Independent Practitioner Network Ltd, in the matter of Independent Practitioner Network Ltd [2008] FCA 1229

Federal Court of Australia|2008-08-13|Before: Lindgren J

THE COURT ORDERS THAT:

Pursuant to subsection 411(1) of the Corporations Act 2001 (Cth) (the Act): (a) the Plaintiff, Independent Practitioner Network Ltd ABN 13 083 519 377 (IPN), convene a meeting (Scheme Meeting) of the holders of ordinary shares in IPN excluding Sonic Healthcare Ltd (ABN 24 004 196 909) (Sonic) (IPN Shareholders) for the purpose of considering and, if thought fit, agreeing to a scheme of arrangement (with or without modification) between IPN and the IPN Shareholders, the terms of which are set out in Annexure A of the document which is at Tab 1 of Exhibit LFK1 to the affidavit of Lesley Fiona Kennedy affirmed on 5 August 2008 incorporating amendments in accordance with Exhibit P1 (Scheme Booklet); (b) the Scheme Meeting be held on 11 September 2008 at Level 2, Amora Hotel Jamison Sydney, 11 Jamison Street, Sydney, NSW at 1.00 pm (Sydney Time); (c) Verilyn Fitzgerald or, failing her, Mark Compton, will act as Chair of the Scheme Meeting; (d) the Chair have the power to adjourn the Scheme Meeting for such time as the Chair considers appropriate; (e) at the Scheme Meeting, a person will be entitled to one vote for each IPN share they are registered as holding at 5.00 pm on 9 September 2008; (f) the Explanatory Statement in the Scheme Booklet be approved; (g) on or before 11 August 2008, there be dispatched by pre-paid post addressed to the relevant address set out in the IPN register of members: (i) a document substantially in the form of the Scheme Booklet (which includes the explanatory statement); (ii) a proxy form for the Scheme Meeting; and (iii) an envelope addressed to Independent Practitioner Network Limited C/- Computershare Investor Services Pty Ltd, GPO Box 242, Melbourne Victoria 3001, Australia. (h) the time by which the IPN Shareholders must return their proxy forms for the Scheme Meeting be no later than 5.00 pm on 9 September 2008. 2. Other than Regulation 5.6.13 of the Corporations Regulations 2001, rule 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) shall not apply to the Scheme Meeting. 3. Notice of the hearing of the application for an order approving the proposed Scheme be published once in "The Australian" newspaper by advertisement substantially in the form of "Annexure A" to these Orders, such advertisement to be published on or before 11 September 2008, and IPN otherwise be exempted from compliance with the requirement to publish a notice at least 5 days before the date fixed for hearing of the application pursuant to rule 3.4 of the Federal Court (Corporations) Rules 2000 (Cth). 4. The proceedings be stood over to 9.00 am on 15 September 2008. 5. Liberty to apply. 6. These orders be entered forthwith. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ANNEXURE "A" Notice of Hearing to Approve Arrangement TO all creditors and members of Independent Practitioner Network Ltd ABN 13 083 519 377 (IPN). TAKE NOTICE that at [9.00am] on [15 September 2008], the Federal Court of Australia at Law Courts Building, Queens Square, Sydney, New South Wales will hear an application by IPN seeking the approval of an arrangement between IPN and its members, excluding Sonic Healthcare Limited (ABN 24 004 196 909), if agreed to by resolution to be considered, and, if thought fit, passed by the meeting of such members to be held at Level 2, Amora Hotel Jamison Sydney, 11 Jamison Street, Sydney, NSW at 1.00 pm (Sydney Time) on [11 September] 2008. If you wish to oppose the approval of the compromise or arrangement, you must file and serve on IPN 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 and affidavit must be served on IPN at its address for service by no later than 5.00 pm on [12 September 2008]. The address for service of IPN is c/o Blake Dawson, Level 35, Grosvenor Place, 225 George Street, Sydney, NSW 2000 (Reference: Sonia Tame), Facsimile (02) 9258 6999, email: sonia.tame@blakedawson.com Lesley Kennedy Company Secretary & Chief Financial Officer Independent Practitioner Network Ltd

