FEDERAL COURT OF AUSTRALIA Panbio Limited (ABN 19 010 728 220), in the matter of Panbio Limited (ABN 19 010 728 220) [2007] FCA 1819 IN THE MATTER OF PANBIO LIMITED (ABN 19 010 728 220) NSD2165 OF 2007 EMMETT J 6 NOVEMBER 2007 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD2165 OF 2007 PANBIO LIMITED Plaintiff JUDGE: EMMETT J DATE OF ORDER: 6 NOVEMBER 2007 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1 Pursuant to subsection 411(1) of the Corporations Act 2001 (Cth) (Corporations Act): (a) Panbio Limited ABN 19 010 728 220 (Panbio) convene a meeting (Scheme Meeting) of the holders of ordinary shares in Panbio, other than the holders of Excluded Shares in respect of those Excluded Shares (Panbio Shareholders), for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed to be made between Panbio and Panbio Shareholders (Scheme), being the scheme substantially in the form of the draft contained in Annexure C of the scheme booklet containing the explanatory statement in relation to the Scheme, being Exhibit "1" in these proceedings (Scheme Booklet). (b) The Scheme Meeting be held at 10.00 am (Australian Eastern Standard Time) on Monday, 17 December 2007 at Panbio's premises at 532 Seventeen Mile Rocks Road, Sinnamon Park, Queensland. (c) The Chairperson of the Scheme Meeting be Peter Maurice Arnison and in his absence John Thomas Fisher-Stamp. (d) The Chairperson appointed to the Scheme Meeting has the power to adjourn the Scheme Meeting in his absolute discretion. (e) All voting at the Scheme Meeting be by poll as declared by the Chairperson. (f) At the Scheme Meeting, a person will be entitled to one vote for each Panbio share that the person is registered as holding at 7.00 pm (Australian Eastern Standard Time) on 15 December 2007. (g) The explanatory statement in the Scheme Booklet for the Scheme be approved for distribution to Panbio Shareholders. (h) On or before 15 November 2007, there be dispatched or personally served: i. A document substantially in the form of the Scheme Booklet; ii. a proxy form for the Scheme Meeting; and iii. an envelope addressed to Computershare Investor Services Pty Limited, in the case of each Panbio Shareholder who has a registered address in Australia, by prepaid post and, in the case of each Panbio Shareholder who has a registered address outside Australia, by prepaid airmail or air courier, in each case addressed to the relevant address set out in the Panbio register of members. (i) The time by which the Panbio Shareholders must return their proxy forms for the Scheme Meeting be 10.00 am (Australian Eastern Standard Time) on 15 December 2007. (j) Panbio place an advertisement in The Australian newspaper, substantially in the form of "Annexure A" to these Orders, no later than Monday, 17 December 2007 and Panbio shall otherwise be exempted from compliance with the requirement to publish such notice at least 5 days before the date fixed for hearing of the application pursuant to Rule 3.4(3)(b) of the Federal Court (Corporations) Rules 2000 (Cth). 2 Pursuant to section 1319 of the Corporations Act, Panbio be exempted from compliance with the requirements of rule 2.15 of the Federal Court (Corporations) Rules 2000 save that regulation 5.6.13 of the Corporations Regulations 2001 shall apply to the Panbio Scheme Meeting. 3 Access to Exhibit 1, Exhibit JLH-1, tab 12 of Exhibit PMA-1 and the plaintiff's written submissions be restricted to the plaintiff's legal advisors up to and including 8 November 2007 or the earlier registration of Exhibit 1 with the Australian Investments and Securities Commission in accordance with s 412(6) of the Corporations Act 2001 (Cth). 4 The proceedings be stood over to Thursday, 20 December 2007 at 9.30 am before Justice Emmett or as his Honour directs for the hearing of any application to approve the Scheme. 5 Liberty to restore to the list. 6 These orders to be entered forthwith. In these orders, an Excluded Share is a fully paid ordinary share in Panbio held by Inverness Medical Innovations, Inc. (Inverness) or by any person on behalf of or for the benefit of Inverness. Annexure A Panbio Limited ABN 19 010 728 220 Notice of hearing to approve compromise or arrangement TO all the creditors and members of Panbio Limited ABN 19 010 728 220 (Panbio). TAKE NOTICE that at 9.30 am on 20 December 2007 the Federal Court of Australia at Law Courts Building, Queens Square, Sydney, NSW, 2000 will hear an application by Panbio seeking the approval of an arrangement between Panbio and its members, if agreed to by resolution to be considered by the members of Panbio at a meeting of such members to be held on 17 December 2007. If you wish to oppose the approval of the arrangement, you must file and serve on Panbio 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 Panbio at its address for service at least 1 day before the date fixed for the hearing of the application. The address for service on Panbio is: Attention: Stan Lewis Corrs Chambers Westgarth Level 32 Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Name of person giving notice or of person's legal practitioner: Stan Lewis. