FEDERAL COURT OF AUSTRALIA Dominion Mining Limited, in the matter of Dominion Mining Limited [2010] FCA 1504 Citation: Dominion Mining Limited, in the matter of Dominion Mining Limited [2010] FCA 1504 Parties: DOMINION MINING LIMITED File number(s): NSD 1651 of 2010 Judge: EMMETT J Date of judgment: 16 December 2010 Legislation: Corporations Act 2001 (Cth) s 411 Date of hearing: 16 December 2010 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 24 Counsel for the Plaintiff: T.F. Bathurst QC and K.H.Barrett Solicitor for the Plaintiff: Johnson Winter & Slattery IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1651 of 2010 IN THE MATTER OF DOMINION MINING LIMITED DOMINION MINING LIMITED JUDGE: EMMETT J DATE OF ORDER: 16 DECEMBER 2010 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (Act) there be convened a meeting (Share Scheme Meeting) of holders of fully paid ordinary shares of the Plaintiff (Dominion Shareholders), for the purpose of considering and, if thought fit, approving (with or without modification) the scheme of arrangement between them and the Plaintiff, substantially in the form of the draft Share Scheme of Arrangement (Share Scheme) a copy of which is at Appendix 4 to the scheme booklet which is Exhibit A (Scheme Booklet). 2. Pursuant to section 411(1) of the Act there be convened a meeting (Option Scheme Meeting) of holders of options to acquire fully paid ordinary shares of the Plaintiff (Dominion Optionholders), for the purpose of considering and, if thought fit, approving (with or without modification) the scheme of arrangement between them and the Plaintiff, substantially in the form of the draft Option Scheme of Arrangement (Option Scheme) a copy of which is at Appendix 6 to the Scheme Booklet. 3. The Share Scheme Meeting be held at 10:00am Australian Eastern Daylight Savings Time (AEDT) on 2 February 2011 at the Metcalfe Auditorium, State Library of NSW, Macquarie Street, Sydney, New South Wales. 4. The Option Scheme Meeting be held at 11:15am AEDT (or immediately following the conclusion of the Share Scheme Meeting, whichever time is later) on 2 February 2011 at the Metcalfe Auditorium, State Library of NSW, Macquarie Street, Sydney, New South Wales. 5. The draft: (a) Scheme Booklet comprising the explanatory statements for the Share Scheme and the Option Scheme; (b) letter from the Chairman of the Plaintiff to Dominion Shareholders a copy of which is at Annexure 'JSK17', page 474 of the affidavit of John Storrie Keeves sworn on 15 December 2010 (Keeves Affidavit); (c) letter from the Chairman of the Plaintiff to Dominion Optionholders a copy of which is at Annexure 'JSK18', page 481 of the Keeves Affidavit; (d) notice of meeting for the Share Scheme Meeting a copy of which is at Annexure 'JSK17', page 475 of the Keeves Affidavit; (e) notice of meeting for the Option Scheme Meeting a copy of which is at Annexure 'JSK18', page 482 of the Keeves Affidavit; (f) proxy form for the resolution to be passed at the Share Scheme Meeting, a copy of which is at Annexure 'JSK17', page 479 of the Keeves Affidavit; (g) proxy form for the resolution to be passed at the Option Scheme Meeting a copy of which is at Annexure 'JSK18', page 486 of the Keeves Affidavit; be and are hereby approved. 6. On or before 5pm on 22 December 2010 there be despatched by prepaid ordinary post (or in the case of overseas members, by airmail), to each Dominion Mining Shareholder appearing in the register of the Plaintiff's shareholders at 5pm on 16 December 2010, a document substantially in the form or to the effect of the Scheme Booklet together with the Chairman's letter to Dominion Shareholders, Notice of Share Scheme Meeting, relevant proxy form, reply paid envelope and fly sheet. 7. On or before 5pm on 22 December 2010 there be despatched by prepaid ordinary post (or in the case of overseas members, by airmail), to each Dominion Mining Optionholder appearing in the register of the Plaintiff's optionholders at 5pm on 16 December 2010, a document substantially in the form or to the effect of the Scheme Booklet together with the Chairman's letter to Dominion Optionholders, Notice of Option Scheme Meeting, relevant proxy form, reply paid envelope and fly sheet. 8. Documents despatched in accordance with paragraph 6 or 7 will be deemed to be received in accordance with clause 13 of the Constitution of the Plaintiff as if the documents were notices of a general meeting. 