FEDERAL COURT OF AUSTRALIA Australian Health Management Group Limited, in the matter of Australian Health Management Group Limited (No 2) [2008] FCA 2003 AUSTRALIAN HEALTH MANAGEMENT GROUP LIMITED, IN THE MATTER OF AUSTRALIAN HEALTH MANAGEMENT GROUP LIMITED NSD 1534 of 2008 EMMETT J 10 DECEMBER 2008 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1534 of 2008 IN THE MATTER OF AUSTRALIAN HEALTH MANAGEMENT GROUP LIMITED AUSTRALIAN HEALTH MANAGEMENT GROUP LIMITED ACN 003 683 298 Plaintiff JUDGE: EMMETT J DATE OF ORDER: 10 DECEMBER 2008 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to sub-sections 411(4)(b) and 411(6) of the Corporations Act 2001 (Cth) (Corporations Act), the scheme of arrangement between the plaintiff and its members in the form annexed hereto and marked "A" be approved. 2. Pursuant to sub-section 411(12) of the Corporations Act, the plaintiff be exempted from compliance with s 411(11) of the Corporations Act in respect of the scheme of arrangement referred to in Order 1. 3. The members of the Review Committee referred to in clause 7 of the scheme of arrangement referred to in Order 1 above (namely Christopher Atkinson, Brian Maher, Justine Halloran and Andrew Gale) be granted leave for the purposes of s 411(7) of the Corporations Act: (a) to be appointed to administer; and (b) to administer that scheme of arrangement. 4. The Plaintiff have liberty to apply for further orders for the purposes of subsection 411(7) of the Corporations Act in relation to the appointment of any scheme administrator. 5. These orders be entered forthwith. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. Annexure A Scheme of Arrangement Scheme of Arrangement Pursuant to section 411 of the Corporations Act Between Name Australian Health Management Group Limited (ACN 003 683 298) registered in New South Wales of 77 Market Street, Wollongong, NSW 2500 (ahm) Name The Scheme Members 1. Definitions and interpretation 1.1 Defined terms The following definitions apply unless the context requires otherwise. ahm Board means the board of directors of ahm. ahm's Constitution means the constitution of ahm as at the Operative Date. ahm Members means each person who is registered as a member of ahm in ahm's register of members. Allocation Form means the form headed "Allocation Form" which accompanies the Information Memorandum and sets out a Scheme Member's Entitlement. Allocation Rules means the allocation rules for the Scheme set out in Schedule 1. ASIC means the Australian Securities and Investments Commission. Business Day means a day on which banks are open for business in Sydney and Melbourne excluding a Saturday, Sunday or a day which is a public holiday in Sydney or Melbourne. Change of Company Type means a change of the company type of ahm from a public company limited by guarantee to a proprietary company limited by shares under Part 2B.7 of the Corporations Act. Conditions Precedent means the conditions precedent described in clause 3. Corporations Act means the Corporations Act 2001 (Cth). Court means the Federal Court of Australia or such other court of competent jurisdiction under the Corporations Act agreed to in writing by ahm and Medibank. Court Approval Date means, if the court approves the Scheme, the date on which the Court grants the order under section 411 (4)(b) of the Corporations Act approving the Scheme. Cut-Off Date means 13 July 2008. Deed Poll means the deed poll entered into by Medibank in favour of the Scheme Members, a copy of which is set out in Schedule 2. Demutualisation means any arrangement which would have the purpose or effect of: (a) creating or issuing shares in ahm; (b) ahm agreeing to create or issues shares in itself; (c) varying the rights of ahm Members and/or policy holders, or a class of ahm Members, to the reserves of ahm, the assets of ahm on a winding up, the assets of ahm's Health Benefits Fund (as defined under the PHIA), or vote on any kind of resolution of ahm Members or class of ahm Members; or (d) transferring, exhausting, surrendering, cancelling, or terminating some or all rights of ahm Members (including the complete resignation of membership whether in exchange for value or not). Demutualisation Resolution means the special resolution of ahm Members to be passed in accordance with the requirements of clause 33 of ahm's Constitution. Effective means, when used in relation to the Scheme, the coming into effect, under section 411(10) of the Corporations Act, of the order of the Court made under section 411(4)(b) of the Corporations Act in relation to the Scheme. Effective Date means the date the Scheme becomes Effective. End Date means 16 April 2009 or such later date as ahm and Medibank agree in writing. Entitlement means the amount payable in respect of a Scheme Member calculated under the Allocation Rules and distributed within 10 Business Days of the Implementation Date. Estimated Entitlement means the estimate of a Scheme Member's Entitlement as set out on that Scheme Member's Allocation Form. First Court Date means the first day on which an application is made to Court to obtain orders convening the Scheme Meeting. Fund Rules has the meaning given in ahm's Constitution. Government Agency means any foreign or Australian government or governmental, semi-governmental, administrative, fiscal or judicial body, department, commission, authority, tribunal, agency or entity, or any minister of the Crown in right of the Commonwealth of Australia or any State. Implementation Time means 11.59pm on the day immediately preceding the Implementation Date. Implementation Date means the date on which the Change of Company Type becomes effective. Independent Actuary means the consulting actuary appointed by ahm to opine on the Allocation Rules. Independent Expert means the independent expert in respect of the Scheme appointed by ahm. Information Memorandum means the booklet which incorporates the information described in clause 5.1(d) of the Merger Implementation Deed to be approved by the Court and dispatched to the ahm Members and which must include the Scheme, an explanatory statement complying with the requirements of the Corporations Act, an information memorandum providing the information required by clause 33.4 of ahm's Constitution in respect of the Demutualisation Resolution, the Independent Expert's report and the Independent Actuary's report, notices of meeting and proxy forms in the form the parties agree, and any related or incidental information to the above. Medibank means Medibank Private Limited (ACN 080 890 259). Merger means the acquisition of ahm by Medibank or its Nominee through: (a) the Demutualisation of ahm by the passing of the Demutualisation Resolution; (b) the granting of membership of ahm to Medibank or its Nominee; (c) the implementation of the Scheme; (d) the Change of Company Type; (e) ahm issuing the Subscription Shares to Medibank or its Nominee for the Scheme Consideration; and (f) the Registration Conversion. Merger Implementation Deed means the Merger Implementation Deed between ahm and Medibank dated 14 July 2008, which was amended and restated on 15 September 2008. Nominee means a company that is wholly owned (directly or indirectly) by Medibank. Participants means the Scheme Members and Residual Participants. Payment Authority Form means the form headed "Payment Authority Form" that accompanies the Information Memorandum or such other form as ahm may require. PHIA means the Private Health Insurance Act 2007 (Cth). Policy means a Complying Health Insurance Policy (as that term is defined in the Fund Rules) held by a Principal Policy Holder. Preferred Payment Method means: (a) if the Scheme Member has provided account details to ahm by completing and returning a Payment Authority Form, electronic funds transfer in Australian currency into that account; (b) otherwise, a cheque in Australian currency in the name of the Scheme Member, posted to the address to which correspondence is sent for the purposes of ahm membership matters or such other address as the Scheme Member may nominate in writing for this purpose. Prescribed ahm Member means an ahm Member who was not an ahm Member on the Cut-Off Date, but who the ahm Board has determined, in accordance with clause 8.2(b) of ahm's Constitution, should be permitted to become an ahm Member after the Cut-Off Date, being a person who falls into one of the following categories: (a) a person who left another private health insurance fund before the Cut-Off Date, provided ahm with a 'transfer certificate' from that previous private health insurance fund confirming the person's last date of cover, and whose application to become a Principal Policy Holder is accepted by ahm after the Cut-Off Date but within 30 days of the person's last date of cover; (b) a person who completed, signed, dated and submitted an application to become a Principal Policy Holder before the Cut-Off Date and whose application is accepted by ahm after the Cut-Off Date but within 21 days of the date of the application; (c) a person who was an insured (but not a Principal Policy Holder) under a Policy at the Cut-Off Date and who becomes the Principal Policy Holder of that Policy after the Cut-Off Date and at least 5 days before the Record Time, as a result of the death of the previous Principal Policy Holder; or (d) a person who the Review Committee determines, in accordance with the Review Committee Charter, should be an ahm Member. Principal Policy Holder has the meaning given in the Fund Rules. Record Time means 10.30am on 6 December 2008. Residual Amount has the meaning given in the Allocation Rules. Residual Participant means a Scheme Member who the Review Committee determines, after the Implementation Date but prior to 30 June 