FEDERAL COURT OF AUSTRALIA Unilife Medical Solutions Limited, in the matter of Unilife Medical Solutions Limited [2010] FCA 3 Citation: Unilife Medical Solutions Limited [2010] FCA 3 Parties: UNILIFE MEDICAL SOLUTIONS LIMITED, IN THE MATTER OF UNILIFE MEDICAL SOLUTIONS File number: NSD 1332 of 2009 Judge: STONE J Date of judgment: 7 January 2010 Catchwords: CORPORATIONS – Corporations Act 2001(Cth) – s 411 – schemes of arrangement – application for orders approving company convening meeting of members and option holders to consider proposed schemes of arrangement Legislation: Corporations Act 2001 (Cth) s 411 Cases cited: Re APN News & Media Limited in the matter of APN News & Media Limited (2007) ACSR 400 Date of hearing: 4 December 2009 Place: SYDNEY Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 17 Counsel for the Plaintiff: M Oakes SC with A Murray Solicitor for the Plaintiff: DLA Phillips Fox IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1332 of 2009 GENERAL DIVISION IN THE MATTER OF UNILIFE MEDICAL SOLUTIONS LIMITED UNILIFE MEDICAL SOLUTIONS LIMITED Plaintiff JUDGE: STONE J DATE OF ORDER: 4 December 2009 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (the Act), the Plaintiff convene a meeting of members of the Plaintiff (Members) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed to be made between the Plaintiff and its Members, being the scheme substantially in the form set out in Appendix 3 of the Information Memorandum which is Exhibit 1 in the proceeding (the Information Memorandum). 2. Pursuant to section 411(1) of the Act, the Plaintiff convene a meeting of the holders of options for shares in the Plaintiff (the Optionholders) for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed to be made between the Plaintiff and its Optionholders, being the scheme substantially in the form set out in Appendix 4 of the Information Memorandum. 3 The scheme meetings be held at Westin Hotel, 1 Martin Place, Sydney NSW 2000 on 8 January 2010 with the meeting of Members to commence at 10.00am Eastern Daylight Time and the meeting of Optionholders to commence at 10.30am Eastern Daylight Time, or immediately following the conclusion of the meeting referred to in Order 1, if later. 4 Slavko James Joseph Bosnjak, or failing him, Alan Denis Shortall be chair of each scheme meeting. 5. The chair appointed to each scheme meeting has the power to adjourn the meeting in his absolute discretion. 6. Regulations 5.6.12 and 5.6.14 to 5.6.36A of the Corporations Regulations 2001 (Cth) shall not apply to either scheme meeting. 7. Pursuant to subsection 411(1) of the Act, the explanatory statement contained in the Information Memorandum be approved for distribution to Members and Optionholders. 8. Notice of the hearing of an application pursuant to subsection 411(4) of the Act for orders approving the schemes of arrangement be published by an advertisement substantially in the form of Annexure A to these orders, such advertisement to be published on or before 8 January 2010, and the Plaintiff be otherwise exempted from compliance with rule 3.4 of the Federal Court (Corporations) Rules 2000. 9. The proceeding be stood over to 2.15 pm on 14 January 2010 for the hearing of any application to approve the schemes. 10. These orders be entered forthwith. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. Annexure A NOTICE OF HEARING TO APPROVE ARRANGEMENTS TOall the creditors and members of Unilife Medical Solutions Limited (ABN 14 008 071 403) (Unilife) TAKE NOTICE THAT at 2.15 pm on 14 January 2010 the Federal Court of Australia at Law Courts Building, Queens Square Sydney, New South Wales will hear an application by Unilife seeking the approval of arrangements between Unilife and its members and optionholders to be considered at meetings of such members and optionholders to be held at The Westin Hotel No 1 Martin Place, Sydney on 8 January 2010. If you wish to oppose the approval of either arrangement, you must file and serve on Unilife a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance must be served on Unilife at least 1 day before the date fixed for the hearing of the application. The address for service of Unilife is c/o DLA Phillips Fox, 201 Elizabeth Street, Sydney, NSW 2000 (Attention: Scott McDonald), Phone: (02) 9286 2000, Facsimile: (02) 9283 4144. ____________________________________ Jeff Carter Company Secretary Unilife Medical Solutions Limited IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1332 of 2009 general division IN THE MATTER OF UNILIFE MEDICAL SOLUTIONS LIMITED UNILIFE MEDICAL SOLUTIONS LIMITED Plaintiff JUDGE: STONE J DATE OF ORDER: 18 December 2009 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to subsection 411(2) of the Corporations Act 2001 (Cth) the Supplementary Information Memorandum being Exhibit 5, be approved for distribution to Members and Optionholders of the Plaintiff. 2. These orders be entered forthwith. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1332 of 2009 general division IN THE MATTER OF UNILIFE MEDICAL SOLUTIONS LIMITED unilife medical solutions limited Plaintiff JUDGE: STONE J DATE: 7 JANUARY 2010 PLACE: SYDNEY REASONS FOR JUDGMENT 1 By application made under s 411(1) of the Corporations Act 2001 (Cth) the plaintiff, Unilife Medical Solutions Limited (Unilife) sought orders to convene meetings of its members and option holders for the purpose of considering two concurrent schemes of arrangement (individually and collectively, the Scheme). The Scheme is described as a re-domiciliation scheme whereby all the issued capital of the plaintiff will be transferred to Unilife Corporation (UC), a company incorporated in Delaware, USA, currently a wholly owned subsidiary of Unilife. UC will thus become the parent company of the Unilife Group and will hold all the shares in Unilife. Unilife shareholders and option holders will receive equivalent shares and options in UC. 2 The plaintiff also sought the Court's approval for the explanatory statement to be issued to the members and option holders and directions pursuant to s 1319 of the Corporations Act as to the manner in which each scheme meeting is to be convened, the time and place for it to be held and the persons authorised to chair the meetings. At the conclusion of the hearing on 4 December, 2009 I made the orders requested by the plaintiff. I also made additional orders on 18 December 2009. These are my reasons for the orders I made on those dates. 