9. The meetings convened pursuant to paragraphs 1 and 2 (the Option Scheme Meeting to be treated as if it were a meeting of the members of the Plaintiff) will be conducted in accordance with the Constitution of the Plaintiff and Part 2G.2 of the Act (excluding for the avoidance of doubt any replaceable rules in Part 2G.2 of the Act), except to the extent provided otherwise by these orders. 10. Dominion Mining Shareholders who are recorded in the share register of the Plaintiff at 7:00pm on 31 January 2011 shall be eligible to vote at the Share Scheme Meeting. 11. Dominion Mining Optionholders who are recorded in the option register of the Plaintiff at 7:00pm on 31 January 2011 shall be eligible to vote at the Option Scheme Meeting. 12. A form of proxy in respect of the Share Scheme Meeting or the Option Scheme Meeting will be valid and effective if: (a) delivered to the Plaintiff care of Registries Limited by use of the reply paid envelope; (b) delivered to the Plaintiff at the Plaintiff's registered office at 15 Outram Street, West Perth, Western Australia, 6005, Australia; or (c) received by mail at: (i) the Plaintiff's registered office at 15 Outram Street, West Perth, Western Australia, 6005, Australia; or (ii) the Plaintiff care of Registries Limited, GPO Box 3993, Sydney, New South Wales, 2001, Australia; or (d) successfully transmitted by facsimile to: (i) the Plaintiff's registered office; or (ii) the Plaintiff at care of Registries Limited on 02 9290 9655 (from within Australia) or +61 2 9290 9655 (from outside Australia); (e) in the case of the Share Scheme Meeting only, submitted online at www.registries.com.au/vote/dominionscheme, in each case provided the proxy is received not later than 10:00am on 31 January 2011. 13. The Chairperson of each of the Share Scheme Meeting and the Option Scheme Meeting be Peter Charles Joseph and, in his absence, John Gaskell. 14. The Chairperson appointed to the Share Scheme Meeting and the Option Scheme Meeting, and in his absence the alternative Chairperson, has the power to adjourn the meetings in his absolute discretion. 15. All voting at the Share Scheme Meeting and the Option Scheme Meeting (other than voting on any procedural motion) be by poll as declared by the Chairperson. 16. The Plaintiff advertise the Share Scheme Meeting and the Option Scheme Meeting once, substantially in the form of the document attached and marked 'Attachment A', in The Australian newspaper, The Western Australian newspaper and The Sydney Morning Herald newspaper, no later than 14 days before the date appointed for the Share Scheme Meeting and Option Scheme Meeting. 17. The Plaintiff publish once substantially in the form of the document attached and marked 'Attachment B', in The Australian newspaper, The Western Australian newspaper and The Sydney Morning Herald newspaper a notice of hearing of any application to approve the Share Scheme and the Option Scheme under section 411(4) of the Act on or before 3 February 2011, and the Plaintiff shall otherwise be exempted from compliance with the requirement to publish such notices at least 5 days before the date fixed for the hearing of the application pursuant to Rule 3.4(3)(b) of the Federal Court (Corporations) Rules 2000 (Cth) (Rules). 18. The Plaintiff be excused from complying with Rule 2.15 of the Rules, except in so far as that rule applies Regulation 5.6.13 of the Corporations Regulations 2001 to the meetings. 19. The proceedings be stood over to 4 February 2011 at 10:15am before Justice Emmett for the hearing of any application to approve the Scheme. 20. The Plaintiff has liberty to apply. 21. These Orders to 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 Federal Law Search on the Court's website. ATTACHMENT A DOMINION MINING LIMITED ACN 000 660 864 (Dominion) NOTICE OF MEETINGS Take notice that, pursuant to orders of the Federal Court of Australia made on 16 December 2010, pursuant to section 411(1) of the Corporations Act 2001, the following meetings have been convened: (a) a meeting of the holders of fully paid ordinary shares in Dominion (Dominion Shareholders) to consider and, if thought fit, agree to a Scheme of Arrangement (with or without modification) proposed to be made between Dominion and Dominion Shareholders; and (b) a meeting of the holders of options to acquire fully paid ordinary shares in Dominion (Dominion Optionholders) to consider and, if thought fit, agree to a Scheme of Arrangement (with or without modification) proposed to be made between Dominion and Dominion Optionholders. The meeting referred to in paragraph (a) above (Share Scheme Meeting) will be held at 10:00am on 2 February 2011 at the