2009 should have received a greater Entitlement. Review Committee means the body established under the Review Committee Charter to determine whether a person should have been treated as a Scheme Member or whether the Estimated Entitlement of a Scheme Member was correct. Review Committee Charter means the charter setting out the terms of reference of the Review Committee set out in Schedule 3. Scheme means this scheme of arrangement, subject to any alterations or conditions made or required by the Court under section 411(6) of the Corporations Act and consented to by ahm and Medibank. Scheme Consideration means $367,000,000 to be allocated to Scheme Members in accordance with the provisions of the Scheme. Scheme Meeting means the meeting of ahm Members ordered by the Court to be convened under section 411(1) of the Corporations Act. Scheme Member means each ahm Member: (a) who was an ahm Member on the Cut-Off Date; or (b) or who is a Prescribed ahm Member, and who is an ahm Member at the Record Time, and Scheme Members means all of them. Second Court Date means the first day on which an application made to the Court for an order under section 411(4)(b) of the Corporations Act approving the Scheme is heard. Share Issue means the issue to Medibank or its Nominee of the Subscription Shares. Subscription Shares means the number of fully paid ordinary shares in the capital of ahm nominated by Medibank by written notice to ahm before the Implementation Date under clause 6.1(a) of the Merger Implementation Deed. Trust Account means the bank account to be established by the Trustee under clause 6. Trustee means Pacific Custodians Pty Limited. 1.2 Interpretation In this Scheme, except where the context otherwise requires: (a) the singular includes the plural and vice versa, and a gender includes other genders; (b) another grammatical form of a defined word or expression has a corresponding meaning; (c) a reference to a clause, paragraph, schedule or annexure is to a clause or paragraph of, or schedule or annexure to, this Scheme, and a reference to this Scheme includes any schedule or annexure; (d) a reference to a document or instrument includes the document or instrument as novated, altered, supplemented or replaced from time to time; (e) a reference to A$, $A, dollar or $ is to Australian currency; (f) a reference to time is to Sydney, Australia time; (g) a reference to a party is to a party to this Scheme, and a reference to a party to a document includes the party's executors, administrators, successors and permitted assigns and substitutes; (h) a reference to a person includes a natural person, partnership, body corporate, association, governmental or local authority or agency or other entity; (i) a reference to a statute, ordinance, code or other law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any of them; (j) a word or expression defined in the Corporations Act has the meaning given to it in the Corporations Act; (k) the meaning of general words is not limited by specific examples introduced by including, for example or similar expressions; (l) any agreement, representation, warranty or indemnity by two or more parties (including where two or more persons are included in the same defined term) binds them jointly and severally; (m) any agreement, representation, warranty or indemnity in favour of two or more parties (including where two or more persons are included in the same defined term) is for the benefit of them jointly and severally; (n) a rule of construction does not apply to the disadvantage of a party because the party was responsible for the preparation of this agreement or any part of it; and (o) if a day on or by which an obligation must be performed or an event must occur is not a Business Day, the obligation must be performed or the event must occur on or by the next Business Day. 1.3 Headings Headings are for ease of reference only and do not affect interpretation. 2. Preliminary 2.1 ahm ahm is a public company limited by guarantee, incorporated in Australia and registered in New South Wales. 2.2 Medibank Medibank is a public company limited by shares, incorporated in Australia and registered in the Australian Capital Territory. 2.3 Scheme The ahm Board considers that the Scheme is in the best interests of ahm and the ahm Members as a whole and does not materially affect any creditors of ahm. 2.4 Merger Implementation Deed (a) Under the Merger Implementation Deed, ahm and Medibank have agreed to implement the Merger. (b) The subscription price of $367,000,000 for the Share Issue will be used to satisfy Medibank's payment obligations under the Scheme. (c) To facilitate the Scheme, ahm and Medibank have entered into the Merger Implementation Deed under which Medibank and ahm have agreed to observe all the provisions of the Scheme which relate to them and to do everything within their power that is necessary to give full effect to the Scheme. 2.5 Deed Poll To facilitate the Scheme, Medibank has entered into the Deed Poll under which Medibank gives promises in favour of the Scheme Members that it will make the payment to ahm referred to in clause 2.4(b) as and when the payment falls due under the Merger Implementation Deed. 2.6 Undertaking for Scheme Members ahm undertakes in favour of each Scheme Member, to enforce the Deed Poll against Medibank on behalf of, and as agent and attorney for, the Scheme Members. 3. Conditions Precedent 3.1 Conditions Precedent The Scheme is conditional upon the satisfaction of the following conditions precedent: (a) each condition precedent set out in clause 3.1 of the Merger Implementation Deed being satisfied or, in accordance with the terms of the Merger Implementation Deed, waived; and (b) the Merger Implementation Deed not having been terminated as at 8.00am on the Court Approval Date. 3.2 Certificate in relation to conditions On the Second Court Date (or the Court Approval Date if different from the Second Court Date) ahm must provide to the Court a certificate or such other evidence as the Court requires confirming whether or not all the conditions precedent to this Scheme have been satisfied or waived, other than the condition relating to Court approval of the Scheme. 3.3 Satisfaction of conditions (a) ahm and the ahm Members shall not have any rights or obligations under clause 5 unless and until the Conditions Precedent have been satisfied. (b) This Scheme will lapse and be of no further force or effect if the Conditions Precedent are not satisfied on or before the End Date or such later date as the Court, with the consent of ahm and Medibank, may order. 4. Lodgement (a) If the Conditions Precedent are satisfied, ahm will lodge with ASIC an office copy of the Court order made under section 411(4)(b) of the Corporations Act approving the Scheme. (b) The Court order is taken to have effect on and from the time and date specified in that order. 5. Implementation of Scheme 5.1 Implementation steps The following steps will occur at the times and on the dates set out below, subject to Medibank making payment of the Scheme Consideration into the Trust Account in accordance with the Merger Implementation Deed: (a) at the Implementation Time, the Trustee will commence to hold the moneys standing to the credit of the Trust Account (subject to clause 5.1(b)) on trust for ahm as pre-payment of the issue price for the Share Issue; (b) at the Implementation Time, the ahm memberships of all Scheme Members other than Medibank or its Nominee will be cancelled and the liability of each Scheme Member (other than Medibank or its Nominee) as a guarantor on a winding up of ahm will be extinguished and each Scheme member (other than Medibank ) will cease to be a member of ahm; and (c) in consideration for the cancellation of the ahm memberships and extinguishment of liability referred to in clause 5.1(b), on the Implementation Date, ahm will pay the Scheme Consideration in the manner set out in clause 5.2. 5.2 Payment of Scheme Consideration (a) Subject to Medibank making payment of the Scheme Consideration into the Trust Account in accordance with the Merger Implementation Deed, on the Implementation Date, ahm will direct the Trustee to: (i) within 10 Business Days after the Implementation Date, distribute Entitlements to the Scheme Members; and (ii) no later than 10 Business Days after 30 June 2009, distribute: (A) any payments the Review Committee has determined are to be made to Residual Participants; and (B) the balance, if any of the Residual Amount to Scheme Members, in each case in accordance with the Allocation Rules, with such payments being satisfied from the Trust Account in accordance with clause 6. 5.3 End Date If the Implementation Date does not occur on or before the End Date: (a) the steps referred to in clauses 5.1 and 5.2 will not occur; and (b) ahm and Medibank must procure that the Trustee immediately repays the Scheme Consideration, and all other moneys standing to the credit of the Trust Account to Medibank in cleared funds (and otherwise in such manner as Medibank directs). 6. Payments under the Scheme 6.1 Trust Account (a) The Trust Account must be established on or before the Second Court Date in accordance with clause 4 of the Merger Implementation Deed. (b) Any interest on amounts standing to the credit of the Trust Account (less bank fees and other charges) shall be to Medibank's account. (c) The Trust Account must be managed in accordance with clause 4 of the Merger Implementation Deed and this clause 6, and ahm and Medibank must direct the Trustee accordingly. (d) To the extent there is a surplus in the Trust Account (as a result of rounding of payments) after all amount required to be paid under this clause 6 have been paid, that surplus must be repaid to Medibank. 