Bolnisi Gold NL, in the matter of Bolnisi Gold NL [2007] FCA 1668

Merger Implementation Agreement 7 On 3 May 2007, Bolnisi and Coeur entered into a merger implementation agreement (MIA) under which they agreed, subject to various conditions precedent, including Bolnisi shareholder approval and Court approval, to merge their businesses by way of scheme of arrangement. 8 Coeur also entered into a merger implementation agreement with Palmarejo Gold and Silver Corporation (Palmarejo) under which Coeur agreed to acquire those shares in Palmarejo that are not already owned by Bolnisi. The Scheme is conditional upon the Palmarejo Plan of Arrangement becoming effective under Canadian law, but Coeur is entitled to waive this condition within five business days following the Scheme meeting. 9 Implementation of the Scheme is also subject to: · Approval by Coeur shareholders on 3 December 2007 of a resolution increasing Coeur's share capital; · The passing by Bolnisi shareholders at Bolnisi's annual general meeting on 4 December 2007 of a resolution changing Bolnisi's status from a no liability company to a proprietary company limited by shares; and · Foreign Investment Review Board (FIRB) approval, an application for which was lodged on 10 August 2007. On 11 September 2007 the FIRB issued a letter to Coeur's solicitors, Freehills, to the effect that there were no objections to the Scheme in terms of the Australian Government's foreign investment policy.

Options 10 The directors of Bolnisi, or, where relevant, their associates on their behalf, have entered into Option Deeds with Coeur, under which Coeur will have an option to buy the shares in Bolnisi in which the directors or their associates have an interest. In summary, the effect of the Option Deeds is that if Coeur does not acquire 100 percent of the shares in Bolnisi by reason of the Scheme, it will nonetheless have the right to call for a transfer to it from Bolnisi directors and their associates of shares amounting to 19.99 percent of all Bolnisi's shares. The existence and effect of the Option Deeds are disclosed in the Scheme Booklet.

Cash and scrip components of the Scheme consideration 11 Under cl 5.2 of the Scheme, on the business day prior to the Implementation Date, Coeur is to deposit in cleared funds an amount equal to the aggregate amount of the cash component of the Scheme consideration into a trust account operated by Bolnisi as trustee for the Scheme Shareholders, to be held by Bolnisi on trust for them (except that any interest on the amounts deposited, less bank fees and other charges, is to be to Coeur's account). On the Implementation Date, Bolnisi is to pay the cash component to the Scheme Shareholders from the trust account. 12 In relation to the scrip component of the Scheme consideration, under cl 5.3 of the Scheme, on the Implementation Date the names of the Scheme Shareholders are to be entered in the shareholder register of Coeur, and uncertificated holding statements are to be despatched to them representing the total number of Coeur shares issued to them. There is an alternative procedure that is to be followed where Bolnisi shareholders elect to receive CDIs (see cl 5.3(a)(2) of the Scheme). 13 Accordingly, the Scheme consideration must be provided before the Bolnisi shares are transferred, and there is no question of the Bolnisi shareholders being divested of their shares and being left to sue Coeur for the outstanding consideration. 14 The Scheme will become effective on the date on which an office copy of the Court order approving the Scheme under s 411 of the Act is lodged with the Australian Securities and Investment Commission (ASIC): s 411(10) of the Act. 15 Coeur will be obliged to implement the Scheme, not only by reason of the MIA, but also by reason of a Deed Poll executed by it in favour of each Bolnisi shareholder, by which Coeur again undertakes to comply with and perform its obligations under the Scheme, and in which Coeur acknowledges that the Deed Poll may be relied upon and enforced by any Bolnisi shareholder.

ASIC 16 There was before the Court the "usual letter" from ASIC indicating that it did not wish to appear at the first court hearing or to make any submissions in opposition to the making of an order for the convening of the Scheme meeting. Section 411(2)(a) was complied with, and I was satisfied that ASIC had had a reasonable opportunity to do the things referred to in s 411(2)(b) of the Act.

Independent expert's Report 17 There was before the Court a report by Mark Pittorino and Stephen Reid of Deloitte Corporate Finance Pty Limited (Deloitte) verified by affidavit by Mr Pittorino to the effect that the Scheme is fair and reasonable and is therefore in the best interests of shareholders of Bolnisi. Deloitte's report incorporates a report by Neil Prenn of Mine Development Associates (MDA) of Nevada. Mr Prenn has verified his report by affidavit. His report concerns Bolnisi's financial model for the Palmarejo project located in Chihuahua, Mexico, undertaken by Palmarejo. Mr Prenn concludes that Bolnisi's financial model's production requirements and operating cost estimates largely agree with those of MDA.