Metcalfe Auditorium, State Library of NSW, Macquarie Street, Sydney, New South Wales. The meeting referred to in paragraph (b) above (Option Scheme Meeting) will be held at 11:15am (or immediately following the conclusion of the Share Scheme Meeting, whichever time is later) on 2 February 2011 at the Metcalfe Auditorium, State Library of NSW, Macquarie Street, Sydney, New South Wales. A copy of the Scheme Booklet detailing the Share Scheme of Arrangement, the Option Scheme of Arrangement, and incorporating their respective Explanatory Statements, along with Notices of Meeting and the proxy forms for the meetings referred to above may be obtained by calling the Dominion Scheme Information Line on 1300 034 846 (free call from within Australia) or +61 2 9191 5968 (from outside Australia) between 9:00am and 6:00pm (Sydney time), Monday to Friday or from Dominion's website at www.dml.com.au. By order of the board of Dominion Mining Ltd Ross A Coyle Company Secretary ATTACHMENT B Notice of hearing to approve compromise or arrangement (rule 3.4) To all the creditors and members of Dominion Mining Limited (ACN 000 660 864) Take notice that at 10.15am on 4 February 2011, the Federal Court of Australia at Level 17, Law Courts Building, Queens Square, Sydney New South Wales will hear an application by Dominion Mining Limited seeking the approval of: (a) a compromise or arrangement between the above-named company and its shareholders subject to the arrangement being agreed to at a meeting of the shareholders of the company to be convened and held on 2 February 2011; and (b) a compromise or arrangement between the above-named company and its optionholders subject to he arrangement being agreed to at a meeting of the optionholders of the company to be convened and held on 2 February 2011. If you wish to oppose the approval of the compromises or arrangements, you must file and serve on the plaintiff a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on the plaintiff at its address for service at least 1 day before the date fixed for the hearing of the application. The address for service of the plaintiff is c/- Johnson Winter & Slattery, Level 30, Australia Square, 264 George Street, Sydney NSW 2000. Name of person giving notice or of person's legal practitioner: Mr John Keeves Johnson Winter & Slattery Solicitors for the plaintiff IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1651 of 2010 IN THE MATTER OF DOMINION MINING LIMITED DOMINION MINING LIMITED JUDGE: EMMETT J DATE: 16 DECEMBER 2010 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The plaintiff, Dominion Mining Limited (Dominion), has applied to the Court for orders under s 411(1) of the Corporations Act 2001 (Cth) (the Act). Dominion asks that the Court convene a meeting of its members for the purpose of considering and, if thought fit, agreeing to, a scheme of arrangement between Dominion and its shareholders. Dominion also asks the Court to convene a meeting of the holders of options to acquire and issue fully paid ordinary shares in Dominion for the purpose of considering and, if thought fit, agreeing to, a scheme of arrangement between Dominion and the option holders. 2 Dominion is a public company, limited by shares. It is described as an Australian gold mining and exploration company, and is listed on the Australian Securities Exchange (ASX). As at 25 November 2010, it had a market capitalisation of approximately $320 million. Under the proposed schemes, Dominion will become a wholly owned subsidiary of Kingsgate Consolidated Limited (Kingsgate). Kingsgate is described as a low-cost gold mining and exploration company, with its headquarters in Sydney. It owns and operates the Chatree gold mine in central Thailand through a Thai subsidiary. Kingsgate is also a public company limited by shares, and is admitted to the official list of ASX. 3 If the schemes become effective, the shareholders and option holders of Dominion will hold approximately 24 per cent of Kingsgate since, under the schemes, Kingsgate will acquire all of the shares in Dominion, and the options will be extinguished in consideration of the issue of shares in Kingsgate. If the share scheme is implemented, for each fully paid ordinary share in Dominion, the Dominion shareholder will receive 0.31 new shares in the capital of Kingsgate. If the options scheme is implemented, for each option to purchase an un-issued ordinary share in Dominion, the option holder will receive consideration calculated in accordance with a formula to be specified in the scheme. The