6.2 Payments Subject to: (a) Medibank making the payment of the Scheme Consideration into the Trust Account in accordance with the Merger Implementation Deed; and (b) the occurrence of the events described in clause 5.1(a) and 5.1(b), ahm must direct the Trustee to pay from the Trust Account the amounts required to be paid under clause 5.2 by sending those amounts by the relevant Participant's Preferred Payment Method. 6.3 Unclaimed monies (a) ahm may direct the Trustee to cancel a cheque issued under clause 6.2 if the cheque: (i) is returned to ahm or the Trustee; or (ii) has not been presented for payment within six months after the date on which the cheque was sent. (b) During the period of one year commencing on the Implementation Date, on request by a Participant, ahm must, or must cause the Trustee to, reissue a cheque that was previously cancelled under clause 6.3(a). 6.4 Correction of Allocation The Estimated Entitlement on the Allocation Form sent to the Scheme Members may be corrected by ahm with Medibank's agreement, subject only to a decision made under the Review Committee Charter. 7. The Review Committee ahm will establish the Review Committee, perform its obligations under the Review Committee Charter and implement the decisions made by the Review Committee in accordance with the Review Committee charter. The provisions of the Review Committee Charter are incorporated into and form part of the Scheme. 8. Power of Attorney Each ahm Member, without need for any further act, irrevocably appoints ahm and all its directors and officers (jointly and severally) as its attorney for the purpose of executing ay document or doing any act necessary to give effect to the Scheme and the transactions contemplated by it. 9. Indemnity of directors, officers and agents To the extent permitted by the Corporations Act, ahm must indemnify each director, officer or agent of ahm against any liability incurred as such a director, officer or agent to any other person (other than ahm or a related body corporate) arising from anything done or from anything omitted to be done in performance or purported performance of the Scheme unless the liability arises out of conduct involving lack of good faith. 10. General 10.1 No changes to ahm members after the Record Time ahm must not admit any person as a member of ahm (other than Medibank or its Nominee in accordance with the Merger Implementation Deed) after the Record Time. 10.2 Alterations and conditions If the Court proposes to approve this Scheme subject to any alterations or conditions, ahm may, by its counsel or solicitors but subject to the prior written approval of Medibank, consent on behalf of all ahm Members to those alterations or conditions. 10.3 Scheme binding The Scheme: (a) binds ahm and the ahm Members including those who do not attend the Scheme Meeting, those who do not vote at that meeting and those who vote against the Scheme at that meeting; and (b) to the extent permitted by law, overrides the ahm Constitution to the extent of any inconsistency. 10.4 Covenants by Scheme Members Each Scheme Member consents to ahm doing all things and executing all deeds, instruments, transfers or other documents as may be necessary or desirable to give full effect to this Scheme and the transactions contemplated by it. 10.5 Notices Where a notice, transfer, transmission application, direction or other communication referred to in this Scheme is sent by post to ahm, it will not be deemed to be received in the ordinary course of post or on a date other than the date (if any) on which it is actually received at ahm's registered office. 10.6 Further assurances ahm will do all things and execute all deeds, instruments, transfers or other documents as may be necessary or desirable to give full effect to this Scheme and the transactions contemplated it. 10.7 Costs Medibank will pay all costs and stamp duty and any related fines, interest and penalties in respect of the Scheme and each transaction effected by or made under the Scheme. 10.8 Governing law The governing law of this Scheme is the law of New South Wales. Schedule 1 – Allocation Rules 1. OBJECT These Allocation Rules set out the basis for determining the Initial Entitlements and Residual Entitlements to be distributed in accordance with the provisions of the Scheme and how Review Committee determinations are to be dealt with. 2. DEFINITIONS Capitalised terms used but not defined in these Allocation Rules have the same meaning as in the Glossary to the Information Memorandum. In addition: Ambulance Only Policy a Policy covering the provision of specified ambulance services only as per the Fund Rules Base Allocation as defined in rule 7.1. Druids' Health Fund the health benefits fund which was conducted by Acorn Prudential Limited (ACN 087 648 708) (formerly United Ancient Order of Druids Friendly Society N.S.W. Ltd) in its capacity as a registered health benefits organisation under the National Health Act 1953 (Cth) (as it was). Druids' Transfer Date in relation to a Member who was a former member of the Druids' Health Fund, the date on which they were issued a private health insurance policy by ahm in substitution for the private health insurance policy they held with the Druids' Health Fund. Duration Allocation as defined in rule 7.2. Extras Only Policy a Policy held by a Member who is only covered under one of the following ahm products. * Basic Extras * Super Extras * Lifestyle Extras * Family Extras For Members who are suspended at the Cut-Off Date and prior to suspension had a product that is now not part of ahm's product suite, then they will be deemed to be covered by the current equivalent product. Final Residual Amount as defined in rule 6. Hospital and Extras Policy a Policy held by a Member who is only covered under one of the following ahm product combinations: * Basic Hospital & Basic Extras * Basic Hospital & Family Extras * Basic Hospital & Super Extras * Basic Hospital & Lifestyle Extras * Essential Hospital & Basic Extras * Essential Hospital & Family Extras * Essential Hospital & Super Extras * Essential Hospital & Lifestyle Extras * Essential Hospital Level 5 & Basic Extras * Essential Hospital Level 5 & Family Extras * Essential Hospital Level 5& Super Extras * Essential Hospital Level 5 & Lifestyle Extras * Essential Hospital Level 5 & Basic Extras * Essential Hospital Level 5 & Family Extras * Essential Hospital Level 5& Super Extras * Essential Hospital Level 5 & Lifestyle Extras * Essential Hospital Level 5 & Basic Extras * Essential Hospital Level 5 & Family Extras * Essential Hospital Level 5& Super Extras * Essential Hospital Level 5 & Lifestyle Extras * Family Hospital & Basic Extras * Family Hospital & Family Extras * Family Hospital & Super Extras * Family Hospital & Lifestyle Extras * Family Hospital Level 5 & Basic Extras * Family Hospital Level 5 & Family Extras * Family Hospital Level 5 & Super Extras * Family Hospital Level 5 & Lifestyle Extras * Top Hospital & Basic Extras * Top Hospital & Top Family Extras * Top Hospital & Super Extras * Top Hospital & Lifestyle Extras * Top Hospital Level 5 & Basic Extras * Top Hospital Level 5 & Top Family Extras * Top Hospital Level 5 & Super Extras * Top Hospital Level 5 & Lifestyle Extras * Top Hospital Level 8 & Basic Extras * Top Hospital Level 8 & Top Family Extras * Top Hospital Level 8 & Super Extras * Top Hospital Level 8 & Lifestyle Extras * Top Hospital & Ancillary Cover * Top Hospital Level 5 & Ancillary Cover For Members who are suspended at the Cut-Off Date and prior to suspension had a product that is now not part of ahm's product suite, then they will be deemed to be covered by the current equivalent product. Hospital Only Policy a Policy held by a Member who is only covered under one of the following ahm products: * Basic Hospital * Essential Hospital * Essential Hospital Level 5 * Family Hospital * Family Hospital Level 5 * Top Hospital * Top Hospital Level 5 * Top Hospital Level 8 For Members who are suspended at the Cut-Off Date and prior to suspension had a product that is now not part of ahm's product suite, then they will be deemed to be covered by the current equivalent product. Illawarra Health Fund the Illawarra Health Fund, being a fund conducted under the National Health Act 1953 (Cth) (as it was). Illawarra Transfer Date in respect of a Member who was a former member of the Illawarra Health Fund, the date on which they were issued a private health insurance policy by ahm in substitution for the private health insurance policy they held with the Illawarra Health Fund pursuant to the acquisition of the Illawarra Health Fund by ahm. Joining Date as defined in rule 4. Non-Single Policy a Policy other than a Single Policy. Policy Type this refers to the type of Policy or Policies held, as grouped for allocation purposes; that is Ambulance Only Policy, Hospital Only or Extras Only Policy, or Hospital and Extras Policy Residual Amount a dollar amount equivalent to $5 million plus the aggregate amount of Initial Entitlements allocated but not paid to persons who cease to be Members before the Record Time plus the amount arising from the rounding down of the Unit Value to the nearest whole cent. Residual Entitlement the amount to be paid to a Participating Member in accordance with rule 6. Residual Entitlement Date 30 June 2009. Residual Unit Value as defined in rule 6. Single Policy a Policy with only one person covered. Unit the measure used to allocate the Merger Consideration in accordance with these Allocation Rules. Unit Value as defined in rule 5. Years of Non-Single Membership as determined in accordance with rule 8. Years of Single Membership as determined in accordance with rule 8. 