FEDERAL COURT OF AUSTRALIA Recall Holdings Limited, in the matter of Recall Holdings Limited [2015] FCA 1142 Citation: Recall Holdings Limited, in the matter of Recall Holdings Limited [2015] FCA 1142 Parties: RECALL HOLDINGS LIMITED (ABN 27 116 537 832) and IRON MOUNTAIN INCORPORATED (ARBN 608 766 918) and IRON MOUNTAIN ACQUISITION HOLDINGS PTY LTD (ACN 608 590 521) File number: NSD 1230 of 2015 Judge: JAGOT J Date of judgment: 22 October 2015 Catchwords: CORPORATIONS – scheme of arrangement Legislation: Corporations Act 2001 (Cth) s 411(1) Cases cited: Re Prime Infrastructure Holdings Ltd (2010) 80 ACSR 193; [2010] NSWSC 1104 Date of hearing: 22 October 2015 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 9 Counsel for the Plaintiff: Mr I Jackman SC Solicitor for the Plaintiff: Allens Counsel for the Others: Mr AJ Payne SC Solicitor for the Others: Minter Ellison IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1230 of 2015 IN THE MATTER OF RECALL HOLDINGS LIMITED (ABN 27 116 537 832) RECALL HOLDINGS LIMITED (ABN 27 116 537 832) Plaintiff AND: IRON MOUNTAIN INCORPORATED (ARBN 608 766 918) First Other IRON MOUNTAIN ACQUISITION HOLDINGS PTY LTD (ACN 608 590 521) Second Other JUDGE: JAGOT J DATE OF ORDER: 22 OCTOBER 2015 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to section 411(1) of the Corporations Act 2001 (Cth) (the Act), there be convened a meeting (the Scheme Meeting) of all holders of ordinary shares of the Plaintiff for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement between them and the Plaintiff and in the form set out in the explanatory statement which is Exhibit 1 in the proceedings (the Scheme). 2. The Scheme Meeting be held on Thursday, 3 December 2015 at the Museum of Sydney, Corner Phillip Street & Bridge Street, Sydney NSW 2000 commencing at 10.00am AEDT. 3. Dr Ian Blackburne or, should he be unable to attend for any reason, Mr Neil Chatfield, is to chair the Scheme Meeting and any adjournment of it. 4. The chairperson of the Scheme Meeting has power to adjourn the Scheme Meeting in his absolute discretion. 5. All voting at the Scheme Meeting be by poll as declared by the Chairperson. 6. The shareholders who are eligible to vote at the Scheme Meeting are those whose names are recorded in the register of members of the Plaintiff at 7.00pm AEDT on 1 December 2015. 7. The draft documents substantially in the form of the: (a) explanatory statement entitled "Scheme Booklet" that forms Exhibit 1 in the proceedings (the Scheme Booklet); and (b) proxy forms contained in tab 7 of Exhibit BIM1 (the Proxy Forms), are approved for distribution to shareholders. 8. By no later than 2 November 2015, the Plaintiff dispatch documents in the form, or substantially in the form, of the Scheme Booklet and the Proxy Forms to each holder of the Plaintiff's ordinary shares as recorded in the register of members of the Plaintiff on 23 October 2015 as follows: (a) by ordinary post to those shareholders whose registered address is in Australia (including a reply paid envelope addressed to Link Market Services Limited (ACN 083 214 537) (Link); (b) by prepaid airmail or air courier to those shareholders whose registered address is outside Australia (including a reply paid envelope addressed to Link); or (c) where a shareholder has nominated an electronic address for the purpose of receiving communications from the Plaintiff (such as notices of meeting and proxy appointment forms for the Plaintiff), by email to that address. 9. On or before 23 November 2015, the convening of the Scheme Meeting be advertised once in The Australian Financial Review newspaper in the form, or substantially in the form, of the annexure to these orders marked "A". 10. On or before 10 December 2015, the application under subsection 411(4) of the Act for orders approving the Scheme be advertised once in The Australian Financial Review newspaper in the form, or substantially in the form, of the annexure to these Orders marked "B". 11. The Plaintiff be dispensed from compliance with: (a) Rule 2.15 of the Federal Court (Corporations) Rules, except in so far as that rule applies Regulations 5.6.13 of the Corporations Regulations to the meetings; (b) Rule 3.4 of the Federal Court (Corporations) Rules, to the extent necessary; and (c) Replaceable Rules (within the meaning of s135 of the Act) which appear in Part 2G.2 of the Act, to the extent that a Replaceable Rule in that part is displaced or modified by the Plaintiff's constitution. 12. The proceedings be adjourned to 9.15am on 16 December 2015. 13. The Plaintiff has liberty to apply. 