NEW SOUTH WALES DISTRICT REGISTRY NSD 1142 of 2008

Introduction 1 On 7 August 2008 I made orders under s 411(1) of the Corporations Act 2001 (Cth) (the Act) that the plaintiff (IPN) convene a meeting of the holders of ordinary shares in IPN excluding Sonic Healthcare Ltd (Sonic) (IPN Shareholders) for the purpose of their considering and, if thought fit, agreeing to a scheme of arrangement (with or without modification) between IPN and the IPN Shareholders. As well, I approved the draft explanatory statement (Scheme Booklet) to be given to the IPN Shareholders. 2 I gave Sonic leave to appear. 3 These are the reasons why I made the orders of 7 August 2008.

The proposed Scheme 4 IPN was incorporated in Western Australia on 30 July 1998 as an unlisted public company named "Lifecare Health Limited". On 2 December 1999, IPN was admitted to the official list of the Australian Stock Exchange. On 28 November 2002, IPN changed its name to its present name. IPN is one of Australia's largest operators of medical centres and a provider of management services for doctors and their patients. 5 Sonic holds approximately 71.47% of the issued share capital in IPN. By a Scheme Implementation Agreement (SIA) dated 11 June 2008 between IPN and Sonic, Sonic has agreed to acquire all of the remaining issued shares in IPN by way of a scheme of arrangement between IPN and the IPN Shareholders. 6 If the proposed Scheme is approved, each IPN Shareholder will receive $0.27 cash per share (Scheme Consideration). The maximum amount of cash payable under the Scheme is $78,377,705.00 (Maximum Scheme Consideration). The Maximum Scheme Consideration is calculated on the basis that the following options (Options) are exercised on or before the "Record Date" under the proposed Scheme: (a) 9,461,735 options issued by IPN under an employee share scheme to six of its employees and one contractor; (b) 1,000,000 options issued by IPN to ten doctors as part of the consideration for the acquisition by IPN of the Redcliffe medical centre business. 7 Sonic is working with IPN with the view to developing and implementing a proposal to ensure that none of the Options remain on issue after the "Effective Date" as defined in the proposed Scheme. If this aim is not achieved, Sonic has expressed an intention in the Scheme Booklet to invoke the general right of compulsory acquisition under Part 6A.2 of the Act, to acquire compulsorily the outstanding Options and the shares in IPN into which any such Options are converted. 8 By cl 4.2 of the SIA, Sonic has undertaken to IPN (in its own right and as trustee for the IPN Shareholders), to pay the Scheme Consideration in consideration of the transfer of their shares in IPN. To this end, Sonic has agreed to deposit cleared and available funds equal to the Scheme Consideration into a trust account nominated by IPN before twelve noon on the "Implementation Date". The amount will be held by IPN on trust for the purpose of payment to the IPN Shareholders. 9 Sonic will fund the Scheme Consideration from its cash reserves at the Implementation Date and from funds drawn down under an existing $1.75 billion unsecured senior syndicated debt facility with various banks.

Relationship between IPN and Sonic 10 As noted earlier, Sonic holds approximately 71.47% of the issued share capital in IPN. 11 In August 2000, Sonic acquired 10% of IPN's capital and entered into a "strategic alliance" with IPN. In February 2003, Sonic acquired additional shares in IPN taking its shareholding to approximately 18.5%. 12 In July 2004, Sonic made a proportional takeover bid to acquire two of every three shares in IPN for $0.85 per share. That takeover bid was in response to a hostile takeover for IPN made by a competitor of Sonic, Primary Healthcare Limited. Immediately prior to Sonic's proportional takeover bid, Sonic held approximately 19.63% of the shares in IPN. As a result of acceptances, Sonic's interest in IPN increased to approximately 72.16%. 13 In June 2005, IPN convened a general meeting of shareholders and a special meeting of its shareholders, excluding Sonic, to consider a selective capital reduction under which all shareholders in IPN, excluding Sonic, would have their shares in IPN cancelled and be paid $0.08 for each share held. The selective capital reduction, if successful, would have resulted in Sonic being the 100% owner of IPN. However, the proposed selective capital reduction was not approved and did not proceed.