3. PARTICIPATION IN ALLOCATION All Members will be allocated an Initial Entitlement but will only receive that Entitlement if they are also a Participating Member. A Participating Member is a person who: (a) was a Member on 13 July 2008 (the 'Cut-Off Date'); or (b) is a Prescribed Member, and remains a Member at 10.30am (AEDT) on 6 December 2008 (the 'Record Time'). 4. JOINING DATE The Joining Date is defined as: (a) if a Member is a former member of the Druids' Health Fund, the later of the date from which the Member joined the Druids' Health Fund and 3 October 1976, provided that the Member held a private health insurance policy issued by the Druids' Health Fund up to the Druids' Transfer Date and has had continuous private health insurance under a policy issued by ahm since the Druids' Transfer Date; (b) if a Member is a former member of the Illawarra Health Fund, the later of the date from which the Member joined the Illawarra Health Fund and 3 October 1976, provided that the Member held a private health insurance policy issued by the Illawarra Health Fund up to the Illawarra Transfer Date and has had continuous private health insurance under a policy issued by ahm since the Illawarra Transfer Date; or (c) for all other Members, the date from which the Member became an insured under a private health insurance policy issued by ahm and since that date has continuously remained insured, provided that if that date is before 3 October 1976, it shall be deemed to be 3 October 1976 5. CALCULATION OF INITIAL ENTITLEMENT The Initial Entitlement allocated to a Member is calculated as follows: Initial Entitlement = Number of Units x Unit Value rounded down to the nearest whole cent where Number of Units is the sum of a. Base Allocation allocated to a Member in accordance with sub-rule 7.1; and b. Duration Allocation allocated to a Member in accordance with sub-rule 7.2. Unit Value is calculated by dividing the Initial Amount by the total number of Units allocated to all Members as at 15 September 2008, rounded down to the nearest whole cent. 6. CALCULATION AND PAYMENT OF RESIDUAL ENTITLEMENT The Residual Amount will be used to distribute amounts to Participating Members pursuant to the determinations of the Review Committee in accordance with the Review Committee Charter. As required by the Review Committee Charter, these determinations must be made by the Residual Entitlement Date. The balance of the Residual Amount at 30 June 2009 is the "Final Residual Amount". The Final Residual Amount, if any, will be used to distribute Residual Entitlements to Participating Members by 14 July 2009. The Residual Entitlement of a Participating Member is calculated at the Residual Entitlement Date as follows: Residual Entitlement = Final Number of Units x Residual Unit Value rounded down to the nearest whole cent where Final Number of Units is the Number of Units as determined in accordance with rule 5 or (if applicable) as subsequently amended by the Review Committee in accordance with the Review Committee Charter; and Residual Unit Value means the Final Residual Amount divided by the sum of the Final Number of Units allocated to all Participating Members. 7. DETERMINATION OF BASE ALLOCATION AND DURATION ALLOCATION 7.1 Base Allocation The Base Allocation is the number of Units set out in Table 1 in respect of a Policy held by a Member at the Cut-Off Date. Table 1 Policy Type (at the Cut-Off Date) Base Allocation (Units) Single Policy Non-Single Policy Ambulance Only 20 40 Hospital Only or Extras Only 200 400 Hospital and Extras 400 800 7.2 Duration Allocation The Duration Allocation in respect of a Policy is the number of Single Membership Units set out in Table 2 multiplied by the Years of Single Membership plus the number of Non-Single Membership Units set out in Table 2 multiplied by the Years of Non-Single Membership, in each case by reference to the Policy Type held at the Cut-Off Date. Table 2 Policy Type (at the Cut-Off Date) Duration Allocation (Units) per year of membership Single Membership Non-Single Membership Ambulance Only 6.5 13 Hospital Only or Extras Only 65 130 Hospital and Extras 130 260 8. CALCULATION OF YEARS OF NON-SINGLE MEMBERSHIP AND YEARS OF SINGLE MEMBERSHIP The Years of Single Membership and Years of Non-Single Membership used in determining the Duration Allocation for each Member are calculated as follows: a. Total Years of Membership is the years and days between the Joining Date and Cut-Off Date, less any periods of valid suspension, rounded up to the nearest whole year. b. Total Years of Non-Single Membership is the years and days between the Joining Date and Cut-Off Date for which the Member held a Non-Single Policy, less any periods of valid suspension the Member was deemed to hold a Non-Single Policy, rounded up to the nearest whole year. c. Years of Single Membership is the Total Years of Membership less the Years of Non-Single Membership. d. When calculating the Duration Allocation of a Participating Member to which rule 4(a) or 4 (b) applies, any health insurance policy or policies held by that Participating Member with the Druids' Health Fund or the Illawarra Health Fund (as the case may be) from the Joining Date will be treated as a Policy. 9. MULTIPLE POLICIES Where a Member held more than one Policy of the same Policy Type at the Cut-Off Date, Units will be allocated in respect of the Policy which resulted in that Member receiving the highest Duration Allocation. Where a Member held more than one Policy of different Policy Types at the Cut-Off Date, Units will be allocated in respect of each Policy of unique Policy Type. 10. DETERMINATION OF THE REVIEW COMMITTEE a. If, prior to the Record Time, the Review Committee determines that a person should be treated as a Participating Member, then they shall be allocated an Initial Entitlement in accordance with rule 5. b. If the Review Committee determines the Number of Units should be increased, then the increased Number of Units shall be allocated to the Member. 11. MAXIMUM DISTRIBUTION The aggregate of all Initial Entitlements and Residual Entitlements paid under these Allocation Rules is capped at and cannot exceed the Merger Consideration of $367 million. Schedule 2 – Deed Poll 11. Deed Poll ~*~ Details Date Deed Poll by Name Medibank Private Limited ACN080 890 259 of Level 17, 700 Collins Street, Docklands, VIC 3008 (Medibank) In favour of Name each Scheme Member Background A On 14 July 2008, Medibank and ahm entered into the Merger Implementation Deed which was amended and restated on 15 September 2008. B Under the Merger Implementation Deed, Medibank has agreed, subject to the satisfaction or waiver of certain conditions, to execute this Deed Poll. C Medibank is entering into this Deed Poll to covenant in favour of the Scheme Members to perform its obligations under the Merger Implementation Deed and the Scheme, including the provision of the Scheme Consideration. Agreed terms 1. Defined terms & interpretation 1.1 Defined terms In this Deed Poll: (a) Merger Implementation Deed means the Merger Implementation Deed between ahm and Medibank dated 14 July 2008 which was amended and restated on 15 September 2008. (b) Scheme means the scheme of arrangement under Part 5.1 of the Corporations Act between ahm and the Scheme Members, the form of which is attached as Annexure A to the Merger Implementation Deed. (c) words and expressions defined in the Merger Implementation Deed have the same meanings when used in this Deed Poll. (d) this Deed Poll is to be interpreted according to corresponding rules to those set out in paragraph 1.2 of Schedule 1 of the Merger Implementation Deed save that references to 'this deed' in that paragraph 1.2 will be taken as being references to 'this Deed Poll'. 1.2 Nature of Deed Poll Medibank acknowledges that this Deed Poll may be relied on and enforced by any Scheme Member in accordance with its terms even though those persons are not party to this Deed Poll. 2. Conditions Precedent and Termination 2.1 Conditions Precedent Medibank's obligations under clause 3 are subject to the Scheme becoming Effective. 2.2 Termination The obligations of Medibank under this Deed Poll to the Scheme Members will automatically terminate, and the terms of this Deed Poll will be of no further force or effect, if the Merger Implementation Deed is terminated in accordance with its terms or the Scheme is not Effective by the End Date. 2.3 Consequences of Termination If this Deed Poll is terminated under clause 2.2 then, in addition and without prejudice to any other rights, powers or remedies available to Medibank: (a) Medibank is released from its obligations to further perform this Deed Poll except those obligations contained in clause 11; and (b) Scheme Members retain the rights they have against Medibank in respect of any breach of this Deed Poll by Medibank which occurred before termination of this Deed Poll. 3. Payment of Merger Consideration Subject to clause 2, Medibank undertakes in favour of each Scheme Member to pay the Merger Consideration to the Trustee as and when the Merger Consideration is required to be paid by it under the Merger Implementation Deed in the manner specified in clause 4 of the Merger Implementation Deed. 4. Warranties Medibank represents and warrants that: (a) it is a corporation validly existing under the laws of its place of incorporation; (b) it has the corporate power to enter into and perform its obligations under this Deed Poll and to carry out the transactions contemplated by this Deed Poll; (c) it has taken all necessary corporate action to authorise its entry into this Deed Poll and has taken or, if the conditions precedent referred to in clause 2.1 are satisfied or waived, will take all necessary corporate action to authorise the performance of this Deed Poll and to carry out the transactions contemplated by this Deed Poll; and (d) this Deed Poll is valid and binding upon it and enforceable in accordance with its terms. 