14. These orders be entered forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. "A" Notice of Scheme Meeting Recall Holdings Limited (ABN 27 116 537 832) NOTICE IS GIVEN THAT, by order of the Federal Court of Australia made on 22 October 2015, a meeting of the holders of ordinary shares in Recall Holdings Limited (Recall) will be held at Museum of Sydney, Corner Phillip Street & Bridge Street, Sydney NSW 2000 on Thursday, 3 December 2015 at 10.00am (Sydney time) for the purpose of considering and, if thought fit, approving a resolution to agree (with or without any modification as approved by the Court) an arrangement proposed to be entered into between Recall and the holders of ordinary shares in Recall more particularly set out in a scheme of arrangement contained in an information memorandum that has been sent to Recall shareholders. Members can obtain a copy of the scheme booklet (which includes explanatory statements under s412 of the Corporations Act 2001 (Cth) by contacting the Recall shareholder information line on 1800 209 118 (within Australia) or +61 1800 209 118 (outside Australia), between 8.30am and 5.30pm (Sydney time), Monday to Friday. NOTICE IS ALSO GIVEN that if the arrangement is agreed, an application for orders to approve the arrangement will be returnable before the Federal Court of Australia in Sydney at 9:15am on Wednesday, 16 December 2015. Any person proposing to be heard on such motion should give prior notice to Recall's solicitors, Allens, of Deutsche Bank Place, Corner Hunter and Phillip Streets, Sydney NSW 2000 (Attention: Vijay Cugati). By order of the Board Barry Medintz Company Secretary "B" Notice of hearing to approve scheme of arrangement TO all the members of Recall Holdings Limited (ABN 27 116 537 832) (Recall). TAKE NOTICE that at 9:15am (Sydney time) on 16 December 2015, the Federal Court of Australia at Law Courts Building, 184 Phillip Street, Sydney NSW 2000 will hear an application by Recall seeking the approval of a scheme of arrangement between Recall and its shareholders as proposed by a resolution passed by the meeting of the shareholders of Recall held on 3 December 2015. If you wish to oppose the approval of the scheme of arrangement, you must file and serve on Recall 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 Recall at its address for service at least 1 day before the date fixed for the hearing of the application. The address for service of Recall is c/- Allens, Deutsche Bank Place, Corner Hunter and Phillip Street, Sydney NSW 2000 (Attention: Vijay Cugati). Name of Recall's legal practitioner: Vijay Cugati, Allens. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1230 of 2015 IN THE MATTER OF RECALL HOLDINGS LIMITED (ABN 27 116 537 832) RECALL HOLDINGS LIMITED (ABN 27 116 537 832) Plaintiff AND: IRON MOUNTAIN INCORPORATED (ARBN 608 766 918) First Other IRON MOUNTAIN ACQUISITION HOLDINGS PTY LTD (ACN 608 590 521) Second Other JUDGE: JAGOT J DATE: 22 OCTOBER 2015 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This is an application by Recall Holdings Limited (Recall), an Australian public company registered in Victoria, for orders under s 411(1) of the Corporations Act 2001 (Cth) that it convene a meeting of all holders of ordinary shares for the purpose of considering and, if thought fit, agreeing to a scheme of arrangement between those shareholders and Recall. 2 The details of the proposed scheme were summarised in Recall's written submissions as follows: Recall is an Australian public company registered in Victoria. Its headquarters are located in the United States of America at "One Recall Center", 180 Technology Parkway, Norcross, Georgia, and its Australian corporate office is at Alexandria in NSW. It is admitted to the official list of the Australian Stock Exchange (ASX) and its shares are officially quoted on the ASX. On 8 June 2015, Recall and Iron Mountain Incorporated (the Bidder) entered into a "Scheme Implementation Deed" (the SID) under which Recall agreed to propose a scheme (the Scheme) to "Recall Shareholders" (as defined in the Scheme Booklet) by which Iron Mountain Acquisition Holdings Pty Ltd (the Acquirer), a wholly owned subsidiary of the Bidder, would acquire all of the issued share capital of Recall (the Proposal). If the proposed Scheme is approved and all conditions precedent are satisfied, 'Scheme Shareholders' (as defined in the Scheme Booklet) will be entitled to receive, for each Recall share held as at the Record Date (currently scheduled for 29 December 2015) (a Scheme Share), the Australian dollar equivalent of U$0.50 in cash as well as 0.1722 'New Iron Mountain Securities' (Standard Consideration). Alternatively, Scheme Shareholders can make a cash election to receive the cash alternative of A$8.50 cash per Scheme Share (the Cash Alternative). The Cash Alternative comprises two components: (a) the Australian dollar equivalent of US$0.50, based on the AUD/USD exchange rate as at the Record Date; and (b) A$8.50 minus the amount in (a) above. In relation to the Cash Alternative, the total cash pool that is available to satisfy all cash elections is capped at A$225 million. If the Cash Pool is not sufficient to satisfy all cash elections, the Scale Back Mechanism