Dolby Australia v Catto

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

5494/04 DOLBY AUSTRALIA PTY LIMITED v ROBERT JOHN CHARLES CATTO JUDGMENT 1 HIS HONOUR: This is an application by Dolby Australia Pty Limited ("Dolby Australia") for the Court to approve of its compulsory acquisition of certain ordinary shares in Lake Technology Limited ("Lake"), on certain terms. Lake 2 Lake was incorporated on 12 March 1991. It listed on 3 December 1999. At all relevant times its issued securities have comprised 136,798,417 ordinary shares, and 9,250,000 options to take up shares (at a variety of dates and prices), including some convertible notes that were held by an associated company of Dolby Australia. 3 Lake is a company which has three areas of business. It develops and licences audio technology concerned with the processing of digital sound signals, it sells certain products in the audio industry, and it provides contract engineering services. Relationship of Lake and Dolby 4 Dolby Australia is a company incorporated on 13 October 2003. It is a wholly owned indirect subsidiary of Dolby Laboratories Inc ("Dolby"), a company incorporated in California. Dolby and its related companies have developed signal processing systems, and manufactures professional equipment to implement these technologies in the motion picture, broadcasting, gaming, automotive, internet and music recording industries. Dolby's core technologies, both analogue and digital, are signal processing systems that improve basic sound quality and/or enable multi-channel surround sound. Dolby also licences its technologies for use in consumer products. 5 In 1997 Lake developed a technology known as Lake Personal Surround, which has come to be the technology underlying what is now known as the Dolby Headphone. 6 In October 1998 Dolby entered into a commercialisation agreement with Lake under which Dolby agreed to licence certain Lake technology. This collaboration resulted in the Dolby Headphone technology, which creates the illusion of surround sound by taking audio streams and playing them through headphones in a manner that the brain perceives as surround sound. Lake has granted Dolby exclusive marketing rights for this product, for the life of the patents involved in it or as long as the parties perceive the product to have commercial value, whichever is longer. Dolby markets it to various computer manufacturers and manufacturers of consumer audio products. Lake receives a percentage of the royalties which Dolby obtains from these manufacturers. 7 In 2002, Dolby and Lake extended this arrangement to the commercialisation of a new product, the Dolby Virtual Speaker, which offered a five speaker surround sound experience from only two physical speakers. That product was licensed by Dolby to manufacturers of various consumer items. Again, Lake receives a percentage of the royalties obtained by Dolby from those manufacturers. 8 Lake also has a product known as the VZ Chip, which it licences directly to manufacturers of consumer electronic devices. That product has met significant competition. Finally, it has various items of intellectual property which might possibly have commercial value in the future, but which have not yet been marketed to any significant extent. 9 Lake developed an application of the Dolby Headphone technology, for use in the in-flight entertainment system of airliners. That particular application of the technology was marketed, initially, to airlines by a company called Stellar Group Pty Limited ("Stellar"), but in 2002 Lake transferred responsibility for that marketing programme from Stellar to Dolby. Dolby decided to make the technology available to airlines free, as a marketing tool. Stellar took legal action against Lake alleging breach of its distribution contract, which Lake settled by making a payment to Stellar in May 2004. 10 Dolby has provided some financial support to Lake. Dolby subscribed, in January 2002, for four convertible notes in Lake, each of US$500,000, and due to mature in December 2006. During the year ended 30 June 2003, Dolby converted one of those notes to equity. During the year ended 30 June 2004 Dolby made an interest free advance to Lake of $2,388,000, being a payment on account of future royalties. Dolby Australia's Takeover Bids 11 On 12 November 2003 Dolby Australia served on Lake, The Australian Securities and Investments Commission ("ASIC") and the Australian Stock Exchange ("ASX") a Bidder's Statement relating to an off-market takeover offer for the shares in Lake, at 13¢ per share. At that time Dolby Australia had a relevant interest in 19.9% of Lake's issued shares. The Bidders Statement pointed to consistent losses which Lake had made since it was listed, and to the offering price being above the price at which shares had been trading during the previous six months. 12 On 28 November 2003 Grant Samuel & Associates Pty Limited ("Grant Samuel") prepared an independent expert's report, which Lake incorporated in its Target's Statement dated 4 December 2003. That report concluded that the 13¢ bid price was fair and reasonable. The Lake Target Statement recommended that Dolby's offer not be accepted "at this time", on the ground that there were active discussions with another party which the independent directors believed had reasonable prospects of leading to a higher offer. As things eventuated, no higher offer was made. 13 That takeover offer by Dolby Australia had its time for acceptance extended, and in the course of the offer being on foot, Dolby Australia raised the offer price to 16¢. By the close of that offer, on 16 February 2004, Dolby Australia and its associated companies had come to hold approximately 115.4 million shares, representing 84.38% of the issued capital of Lake. 14 On 25 May 2004 Dolby Australia made a second takeover offer for Lake, seeking to acquire the remaining ordinary shares that it did not already own. The consideration offered was 16¢ per share. The directors of Lake unanimously recommended that shareholders should accept this offer in the absence of a higher offer. During the period that this second takeover offer was running, no higher offer was made. 15 On 18 June 2004 Grant Samuel made another independent expert's report. It was included in a combined Bidder's Statement and Target's Statement, dated 25 June 2004. That report concluded that the offer of 16¢ cash was fair and reasonable. 16 By 16 July 2004 Dolby Australia and its parent had come to hold more than 91% of the ordinary shares in Lake. On 16 July 2004 Dolby Australia issued a Supplementary Bidde's Statement which indicated that if it acquired sufficient shares to hold approximately 96.1% of the ordinary shares in Lake during the takeover offer, or within one month thereafter, it intended to proceed to compulsorily acquire the remaining outstanding shares in Lake under Part 6A.1 of the Corporations Act 2001 (Cth). It also stated that if Dolby Australia did not become entitled to proceed with compulsory acquisition under Part 6A.1 before the end of the takeover offer, it intended to proceed to compulsorily acquire the remaining outstanding shares in Lake under Part 6A.2 of the Corporations Act 2001 (Cth). 17 The second takeover offer closed on 6 August 2004. At that time the Dolby companies held around 93% of the total issued shares in Lake. On 9 August 2004 Dolby Australia announced its intention to acquire the remaining shares in Lake pursuant to section 664A Corporations Act 2001 (Cth). On 9 August 2004 Dolby Australia notified ASX of its intention to proceed to compulsorily acquire the remaining shares in Lake pursuant to section 664A Corporations Act 2001 (Cth). The Relevant Legislative Provisions 18 Part 6A of the Corporations Act 2001 (Cth) contains two different regimes under which compulsory acquisitions and buyouts of securities can occur. Part 6A.1 Division 1 (sections 661A to 661F inclusive) sets out a regime whereby the bidder under a takeover bid may compulsorily acquire securities in the class which was bid for. However a condition for its operation, set out in section 661A(1)(b)(ii), is that the bidder and their associates have acquired at least 75% (by number) of the securities that the bidder offered to acquire under the bid. It was not open to Dolby Australia to use the provisions of Part 6A.1 at the conclusion of its second takeover offer because, even though at the end of the second takeover offer it held a little more than 90% of the ordinary shares, it