F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd

TOall the creditors, members and optionholders of Gas2Grid Limited (ACN 112 138 780) (Gas2Grid)

TAKE NOTICE THAT at 10:15am on 3 February 2010 the Federal Court of Australia at Law Courts Building, Queens Square, Sydney, New South Wales will hear an application by Gas2Grid seeking the approval of arrangements between Gas2Grid and its members and optionholders to be considered at meetings of such members and optionholders to be held at the offices of Mitchell & Partners, Level 7, 10 Barrack Street, Sydney, New South Wales 2000 at 11.00 am and 12 noon (Sydney time) respectively on 28 January 2010 (or such other time if either meeting is adjourned).

If you wish to oppose the approval of either arrangement, you must file and serve on Gas2Grid a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance must be served on Gas2Grid at least 1 day before the date fixed for the hearing of the application.

The address for service of Gas2Grid is c/- Piper Alderman, Governor Macquarie Tower, 1 Farrer Place, Sydney, NSW 2000 (Attention: Robert Postema), Phone: (02) 9253 9999, Facsimile: (02) 9253 9900.

____________________________________ Steven J Danielson Company Secretary Gas2Grid Limited Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

GENERAL DIVISION NSD 1372 of 2009

REASONS FOR JUDGMENT 1 This is an application under s 411(1) of the Corporations Act 2001 (Cth) for orders that the plaintiff convene a meeting or meetings of its shareholders and optionholders to consider schemes of arrangement (individually and collectively, the Scheme) pursuant to which all the shares and options of Gas2Grid will be transferred to Orion Petroleum Ltd (Orion). In consideration of this transfer Gas2Grid shareholders will receive 1 Orion share for every 2.25 Gas2Grid shares. Similarly, optionholders will receive 1 Orion option for every 2.25 Gas2Grid options. 2 The plaintiff also sought the Court's approval for the explanatory statement to be issued to shareholders and optionholders and directions pursuant to s 1319 of the Corporations Act as to the manner in which each meeting is to be convened, the time and place for it to be held and the persons authorised to chair the meetings. At the conclusion of the hearing on 17 December 2009 I made the orders requested by the plaintiff. These are my reasons for making those orders. 3 It is for the shareholders and optionholders to decide whether to support the merger proposal involved in schemes of arrangement however, pursuant to s 411(1) the Court may order a meeting of members of a relevant class to be convened. The Court may also approve the explanatory statement that must accompany the notice of meeting; s 412(1)(a). 4 The Scheme has been unanimously endorsed by those directors of Gas2Grid who do not have a conflict of interest in the proposal. In his affidavit sworn on 17 December 2009, Mr Wong Voon Moye (Patrick) Sam Yue, a non-executive director of Gas2Grid, stated that the directors considered that the plaintiff's managing director (also a non-executive director of Orion), Dennis James Morton, had a conflict in that both he and entities associated with him had substantial shareholdings and options in the plaintiff as well as being a shareholder in Orion. For that reason a subcommittee of independent directors of the plaintiff consisting of Mr David Munns and Mr Yue was established to consider the proposal set out in the Merger Implementation Agreement between the plaintiff and Orion. The subcommittee was established in accordance with the protocol adopted by the directors of the plaintiff on 14 October 2009. The subcommittee had resolved that the proposals set out in the Merger Implementation Agreement be entered into and that the merger be recommended to the plaintiff's shareholders and optionholders "in the absence of a superior offer". The plaintiff's board accepted the recommendation.

General principles 5 The role of theCourt is to review the merger proposal, not on its merits or for its commerciality, but to ensure that the explanatory statement presents a fair picture of the proposal and will allow members a fair consideration. It is well established that the Court would not normally make orders for convening a meeting to consider a scheme proposal unless it was satisfied that it would be likely to approve the scheme if the members of the relevant company approve it by the statutory majority; F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, per Street CJ. As Santow J said in Re Archaean Gold NL (1997) 23 ACSR 143 at 147: … court approval to convene the scheme meetings is viewed by the market as giving assurance that the scheme is at least in form and substance such as warranted receiving such preliminary court clearance. It must not be forgotten that trading thereafter takes place on that basis. 6 The fact that the application is made ex parte is relevant to the Court's consideration. It imposes on the plaintiff "the responsibility of bringing to the court's attention all matters that could be considered relevant to the exercise of the discretion"; Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [7] per Barrett J. As Mr Oakes SC, who appeared for the plaintiff, submitted, matters which fall within this obligation to disclose include: (1) jurisdictional issues - what is necessary to create the jurisdiction for court to make that the orders sought (2) transactional issues - e.g. whether there are novel structures in the scheme or its associated transactional documents; (3) the conclusions adopted where some feature involves complex legal analysis and if appropriate the analytical steps in reaching that conclusion; and (4) procedural issues.