will apply. In calculating any scale back, preferential access to the cash pool is expected for the first 5,000 Scheme Shares held by each Scheme Shareholder on the Recall share register as at 11 June 2015, provided such shareholders continue to hold those shares until the Record Date. The amounts paid to Scheme Shareholders that represent the amounts at 4(a) above are excluded from the calculation of the total cash pool that is available to satisfy the cash elections. If a cash election is made and the Scheme Shareholder is subject to scale back, they will receive $8.50 in cash per Scheme Share for that proportion of their Scheme Shares that is able to be satisfied out of the cash pool, plus the Standard Consideration for that remaining proportion of their Scheme Shares that is not. The value of the Standard Consideration ultimately received by Recall Shareholders will depend in part on the market value of the Bidder's securities (to the extent a shareholder receives 'New Iron Mountain Securities') and the AUD/USD exchange rate. 3 There is only one issue which I consider it appropriate to make observations about in these reasons for judgment, because I am otherwise satisfied as to all of the matters set out in Recall's written submissions. The issue about which further comment should be made is the consideration for the scheme referred to as either the "Standard Consideration" or the "Cash Alternative", including the "Scale Back Mechanism" given the capped amount of the Cash Alternative. 4 In the written submissions for Recall, the operation of these provisions is described as follows: As discussed above, in relation to the Cash Alternative, the total cash pool that is available to satisfy all cash elections is capped at A$225 million. If the Cash Pool is not sufficient to satisfy all cash elections, the Scale Back Mechanism will apply. In calculating any scale back, preferential access to the cash pool is expected for the first 5,000 Scheme Shares held by each Scheme Shareholder on the Recall share register as at 11 June 2015 (the Cut-Off Date), provided such shareholders continue to hold those shares until the Record Date. As at the Cut-Off Date, 98% of Recall shareholders held 5,000 shares or less. Accordingly, even if total cash elections do exceed the A$225 million cap such that scale back is required, those shareholders will receive 100% cash, at A$8.50 per share, for their shares (assuming they do in fact elect to receive cash and that they continue to hold their Recall shares until the Record Date). The remaining 2% of Recall shareholders as at the Cut-Off Date may, if they elect to receive cash, potentially be subject to scale back so that they will receive less than 100% cash (i.e. they will receive part Cash Alternative and part Standard Consideration for their shares). Whether scale back is required, and the extent of any scale back, will depend on the level of cash elections received. The purpose of only extending the preferential access for a shareholder's first 5,000 shares to shareholders on the Recall share register at the Cut-Off Date who continue to hold those shares until the Record Date was to ensure that the preferential access was not diluted through share splitting and creation of multiple small parcels after the announcement of the transaction and prior to the Record Date. 5 Further, in its written submissions, Recall explained dealings it had with ASIC about this aspect of the scheme and, in particular, whether the arrangements gave rise to the need for a separate class to be constituted involving (1) shareholders who hold over 5000 shares who will receive proportionally less cash than those who hold under 5000 shares, and (2) shareholders who come on the register after the cut-off date. These matters were addressed in the written submissions for Recall as follows: In July 2015, ASIC asked Recall to provide its view on why the following do not need to form a separate class for the purpose of the Scheme: (a) shareholders who hold over 5,000 shares who will receive proportionately less cash than those who hold under 5,000 shares; and (b) shareholders who come on the register after the Cut-Off Date. Recall provided a detailed response to ASIC in consultation with Iron Mountain. That response addressed the issues raised in Re Prime Infrastructure Holdings Ltd (2010) 80 ACSR 193, where similar questions arose at [14]-[25]. In summary, Recall explained to ASIC that the scale back provisions did not create separate classes of shareholders because: (a) there is a sufficient community of interest between all shareholders such that it is entirely possible for them to consult together with a view to their common interest. That real possibility is to be compared to Barrett J's judgment in Prime Infrastructure, which creates a test of "impossibility" of consultation with respect to the creation of classes. The substantial equivalence in