5. Continuing obligations This Deed Poll is irrevocable and remains in full force and effect until Medibank has completely performed its obligations under this Deed Poll or the earlier termination of this Deed Poll under clause 2. 6. Further assurances Medibank will do all things and execute all deeds, instruments, transfers or other documents as may be necessary or desirable to give full effect to the provisions of this Deed Poll and the transactions contemplated by it. 7. Notices (a) A notice, consent or other communication (Notice) under this Deed Poll is only effective if it is: (i) in writing, signed by or on behalf of the person giving it; (ii) addressed to the person to whom it is to be given; and (iii) either: (A) delivered or sent by pre-paid mail to that person's address; or (B) sent by fax to that person's fax number and the machine from which it is sent produces a report that states that it was sent in full. (b) A Notice that complies with this clause 7 is regarded as given and received: (i) if it is delivered or sent by fax: (A) by 5.00pm (local time in the place of receipt) on a Business Day - on that day; or (B) after 5.00pm (local time in the place of receipt) on a Business Day, or on a day that is not a Business Day - on the next Business Day; and (ii) if it is sent by mail: (A) within Australia - 3 Business Days after posting; or (B) to or from a place outside Australia - 7 Business Days after posting. (c) A person's address and fax number are those set out below, or as the person notifies the sender: Medibank: Address: Level 17, 700 Collins Street, Docklands, VIC 3008 Fax number: + 61 3 8622 5013 Attention: Company Secretary 8. Remedies cumulative The rights, powers and remedies provided to Medibank and the Scheme Members in this Deed Poll are in addition to, and do not exclude or limit, any right, power or remedy provided by law or equity. 9. Variation A provision in this Deed Poll may only be varied by Medibank if: (a) the variation is agreed to by ahm; and (b) the Court indicates that the amendment would not of itself preclude approval of the Scheme, in which event Medibank will enter into a further Deed Poll in favour of the Scheme Members giving effect to such amendment. 10. No waiver No failure to exercise nor any delay in exercising any right, power or remedy by a party operates as a waiver. A single or partial exercise of any right, power or remedy does not preclude any other or further exercise of that or any other right, power or remedy. A waiver is not valid or binding on the party granting that waiver unless made in writing. 11. Costs and stamp duty All stamp duty that may be payable on or in connection with this Deed Poll and any instrument effected by, executed under or pursuant to this Deed Poll must be borne by Medibank. Medibank must indemnify each Scheme Member on demand against any liability for those costs and that stamp duty. 12. Assignment The rights of each Scheme Member under this Deed Poll are personal. They cannot be assigned, encumbered or otherwise dealt with at law or in equity and no Scheme Member may attempt, or purport, to do so without the prior written consent of Medibank. 13. Governing law and jurisdiction This Deed Poll is governed by the laws of New South Wales. Medibank submits to the non-exclusive jurisdiction of courts exercising jurisdiction there in connection with matters concerning this Deed Poll. Signing page EXECUTED as a Deed Poll. Executed by Medibank Private Limited in accordance with Section 127 of the Corporations Act 2001 ¬ ¬ Signature of director Signature of director/company secretary (Please delete as applicable) Name of director (print) Name of director/company secretary (print) Schedule 3 – Review Committee Charter 1. OBJECTIVE AND DEFINITIONS 1.1 Charter This document is the Review Committee Charter referred to in the Scheme and the Information Memorandum issued by ahm. This Review Committee Charter sets out the role and powers of the Review Committee, the body of persons who together constitute the Review Committee, the procedure for seeking a Request for a review and the procedure for considering such a Request. 1.2 Definitions Capitalised terms used but not defined in this Review Committee Charter have the same meaning as those terms have in the Information Memorandum and: Allocation Review Request Form means the form attached to this Review Committee Charter or such other form as ahm approves in writing. Alternate means the alternate of a Review Committee Member. Applicant means a person who is or was: (a) a Member on the Cut-Off Date or a Member who falls within one of the categories of person in paragraphs (a) to (c) of the definition of Prescribed Member; or (b) in relation to a Request under clause 2.2(b), the Principal Policy Holder of the Policy to which the Request relates. Board Chairman means the chairman of the Board of ahm. Chairmanmeans the chairman of the Review Committee. Company Secretary means the company secretary of ahm. Request means a request for review made by an Applicant in accordance with this Review Committee Charter. Review Committee Member means a member of the Review Committee appointed under clause 4.1. Review Committee Secretary means the person appointed as secretary to the Review Committee under clause 4.3. Reviewer means the Board Chairman, or in his or her absence or if conflicted under clause 8, an alternate agreed between ahm and Medibank, or such other person as ahm and Medibank agree to appoint as a Reviewer. 1.3 Requests for review The Review Committee may only consider and determine a Request where the Request relates to: (a) the number of Units to be allocated to the Applicant in respect of his or her Entitlement (that is, whether the Allocation Rules have been correctly applied in calculating the number of Units to be allocated to the Applicant); or (b) whether the Applicant should have been treated as a Participating Member (and is therefore eligible to receive an Entitlement). 1.4 Requests for review determined before the Implementation Date Before the Implementation Date, the Review Committee may only consider and determine a Request received by the Company Secretary no later than 5.00pm (AEDT) on 15 November 2008. 1.5 Requests for review determined after the Implementation Date After the Implementation Date, the Review Committee may only consider and determine a Request received by the Company Secretary after 5.00pm (AEDT) on 15 November 2008 and on or before 5.00pm (AEST) on 31 May 2009, and only if the Request relates to clause 2.2(a). 1.6 Privacy ahm and Medibank will comply with the Privacy Actin relation to this Review Committee Charter. ahm may provide personal information of an Applicant (including personal information of any other person supplied to ahm by the Applicant) to Medibank and to the Review Committee Members and Alternates or to the Reviewer or any experts appointed to assist the Review Committee. By providing information contained in the Review Request Form or providing any additional information sought in respect of a Request, an Applicant (or that other person in respect of whom the Applicant provides information to ahm) consents to the use and disclosure of his or her personal information for the purpose of considering and making a decision in respect of the relevant Request. An Applicant (or that other person) can generally access personal information that ahm holds about the Applicant (or that other person). Sometimes there will be a reason why full access to that information is not possible, in which case ahm will explain why such access is not possible. To make a request for access to personal information, an Applicant must contact the Company Secretary. 1.7 Form of Request for review by Applicant A Request must be made in writing by the Applicant in person by completing an Allocation Review Request Form, as described in clause 3. 1.8 Non-conforming Request The Review Committee may accept a Request made on behalf of an Applicant if the Request cannot be made by the Applicant in person (for example, where the Applicant has died, lacks mental capacity or where there is some other good reason why the Applicant is unable to make the Request personally). 1.9 Initiation of Request by ahm ahm may of its own volition also make a Request on behalf of an Applicant or group of Applicants if ahm in its sole discretion considers it appropriate to do so. 2. SCOPE OF AUTHORITY 2.1 Material to be considered In considering a Request, the Review Committee (and where relevant, the Reviewer) must only have regard to this Review Committee Charter, the Allocation Rules, the information provided by the Applicant in the Allocation Review Request Form and the records of ahm (including without limitation ahm's policies). 2.2 Matters to be considered In considering a Request, the Review Committee (and where relevant, the Reviewer) must only consider: (a) whether the number of Units allocated to the Applicant under the Allocation Rules is correct; or (b) in the case of a Request that the Applicant be considered to be a Participating Member, whether the Applicant should be so considered and if so, the number of Units to be allocated to the Applicant. For the avoidance of doubt, the Review Committee shall not have the power to alter the Allocation Rules. 2.3 Review Committee not required to give reasons The Review Committee is not required to give reasons to an Applicant for its decision in respect of any Request. 