The Scheme 7 Although the agreement between the plaintiff and Orion contains the usual "no shop" and "no talk" obligations these obligations expired on 14 December 2009, before the hearing, and therefore they are no longer of any importance. For this reason it is not necessary for me to say any more about them.

The independent expert 8 The plaintiff appointed Grant Thornton Corporate Finance Pty Ltd as the independent expert to assess the proposal. Andrea De Cian, a director of Grant Thornton who was responsible for the report, stated in his affidavit sworn on 16 December 2009: The information contained in the Independent Expert's Report is true and correct to the best of my knowledge and belief. I have made all the inquiries that I believe are desirable and appropriate in respect of the Engagement and no matter of significance that I regard as relevant to my knowledge has been withheld from the Court. 9 The report concluded that both the proposed share scheme and the option scheme are in the best interests of the shareholders and optionholders respectively.

Provisions of the Scheme 10 The Scheme contains clauses commonly seen in schemes made pursuant to Pt 5.1 of the Corporations Act. The 'no encumbrances' clause (cl 5.4(a)) is to the same effect as the clause approved in Investa Properties Limited, in the matter of Investa Properties Limited [2007] FCA 1104. The deemed warranty clause is the same in substance as that which was approved in Re APN News & Media Limited (2007) 25 ACLC 7840 at [57]-[63]. 11 The possibility that shareholders and optionholders might be exposed to the position where their shares or options have been transferred without them receiving consideration provided under the Scheme is dealt with by provisions that the consideration must be provided before the transfer of the shares or options occurs. In addition there is a deed poll made by Orion in favour of shareholders and optionholders containing an undertaking to provide the consideration. 12 The Scheme provides for a break fee which, being less than 1% of the equity value of the plaintiff's security, is within the Takeovers Panel Guidelines in "Guidance Note 7: Lock-up Devices". The guidance note also recommends that "where relevant" regard be had to the value of the consideration under the bid which, in this case, is 1.18%, slightly over the recommended percentage. The plaintiff submitted that for the reasons given by Mr Yue in his affidavit of 17 Decemberthe value of the consideration is not relevant here. Mr Yue made the following points: · the excess of the Break Fee over the 1% guideline with regard to the value of consideration is only $15,239.36, which in light of the transaction costs associated with the Schemes and the assets of the companies is immaterial; · the Break Fee is unlikely to adversely affect the value or nature of Gas2Grid's shareholders' or Gas2Grid's optionholders' investment in Gas2Grid if the Break Fee was in fact paid; and · both Orion and Gas2Grid have incurred to date more than $100,000 in professional fees in relation to the Merger and in the case of Gas2Grid, this amount is significantly more. The Break Fee will only compensate part of these costs and there is no element of penalty in the Break Fee. 13 The written submissions made on behalf of the plaintiff also pointed out that the break fee is not payable if the proposal is rejected by the shareholders or optionholders so long as the board of the plaintiff has maintained its support for the Scheme and not changed its recommendation. The break fee therefore cannot be seen as imposing pressure on shareholders or optionholders to vote in favour of the proposal. Moreover, and unusually, there is a break fee payable to the plaintiff by Orion in certain circumstances which are set out in cl 11.3 of the Merger Implementation Agreement. 14 The evidence presented by the plaintiff in support of its application was comprehensive. I am satisfied that the elements needed to be proved in a first court hearing in relation to a scheme under the Part 5.1 of the Corporations Act, as accepted by Gyles J in Orion Telecommunications Limited, in the matter of Orion Telecommunications Limited [2007] FCA 1389 at [5] have been established by that evidence. In particular the evidence established that ASIC had had a reasonable opportunity to examine the proposed scheme and explanatory statement and was given the requisite notice of the proposed date of the first court hearing. The fact that the plaintiff and Orion have entered into the Merger Implementation Agreement indicates that the Scheme is bona fide and has been properly proposed. The factual information in the Scheme booklet has been verified on behalf of the plaintiff and, where relevant, on behalf of Orion. Proper arrangements have been proposed for the conduct of the meeting including Mr Munns' consent to act as chairman and Mr Yue's agreement to be the alternate chairman. 15 For all of the above reasons I was satisfied that the orders sought by the plaintiff should be made. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.