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD2165 OF 2007 PANBIO LIMITED Plaintiff JUDGE: EMMETT J DATE: 6 NOVEMBER 2007 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The plaintiff, Panbio Limited (the Company), has applied to the Court, pursuant to s 411 of the Corporations Act 2001 (Cth) (the Act), for orders convening a meeting of the holders of ordinary shares in the Company, for the purposes of considering and, if thought fit, agreeing to a scheme of arrangement to be proposed between the Company and its shareholders. The scheme of arrangement is designed to effect the transfer of all the issued share capital of the Company to Inverness Australia Pty Limited (the Transferee). 2 The Company is described as afully integrated, international diagnostics Company based in Sinnamon Park, Brisbane, Queensland. It has an additional facility in Columbia, Maryland, in the United States. The Company was established in 1987 and was listed on the Australian Securities Exchange Limited (ASX) in 2001. The Company's capabilities include developing, manufacturing, and marketing in-vitro diagnostic tests, primarily for the detection of antibodies against agents of infectious disease. The Company markets a diverse portfolio of such products to a customer base throughout the world, including Australia, New Zealand, Asia, the Americas, Europe, the Middle East, and Africa. 3 There is in force between the Company and Inverness Medical Innovations Inc (Inverness), the holding Company of the Transferee, a Scheme Implementation Agreement. The Scheme Implementation Agreement was dated 7 October 2007 but has subsequently been amended and restated. The Scheme Implementation Agreement is expressed to be conditional upon a number of conditions including a requirement that the Australian Securities and Investments Commission (the Commission), issues or provides such consents or approvals as are necessary or desirable for the implementation of the proposed scheme and that all other approvals of any government agency that are necessary for the implementation of the proposed scheme are obtained. There are also conditions that certain occurrences affecting the Company do not occur. Finally, of course, the arrangements are expressed to be conditional upon the shareholders of the Company agreeing to the scheme and the Court approving the scheme under s 411 of the Act. Provision is made for the waiver of certain conditions. Some conditions may be waived by the Company, some may be waived by Inverness, some may not be waived at all. 4 By Clause 4 of the Scheme Implementation Agreement, the Company agrees to propose the scheme of arrangement under Part 5.1 of the Act with the intention that all of the shares not already held by the Transferee or others on its behalf will be transferred to the Transferee. The parties agree to apply for all relevant regulatory approvals and take all steps for which they are responsible as part of the approval process. The specific obligations of the parties are set out in Clause 5. 5 One of the obligations of Inverness is to enter into a deed poll for the benefit of all scheme participants. A deed poll has, in fact, been executed on behalf of Inverness, the deed poll is expressed to be made in favour of each scheme participant. By Clause 2 of the deed poll, Inverness covenants to pay, or cause its nominee to make payment of, the scheme consideration provided for in the proposed scheme, within five business days of the Record Date as defined, in accordance with the provisions of the proposed scheme. 6 As required by s 411 of the Act, an explanatory memorandum (the Scheme Booklet) will be dispatched to each scheme participant. I have considered the Scheme Booklet which also contains the proposed scheme and other relevant disclosure and information. I consider that the proposed scheme booklet should be approved. 7 The Scheme Booklet draws attention to two specific matters provided for in the Scheme Implementation Agreement. The first matter concerns the termination of the arrangements and the payment of a termination fee in certain circumstances. By Clause 11 of the Scheme Implementation Agreement, each party acknowledges that the other party has incurred, and will continue to incur, significant costs in relation to the proposed transaction. By Clause 11.2, the Company agrees to pay Inverness $400,000 as compensation for Inverness' costs, if certain events occur whereby the transaction will not proceed. In addition, Inverness agrees to pay the Company $400,000 as compensation for the Company's costs in certain circumstances, if the agreement is terminated. The sum of $400,000 was the result of negotiation between the parties; it represents less than 1% of the total consideration payable and I am satisfied that it is not inappropriate for such an arrangement to have been made. 8 Secondly, the Scheme Booklet discloses arrangements that have been made between Inverness and the Company, whereby the Company must ensure that it does not, and that none of its representatives does, solicit, invite, encourage or initiate any inquiries, negotiations or discussions with a view to obtaining any expression of interest, offer or proposal from any person in relation to a transaction that would compete with the transaction that is contemplated by the scheme. There is also a restriction on the Company and its representatives participating in discussions or negotiations and providing information that might facilitate a proposal for a competing transaction. There is, however, an exception where compliance with such a restriction would involve directors in a breach of fiduciary duties. Those matters are fairly disclosed in the Scheme Booklet. 