Support for the proposed scheme by IPN's Independent Board Committee 14 On 16 April 2008, Sonic announced that it had approached IPN's directors with an indicative, conditional, non-binding proposal of $0.25 cash per share to increase its shareholding in IPN to 100%. 15 The Board of Directors of IPN comprises seven directors including two independent non-executive directors who are not affiliated with Sonic. On receipt of Sonic's proposal, the Board formed a committee of the two non-executive directors independent of Sonic (Independent Board Committee) to consider the proposal and to enter into discussions with Sonic. The Independent Board Committee comprised Verilyn Cay Fitzgerald and Mark Raymond Compton. 16 The Independent Board Committee negotiated with Sonic with a resulting increase in the price payable form $0.25 cash per share to $0.27 cash per share. 17 On 11 June 2008, the Independent Board Committee unanimously recommended that shareholders vote in favour of accepting the increased price in the absence of a superior competing proposal. Each member of the Independent Board Committee intends to do so in relation to all shares in IPN held and controlled by that member. 18 Dr Malcolm Parmenter, the Managing Director of IPN, is not a member of the Independent Board Committee and did not participate in the negotiations with Sonic, but has confirmed that he considers that the proposed Scheme is in the best interests of the IPN Shareholders in the absence of a superior offer. Dr Parmenter intends to vote all shares he holds and controls in favour of the proposed Scheme in the absence of a superior offer. 19 While the remaining four directors of IPN do not consider it appropriate to make a recommendation due to their relationship with Sonic, they do in fact intend to vote all shares in IPN they hold or control in favour of the proposed Scheme in the absence of a superior offer.

Independent expert 20 Grant Samuel & Associates Pty Limited, filling the role of an independent expert, has concluded that the proposed Scheme is fair and reasonable and in the best interests of shareholders.

Investigating accountant's report 21 Deloitte Corporate Finance Pty Limited (Deloitte) was engaged by IPN to prepare an investigating accountant's report. That report is to the effect that nothing has come to Deloitte's notice in the course of its investigations suggesting that the historical financial information of IPN set out in the Scheme Booklet is not presented fairly in accordance with the recognition and measurement principles prescribed by Australian Accounting Standards and the accounting policies adopted by IPN.

Australian Securities and Investments Commission 22 The originating process was served on the Australian Securities and Investments Commission (ASIC) on 24 July 2008. So was a draft of the Scheme booklet. ASIC was provided with a subsequent draft of the Scheme booklet on 4 August 2008. 23 ASIC stated that it did not propose to appear to make submissions and intervene to oppose the making of the orders sought at the first court hearing on 7 August 2008.

Break fees 24 The SIA does not contain provision for payment of a break fee or any "no-shop" or "no-talk" provision. Perhaps this is attributable to the size of Sonic's existing stake in IPN and the unlikelihood of the emergence of a competing proposal.

Conclusion 25 There were some minor amendments to the Scheme Booklet set out in Exhibit P1. Being of the view that the IPN Shareholders should have the opportunity of considering and voting upon the proposed Scheme on the basis of the Scheme Booklet incorporating those amendments, I made the orders referred to on 7 August 2008. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Counsel for the Plaintiff: Mr T F Bathurst QC

Counsel for Sonic Healthcare Ltd: Mr M B Oakes SC

Solicitor for Sonic Healthcare Ltd: Minter Ellison

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