Investigating accountant's report 18 Stephen John Board, Chartered Accountant, of KPMG, provided a verified report on his review of historical financial information related to Bolnisi that is set out in sections 8.3.2 to 8.3.4 of the Scheme Booklet. He reported that nothing had come to KPMG's notice suggesting that that information did not represent fairly the relevant historical financial performance and historical financial position of Bolnisi, during the periods and as at the dates specified, in accordance with the relevant Australian Accounting Standards.

Section 3(a)(10) of the Securities Act 1933 (US) 19 The Coeur shares to be issued as the scrip part of the Scheme consideration are to be issued pursuant to an exemption from United States securities registration requirements. The exemption is provided by s 3(a)(10) of the Securities Act 1933 (US). That provision exempts from the general requirements of registration securities that are issued in exchange for one or more bona fide outstanding securities, where the fairness of the terms and conditions of the issue and exchange of the securities have been approved by any court or authorised governmental entity, after a hearing upon the fairness of the terms and conditions of exchange at which all persons to whom the securities are to be issued have the right to appear and to whom adequate notice of the hearing has been given. 20 Notice of the second court hearing will have been given to Bolnisi shareholders prior to that hearing. 21 Bolnisi drew this matter to the attention of the Court so that the Court would be aware at the earliest stage that if it should ultimately approve the Scheme, Bolnisi proposes that the approval would be relied on by the United States Securities Exchange Commission for the purposes of s 3(a)(10) of the Securities Act 1933 (US). Approvals have been given at the second court hearing in similar circumstances in connection with a number of previous schemes: see the discussion by Jacobson J in Re Solution 6 Holdings Ltd (2004) 50 ACSR 113 at [37]-[45], and the earlier authorities to which his Honour there referred.

Warranty of freedom from encumbrances 22 By cl 8.2(b) of the Scheme, the Bolnisi shareholders are deemed to warrant to Coeur that the shares the subject of the transfer to Coeur Australia will be unencumbered and that the shareholders will have full power and capacity to transfer them to that company. The attention of Bolnisi shareholders is drawn to the deemed warranty in the Scheme Booklet. I have no difficulty with such a deemed warranty: see Re APN News & Media Ltd (2007) 62 ACSR 400 at [57]-[63].

"No Shop" and "Break Fee" Provisions 23 Clause 12 of the MIA is headed "Exclusivity" and may be described as containing a "no shop" provision. Clause 13 of the MIA, headed "Payment of costs", may be described as providing for a "break fee". There is a "fiduciary carve out" from cl 12. The maximum period during which the no shop provision can operate is the period of seven months from the date of the MIA, that is to say, the period from 3 May 2007 to 3 December 2007. 24 The amount of the break fee is US$7.78 million. Interestingly, as counsel for Bolnisi observe in their submission, in this case the break fee is "reciprocal", that is to say, the break fee is payable by Coeur, as well as by Bolnisi, in the circumstances set out in the MIA. Of course the break fee is not payable by Bolnisi merely because its shareholders do not agree to the Scheme. 25 I discussed no shop and no talk and break free provisions in Re APN News & Media Ltd (2007) 62 ACSR 400 at [25]-[55] and in Re Investa Properties Ltd [2007] FCA 1104 at [31]-[35]. In the present case, Norman Alfred Seckold, the Chairman and a Director of Bolnisi, states as follows in his affidavit of 25 October 2007: 22. Clause 12 of the Merger Implementation Agreement between Bolnisi and Coeur ... is an exclusivity provision which provides that, during the exclusivity period, competing third party proposals are not to be sought and discussions or negotiations may not be entered into in relation to a third party proposal. Clause 12 also provides that if third party proposals are received by a party, that party must notify the other party at least 48 hours before the Board of Bolnisi or Coeur (as applicable) recommends acceptance to their shareholders. 23. Clause 13 of the Merger Implementation Agreement is a break fee provision that enables either Bolnisi or Coeur to compensate the other party a break fee of US$7.78 million within 10 days of a demand for payment if certain events occur. 24. Both clauses 12 and 13 of the Merger Implementation Agreement were agreed between Bolnisi and Coeur following arm's length commercial negotiations over a period of one month. Both parties were separately advised and represented in such negotiations by external legal advisers and by external financial advisers, with extensive experience of transactions of this kind. Bolnisi received legal advice from Minter Ellison on the operation of both provisions and that Bolnisi had regard to the Takeovers Panel Guidance Note 7 in the negotiations set out above. 25. I believe that the no shop, no talk and exclusivity provisions do not operate against the interests of Shareholders and it was in their interests that the board of Directors determined to include such provisions. 26. Clause 12.5 of the Merger Implementation Agreement provides for a fiduciary carve-out from the exclusivity provisions in clause 12 with the effect that the exclusivity provisions do not apply where any failure to respond to a third party proposal would be likely to constitute a breach of the Director's fiduciary and statutory obligations. 27. The break fee of US$7.78 million represents approximately 0.67% of the implied value of the total consideration offered by Coeur to Shareholders. The break fee of US$7.78 million also represents approximately 0.68% of the equity value of Bolnisi's shares. The amount of the break fee is below the 1% of equity value referred to at paragraph 7.14 in the Takeovers Panel Guidance Note 7: Lock Up Devices. 26 This affidavit evidence comfortably satisfied me that the present no shop and break fee provisions should not stand in the way of the Court's ordering Bolnisi to convene a meeting of its shareholders to consider the Scheme.