had not acquired at least 75% of the securities it had offered to acquire under the second takeover bid. 19 A different regime for compulsory acquisition is established by Part 6A.2 Division 1 (sections 664A to 664G inclusive). The regime under Part 6A.2 is capable of applying after a takeover offer, but can also apply in other circumstances. It is the regime established by Part 6A.2 which Dolby Australia invokes in this litigation. The following provisions of the Corporations Act 2001 (Cth) are relevant: " 664A Threshold for general compulsory acquisition power 90% holder - holder of 90% of securities in particular class (1) A person is a 90% holder in relation to a class of securities of a company if the person holds, either alone or with a related body corporate, full beneficial interests in at least 90% of the securities (by number) in that class. … 90% holder may acquire remainder of securities in class (3) Under this section, a 90% holder in relation to a class of securities of a company may compulsorily acquire all the securities in that class in which neither the person nor any related bodies corporate has full beneficial interests if either: (a) the holders of securities in that class (if any) who have objected to the acquisition between them hold less than 10% by value of those remaining securities at the end of the objection period set out in the notice under paragraph 664C(1)(b); or (b) the Court approves the acquisition under section 664F. … 664AA Time limit on exercising compulsory acquisition power The 90% holder in relation to a class of securities of a company may compulsorily acquire securities in that class under section 664A only if the holder lodges the compulsory acquisition notice for the acquisition with ASIC under paragraph 664C(2)(a) within whichever of the following periods ends last: (a) the period of 12 months that started on 13 March 2000; or (b) the period of 6 months after the 90% holder becomes the 90% holder in relation to that class. 664B The terms for compulsory acquisition (1) The 90% holder may acquire the securities in the class for a cash sum only and, subject to subsection (2), must pay the same amount for each security in the class acquired. (2) The 90% holder may pay different amounts for the securities in the class acquired if the differences are attributable to either or both of the following: (a) the fact that there are differences in the accrued dividend or distribution entitlements of the securities; (b) the fact that there are differences in the amounts paid up, or that remain unpaid, on the securities. 664C Compulsory acquisition notice Compulsory acquisition notice

(1) To compulsorily acquire securities under section 664A, the 90% holder must prepare a notice in the prescribed form that: (a) sets out the cash sum for which the 90% holder proposes to acquire the securities; and (b) specifies a period of at least 1 month during which the holders may return the objection forms; and (c) informs the holders about the compulsory acquisition procedure under this Part, including: (i) their right to obtain the names and addresses of the other holders of securities in that class from the company register; and (ii) their right to object to the acquisition by returning the objection form that accompanies the notice within the period specified in the notice; and (d) gives details of the consideration given for any securities in that class that the 90% holder or an associate has purchased within the last 12 months; and (e) discloses any other information that is: (i) known to the 90% holder or any related bodies corporate; and (ii) material to deciding whether to object to the acquisition; and (iii) not disclosed in an expert's report under section 667A. (2) The 90% holder must then: (a) lodge the notice with ASIC; and (b) give each other person (other than a related body corporate) who is a holder of securities in the class on the day on which the notice is lodged with ASIC: (i) the notice; and (ii) a copy of the expert's report, or of all experts' reports, under section 667A; and (iii) an objection form; and (c) give the company copies of those documents; and (d) give copies of those documents to the relevant market operator if the company is listed. Note: Everyone who holds the securities on the day on which the notice is lodged with ASIC is entitled to notice. Under subsection 664E(1), anyone who acquires the securities during the objection period may object to the acquisition. Time for dispatching notice to holders (3) The 90% holder must dispatch the notices under paragraph (2)(b) on the day the 90% holder lodges the notice with ASIC or on the next business day. Manner of giving notice to holders (4) The 90% holder may give the notice to a holder: (a) personally; or (b) by sending it by post to the address for the holder in the register of members, debenture holders or option holders. A notice sent by post is taken to be given 3 days after it is posted. (5) The notice may be sent: (a) if the notice is to be sent to the holder outside Australia - by pre-paid airmail post or by courier; or (b) if the notice is to be sent to the holder in Australia - by pre-paid ordinary post or by courier. This subsection does not limit the manner in which the document may be sent to the holder. Note: Section 109X makes general provision for service of documents. Notice not to be withdrawn (6) The 90% holder may not: (a) withdraw a notice under this section; or (b) if the 90% holder has given a notice under this section in relation to those securities and the objection period for that notice has not ended - give another notice under this section in relation to securities. …

664E Holder's right to object to the acquisition (1) A person who holds securities covered by the compulsory acquisition notice may object to the acquisition of the securities by signing an objection form and returning it to the 90% holder. The objection: (a) relates to all securities that are covered by the notice and are held by the person at the end of the objection period; and (b) cannot be withdrawn. (2) The 90% holder must lodge with ASIC a copy of any objection form returned under subsection (1) as soon as practicable after it is returned. (3) As soon as practicable after the end of the objection period, the 90% holder must: (a) prepare a list that sets out: (i) the names of people who hold securities covered by the compulsory acquisition notice and have objected to the acquisition; and (ii) details of the securities they hold; and (b) lodge the list with ASIC; and (c) give a copy of the list to the company; and (d) if the company is listed - give a copy to the relevant market operator. (4) If people who hold at least 10% of the securities covered by the compulsory acquisition notice object to the acquisition before the end of the objection period, the 90% holder must give everyone to whom the compulsory acquisition notice was sent under section 664C: (a) a notice that the proposed acquisition will not occur; or (b) a notice that the 90% holder has applied to the Court for approval of the acquisition under section 664F; within 1 month after the end of the objection period. …

664F The Court's power to approve acquisition (1) If people who hold at least 10% of the securities covered by the compulsory acquisition notice object to the acquisition before the end of the objection period, the 90% holder may apply to the Court for approval of the acquisition of the securities covered by the notice. (2) The 90% holder must apply within 1 month after the end of the objection period. (3) If the 90% holder establishes that the terms set out in the compulsory acquisition notice give a fair value for the securities, the Court must approve the acquisition of the securities on those terms. Otherwise it must confirm that the acquisition will not take place. Note: See section 667C on valuation. (4) The 90% holder must bear the costs that a person incurs on legal proceedings in relation to the application unless the Court is satisfied that the person acted improperly, vexatiously or otherwise unreasonably. The 90% holder must bear their own costs." 20 Part 6A.3 sets out the procedure for completing a compulsory acquisition of securities, whether under Part 6A.1 or Part 6A.2. Its provisions are:

"666A Completing the acquisition of securities Completion to be by private treaty or statutory procedure (1) A person entitled to acquire securities under section … 664A must either: (a) pay, issue or transfer the consideration to the holder, take a transfer of the securities from the holder and have the company that issued the securities register the transfer; or (b) complete the procedure laid down in section 666B; by the end of the period referred to in subsection (2) or (3). … Time for completing compulsory acquisition under Part 6A.2 (3) For an acquisition under section 664A or 664F, the period ends 14 days after the later of: (a) the end of the objection period; or (b) if an application for approval of the acquisition is made to the Court under section 664F in relation to the securities - the application is finally determined. 666B Statutory procedure for completion (1) Under this section, the person acquiring the securities must: (a) give the company that issued the securities a copy of the compulsory acquisition notice under section 661B or 664C together with a transfer of the securities: (i) signed as transferor by someone appointed by the person acquiring the securities; and (ii) signed as transferee by the person acquiring the securities; and (b) pay, issue or transfer the consideration for the transfer to the company that issued the securities. The person appointed under subparagraph (a)(i) has authority to sign the transfer on behalf of the holder of the securities. (2) If the person acquiring the securities complies with subsection (1), the company that issued the securities must: (a) register the person as the holder of the securities; and (b) hold the consideration received under subsection (1) in trust for the person who held the securities immediately before registration; and (c) give written notice to the person referred to in paragraph (b) as soon as practicable that the consideration has been received and is being held by the company pending their instructions as to how it is to be dealt with. (3) If the consideration held under subsection (2) consists of, or includes, money, that money must be paid into a bank account opened and maintained for that purpose only. … " 21 Part 6A.4 contains provisions relating to experts' reports and valuations for compulsory acquisition of securities, whether under Part 6A.1 or Part 6A.2. So far as relevant, its provisions are: " 667A Expert's Report (1) An expert's report under section … 664C … must: (a) be prepared by a person nominated by ASIC under section 667AA; and (b) state whether, in the expert's opinion, the terms proposed in the notice give a fair value for the securities concerned; and (c) set out the reasons for forming that opinion … … 667AA Expert to be nominated (1) A person who proposes to obtain an expert's report for the purposes of section … 664C … must request ASIC in writing to nominate a person to prepare the expert's report. (2) Within 14 days after receiving a request under subsection (1), ASIC must nominate: (a) an appropriate person to prepare the report; or (b) up to 5 appropriate persons, one of whom the person making the request may choose to prepare the report. (3) In determining whether a person is an appropriate person to prepare an expert's report, and without limiting the matters that ASIC may consider, ASIC must consider the nature of the company to be valued … 667C Valuation of Securities (1) To determine what is fair value for securities for the purposes of this Chapter: (a) first, assess the value of the company as a whole; and (b) then allocate that value among the classes of issued securities in the company (taking into account the relative financial risk, and voting and distribution rights, of the classes); and (c) then allocate the value of each class pro rata among the securities in that class (without allowing a premium or applying a discount for particular securities in that class.) (2) Without limiting subsection (1), in determining what is fair value for securities for the purposes of this Chapter, the consideration (if any) paid for securities in that class within the previous 6 months must be taken into account." Principles for Deriving Fair Value 22 I adopt the following statement of principle made by Warren J in Capricorn Diamonds Investments Pty Ltd v Catto (2002) 5 VR 61 at [59] - [61]. "First, fair value of an asset is its fair equivalent in money ascertained by a supposed sale by voluntary bargaining between vendor and purchaser, each of whom is both willing and able, but not anxious, to trade and with a full knowledge of all the circumstances which might affect value: Holt v Cox ; Gregory v Federal Commissioner of Taxation ; McCathie v Federal Commissioner of Taxation . Secondly, the fact that the units must be disposed of at a fair value should not be a factor leading to a discount or lower valuation than would otherwise obtain: Holt v Cox . Conversely, it should not be a factor leading to a premium or higher valuation. Thirdly, a fair value does not require that any amount should be included in respect of ransom value or a power of veto: Edwards v Minister of Transport . Fourthly, the value of special benefits to the acquirer is not properly to be included in the calculation of the value of the company as a whole: Pauls Ltd . Fifthly, generally, apart from s 667C, fairness requires that the value of any special benefits should be allocated pro rata among securities in the same class: Winpar . Sixthly, if the value of special benefits is to be included under s 667C, their value should be allocated pro rata under s 667C: Winpar ; Pauls Ltd v Dwyer . The seventh principle to be extracted from the authorities is that when deciding whether the consideration is fair the proper approach is to consider whether it is fair to all shareholders, rather than whether it is fair to a particular shareholder or class of shareholders in the peculiar circumstances of the case: Elkington v Vockbay Pty Ltd . Consequently, a shareholder's individual taxation position and like matters said to give rise to a premium for forcible taking are not relevant to the value of the company as a whole. Nor are the acquirer's individual circumstances relevant. Further, the market price cannot be a safe indicator of fair value as the market may not provide a fair indication of the value of shares in circumstances of limited trading: Catto v Ampol Ltd . In addition, the market may not be a fair indicator of value because of the effect of a takeover offer on the market: Kingston v Keprose Pty Ltd (No 2) . Finally, the eighth principle to be extracted from the cases is that fair value may require a more liberal estimate of value within a range of possible values where there is a compulsory acquisition of property: Commissioner of Succession Duties (SA) v Executor Trustee & Agency Co of SA Ltd . Nevertheless, it does not permit or require a premium for forcible taking: Holt v Cox . The Australian authorities have not adopted the Canadian concept of a forcing out premium (instead applying a more liberal estimate of value), and indeed that concept has more recently lost support in Canada." (footnotes omitted) Steps in the Compulsory Acquisition Process 23 On 5 August 2004 ASIC provided to Dolby Australia, pursuant to section 667AA(2) Corporations Act 2001 (Cth), a list of three persons who ASIC regarded as appropriate to prepare a report in connection with a proposal to acquire securities in Lake under section 664C. One of those nominees was Ernst & Young Corporate Finance Pty Ltd ("Ernst & Young"). Dolby Australia chose Ernst & Young to prepare the report. 24 Ernst & Young issued its report on 19 August 2004. It valued the ordinary shares in Lake as at 10 August 2004. It came to a conclusion that the fair value of each Lake share which was sought to be compulsorily acquired was in the range of 9¢ to 16¢. 25 On 20 August 2004 (which was a Friday) a compulsory acquisition notice under section 664C was lodged with ASIC. While that notice gave various pieces of information concerning the proposed compulsory acquisition, the only term of acquisition which it contained was that the compulsory acquisition would be for "the cash amount of $0.16 per share". 26 A copy of that notice, the expert's report, and an objection form, was sent by post to each holder of the shares which were sought to be acquired, in the manner required by section 664C(2). Lake and ASX were also served with those documents, as required by section 664C(2). The notice specified a period of one month from receipt of the notice for the lodgement of objections. It was on 22 August 2004 (a Sunday) that this document was posted to the Lake shareholders. 