2.4 No decrease in Units If the Review Committee (or where relevant, the Reviewer) determines that the Allocation Rules have not been correctly applied to an Applicant such that their correct application in relation to a Request under clause 2.2(a) or clause 2.2(b) would result in a lesser number of Units being allocated to the Applicant, then the Review Committee (or the Reviewer) must dismiss that Request. 2.5 Factors for consideration – Request under clause 2.2(b) In considering a Request under clause 2.2(b), the Review Committee may have regard to any one or more of the following factors: · whether the Applicant was, or was entitled to be, a Member on the Cut-Off Date; · whether the Applicant falls within the categories of person described in paragraphs (a) to (c) of the definition of Prescribed Member; · whether the Applicant did not know and/or reasonably ought not to have known that the Policy was more than 2 months in arrears; · whether ahm failed to send a notice to the Applicant before the Policy was more than 2 months in arrears advising the Applicant that the Policy was in arrears; · whether the Policy was more than 2 months in arrears at the time it was cancelled; · whether the Applicant sought advice from ahm in relation to the cancellation or alteration of the Policy; · information from the records or personnel of ahm as to contacts made by the Applicant with ahm; and · such other matters as the Review Committee determines are relevant to considering the Request. 3. REQUEST BY APPLICANT 3.1 Content of Request A Request must: (a) be made by completing an Allocation Review Request Form; and (b) attach any relevant documents or information in support of the Request. The Review Committee has the discretion to reject a Request made other than by way of a correctly completed Allocation Review Request Form. 3.2 Statutory declaration The Company Secretary may require that information supplied or to be supplied by an Applicant in relation to a Request be in the form of a statutory declaration. 4. MEMBERSHIP AND MEETINGS 4.1 Review Committee membership Before the Implementation Date, the Review Committee will comprise four Review Committee Members or their Alternates, with two persons being nominated by ahm and two persons being nominated by Medibank. An Alternate appointed by ahm or Medibank (as the case may be) may act as an Alternate for any Review Committee Member nominated by ahm or Medibank respectively. If a Review Committee Member or an Alternate is unable or unwilling to continue as a member of the Review Committee, he or she must notify ahm or Medibank (as the case may be) and ahm or Medibank (as the case may be) may appoint another person to the Review Committee in their place. Each of ahm and Medibank may remove and replace their respective nominees on the Review Committee. ahm must ensure that the Review Committee Members appointed by ahm and the Reviewer act in accordance with this Review Committee Charter. Medibank must ensure that the Review Committee Members appointed by Medibank act in accordance with this Review Committee Charter. After the Implementation Date, the two persons who were nominated by ahm or their Alternates will resign and be replaced by two persons nominated by Medibank. 4.2 Chairman of the Review Committee Before the Implementation Date, the Chairman of the Review Committee will be a Review Committee Member nominated by ahm under clause 4.1 or such other Review Committee Member appointed to the position of Chairman by ahm and Medibank. After the Implementation Date, the Chairman of the Review Committee will be a Review Committee Member nominated by Medibank. 4.3 Review Committee Secretary Before the Implementation Date, the Review Committee will appoint a person nominated by ahm to act as the Review Committee Secretary who must: (a) attend all meetings of the Review Committee and minute proceedings as directed by the Review Committee; (b) notify the Company Secretary of all decisions of the Review Committee as soon as possible and in any case within a period of time that will enable the Company Secretary to respond to Applicants in accordance with clause 8; and (c) maintain records including a register of all Requests received and considered by the Review Committee (or where relevant, the Reviewer), and the decisions made by the Review Committee (or where relevant, the Reviewer) in relation to those Requests. After the Implementation Date, the Review Committee will appoint a person nominated by Medibank to act as the Review Committee Secretary. 4.4 Quorum Before the Implementation Date, a quorum for a meeting of the Review Committee is three, one of whom must be a Review Committee Member or Alternate appointed by ahm and one of whom must be a Review Committee Member or Alternate appointed by Medibank. After the Implementation Date, a quorum for a meeting of the Review Committee is three. 4.5 Meetings The Review Committee will meet at such times, at such places or in such manner as the Chairman may decide and for this purpose the Review Committee Members may attend meetings by telephone, teleconference, videoconference or other means approved by the Chairman. Meetings will be scheduled and held with a view to dealing with all Requests consistently with the timetable specified in clause 4.13. 4.6 Resolutions in writing A circulating resolution signed by all Review Committee Members is a valid resolution of the Review Committee. A written resolution signed by the Reviewer, in relation to a Request referred to the Reviewer by the Review Committee, will be deemed to be a valid resolution of the Review Committee in relation to that Request. 4.7 Notice of meetings The Review Committee Secretary will give notice of meetings of the Review Committee to the Review Committee Members as directed by the Chairman. 4.8 Voting Each Review Committee Member has one vote. The Chairman does not have a casting vote. 4.9 Decisions – reference to Reviewer If a decision of the Review Committee in relation to a Request is not unanimous (or a quorum cannot be achieved to consider a Request due to the application of clause 8) then the Request must be referred to the Reviewer who will have the same powers and authorities as the Review Committee and whose decision in respect of that Request will be deemed to be the decision of the Review Committee. The Review Committee Secretary must, subject to clause 2.1, provide the Reviewer with all the information requested by the Reviewer to assist the Reviewer to reach a decision in relation to a Request referred to the Reviewer by the Review Committee. 4.10 Procedure – stage 1 On receipt of a Request, the Review Committee Secretary must: (a) obtain data from ahm's records in relation to the Applicant including the calculation of the Units allocated to the Applicant or any relevant Policy held by the Applicant; (b) seek any additional information from the Applicant that the Review Committee Secretary considers may be relevant to the consideration of the Request by the Review Committee; and (c) provide to the Review Committee the Request together with the information referred to in clauses 4.10(a) and 4.10(b) and may include a recommendation as to how the Request should be dealt with by the Review Committee. 4.11 Procedure – stage 2 On considering a Request, the Review Committee may: (a) determine to reject the Request; (b) if the Request is in respect of whether the Applicant should have been treated as a Participating Member, determine that the Applicant is a Participating Member and determine the number of Units to be allocated to the Applicant; (c) if the Request relates to the number of Units allocated to the Applicant, determine to confirm or increase the number of Units allocated to the Applicant; (d) request that the Review Committee Secretary obtain further information in respect of the Request; (e) if the Applicant does not provide a correctly completed Allocation Review Request Form, either determine to reject the Request or request that the Applicant complete an Allocation Review Request Form and if such a form is not provided, determine to reject the Request; (f) if the Review Committee Secretary has requested further information in respect of the Request and the Applicant has failed to provide this information, or the Review Committee Secretary is unable to contact the Applicant to obtain the required further information, and the information before the Review Committee is insufficient to enable a decision to be made, determine to reject the Request; (g) request the attendance of relevant ahm employees or senior management at a meeting of the Review Committee to assist in consideration of the Request; (h) request the provision of expert advice; and (i) refer the Request to the Reviewer in accordance with clause 4.9. 4.12 Procedure generally The Review Committee may determine its procedures subject to this Review Committee Charter and in particular may consider Requests in batches where it is reasonably satisfied that the Requests raise similar issues for decision that would allow the Requests to be considered together and a decision in relation to such a batch of Requests will be a decision in relation to each Request in that batch, subject to any contrary direction of the Review Committee. The Review Committee must act in a fair and equitable manner but is not required to interview any Applicant and may deal with all matters by correspondence. 4.13 Timing of decisions If a Request is made under clause 2.2(b) on or before 15 November 2008, the Review Committee must ensure that a decision is made in respect of the Request by 25 November 2008. If a Request is made under clause 2.2(a) on or before 15 November 2008, the Review Committee must ensure that a decision is made in respect of the Request by the Implementation Date. If a Request is made after 5.00pm (AEDT) on 15 November 2008 and on or before 5.00pm (AEST) on 31 May 2009, the Review Committee will deal with the Request after the Implementation Date. 4.14 Decisions binding By making a Request, the Applicant agrees that a decision of the Review Committee (or where relevant, the Reviewer) is final and binding. 