options scheme consideration will consist of between 0.023 and 0.085 Kingsgate shares for each option held in Dominion, depending upon the exercise price and expiry date of the options held. 4 Under clause 4.3 of the share scheme, on the implementation date, subject to the allotment of the consideration shares in Kingsgate, all Dominion shares will be transferred to Kingsgate without the need for any further act on the part of Dominion shareholders. Similarly, under the options scheme, on the implementation date, subject to the options scheme consideration being provided, all of the Dominion options will be cancelled and extinguished without the need for any further act by any Dominion option holder. 5 The obligations of Kingsgate as contemplated by the schemes are provided for in a Scheme Implementation Agreement entered into between Dominion and Kingsgate on 20 October 2010. The pivotal provision of the Scheme Implementation Agreement is clause 2, which provides that Dominion must propose, and, subject to the scheme becoming effective, implement the schemes, subject to its terms and conditions. Kingsgate must also assist Dominion to propose and implement the schemes, subject to the terms and conditions of the agreement. 6 It is also proposed that the obligations of Kingsgate, with respect to the schemes, will be secured in favour of the members of Dominion and option holders by entry into deed polls for the benefit of the members and option holders. By the deed polls, Kingsgate will undertake in favour of each shareholder or option holder, as the case may be, to provide or procure the provision of the relevant consideration, in accordance with the terms of the schemes. 7 There is an exception provided for in the Scheme Implementation Agreement for the allotment of shares in Kingsgate to shareholders or option holders who have an address outside Australia and its external territories. There is a proviso to that exception, in that if Kingsgate determines that it is lawful and not unduly onerous or impracticable to provide Dominion members or option holders with Kingsgate shares when the schemes becomes effective, then those members and option holders will be provided with shares. 8 Kingsgate has determined that it is lawful and would not be unduly onerous or impracticable to provide Kingsgate shares to shareholders and option holders residing in Hong Kong, Ireland, New Zealand, the United Kingdom and the United States of America. There are still some 100 or more shareholders who reside outside those jurisdictions and outside Australia, representing approximately 0.77 per cent of the total share capital. Such ineligible foreign holders will not receive shares in Kingsgate. Rather, the shares to which they would have been entitled will be issued to a sale agent, who will cause the shares to be sold on the market, and the proceeds will be distributed to the ineligible foreign holders, in accordance with the terms of the proposed schemes. 9 A number of conditions precedent must be satisfied before the schemes will take effect. Some of those conditions are for the benefit of both Kingsgate and Dominion. Some are for the benefit of Dominion, and some are for the benefit of Kingsgate. Some conditions, such as the condition requiring the approval of the schemes by the Court, cannot be waived by either party. One specific condition to which the Court's attention has been drawn is the is condition of both schemes that approval be obtained from the Foreign Investment Review Board to the proposed acquisition by Kingsgate of all of the shares in Dominion. An application for that approval has been lodged by Kingsgate with the Foreign Investment Review Board. 10 The meetings of members and option holders are proposed to be held on 2 February 2011. Section 411(1) of the Act confers a discretion on the Court to order a meeting of members or a meeting of creditors of a company for the purpose of considering a scheme involving the members or creditors as the case may be. The prerequisites for the making of orders have been satisfied from a technical point of view. That is to say, it is clear that Dominion is a Part 5.1 body, as referred to in s 411 of the Act. The proposed share scheme is a scheme between Dominion and its members, and the options scheme is a scheme between Dominion and a class of its creditors. 