27 As the notice specified that the right to object to the acquisition of securities could be exercised "by completing and returning the objection form that accompanies this notice within one month of receipt of this notice", and section 664C(4) includes provision that a "notice sent by post is taken to be given 3 days after it is posted", the period of one month for making objections would run from 25 August 2004. 28 By 23 September 2004 objections had been received from the holders of 2,468,034 shares. That number represents approximately 1.8% of the total share capital of Lake, or approximately 25.5% of the 9,689,104 remaining shares in Lake that Dolby Australia was seeking to compulsorily acquire. Because more than 10% of the holders of securities sought to be acquired objected, Lake could not effect a compulsory acquisition without the approval of the Court (section 664A(3)). 29 On 8 October 2004 the Originating Process in the present matter was filed. On 14 October 2004 letters were sent to each objecting shareholder giving the notice required by section 664E(4). On 19 October 2004 letters were sent to each of the shareholders that had not objected, giving notice under section 664E(4). 30 Thus, the various steps required by Part 6A.2 Corporations Act 2001 (Cth) were carried out, and carried out within the required time limits. 31 Mr Robert Catto was a shareholder in Lake. He bought his shares for a price of the order of 13¢ or 14¢ during the period between the two takeover offers. He did not accept the second takeover offer, and filed a Notice of Objection to the proposed compulsory acquisition. The Originating Process sought an order that Mr Catto represent all the shareholders of Lake who had returned notices of objection. Mr Catto objected to being appointed as a representative defendant, and no such appointment has been made. He has appeared for himself at the hearing, cross-examined the plaintiff's valuation expert, and made submissions. 32 The objection forms which were sent to the Lake shareholders included provision for objecting shareholders to state their reasons for objection. As is appropriate in a compulsory acquisition case such as this, those objection forms have all been tendered by the plaintiff. 33 When this matter was first before the Court for directions, the Court directed that any objecting shareholder who wished to be heard was to file and serve an outline of submissions and all lay and expert evidence on or before a particular date. The plaintiff undertook to the Court to notify objecting shareholders of the directions which were made, and carried out that undertaking. 34 In consequence, the Court is aware of the reasons which each objector gave in his or her objection form for opposing the compulsory acquisition, and each objector has been given the opportunity to file more extensive evidence, and make submissions, if he or she wished. Outline of the Expert Evidence 35 Ernst & Young's expert report dated 19 August 2004 was prepared by Mr John Gibson and Mr Robert Westphal. Each of those gentlemen is a director of Ernst & Young, and a representative of that company for the purpose of its Australian financial services licence. Each of them has sworn an affidavit (Mr Westphal on 6 October 2004, Mr Gibson on 24 October 2004) that he is not aware of any matters that he considers material to the valuation set out in the report other than the matters that are stated in the report. 36 The report commences by describing the industry in which Lake operates, and the markets into which Lake's goods and services are supplied. Its second section then describes the particular business which Lake operates, and the particular products and services Lake provides, and considers the business outlook for those products and services. It describes the capital structure of the Lake business, identifying the principal shareholders and principal option holders. It describes the organisational structure of Lake's business. It sets out information on trading in Lake's shares from 1 January 2001 to 10 August 2004 (both as to price, and trading volume), and provides some comments on factors which have influenced trading prices and volumes. Next, it sets out summaries of Lake's profit and loss account for the tax years ended 30 June 2001 to 2004 inclusive, and comments on factors which have influenced profitability both over the period as a whole, and in individual financial years. It includes a summary of a three year cash flow forecast which Lake had prepared for internal management planning purposes. It includes summaries of the Lake balance sheets as at 30 June 2002, 2003 and 2004, and makes comments on certain significant items contained in those balance sheets. 37 The bottom line of Lake's profit and loss accounts and balance sheets is:

Year ending 30 June Profit after tax $000 Net assets $000 2001 (4,160) 2002 (516) 6,888 2003 (7,468) 61 2004 (3,934) (2,828)

38 The report states that it assumes that Lake will continue to receive capital and financial support from Dolby. The basis for this assumption is not stated. However, if the assumption is incorrect, and comparable capital and financial support were not available from some other source, this could result in the value the report arrived at being too high. Hence the fact that, through lack of evidence, I am not persuaded there is any basis for the assumption, does not result in a conclusion that the value arrived at is not fair. 39 The third section of the report describes Dolby's business, and sets out a history of Dolby's dealings with Lake, both in product development and investment. 40 The fourth section of the report values Lake as a whole. It considers various valuation methodologies which might be applied, and the appropriateness of using those methodologies to value Lake. Discounted Cash Flow Methodology 41 The first valuation methodology considered is a discounted cash flow methodology. That methodology depends upon the availability of accurate long-term forecasts for the business. The reports states: "This is difficult in the case of Lake as some technologies are at the early stages of being commercialised and are dependent on future take-up rates, whilst other technologies are currently in the development phase. Accordingly, it is difficult to forecast future cash flows and therefore any forecast is subject to significant uncertainty. In this regard, we were provided with the Three Year Estimate prepared by Management which included estimates of licensing revenue based on input from Dolby. The Three Year Estimate was prepared for internal management planning purposes … The application of the DCF model based on the Three Year Estimate is difficult as Lake is currently loss making and will continue to incur losses at the EBITDA level for the next three years. In this regard, we considered valuing Lake's business based on the DCF methodology using different operating scenarios. Input was also sought from Management on the reasonableness of some of the scenarios being considered. We also conducted sensitivity analysis on some of the key value drivers impacting the valuation result. In summary, based on the various scenarios that we considered, the value of Lake's business using the DCF method is considerably less than 16 cents per share. In part, this is due to the fact that the Three Year Estimate only includes cash flows from current revenue streams and given the inherent uncertainties of Lake's technology, do not factor into account potential cash flows from alternative revenue streams. For example, licensing revenue assumes continued growth from royalties in the PC market but do not include the potential cash flows if Lake's technology can be licensed to other consumer electronic devices such as LCDs, DVDs, mobile phones and car stereos. Given the take-up of the technology to date and its current market acceptance, a potential acquirer of the Company may choose to adopt the same view when valuing Lake. In addition, … assumptions regarding future licensing revenue have been revised downwards since the Grant Samuel independent expert's report dated 18 June 2004 as a result of the flat performance in the year ended 30 June 2004. Further, the Three Year Estimate assumes investment in a number of initiatives. Whilst these initiatives provide growth opportunities in the longer term, they are likely to produce losses in the short term." 42 The report ultimately does not rely upon the discounted cash flow method to obtain a value for the company. Net Assets Methodology 43 Next, the report considered the adoption of a net assets approach to valuation. The starting point for this exercise was the balance sheet of the company as at 30 June 2004. That balance sheet showed Lake as having a deficiency of assets of $2,828,000. The valuers made adjustment to three items in that balance sheet. 