9 The Scheme Booklet contains two expert reports. One is a report by Sumner Hall Associates Pty Ltd (Sumner Hall), which was prepared to assist the directors of the Company in making their recommendations to shareholders in relation to the proposed scheme, and to assist the shareholders of the Company in assessing the merits of the proposed scheme. Sumner Hall express their opinion that the proposed acquisition price of 65 cents for each share in the Company is near the top end of Sumner Hall's estimate of the underlying value for 100% control of the shares in the Company. Their report indicates that the proposed acquisition price represents a significant premium to the price at which shares in the Company traded in the period immediately before the announcement of the proposed scheme. The price of 65 cents per share represents a 55% premium over the last trading price of 42 cents immediately prior to the announcement, and a 73% premium over the 37.5 cents average price at which the Company's shares traded over the month preceding the announcement. 10 Sumner Hall express the view that it is reasonable to expect that the Company's shares would trade at prices lower than current market prices in the absence of the scheme or other proposals for the acquisition of the Company. Sumner Hall, therefore, express the opinion that the scheme is fair and reasonable and in the best interests of the Company's shareholders. 11 In addition, a report from Ernst & Young addresses a general overview of the Australian income tax and capital gains tax implications for the holders of shares in the Company under the proposed scheme. The report from Ernst & Young considers the implications for both general Shareholders and holders of Employee Team Shares. 12 ASX has granted the Company a waiver from listing rule 6.23.2 to the extent necessary, to permit the Company, under the proposed scheme to cancel unquoted options held by employees, subject to certain conditions that are specified in a letter from ASX to the Company's solicitors, of 24 October 2007. In addition, the Commission has indicated in a letter of 5 November 2007 to the Company's solicitors that it does not currently propose to appear to make submissions or intervene to oppose the proposed scheme. 13 The scheme is in a fairly common form. The operative provision has the effect that from the Effective Date, as defined, the Transferee will pay the scheme consideration to each scheme participant in respect of each scheme share, registered in the name of the scheme participant as at the Record Date. It also has the effect that, on receipt by the Company, or its agent, of the scheme consideration, the scheme shares together with all rights and entitlements attaching to the shares as at the Effective Date will be beneficially transferred to the Transferee, and the transfer will be completed by the Company delivering to the Transferee duly completed and executed share transfer forms to transfer all of the scheme shares by the Implementation Date, as defined. 14 The proposed scheme provides that the obligation to pay the scheme consideration will be satisfied by the Transferee, or its nominee, procuring payment to the Company, within two business days of the Record Date, of a bank cheque drawn in Australian currency for the aggregate amount of the scheme consideration. The Company must deposit or procure the deposit of the scheme consideration in cleared funds into an Australian dollar denominated trust account as trustee for the scheme participants. The proposed scheme then provides a mechanism for the payment of the consideration to scheme participants either by sending to them a cheque drawn in Australian currency or by crediting the amount for the consideration to a nominated bank account on behalf of the scheme participants. 15 By proposed the scheme, each participant is deemed to have warranted to the Transferee that all the scheme shares owned by that scheme participant will, on the Implementation Date, be fully paid and free from all mortgages, charges, liens, encumbrances, pledges, security interests, and other interests of any kind, and that the scheme participant has full power and authority to sell and transfer the shares under the scheme. That obligation is fairly drawn to the attention of scheme participants in the Scheme Booklet. 16 I have had regard to the affidavits of Peter Morris Arnison sworn 5 November 2007, John Thomas Fisher-Stamp affirmed 5 November 2007, Jeffrey Lewis Hall affirmed 26 October 2007, Murray Scott Graham affirmed 2 November 2007, Ian Douglas Wilson Laughland affirmed 5 November 2007, and Mark Stephen Volling sworn 5 November 2007. I am satisfied that the scheme is such that the members of the Company, properly informed, may reasonably agree to it. The scheme is one that the Court is likely to approve if the Company seeks the Court's approval and the approval is unopposed. Therefore, I propose to accede to the Company's application to convene the meeting of its members. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 17 December 2007 Counsel for the Plaintiff: Mr R Dick Solicitor for the Plaintiff: Corrs Chambers Westgarth Counsel for Inverness Medical Innovation Inc and Inverness Australia Pty Limited: Mr IM Jackman SC Solicitor for Inverness Medical Innovation Inc and Inverness Australia Pty Limited: Mallesons Stephen Jaques Date of Hearing: 6 November 2007 Date of Judgment: 6 November 2007