then return to the Company a proxy form reflecting those instructions.
22 Included in the proposed booklet is an independent expert's report prepared by WHK Corporate Advisory Ltd ('WHK'). The report runs to some 70 pages. The conclusions of WHK might be summarised as follows:
- The proposed share scheme is in the best interests of the Company's shareholders.
- WHK has calculated a valuation range of from $A11.81 to $A12.56 per share as set out in a section of the report. Since the offer price is $A13, which is above that range, WHK considers that the proposed consideration is fair.
- Having considered the advantages and disadvantages of the scheme to the Company's shareholders, WHK have formed the opinion that the proposed scheme is reasonable.
- WHK also considers that the proposed option scheme is in the best interest of option holders of the Company.
- WHK has assessed that the consideration under the option scheme is fair. A detailed calculation of the value of the options is set out in their report. The consideration proposed is greater than the value assessed.
- Having considered that the option scheme is fair and having considered the advantages and disadvantages of the scheme to option holders WHK have expressed the opinion that the proposed option scheme is reasonable.
The report sets out in some detail the methodology adopted by WHK in reaching its opinion as to value. The report also sets out in some detail the matters that are considered to be advantages and disadvantages to both shareholders and option holders.
23 In the light of that report and of reports from Greenwoods and Freehills and DLA Piper Rudnick Gray Carey as to the taxation consequences of the proposed schemes, I am satisfied that the proposed schemes are such as could rationally be adopted by the persons affected by them.
24 I have had regard to evidence filed on behalf of the Company, consisting of affidavits sworn by David Maurice Glaser, Anthony Gerard Garratt, Robert Barry Gavshon, Sam Ruben Linz, Eric David Narev, Paul Evans and Luke Bradshaw Hastings, together with the exhibits to those affidavits. Certain of the material contained in that evidence is regarded as commercially sensitive and it is appropriate to make an order under s 50 of the Federal Court of Australia Act 1973 (Cth) limiting access to that material.
25 In all of the circumstances I consider that it is appropriate to convene meetings of shareholders and option holders for the purpose of considering the proposed schemes pursuant to s 411 of the Corporations Act.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.