44 The first item the valuers adjusted was Lake's technology. The balance sheet recognised an amount of $1,058,000 against this item. That amount arose from the acquisition by Lake in February 2001 of the assets of Clair Technologies LLC ("Clair"). An earlier part of the report, dealing with Lake's products, stated the nature of the technology assets which were part of that acquisition, and that that technology has been improved upon by Lake since it was acquired. As well, a sales guarantee which was given to Lake at the time of acquisition of the Clair assets has now been fully performed. In the year ended 30 June 2003 Lake wrote down its goodwill in the Clair technology by $2.8m, and increased the rate at which it recognised amortisation of that goodwill. 45 The balance sheet did not recognise a value for any of the technology which Lake had developed itself. The report took the view that a value should be attributed to that technology. It considered valuing the technology by looking at the potential future revenue streams from it, but did not use that method because of the difficulty in forecasting future cash flows. Instead, the report estimated the value of the technology by looking at the cost of a third party recreating the technology. On the basis of the estimated present value of the cost of recreating the technology, as derived from Lake's own historical costs of creating it, the valuers put a value of $14m on that technology. When added to the $1,058,000 already recognised in the balance sheet as the present value of the Clair technology, that gave a total value of Lake's technology of $15,058,000. 46 The second area concerning which the valuers adjusted the balance sheet concerns tax losses. As Lake has incurred continual losses since it was listed, it has a total of approximately $19m of accumulated tax losses. In addition, it has approximately US$2m of accumulated tax losses in the United States. No value was attributed to these losses in the balance sheet as management considered that it was not certain that Lake could utilise the losses. The valuers recognised that it was unlikely that the tax losses would be utilised by Lake in the short term, and that the current Australian tax laws restricted the utilisation of the tax losses as well as the transfer of tax losses to a third party. The report then adopted an assumption that the tax losses would have a value of 10¢ for every dollar. That value translated to a total value of $650,000 at the valuation date. 47 The third adjustment which was made to the assets in the balance sheet involved attributing a value to Lake's workforce. This value was $1.2m, based on Lake's total salary expenses for the year ended 30 June 2004 of approximately $4m, and a cost of replacing the workforce of 30%. The balance sheet had not recognised any value in the workforce. 48 When these adjustments were made to the 30 June 2004 balance sheet, the valuer arrived at a net asset figure of $13,022,000. Revenue Multiples Methodology 49 The next method considered was a revenue multiples approach. The accounts for the years ended 30 June 2001, 2002, 2003 and 2004 showed that the revenue actually earned in those years was, respectively, $2.9m, $10.2m, $8.1m, and $6.2m. The valuers adopted a figure for future maintainable revenue of $8m, on the basis that it was approximately the average revenue over the three years ended 30 June 2004. 50 They then considered what was an appropriate multiple to apply to the future maintainable revenue. There were no directly comparable companies to Lake listed in Australia. However, five United States companies were identified as appropriate comparables. Three of those companies had revenues considerably greater than those of Lake, while two of them had revenues considerably smaller than those of Lake. 51 As well, the valuers considered the historical and forecast revenue multiples of the ASX 200 Information Technology Index, though recognising that the companies in that index were not directly comparable to Lake. 52 On the basis of that information, the valuers adopted a capitalisation multiple of 2.0 times to 2.5 times revenue (including a premium for control). This led to an enterprise value in a range of $16m to $20m. When adjusted for Lake's net debt, and after adding back $650,000 as the value of tax losses, this approach led to a market value of the enterprise in a range from $13.34m to $17.34m. Share Price Methodology 53 The final valuation methodology considered was the share price performance of Lake. The valuers were unenthusiastic about this method of valuation, because the shares in Lake had been thinly traded. However, they accepted that the prices at which shares in Lake were bought and sold during the takeover provided some evidence of the market value of those shares. Those transactions led to a share price in the range of 10¢ to 16¢, which in turn implied an equity value of $13.7m to $21.9m. Completing the Valuation 54 Thus, the three valuation methods which the valuers ultimately were prepared to place some reliance on led to a valuation for the enterprise in the range of from $13m to (rounding up $21.9m) $22m. 55 Next, as required by section 667C(2) Corporations Act 2001 (Cth), the valuers considered what consideration had been paid for the shares within the previous six months. During that period, the shares had traded at prices between 11¢ and 17¢. However, only a small number of shares traded at 17¢. Those trades occurred during July and the first ten days of August 2004. 56 The valuers next turned to the exercise required by section 667C(1)(b). The only securities issued by Lake were its ordinary shares, and the various types of options. Thus, to arrive at the value of the ordinary shares, they needed to work out the value of the options which Lake had on issue, and subtract that value from the total enterprise value of Lake. The various options which had been granted were listed, identifying each option holder, and, in relation to each option holder, the number of options held, the expiry date of those options, and the price at which the options were exercisable. The options were exercisable over periods ranging from 23 October 2004 to 18 January 2007, at prices ranging from 15¢ to 71¢. The option exercisable at 15¢ was the only option exercisable for a price less than the 16¢ for which Dolby was offering to acquire the outstanding shares. The valuer considered the volatility of the Lake shares in the past, on the basis of which he adopted a volatility of 60% for valuation of the options with a life inferior to one year, and 70% for the other options. He used the Binomial Option pricing model to estimate the value of the options, and arrived at a total value for them of $190,713. A cross check on that value, using the Black-Scholes methodology, produced values corresponding with those calculated using the binomial methodology. 57 To calculate the value of the shares, the valuer took the various values he had calculated for the value of the Lake enterprise as a whole, and deducted from it the amount of $190,713 which he attributed to the options. 58 The end result was that the value per ordinary share lay within a range of 9¢ to 16¢. On that basis, the report concluded that the intended compulsory acquisition by Dolby of all the shares in Lake that it did not already own, at 16¢, was fair. Criticisms by Mr Catto of the Valuation Report 59 On the first day of the hearing Mr Catto provided a document which was a summary of his contentions concerning why the plaintiff had not established that 16¢ was the fair value of the Lake shares. It was as follows: "1. Gibson does not demonstrate that he is knowledgeable on matters pertaining to Lake's patents. 2. Gibson has regurgitated the Grant Samuel reports - is lacking in knowledge of the pre-eminent position of Dolby in the industry. 3. Gibson has not demonstrated a depth of knowledge sufficient to pass the "Makita & Sprowles" test as evidenced in the judgment of Mr Justice Hadyn. A summary of costs to date argument is just rubbish. 4. Dolby & the Lake Directors have been less than forthcoming in provision of information."