3 Unilife, which is listed on the Australian Stock Exchange, is in the business of developing and manufacturing healthcare safety products such as pre-filled syringes, syringes with automatic needle retraction mechanisms and sharps safety devices. A company search tendered to the Court formally evidenced its corporate identity and therefore that it is a Part 5.1 body as defined in s 9 of the Corporations Act. The affidavit of the chief executive of Unilife, Alan Denis Shortall sworn on 30 November 2009 exhibited a copy of Unilife's constitution and provided other relevant information about the company including that it has: · issued share capital of $307,776,616; · 8,855 shareholders of whom 12 are described as 'Ineligible Overseas Shareholders' being registered with an address outside Australia and its external territories, New Zealand, the United States of America, Hong Kong, the United Kingdom, the Republic of Ireland, France, Croatia and Malta; · the combined total of shares in the Company held by Ineligible Overseas Shareholders is 261,988 representing 0.09% of the issued share capital of the Company. · 22 holders of options issued under the company's Employee Share Option Plan; and · 202 holders of options issued outside the Employee Share Option Plan. 4 In paras 10-15 of his affidavit, Mr Shortall, who described himself as the person primarily responsible for implementing the proposed Scheme, described the Scheme as follows: Under the proposed transaction, all existing ordinary shares in the Company (Shares) will be transferred to Unilife Corporation in exchange for the issue of Unilife Corporation common stock (or CHESS Depositary Interests) to Members. In conjunction with this share exchange, all existing options issued under the Unilife Employee Share Option Plan (ESOP Options) will be cancelled in exchange for the issue of Unilife Corporation options to ESOP Option Holders. The exchange of the Shares and ESOP Options for new securities in Unilife Corporation will be effected by way of two concurrent schemes of arrangement (Schemes of Arrangement). In conjunction with the Schemes of Arrangement, the existing standalone options (which were issued to certain consultants and advisers to the Company and other third parties outside the Unilife Medical Solutions Limited Employee Share Option Plan) will be cancelled by deeds with individual option holders in exchange for equivalent standalone options in Unilife Corporation. An extraordinary general meeting of the Company will also be held on the same day as the Scheme Meetings at which resolutions will be proposed to approve the adoption of the new employee incentive plan for Unilife Corporation, the issue of certain ESOP options to three directors of the Company and a new incentive package for me comprising shares of restricted stock and options in Unilife Corporation if the share scheme of arrangement becomes effective or Shares in the Company and ESOP Options if the share scheme of arrangement does not become effective (Director Issue). The proposed transaction is essentially an internal restructuring being conducted between the Company and its wholly owned subsidiary and accordingly, the Merger Implementation Agreement does not involve any break fees of "no shop" or "no talk" covenants. 5 An executed copy of the Merger Implementation Agreement dated 1 September 2009 was exhibited to Mr Shortall's affidavit. It is prima facie evidence that the Scheme is bona fide and has been properly proposed. In addition to that document, the text of the Scheme booklet was exhibited. It contained the statutory explanatory statement, the Investigating Accountant's Report, the Independent Expert's Report, the text of the Share Scheme, the Share Scheme Deed Poll, the Option Scheme Deed Poll, the Notice of the Share Scheme Meeting and the Notice of Option Scheme Meeting. 6 The factual information in the Scheme booklet was verified by Mr Shortall in paras 19-27 of his affidavit. Mr Shortall described the due diligence committee established by Unilife and the responsibilities of each person to verify allocated sections of the material by establishing that there were reasonable grounds for making the statements in those sections. In addition to himself the committee included the Company Secretary, the Human Resources and Legal Services Director, the Chief Financial Officer and a partner from DLA Phillips Fox. Each member of the committee provided a written statement in respect of the material for which he or she was responsible. 7 The Independent Expert Report, prepared by PKF Corporate Advisory (East Coast) Pty Limited (PKF), described the objective of the Scheme as being to have Unilife establish itself as a USA-based company for a number of reasons including that: · the USA represents the largest potential market for Unilife's products in the short to medium term; and · a USA domicile may be more conducive to raising equity capital than the current Australian domicile. 