Verification 27 A process of verification of the content of the Scheme Booklet was undertaken by each director of Bolnisi, and a process of verification of relevant parts of that content was undertaken on behalf of Coeur. Mr Seckold has provided affidavit evidence as to the former, and Kelli Catherine Cast, Vice President, General Counsel and Corporate Secretary of Coeur, provided affidavit evidence as to the latter.

Condition subsequent 28 It is envisaged that the Palmarejo Plan of Arrangement will become effective on the following day (6 December 2007) after this Court grants, if it does, its approval to the Scheme on 5 December 2007. In Re NRMA Ltd (2000) 33 ACSR 595, Santow J had to consider the position of a condition subsequent to which a scheme of arrangement was subject. Although it could not be known whether the condition subsequent would be satisfied until after the approval of the Court was granted, his Honour held that the presence of the condition subsequent was no obstacle to the Court's approval of the Scheme. 29 Santow J distinguished a condition subsequent that was clear, certain and self executing, from a provision for a variation of a scheme. His Honour stated (at 647): Clarity and certainty are thus the touchstones. Provided that clarity and certainty are present on the face of the scheme and no new decision making process intrudes after court approval, it does not matter that different results may emerge in different (but clearly identified) eventualities. A key question is whether the scheme is, according to its own terms, self-executing in the sense that certain results follow in certain defined events.

30 In my view, the present condition subsequent, that is to say, the Palmarejo Plan of Arrangement becoming effective under Canadian law, satisfies this test. I do not think that Santow J's reference to a "new decision making process" is apt to catch the Canadian decision making processes, extraneous to this Scheme, that will be involved in the Palmarejo Plan of Arrangement becoming effective.

Chairing of Scheme meeting 31 Before the hearing, affidavits were filed stating the matters referred to in r 3.2 of the Federal Court (Corporations) Rules 2000 (Cth). Mr Seckold, and failing him, Peter James Nightingale, a Director and Company Secretary of Bolnisi, have consented to chair the Scheme meeting.

Other matters 32 Counsel's submissions addressed other matters of detail on which I was also satisfied. I will have a copy of counsel's submissions placed on the Court file so that that will be available to be read by anyone interested.

CONCLUSION 33 For the above reasons I considered that Bolnisi shareholders should have the opportunity of considering the Scheme and if they think fit, of agreeing to it, and I made the orders mentioned on 25 October 2007 accordingly. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate: Dated: 2 November 2007 Counsel for the Plaintiff: Mr I M Jackman SC and Mr D J Mackay

Solicitor for the Plaintiff Minter Ellison

Counsel for the Coeur d'Alene Mines Corporation: Mr R A Dick

Solicitor for the Coeur d'Alene Mines Corporation Freehills

Date of Hearing: 25 October 2007

Date of Judgment: 25 October 2007

Date of Publication of Reasons: 2 November 2007