Mr Catto's oral submissions went somewhat wider than this document. As well, though not ultimately pressed by him in submissions, some other points were raised by Mr Catto in his cross-examination of Mr Gibson, which I should take into account in deciding whether 16¢ is a fair value. The Makita v Sprowles Attack 60 Mr Catto referred me to the decision of Heydon JA in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705, especially at [80] and [82]. He criticised the Ernst & Young report for having relied on a range of material reported to them or provided by others, and as not making explicit the authors' own reasoning processes in deciding whether to adopt, and if so in what fashion to use, that material. He criticised the report for not laying out the intellectual basis of the opinion contained in it. 61 The Ernst & Young report was admitted into evidence without objection. So also were the earlier expert's reports prepared by Grant Samuel. Even though the reports were in evidence, Makita v Sprowles remains relevant as a reminder of matters to take into account in assessing the cogency or persuasiveness of the conclusions arrived at. 62 Bromley Investments Pty Ltd (ACN 001 109 628) v Elkington (2003) 47 ACSR 273 is a decision of the Queensland Court of Appeal. In that case, at [18], Williams JA (with whom Jerrard JA and Holmes J agreed) considered a submission which Mr Catto (who also appeared in that case) advanced, that a judge at first instance in a trial such as the present "had an inquisitorial role and was obliged to investigate fully all aspects of the expert's report in order to be satisfied that the price offered for the shares was fair." Williams JA said, concerning that submission: "Even though the minority shareholders do not bear any onus of proof, the role of the judge is not inquisitorial. The essential task of the judge is to determine whether the price offered is fair and that decision must largely be based on the report of the expert furnished pursuant to s 667AA. Of course, if at the end of the hearing the judge was of the view that there were such deficiencies in the report that it made it impossible to determine whether or not the price offered was fair, approval would be refused. But that does not mean that the report must be beyond criticism before the judge could act on it and conclude that the price offered was fair." (emphasis added) 63 I have set out at some length the structure of the report. That structure is a clear one. It makes clear that the experts were addressing the questions which they are required to address by section 667C Corporations Act 2001 (Cth) (and which is also the question which the Court must address for the purpose of section 664F(3)). The nature of the valuation process is inherently one which does not permit of strict deductive proof and involves assessment, judgment, and some degree of approximation. In my view, the report makes clear the basis upon which it proceeds. Further, the basis upon which it proceeds is one which is of a type often encountered in business valuations. The 'Insufficient Expertise' Attack 64 Mr Catto criticised the authors of the report for not having obtained specialised advice on the valuation of Lake's intellectual property. He pointed to the way that if a company has a specialised type of agricultural business, an expert called upon to value that company will frequently engage a valuer with experience in that type of agricultural business to value the company's land, and to the way in which an expert called upon to value a mining company will often engage specialists to provide estimates of the amount, location and grade of the available ore, and of the costs of extracting it. 65 The expertise of the authors of the present report lies in the valuation of businesses and intangible assets, including shares and other securities. Mr Westphal's experience includes experience in the technology industry, including valuation of intellectual property of various companies in that industry. I do not accept that the valuation of intellectual property necessarily involves a separate area of expertise to the valuation of an individual business. The value of an item of intellectual property is closely connected to the value of the right to carry on the business of exploiting that intellectual property, or alternatively of selling that right to someone else. If there were to be a challenge to the validity of a patent, specialised scientific or technical expertise might be involved in assessing the chances of the attack on validity being upheld, but no such question arises in the present case. Even accepting, as I do, that the existence of intellectual property is a significant contributor to the value of Lake's enterprise, I do not accept that the authors of the Ernst & Young report were unfitted to value that enterprise without the assistance of someone with more specialised knowledge than they had. The 'Failure to Take into Account Relevant Subsequent Information' Attack 66 Another attack which Mr Catto made in address related to the time as at which the Court ought determine the value of the securities being acquired. He submitted that the Court can, and should, take into account events which are known at the time of the hearing and which cast light on the value of the securities proposed to be acquired. 67 For the reasons which I gave in an interlocutory ruling in this matter (Dolby Australia v Catto [2004] NSWSC 1196) I accept that the relevant time for determination of the value is the date of service of the notice under section 664C Corporations Act 2001 (Cth) on ASIC, but that events occurring after that date can sometimes cast light on what was the value of the securities as at that date. In the present case, however, there is no evidence of there being any relevant events which have occurred after 20 August 2004 (the date when the notice was served upon ASIC), and which can cast light on the value of the securities as at that date. The 'Failure to Recognise Importance of Lake's IP' Attack 68 Another attack which Mr Catto makes on the report is that it does not recognise the importance of Lake's intellectual property. I find no basis for that submission. The expert report states, at page 8: "Lake developed and patented Lake Personal Surround (the predecessor to Dolby Headphone) in 1997. The Company approached Dolby to licence and market the technology, and following further refining of the technology, the Dolby Headphone product line was established. Dolby was given exclusive marketing rights of the product, and marketed the product under its existing umbrella of licensable products. Dolby began to license the Dolby Headphone technology in personal computers in 2000, and the technology has been incorporated in the products of Dell, Packard Bell, Fujitsu, Sony Vaio, Toshiba, NEC and Hitachi. The technology has also been incorporated in the consumer audio products sold by Sharp, Pioneer, Marantz and Denon." 69 At the same page, in a section of the report appearing under the heading relating to Lake's company profile, and a subheading of "Licensing of Intellectual Property" the report says: "Dolby Virtual Speaker is a DSP [Digital Signal Processing] technology that can recreate the aural experience of surround sound from as little as two ordinary speakers. The Dolby Virtual Speaker works by processing audio channels through advanced filters that simulate the sonic signature of five-speaker sound from as little as two physical speakers. The advantage of Dolby Virtual Speaker over earlier technology is that the Dolby Virtual Speaker technology is able to create surround sound whilst preserving the integrity of the key centre channel dialogue. The Dolby Virtual Speaker technology has a relatively wide range of applications, and can be incorporated into products such as televisions, personal computers, DVD players, game consols, and other devices that have two or more speakers." Lake signed an agreement in 2002 granting Dolby the exclusive license over Dolby Virtual Speaker." 