8 The Independent Expert Report expressed the opinion that, based on the analysis in the report, the proposed Scheme is fair and reasonable and thus in the best interests of the shareholders as a whole and the option holders as a whole. It concluded: In summary, it is our opinion that Shareholders as a whole and Optionholders as a whole are likely to be better off if the Proposed Transaction is implemented than if it is not, despite the possibility of some adverse impacts. 9 Proof of the opinion was provided in the affidavit of Vincent John Fayad sworn on 27 November 2009. The adverse factors identified in the Report are explained clearly and the summary accompanying the Independent Expert Report outlines the disadvantages and the advantages of the Scheme. The point is made that, as the Scheme involves Unilife shareholders and option holders swapping their present interests for interests in a United States company, a dominant issue for them in deciding whether to approve the Scheme will be the implications of owning a foreign security. Those implications are explored in Appendix 10 to the Information Memorandum prepared by Unilife. It contains a comparison of Australian and US legal regimes comprising more than 30 pages comparing the two regimes, in tabular form, in relation to the rights attaching to shares, capital raising, the respective right, duties and obligations of directors, their appointment and removal, as well as matters of corporate governance and procedural requirements. The comparison is detailed and provides a clear explanation of the issues it addresses. 10 The Investigating Accountant's Report, dated 27 November 2009, was prepared by BDO Kendalls Corporate Finance (WA) Pty Ltd. It provides information on the Income Statement, Statement of Changes in Equity, the Balance Sheet and the Proforma Balance Sheet (as at 30 June 2009) of Unilife. The Report notes that it was limited "primarily to an examination of the Historical Financial Information, the proforma financial information, analytical review procedures and discussions with both management and directors". It comments that such a review is not an audit and that the level of assurance is correspondingly less. It concludes: Nothing has come to our attention which would cause us to believe the pro-forma consolidated balance sheet does not present fairly the financial position of the Company as at 30 June 2009, in accordance with the measurement and recognition requirements … of applicable Accounting Standards and other mandatory professional reporting requirements in Australia as if the pro-forma transactions had occurred on that date. 11 The Investigating Accountant's Report was proved by Sherif Andrawes, a director of BDO Kendalls Corporate Finance (WA) Pty Limited, in his affidavit sworn on 27 November 2009. 12 Under the proposed Schemes the consideration is to be provided to shareholders and option holders before the transfer of the Unilife shares takes place or their Unilife options are cancelled. Consequently, performance risk is not an issue. There is deemed warranty that would bind Unilife shareholders. The clause is similar to that approved by Lindgren J in Re APN News & Media Limited in the matter of APN News & Media Limited (2007) 62 ACSR 400 at [57]-[63] and for that reason I am satisfied that it is appropriate here. As the Unilife options are to be cancelled there is no equivalent clause in the option Scheme. 13 Unilife directors unanimously recommend that the shareholders and option holders vote in favour of the Scheme. This recommendation is supported by the conclusion of PKF that the Scheme is fair and reasonable and therefore in the best interests of the interest holders and by the assurances in the Investigating Accountant's Report. 14 On 18 December 2009 the plaintiff sought the Court's approval of a Supplementary Information Memorandum. In an affidavit sworn on 17 December 2009, Jeffrey Noel Carter, a non-executive director of Unilife explained that the supplementary memorandum had been prepared because the directors of Unilife: Have decided that it is in the interests of the Company that it expedite the development of a new custom built manufacturing facility for the manufacture of ready-to-fill (prefilled) retractable syringes prior to the implementation of the transaction the subject of the Schemes of Arrangement if approved (Development); and Consider that entry into contracts in respect of the Development is material to the Company's business and that the issuing of the Supplementary Information Memorandum was required in connection with the listing of Unilife Corporation on the Australian Securities Exchange. 15 Mr Carter verified the statements in the supplementary memorandum concerning Unilife and further deposed that he was not aware of any other information that would be material to the decision to be made by shareholders and option holders. Updated reports were provided by both the investigating accountant and the independent expert. Those reports were verified respectively by Mr Andrawes of BDO Kendalls Corporate Finance and by Mr Fayad of PKF. Both reports concluded that the development described in Mr Carter's affidavit would not cause them to alter the conclusions expressed in their earlier reports. 16 The plaintiff tendered a letter from ASIC dated 27 November 2009 to the effect that it did not propose to appear at the first court hearing or intervene to oppose the Schemes. At the additional hearing on 18 December 2009 they also tendered an email from an ASIC officer, Fiona Laidlaw confirming that ASIC had no comment to make on the supplementary memorandum. 17 The explanatory statement and the supplementary information memorandum together outline the complex schemes of arrangement that the plaintiff proposed to put to shareholders and option holders. On the basis of the evidence I was satisfied that it was appropriate to make the orders sought both on 4 December 2009 and on 18 December 2009. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone. Associate: Dated: 7 January 2010