11 A copy of the proposed scheme booklet to be distributed to members and option holders has been provided to the Australian Securities and Investments Commission (the Commission). The Commission has had a reasonable opportunity to examine the terms of the proposed schemes and the scheme booklet, containing an explanatory statement relating to the schemes. The Commission has indicated that it does not propose to make submissions or intervene or oppose the schemes on the hearing today. 12 Accordingly, I am satisfied that all of the formal prerequisites for making the orders now sought have been satisfied. I have been taken in some detail through the contents of the scheme booklet, which discloses the detail and effect of the schemes sufficiently to enable the persons who will be affected by them to make an informed decision on how to vote. The terms of the schemes are such that, on the assumption that they are agreed to by the requisite majorities, the Court is likely to approve them at a further hearing if approval is sought without opposition. 13 The schemes have been unanimously recommended by the directors of Dominion, and a detailed report has been provided to Dominion by KPMG Corporate Finance (Aust) Pty Ltd (KPMG). A copy of KPMG's report will be included in the scheme booklet. In their report, KPMG have expressed the opinion that the share scheme consideration is fair and reasonable, and that the share scheme is in the best interests of Dominion shareholders in the absence of a superior proposal. KPMG have also expressed its opinion that the option scheme consideration represents a fair return to Dominion option holders and the option scheme is in the best interests of Dominion option holders in the absence of a superior proposal. 14 The share scheme consideration implies a value of $3.63 per Dominion share as at 19 October 2010, the last trading day before the announcement of the proposed schemes. That value represents a premium of between 27.9 per cent and 34.7 per cent on the closing price of shares in Dominion on the last day before trading and on the five day value weighted average price and 30 day value weighted average price on the last day before trading. The price and the average prices were respectively $2.73, $2.84 and $2.69, giving rise to the premiums to which I have referred. Based on the closing Kingsgate share price on ASX of $10.12 on 25 November 2010, the implied value of the share scheme consideration was $3.14 per Dominion share, which is significantly above the closing price of $2.73 and the five day and 30 day price value weighted average price figures to which I have just referred. 15 The Court's attention has been drawn to a number of matters that may be of relevance in the exercise of discretion. The terms of the schemes ensure that there is no performance risk involved so far as the members and option holders are concerned. That is to say, the shares in Kingsgate must be allotted to the members or option holders before the shares in Dominion will be transferred to Kingsgate and before the options will be extinguished. 16 The Scheme Implementation Agreement provides for exclusivity in relation to dealings with prospective competing transactions. It contains clauses generally referred to as "no shop", "no talk" and "no commitment" restrictions during an exclusivity period. Effectively, the exclusivity period is from 20 October 2010 until 20 April 2011 or such earlier time as the schemes become effective. It is proposed that the schemes will become effective on 21 February 2011, assuming the requisite majorities agree to the schemes and the Court approves the schemes. There are exceptions to the no talk, no shop restrictions and the no commitment restrictions where it would be a breach of duty for the directors to decline to negotiate in relation to a competing transaction. 17 Mr John Keeves, who is the solicitor for Dominion, was directly involved in negotiating the restrictions contained in the scheme implementation agreement. The restrictions were the result of arm's length commercial negotiations between Dominion, on the one hand, and Kingsgate, on the other. Both parties were separately represented by solicitors and financial advisors and, in the course of the negotiations, Kingsgate insisted on the inclusion of the restrictions as a condition of the proposed arrangement. Mr Keeves considers that the provisions are commercially reasonable in all the circumstances, that they are consistent with market practice, and that they are in the best interests of Dominion shareholders and Dominion option holders, since their inclusion was necessary in order to secure Kingsgate's agreement to the proposal. 