70 The technical innovation involved in an item of intellectual property, and its potential attractiveness to consumers, does not ensure that it will produce large (or any) profits. In relation to each of those products, the exclusive licensing agreement which Lake entered into with Dolby means that Lake is very much in Dolby's hands concerning the marketing of the intellectual property. As the report recognises, at page 8, "the effect of the agreement with Dolby, however, is that Lake has little control over the pricing, marketing and uptake" of either the Dolby Headphone technology or the Dolby Virtual Speaker technology. Those license agreements were entered into in 1998 and 2002, well before the date as at which the securities are to be valued. The securities cannot be valued in a way which places a value on technology, but ignores the inhibitions on Lake's ability to derive value from that technology because of the existence of the licensing agreements. The 'Regurgitating Grant Samuel' Attack 71 Mr Catto put to Mr Gibson in cross-examination the fact that he had read both of the Grant Samuel reports, and that the same comparables were used in the Ernst & Young report as in the Grant Samuel reports for possible comparable companies. Mr Gibson agreed with those propositions. Mr Catto did not put to Mr Gibson, in the way procedural fairness demands, any suggestion that he had "regurgitated the Grant Samuel reports", as stated in Mr Catto's outline of contentions, with the suggestion inherent in it that he had followed Grant Samuel unthinkingly. Even so, when the general topic of the comparables was being used, Mr Gibson gave evidence that Ernst & Young had carried out their own research concerning what were appropriate comparables. I accept that evidence. Further, Mr Gibson's manner of answering questions in cross-examination makes clear that he has applied his mind to how the valuation should be carried out, and formed judgments concerning both methodology and quantum. The 'Failure to be Forthcoming' Attack 72 Mr Catto's complaint about Dolby and the Lake directors having been less than forthcoming in the provision of information was explained by him, in opening, as relating in part to their failure to make available a document, filed with the Securities and Exchange Commission in the United States in November 2004, relating to an Initial Public Offering, made, or proposed to be made, by Dolby Laboratories Inc. Mr Catto endeavoured to tender that document in the course of the trial, and I rejected it. The document was in any event available on the internet, and Dolby's solicitor wrote to Mr Catto informing him of the internet address at which it could be found. I do not find that this complaint has any tendency to show the price offered for the shares is, or might not be, fair. There were some other complaints on this score, for which there was no evidentiary foundation, and which I shall not repeat or consider further. 73 Mr Catto submitted that on an application such as the present the company seeking approval of the compulsory acquisition of securities should make a full and frank disclosure to the Court of any relevant information which it has. In my view, section 664C(1)(e) Corporations Act 2001 (Cth) imposes an obligation on a person who becomes such an applicant to make disclosure at the time of lodgement of the notice with ASIC, ie, well before any occasion for disclosure to the Court arises, of material information known to it. If litigation is brought seeking approval of a compulsory acquisition, and that case proceeds as an ex parte application, the plaintiff would have the usual duty of frankness to the Court which is required on an ex parte application. Further, any solicitor preparing affidavits in connection with an application for approval of a compulsory acquisition has the usual professional obligation of not allowing a client to swear an affidavit which the solicitor knows will create a misleading impression: In re Thom (1918) 18 SR(NSW) 70. Though there are these various sources of obligation on a plaintiff in an application such as this to make frank disclosure of relevant information - and further thought might possibly find other sources of such obligation - in the present case I am not persuaded that there is any information relevant to the question of what is a fair value of the securities at the appropriate date which has not been disclosed. Effect of Using Unaudited 2004 Accounts 74 The accounts of Lake which were used for the Ernst & Young valuation were audited accounts for years up to the year ending 30 June 2003, but unaudited accounts for the year ending 30 June 2004. By the time of the trial, the audited accounts for the 2004 year were available. The only material difference between the unaudited accounts as at 30 June 2004 and the audited balance sheet as at that date was that in the audited balance sheet the value of intangibles (ie, the value attributed in the accounts to the Clair technology) was $453,590 by comparison with the amount of $1,058,000 contained in the unaudited accounts. That is a difference which would have the effect of depressing somewhat the value of the enterprise as measured by the net assets method. Accepting the Write-Down of Clair Technology 75 Mr Gibson accepted that he had used the figure shown in the unaudited 30 June 2004 accounts for the Clair technology, knowing that it had been written down from the previous year. In the audited accounts of 30 June 2003, its value was shown as $1,836,000. Mr Gibson said that in accepting that write down he took into account information which he had obtained from Mr Gilbey and Mr Altman, in the management of Lake, to the effect that sales of the technology were disappointing, and the likely future profits from it were limited. Even if Mr Gibson were not to be justified in accepting the write down on the basis of that sort of information (and I do not decide that he was not so justified), it would affect only the net asset value method of valuing, and make no difference to the top of the range at which Mr Gibson valued the Lake enterprise. Failure to Add Back the Amount Paid on the Stellar Settlement 76 As mentioned in para [9] above, Lake made a payment to Stellar in May 2004 to settle litigation brought by Stellar alleging a breach of its distribution contract. The precise amount of that payment is not disclosed, but it is part of an amount of $1.8m shown in the June 2004 accounts of Lake as abnormal items. Mr Catto suggested that Mr Gibson should have found out the amount of payment to Stellar, and added it back for the purpose of his valuation. Mr Gibson rejected that suggestion, saying that it would have been appropriate to add back the payment to Stellar in an earnings-based (ie profit-based) valuation, but because Lake had no earnings he had not been able to conduct an earnings-based valuation. Mr Gibson said, and I accept, that adding back the amount of the payment to Stellar was not appropriate for the three particular types of valuation method which he ultimately used. Valuation of the Tax Losses 77 Mr Gibson was criticised for not setting out the reasoning by which he arrived at his decision to allow a figure of $650,000 for tax losses. The report (see para [46] above) identified the size of the tax losses, and the fact that they had been valued at 10¢ for every dollar. The report also referred to the practical difficulties which there would be in utilising the tax losses. 