5. OBLIGATIONS OF AHM 5.1 Provision of services ahm must provide secretarial and other services that are reasonably required by the Review Committee and the Reviewer for the performance of their respective functions under this Review Committee Charter. 5.2 Information, data and access to staff ahm must provide information and data relevant to a Request as required by this Review Committee Charter, the Review Committee and the Reviewer and must at the request of the Review Committee (or where relevant, the Reviewer) make staff and senior management directly available to the Review Committee (or the Reviewer) to assist it in its (or him or her in his or her) deliberations. 5.3 Expert advice If requested by the Review Committee (or where relevant, the Reviewer), ahm must arrange for the provision of expert advice to the Review Committee (or the Reviewer) to assist it in its (or him or her in his or her) deliberations. 5.4 Timetable ahm must perform its duties and functions having regard to the need for the Review Committee (or where relevant, the Reviewer) to make decisions within the timeframes set out in clause 4.13. 5.5 Implementations of decisions ahm must, on being advised of a decision of the Review Committee, or (where relevant) the Reviewer: (a) if the decision is made before 25 November 2008 that an Applicant should have been treated as a Participating Member: (i) where relevant, arrange for the Applicant to be provided with a Yellow Proxy Form before the Record Time; and (ii) determine the Entitlement of the Applicant based on the number of Units determined by the Review Committee to be allocated to the Applicant; (b) if the decision is made before the Implementation Date that an Applicant is entitled to be allocated additional Units, determine the increased Entitlement of the Applicant; (c) if the decision is made after the Implementation Date that an Applicant is entitled to be allocated additional Units, determine the increased Entitlement of the Applicant; and (d) otherwise ensure that the decisions of the Review Committee are notified to the Applicant and that they are implemented. 6. REPORTING 6.1 Report Before the Implementation Date, the Review Committee must report to the Board and Medibank on matters and decisions arising from its responsibilities as outlined in this Review Committee Charter. After the Implementation Date, the Review Committee must report to Medibank on such matters and decisions. 6.2 Content of report Reports under clause 6.1 will include information in relation to the decisions of the Review Committee including: (a) a list of the Requests considered and decisions made by the Review Committee during the relevant period since the last report; (b) the outcome of any Request referred to the Reviewer; and (c) minutes of its meetings. 7. NOTIFICATION OF DECISIONS The Company Secretary will promptly notify the Applicant in writing of the decision of the Review Committee or the Reviewer, as the case may be. The Company Secretary may at any time and from time to time delegate the duty to notify the Applicant under this clause 7 to the Review Committee Secretary. 8. CONFLICTS OF INTEREST IN RELATION TO REQUESTS 8.1 Non-disclosure of names of Applicants The Review Committee Secretary will not be required to provide to the Review Committee or the Reviewer the name of any Applicant for the purposes of any decision. 8.2 Review Committee If a Review Committee Member becomes aware that a Request relates to a relative of the Review Committee Member or a person with whom that Review Committee Member has a personal relationship, that Review Committee Member must advise the Review Committee Secretary and must not participate in the consideration of that Request. If a Review Committee Member is unable to participate by reason of this clause 8.2 then an Alternate for that Review Committee Member may participate so long as this clause does not also apply to that person. 8.3 Reviewer If the Reviewer becomes aware that a Request, which has been referred to the Reviewer by the Review Committee, relates to a relative of the Reviewer or a person with whom the Reviewer has a personal relationship, the Reviewer must advise the Review Committee Secretary and require that his or her alternate, or another disinterested person be appointed as a Reviewer to consider that Request. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1534 of 2008 IN THE MATTER OF AUSTRALIAN HEALTH MANAGEMENT GROUP LIMITED AUSTRALIAN HEALTH MANAGEMENT GROUP LIMITED ACN 003 683 298 Plaintiff JUDGE: EMMETT J DATE: 10 DECEMBER 2008 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 3 October 2008, the Court ordered, pursuant to s 411(1) of the Corporations Act 2001 (Cth) (the Act), that the plaintiff, Australian Health Management Group Limited (the Company), convene a meeting of participating members for the purpose of considering and, if thought fit, agreeing, with or without modification, to a scheme of arrangement to be made between the Company and its participating members. 2 As I indicated in my reasons of 3 October 2008, there were several steps involved in giving effect to the proposed scheme (see Australian Health Management Group Limited, in the matter of Australian Health Management Group Limited [2008] FCA 1868). The first step involved special resolutions to permit the Company to demutualise and to change the Company's type under Part 2B.7 of the Act, from a company limited by guarantee to a proprietary company limited by shares. The meetings and resolutions, to which I referred in my earlier reasons, have now been passed and the Company has applied to the Court for approval of the scheme. 3 When the matter was called on for hearing today, the Company was represented by senior counsel and leave was given for senior counsel to appear on behalf of Medibank Private Limited (Medibank). No other person has given notice of any intention to appear to oppose the approval of the scheme, and nobody else appeared when the matter was called. I am satisfied from the evidence that has been read today, subject to several matters to which I shall refer, that the meetings were convened in accordance with the orders made on 3 October 2008 and that the resolutions have been passed by the requisite majorities. 4 The postal ballot concerning demutualisation was conducted in accordance with procedures approved by the board. Of the 143,817 members of the Company eligible to vote, 83,956 votes were cast, representing 58.37% of the eligible voters, and 839 invalid votes were received. Of the total number of votes cast, 79,919 were for the resolution, representing 95.19%, and 4037 were against, constituting 4.81%. Thus, the postal ballot has been passed by more than 75% of at least 25% of the eligible voters. 5 The general meeting approving the change in the type of the Company was held on the same day as the scheme meeting. Of 158,440 members entitled to vote, 81,003 votes were cast in relation to the scheme meeting, representing 51.13% of the total votes that could be cast. Virtually the same numbers voted in relation to the general meeting. The numbers of votes cast in favour of the special resolutions at the general meeting and at the scheme meeting were sufficient to satisfy the requirements for valid resolutions, in accordance with the Company's constitution and s 411 of the Act respectively. 6 The Company is a private health insurer. Section 126-42 of the Private Health Insurance Act 2007 (Cth) (the Health Insurance Act)provides that a private health insurer may apply to the Private Health Insurance Administration Council (the Council) for approval to convert to being registered as a for-profit insurer. Such an application must be in the approved form, include a conversion scheme in the approved form and be given to the Council at least 90 days before the day specified in the application as the day on which the insurer proposes that it become registered as a for-profit insurer. Under s 126-42(5) of the Health Insurance Act, the Council must approve such an application if the insurer has complied with the requirements concerning an application. 7 The Council is satisfied that the conversion scheme would not result in a financial benefit to any person who is not a policyholder of, or another person insured through, a health benefits fund conducted by the insurer, and the council is satisfied that the conversion scheme would not result in financial benefits from the scheme being distributed inequitably between such policyholders and insured persons. By a letter of 4 December 2008, the Council confirmed that it has approved the Company's application of 20 August 2008, to convert from registration as a not-for-profit private health insurer, to being registered as a for-profit private health insurer. The Company will be taken, for the purposes of the Health Insurance Act, to be registered as a for-profit insurer, on the day following the implementation date, as outlined in the information memorandum sent to members, in connection with the scheme. 8 The special resolution passed at the general meeting approving the change of company type differed slightly from the resolution contained in the notice of meeting dispatched to members as part of the information memorandum. The amendment made was to add the words "and will be known as Australian Health Management Group Pty Limited," to the end of the resolution. That amendment was required by the Australian Securities and Investments Commission (the Commission) but was not notified to the Company, by the Commission, until 2 December 2008. 