18 The Scheme Implementation Agreement also provides for each of Dominion and Kingsgate to pay a break fee of the sum of $3.75 million in certain circumstances. Generally, the break fee would be payable if the schemes do not proceed by reason of default on the part of one party or the other. Such a fee is permissible unless it could be said that the amount of the break fee was such that it could influence voting at the meeting to be convened or if there are some other unusual circumstances. The break fee is not payable if the meeting of scheme shareholders does not approve the schemes. Further, the break fee is no more than one per cent of the equity value of the consideration involved. The Takeovers Panel guideline is that a break fee of not more than one per cent of the equity value involved is unlikely to be either anti-competitive or coercive. 19 Full particulars of the break fee and of the exclusivity provisions are contained in the scheme booklet, in a manner that explains their effect clearly enough to those who are interested. The Scheme Implementation Agreement contains acknowledgements in relation to the break fee that the parties will each have incurred significant costs in connection with the performance of their obligations under the Scheme Implementation Agreement and the schemes. Neither party would have entered into the agreement without provision for payment of a break fee, and the parties acknowledge that it represents a genuine and reasonable pre-estimate of the cost and loss that would actually be suffered by the parties if the schemes are not implemented. 20 Clause 8.3 of the share scheme contains a deemed warranty by which Dominion shareholders are taken to have warranted to Kingsgate that all shares held by them are transferred fully paid and free from encumbrances. The attention of shareholders and option holders is drawn to the existence of those warranties. 21 Section 411(17) of the Act prohibits the Court from approving an arrangement unless either the Court is satisfied that the arrangement has not been proposed for the purpose of enabling any person to avoid the operation of the provisions of Chapter 6 of the Act, which deals with takeovers, or the Commission indicates in writing that it does not object to the arrangement. That ultimately is a matter for the Court's consideration at a second hearing when approval of the schemes is sought if they are agreed to by the requisite majorities. 22 There is no reason, on the basis of the material before me, to doubt that the Commission would indicate that it has no objection to the arrangement. That of course is not decisive and does not prevent the Court from concluding that it was inappropriate for the scheme to be approved if its purpose or effect was to avoid the operation of Chapter 6. However, there is nothing in the material to suggest that there would be any lack of equity or unfairness in the transaction proceeding by way of scheme rather than by formal takeover offer. 23 A final issue to which the Court's attention has been drawn is the operation of s 3(a)(10) of the Securities Act 1933 of the United States (the US Securities Act). That section provides an exemption from the US Securities Act for the registration of offers and sales of securities where an exchange transaction is involved. One of the conditions of the exemption is that the court that approves such an exchange transaction is informed, before any hearing at which the scheme is approved, that the issuer intends to rely on the court's approval in order to obtain the exemption in the United States. The Court has been informed of that matter, although it is not for the Court considering an application under s 411(4) to express any view as to whether the procedures and processes are sufficient to satisfy the requirements for the exemption in the United States. In any event, the proposed scheme booklet contains a notice to shareholders residing in the United States concerning the effect of s 3(a)(10) of the US Securities Act. 24 I am satisfied that the proposed scheme booklet is adequate to disclose to the members of Dominion and the option holders information relevant to the making of their decision as to whether to vote in favour of or against the proposed resolutions at the meetings that Dominion seeks to convene. I am also satisfied that it is appropriate to accede to Dominion's application to convene a meeting of its members and option holders as a class of creditor to consider the respective schemes. I will make orders accordingly. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 31 January 2011