78 Ascribing a value to tax losses involves, essentially, an exercise of prediction of the likelihood of the company with the losses ever being in a position to use them, in whole or part. On the available information about the likely future of Lake, I do not see any error in Mr Gibson's having arrived at a view that the losses should be valued at 10¢ in the dollar. Method of Valuing Technology 79 Mr Catto criticised the method by which the technology had been valued, for the purpose of the net assets method. I agree that the present value of the cost of reproducing the technology is not a particularly persuasive way of valuing it. However, as Mr Gibson explained in the course of his cross-examination, no other method is available. Lake has in fact made consistent losses in the course of developing and exploiting its technology. Further, the share market's assessment of the value of the technology is a factor which would have influenced Lake's share price. Mr Catto described the Lake technology as the "blue sky" which attracted investors to Lake. The present value of that "blue sky" is reflected in the present share price, regardless of the fact that the "blue sky" seemed more attractive to purchasers of Lake shares at a time when the share price was more than it was during 2004. Lake's shares were issued in the initial public offering at 50¢ per share, listed at a 90% premium to the offer price, and in the course of December 1999, the month of listing, rose to $2.28. From then on, the trend of the share price has been continually down. In 2001 its shares traded in a range from 81¢ to 19¢, in 2002 in a range from 33¢ to 17¢, in 2003 in a range from 29¢ to 9¢, and in 2004 in a range from 17¢ to 11¢. The fact that the audited accounts of the company (which, pursuant to section 305 Corporations Act 2001 (Cth) are required to give a true and fair view of the financial position of the company) did not attribute any value to the technology which Lake itself developed, is basis for an inference that neither the directors of Lake, nor its auditors, regarded the attribution of that nil value as something which caused the accounts to not give a true and fair view of the company's financial position. Even though the experts having valued the technology on a present cost of replacement basis is not very persuasive, the fact that the experts included that method of valuing the technology in their net asset method of valuing the Lake enterprise does not lead me to a conclusion that their ultimate opinion about the fairness of the price is incorrect. Value Attributed to Options 80 Mr Catto criticised the value attributed to the options. He suggested to Mr Gibson that, when the exercise price of the options were practically all above 20¢, the highest having an exercise price of 71¢, it could hardly be right that they were worth, collectively, $190,000. Mr Gibson responded that he had used a recognised method of valuing options in listed securities. 81 I observe that Mr Catto's argument that the options are hardly likely to have as high a value as $190,713, given their exercise price, does not sit very well with his argument that the value of the shares has been materially understated by the valuers. It suffices for present purposes that the value of $190,713 attributed to the options is not an amount which makes any material difference to the high end of the experts' valuation of the ordinary shares. The high end of the valuation of the enterprise as a whole, namely, $22m, is one which the experts arrived at after having rounded up a valuation of $21,900,000 derived from the share price method. Even if the options were all regarded as worth nothing, this would make no material difference to the experts' opinion that the shares were worth, at the top of the range, 16¢. Reasons of the Objectors 82 Though the objectors each expressed their reasons for objection in their own words, there are some common themes, apart from saying that the price offered is too low. One is that the objector purchased the shares at a price well above 16¢, and does not want to be forced to take a loss. Section 664F(3) Corporations Act 2001 (Cth) obliges the Court to approve an acquisition if the 90% holder establishes that the terms set out in the compulsory acquisition notice give a fair value for the securities. Giving a fair value for the securities is not necessarily the same thing as being fair to an individual shareholder. Section 667C limits the factors which can be taken into account in deciding what is a fair value for securities. In consequence, the individual circumstances and wishes of a shareholder whose shares are acquired are not a matter which enters into the question of whether the terms set out in the compulsory acquisition notice give a fair value for the securities. 83 Another theme is that some shareholders object to the very principle of their shares being acquired without their consent. One shareholder filled out the space in the objection form for giving reasons for objection by saying he did not need to give reasons, he just objected. Objections of this type are to the legislation itself, and cannot affect how the Court acts when seeking to play its role in the regime for compulsory acquisition which the legislation establishes. 84 A variant on the objection in principle to compulsory acquisition is that the shareholder deliberately purchased the shares intending them to be a long-term investment, and does not wish to be deprived of the opportunity of maintaining the investment for the long term. Such an objection depends on the individual circumstances of a particular objector, a matter which cannot be taken into account under the statutory regime for compulsory acquisition. As well, it is inherent in the nature of shares that they can be the subject of a compulsory acquisition under Part 6A, Corporations Act 2001 (Cth) regardless of the intentions with which the shareholder originally purchased the shares. 85 Another theme was that, if the shareholders' shares had to be acquired, they would prefer to receive shares in a Dolby company, rather than cash, so as to be able to continue to participate in the enterprise of developing and exploiting Lake's technology. The answer to that objection is that 664B(1) allows of no alternative other than the shares being acquired for a cash sum. 86 Another theme in the objections is that the offer is an opportunistic one, made at a low price when Lake is in a position of weakness. That is not a matter which affects the question of whether the terms offered give fair value for the shares. Conclusions 87 Taking into account all these matters, I have come to the view that the terms set out in the compulsory acquisition notice give a fair value for the securities. In those circumstances, I shall approve the acquisition. Order 88 The Court approves the compulsory acquisition by Dolby Australia Pty Limited of all ordinary shares in Lake Technology Limited not held by it or any related body corporate of it, on the terms of the compulsory acquisition notice dated 20 August 2004. **********

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