9 The only effect is to insert the word "Pty" into the Company's name. I am satisfied that the amendment was permissible. It was of a minor and a technical nature, and did not affect the substance of the proposed resolution to approve the Company's change of company type. To the extent that members did not have advance notice of the amended form of the resolution, I am satisfied that the omission is procedural. It is, therefore, a procedural irregularity which did not invalidate the resolution unless the Court is of the opinion that it has caused, or may cause, substantial injustice. I am satisfied that no injustice, of any nature, would be caused. 10 At the meeting, convened for the purpose of considering the scheme, a number of members present raised a question concerning the operation of the allocation rules. In particular, a query was raised as to why the years of membership are recognized by the allocation rules only as far back as 3 October 1976. In a supplementary affidavit, Mr Warwick Gard, the Company's actuary, referred to that question and indicated that the duration of a policy prior to that date had not been recognized because the Company's records prior to that date are not considered by the directors to be sufficiently complete and accurate for the purposes of verifying the date on which a policyholder joined the Company or its predecessor funds. 11 In addition, a number of members, who were formerly policyholders of Mercantile Mutual Health Limited (Mercantile Mutual Health), contacted the Company with concerns in relation to their treatment under the allocation rules. The Company acquired all of the shares and the capital of Mercantile Mutual Health in 1999 from Mercantile Mutual Holdings Limited (Mercantile Mutual Holdings), the owner of those shares. In consideration for the purchase, there was a cash payment made by the Company to Mercantile Mutual Holdings. The purchase price was in excess of the net assets of Mercantile Mutual Health. Mercantile Mutual Health was a public company limited by shares, and was not a company that could fairly be described as a mutual company. Accordingly, the former policyholders of Mercantile Mutual Health were only holders of policies issued by Mercantile Mutual Health; they were not members of a mutual organization and had no ownership interests in the assets of funds maintained by Mercantile Mutual Health. 12 Under the allocation rules, a participating member's entitlement is calculated by taking into account, amongst other things, the total years of membership of that member. In general terms, total years of membership is based on the years and days between a member's joining date and the cut off date, subject to relevant rounding. Rule 4 of the allocation rules stipulates that a member's joining date is the date from which he or she, as a member, became insured under a private health insurance policy issued by the Company, and since which date he or she has continuously remained insured. 13 In the case of former Mercantile Mutual Health policyholders, that date will not be before 1999, when the Company acquired Mercantile Mutual Health and those policy members became members of the Company. The effect of the allocation rules is that the period of time for which former policyholders of Mercantile Mutual Health were insured under policies issued by Mercantile Mutual Health is not relevant to determining their entitlement under the allocation rules. Mr Gard has expressed the opinion that the treatment under the allocation rules of former policyholders of Mercantile Mutual is appropriate. 14 The position of former policyholders of Mercantile Mutual Health is to be contrasted with the position in relation to the Illawarra Health Fund and United Ancient Order of Druids Friendly Society NSW Limited (the Druids' Health Fund), whose members became members of the Company. In the former case, the Company paid no consideration for the merger, in circumstances where those members of Illawarra Health Fund held a beneficial interest in their fund. In the latter case, the Company undertook a contractual obligation to recognize the prior membership of members of the Druids' Health Fund. 15 To provide an allocation to former Mercantile Mutual Health policyholders, based on their policy duration with Mercantile Mutual Health, would reduce the entitlement of the other members of the Company. Mr Gard is of the view that, if the entitlement of members of the Company, who were former policyholders of Mercantile Mutual Health, were to be determined taking into account the prior period of insurance with Mercantile Mutual Health, the rules would not be fair and equitable to other members of the Company. They would be inequitable because the other members have already paid, through payment of the purchase price to Mercantile Mutual Holdings, in excess of net assets for any contribution of the value of the Company arising out of the policy duration of the former Mercantile Mutual Health policyholders prior to 1999. I do not consider that there is any matter of concern arising out of the treatment of former Mercantile Mutual Health policyholders. 16 The allocation rules that form part of the scheme contained an error. A reference is made in a list of hospital and extras policies to "top extras" in three places where the reference should have been to "family extras". The error in the description of the policies did not have any impact on the calculation of the entitlements that members who hold relevant family extras product will receive if the scheme is approved or on the application of the allocation rules to them or of any other members who hold a health insurance policy issued by the Company. 17 The Company does not, in fact, offer policies with the name "top extras" and there is therefore no scope for confusion with other policies. The Company has posted a notice on its website, informing members of the error. The error was not drawn to the attention of participating members at the scheme meeting. Nevertheless, the scheme for which the Company now seeks approval has been amended to correct the error. It is clearly desirable that the error be corrected. There is clearly no injustice involved in making the amendment. Accordingly, to the extent that the Company's application for approval departs from the scheme that was agreed to by the participating members, the amendment should not stand in the way of approval. The matter is of no significance. 18 The proposed scheme is subject to a number of conditions. I have seen certificates signed on behalf of Medibank and the Company confirming that, as at 8.00 am today, each of the conditions precedent set out in the merger deed, other than Court approval, has been satisfied and that no conditions precedent that are for the benefit of either Medibank or the Company have been waived. The certificates also confirm that the merger deed has not been terminated by either Medibank or the Company. The Commission has also written to the Company confirming that it has no objection to the proposed scheme. 19 The scheme provides for a review committee to consider requests for review of the allocation of entitlements to members and whether a person should have been considered to be a participating member. It may be arguable that the members of the review committee will be involved in the administration of the scheme. However, none of the members is a registered liquidator, although, each of the members of the review committee has executed a deed poll undertaking to comply with the obligations imposed on the committee. Section 411(7) provides that, except with the leave of the Court, a person must not be appointed to administer and must not administer a compromise or arrangement approved under the Act between a body and its members if the person is not a registered liquidator. I consider that it is appropriate, to the extent that it is necessary, for the Court to give leave, pursuant to that provision, for the members of the committee to act in that capacity. 20 Medibank has executed a deed poll in favour of participating members by which it promises to comply with the obligations it has undertaken in the merger deed, particularly concerning payment of consideration. The bank account contemplated by the scheme for the payment of the scheme consideration has been established such that the mechanisms for satisfaction of Medibank's obligations are in place. 21 The Company has drawn to the Court's attention the fact that between approximately 60 and 70 prescribed members may not have been sent copies of the scheme documents. That circumstance arose because of the timing with which the relevant prescribed members became prescribed members. Prescribed members are those who became members in specified circumstances after the cut off date. I am satisfied that no injustice has been occasioned by the failure to send the scheme documents to those prescribed members and that the failure should not interfere with the approval of the scheme. 22 As I have said, I am satisfied that the scheme has been agreed to by the requisite majority. Notwithstanding the matters to which I have briefly referred, I am satisfied that it is appropriate to accede to the Company's application for approval of the scheme, amended in the manner to which I have referred. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 16 January 2009 Counsel for the Plaintiff: Mr F Gleeson SC with Mr J Williams Solicitor for the Plaintiff: Jones Day Counsel for Medibank Private Limited: Mr MB Oakes SC Date of Hearing: 10 December 2008 Date of Judgment: 10 December 2008