value received by the groups, the commercial objectives and notice of the provisions to all shareholders do not make such consultation "impossible". Importantly, the value of the cash alternative has been calculated by reference to market valuation benchmarks. As such, Recall considers that the cash alternative represents a "true reflection" of the value that shareholders will otherwise receive. In addition, the inherent difficulty in framing separate classes of shareholders is itself evidence that the shareholders are in fact a single class, with the same rights under the scheme to receive cash for their first 5,000 shares (leaving aside the Cut-Off Date); (b) there is already a practical safeguard inherent in the structure itself. Each of two groups of shareholders (that is, the group holding more than 5,000 shares and the group holding less than 5,000 shares) is sufficiently enfranchised as the support of each such group will be required for the Scheme to be approved by the requisite majorities. In other words, each of the two groups of shareholders as at the Cut-Off Date (that is, (1) the 98% of those holders whose entire holding could be cashed out and (2) the remaining 2% of those holders who could not be wholly cashed out) has an effective veto right over the scheme because: (i) the support of the majority of shareholders by number (which majority will overwhelmingly be constituted by the 98% of shareholders who hold 5,000 or less shares and can receive wholly cash consideration) is required for the Scheme to satisfy the headcount test in s411(4)(a)(ii)(A) of the Corporations Act; and (ii) the support of the small number of shareholders who hold more than 5,000 shares (who, as at the Cut-Off Date, held approximately 92% of the share capital) will be required to satisfy the 75% vote requirement in s411(4)(a)(ii)(B) of the Corporations Act; and (c) in addition, identifying separate classes would not be as simple as drawing a line between those shareholders who have more than 5,000 shares and those who do not. The question of proportionality will necessarily have a greater effect as a person's shareholding increases. That is, a person with 5,001 shares has less in common with a person with 50,000 shares than they do with a person with 4,999 shares. Given this, Recall submits that the difficulty in clearly separating shareholders under the scheme is itself evidence that the shareholders are in fact a single class, with the same rights under the scheme to receive cash for their first 5,000 shares. As such, they are capable of consulting together as a single class with a view to their common interest. 6 It will be apparent from those paragraphs that reliance is placed by Recall on the decision of Barrett J in Re Prime Infrastructure Holdings Ltd (2010) 80 ACSR 193; [2010] NSWSC 1104, in particular at [19] to [23]. In dealing with a question whether in the circumstances of that case an issue of class differentiation emerged, his Honour noted at [19]: The key, I think, is that, as I have said, the cash element, whether for a foreign holder or for a holder who elects to participate under the scheme liquidity facility, will be dictated by market prices of BIP partnership interests. The provisions are complex and, according to circumstances, market prices at slightly different times may apply to different aspects of the calculation as it relates to different people. But the important point is that the cash elements will be market based and in that way will represent a true reflection of the value of the partnership interests comprising the primary entitlement of a holder and which would have been received had it not been supplanted by cash. 7 In Recall's written submissions, reasons are given to support the view that the scale back provisions in relation to the maximum cash consideration which can be received does not create separate classes of shareholders, consistent with the approach in Re Prime Infrastructure. Further, and not unimportantly in my view, Recall notes that identifying separate classes would not be as simple as drawing a line between those shareholders who have more than 5000 shares and those who do not, because the question of proportionality will necessarily have a greater effect as a person's shareholding increases. Recall submitted that the difficulty in clearly separating shareholders under the scheme is itself evidence that the shareholders are in fact a single class with the same rights under the scheme to receive cash for their first 5000 shares. 8 I accept those submissions. Accordingly, in my view, there is no impediment to the making of the orders as sought in the application. 9 For these reasons, orders 1 through to 14 are made subject to the amendment noted, namely that it should be a reference to exhibit 1 in paragraphs 1 and 7(a). I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot. Associate: Dated: 27 October 2015