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[2006] FCA 1098
Federal Court of Australia
2006-08-18
Santow J, Mansfield J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 Rocksoft Limited seeks the approval of the Court pursuant to s 411(4)(b) and s 411(6) of the Corporations Act 2001 (Cth) in relation to a scheme of arrangement between Rocksoft and its members and option holders (the scheme). I gave that approval by orders made on 25 July 2006. These are my reasons for the orders then made. 2 On 19 June 2006 I ordered pursuant to s 411(1) of the Act that separate meetings of the members and option holders of Rocksoft be convened for the purpose of considering, and if thought fit, agreeing to the scheme. Those meetings have now been held. The members of Rocksoft voted strongly in favour of the scheme. All who attended voted in favour of the scheme, being 58.77 per cent of those entitled to vote and representing 86.96 per cent of the total share capital of Rocksoft. The option holders also voted strongly in favour of the scheme. Again, all those who attended the option holders meeting voted in favour of the scheme, being 67.30 per cent of option holders entitled to vote and representing 68.32 per cent of the total available for voting purposes in respect of all options over unissued shares in Rocksoft. 3 In essence, the scheme is to effect a merger between Rocksoft and Advanced Digital Information Corporation, a United States corporation, under which Rocksoft will become a wholly owned subsidiary of ADIC. To facilitate that, ADIC has incorporated an Australian registered wholly owned subsidiary, ACN 120 786 012 Pty Ltd (ADIC Australia), to become the acquirer of the Rocksoft issued capital. 4 The vehicle by which the scheme is to be implemented is an Implementation Agreement of 14 March 2006 between Rocksoft and ADIC. It contemplates ADIC Australia becoming the registered owner of all the share capital in Rocksoft, the cancellation of all existing options held for the issue of capital in Rocksoft, and the payment to members and option holders of an appropriate portion of the scheme consideration. Subject to the qualification referred to below, each member of Rocksoft will receive $1 for each share held, and each option holder will receive for each option held in respect of Rocksoft $1 less the amount required to exercise the option. That amount varies as between certain groups of options. There are a small number of employee share option plan (ESOP) options which are not immediately exercisable. Otherwise, all outstanding options are immediately exercisable, so that it is obvious that all shareholders and option holders are being treated equally. I do not think that the small percentage of ESOP options which are not immediately exercisable are significant enough to merit separate consideration. Their options are being treated as immediately exercisable, even though they are not. They represent only 1.66 per cent of the option holders. 5 The exception concerns two directors of Rocksoft, Ross Williams and Neil Johnson. At the time the Implementation Agreement was negotiated, they held either personally or through their entities 31,980,000 and 14,755,260 options respectively. They have agreed to the exercise date for a significant number of those options being brought forward so that the date has passed and the rights under those options has elapsed. The options in respect of which they will benefit under the scheme have reduced to 23,756,012 and 8,906,777 respectively. In no instance will either of them receive more per share or per option than other members or option holders in Rocksoft. The purpose of that change in their option holding has been to ensure that all share holders and option holders receive $1 or $1 less the option exercise price per option through the scheme. 6 There are no common directorships between ADIC and Rocksoft.
7 Although I am not bound to approve the scheme by reason of previously having made orders for the convening of meetings, and by reason of the members and option holders having voted in favour of the scheme (see Re NRMA Insurance Limited (2003) 33 ACSR 595 at 607), in my view this is a straightforward matter in which approval of the scheme should be granted. 8 In NRMA at 607 Santow J quoted with approval the matters which the Court will normally consider in determining whether to approve a scheme. They are as discussed by Renard and Santa Maria, Takeovers and Reconstructions in Australia, at 15,061. I propose to follow that guidance which is now common place. 9 It is plain that the formal requirements of the Act have been satisfied. The Australian Securities and Investments Commission was duly served with the original process and supporting materials, and determined that it did not intend to appear at the hearing at which the convening of meetings was directed. Subsequently, ASIC was duly served with the order for the convening of meetings made on 19 June 2006 and the scheme booklet and other documents. The scheme booklet was duly registered with ASIC. On 20 July 2006, ASIC indicated under s 411(17)(b) that it has no objection to the scheme, on the basis that it is satisfied that the scheme has not been proposed for the purpose of enabling any person to avoid the operation of Chapter 6 of the Act. 10 The meetings of shareholders and option holders were properly convened. Notices of the meetings in compliance with the order of 19 June 2006 were duly given. As noted, the resolutions at each meeting unanimously supported the scheme. At the shareholders meetings 211 of the 357 members of Rocksoft attended either in person or by proxy. At the option holders meetings, 35 of the 52 option holders attended either in person or by proxy. 11 Notice of today's hearing was also published in 'The Australian' newspaper on 15 July 2006 as required by the order of 19 June 2006. 12 There is no suggestion that Rocksoft is not pursuing the scheme in good faith and for a legitimate purpose, namely the advancement of the interests of its members and option holders. Nor is there any suggestion that the members and option holders have done other than act in good faith or in pursuit of some legitimate purpose in supporting the scheme. 13 Clearly the scheme results from an arm's length transaction negotiated in ordinary commercial circumstances. Prior to the Implementation Agreement, Rocksoft and ADIC had no commercial or business relationship. Rocksoft engaged a United States merchant bank for the purposes of advising it in respect of the sale of its business, and negotiating for it in that regard. The merchant bank investigations and activities extended over some time. It advised Rocksoft that the transaction proposed by the scheme represents the best means of Rocksoft's realising value from its business, including its intellectual property, and that it will procure an appropriate price for the members and option holders of Rocksoft. The value per share which the scheme will procure for members is both higher than the historic issue price of Rocksoft shares of 50 cents per share and higher than the historic trading in Rocksoft's shares. That assessment follows through to the value to be attributed to the options in Rocksoft. As noted above, with the exception of the small number of ESOP options, all the options are presently exercisable without condition, so that there is equality of treatment between option holders and shareholders, subject to the relatively inconsequential and slightly advantageous treatment of the ESOP option holders. That treatment has no real significance to the amount which would otherwise be available to the shareholders and option holders of Rocksoft. 14 In my view this is a strong case in which approval of the scheme should be granted. 15 Rocksoft has proposed a slight alteration to the scheme, to enable payment of the scheme consideration by electronic funds transfer. The approval of the scheme should reflect that proposed alteration. It is simply a commercial consideration which has no novelty or significance to it. Had it been raised earlier it would obviously have passed unremarked by those attending the meetings: see Matine Ltd (1998) 28 ACSR 268. 16 Rocksoft also seeks an order under s 411(12) that it be exempt from compliance with s 411(11). If granted, there would be no need for the orders of the Court approving the scheme to be annexed to every copy of the constitution of Rocksoft. The scheme to be approved does not modify the rights of shareholders, creditors or persons dealing with Rocksoft. There will be a change of shareholders, because ADIC Australia will become the sole shareholder. There will be a cancellation of the options exercisable at the date of the scheme. There is no modification to the rights of shareholders or creditors' entitlements by the scheme. In such circumstances EM Heenan J in Re Equinox Resources Ltd [2004] WASC 143 indicated that exemption from compliance with s 411(11) was appropriate. I respectfully agree with his Honour. Those circumstances apply equally in this matter. There will also be an order that Rocksoft be exempt from complying with s 411(11) of the Act. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.
[2004] WASC 143