FEDERAL COURT OF AUSTRALIA

White Energy Company Limited, in the matter of White Energy Company Limited [2009] FCA 1218

IN THE MATTER OF WHITE ENERGY COMPANY LIMITED (ACN 071 527 083)

WHITE ENERGY COMPANY LIMITED (ACN 071 527 083)

WAD 164 of 2009

SIOPIS J

15 OCTOBER 2009

PERTH

IN THE MATTER OF WHITE ENERGY COMPANY LIMITED (acn 071 527 083)

THE COURT ORDERS THAT:

1.                  Leave is given to the Plaintiff to convene a meeting (“Shareholders Meeting”) of each person registered as a holder of fully paid ordinary shares issued by the Plaintiff (“Shareholder”) as at 11.00 am (AEDT) on 21 November 2009 (“Relevant Time”) for the purpose of considering and, if thought fit, approving (with or without amendment) the proposed scheme of arrangement which is Appendix 2 to the draft scheme booklet and explanatory statement (“Proposed Share Scheme”), being annexure JCA-6 to the affidavit of John Charles Atkinson sworn on 10 September 2009 (“Scheme Booklet”), such meeting to be held at 11.00 am AEDT on 23 November 2009 at The Theatre Portside Centre, Level 5, 207 Kent Street, Sydney, New South Wales.

2.                  Leave is given to the Plaintiff to convene a meeting (“Optionholders Meeting”) of each person registered as a holder of an option to acquire a fully paid ordinary share issued by the Plaintiff (“Optionholder”) as at the Relevant Time for the purpose of considering and, if thought fit, approving (with or without amendment) the proposed scheme of arrangement which is Appendix 3 of the Scheme Booklet (“Proposed Option Scheme”), such meeting to be held at 11.00 am (AEDT) on 23 November 2009 (or as soon as possible after the conclusion of the Shareholders Meeting) at The Theatre Portside Centre, Level 5, 207 Kent Street, Sydney, New South Wales.

3.                    The Shareholders Meeting be convened, held and conducted:

(a)        in accordance with the provisions of Part 2G.2 of the Corporations Act 2001 (Cth) (“the Act”) that apply to members of a company and the provisions of the Plaintiff’s Constitution that are not inconsistent therewith and that apply to meetings of members; and

(b)        to the extent applicable, in accordance with Corporations Regulations 5.6.12 to 5.6.36A.

4.                  The Optionholders Meeting be convened, held and conducted:

(a)        in accordance with the provisions of Part 2G.2 of the Act that apply to members of a company and the provisions of the Plaintiff’s Constitution that are not inconsistent therewith and that apply to meetings of creditors;

(b)        on the basis that a quorum for the purpose of the Optionholders Meeting shall be two Optionholders, present in person or by proxy or attorney and otherwise as if such Optionholders were a separate class of members;

(c)        on the basis that the voting entitlement for each Optionholder shall be determined by multiplying the number of options in any class of option issued by the Plaintiff held by that Optionholder against the value of an option of the respective class (“Option Value”) as at the close of trading at the Australian Stock Exchange (ASX) on 21 October 2008, (with the voting entitlement to be 1 vote for every whole dollar thereby determined);

(d)        on the basis that the Option Value for each class of option is to be:

(i)         the midpoint (rounded down to the nearest cent) between low volatility and high volatility figures for the class in question as is determined by independent expert valuers Grant Thornton, such figures to be determined by the application of the Binomial Model for the valuation of options referred to in the affidavit of Andrea De Chan sworn in these proceedings on 15 October 2009; and

(ii)        announced by the Plaintiff to the ASX, by way of ASX Announcement, on or before 22 October 2009; and

(e)        subject to the foregoing, to the extent applicable, in accordance with Corporations Regulations 5.6.12 to 5.6.22 and 5.6.27 to 5.6.36A inclusive.

5.                  That Mr John Vern McGuigan, or failing him, Mr John Charles Atkinson, be appointed to act as Chairman of the Shareholders Meeting and of the Optionholders Meeting;

6.                  That Mr John Vern McGuigan, or failing him, Mr John Charles Atkinson, is to report the results of the Shareholders Meeting and of the Optionholders Meeting to this Honourable Court.

7.                  The Scheme Booklet, amended in the manner referred to in Appendix “A” hereto, containing an explanatory statement required by section 412(1)(a) of the Act, be and is hereby approved (subject to any minor amendments required or approved by ASIC for the purposes of registration thereof under section 412(6) of the Act) which contains:

(a)        a letter from the chairman of the Plaintiff;

(b)        a summary of the transaction;

(c)        an overview of the Proposed Share Scheme and the Proposed Option Scheme (“Schemes”) (Section 1);

(d)        a summary of the key features of the Proposed Share Scheme (Section 2);

(e)        a summary of the key features of the Proposed Option Scheme (Section 3);

(f)        an outline of the reasons for the Scheme and overview of the merged group (Section 4);

(g)        details of the implementation of the Schemes (Section 5);

(h)        the recommendation of directors of the Plaintiff and considerations for scheme participants (Section 6);

(i)         background information on the Plaintiff (Section 7);

(j)         background information on Asia Special Situation Acquisition Corp (“ASSAC”) (Section 8);

(k)        taxation implications for scheme participants (Section 9);

(l)         additional information on the Schemes (Section 10);

(m)       the merger implementation agreement entered between the Plaintiff and ASSAC, including the deeds of variation dated August 2009 and October 2009 (Appendix 1)

(n)        the scheme of arrangement to be made between the Plaintiff and the Shareholders (Appendix 2);

(o)        the scheme of arrangement to be made between the Plaintiff and its Optionholders (Appendix 3);

(p)        a deed poll entered into by ASSAC (Appendix 4);

(q)        notices of the Shareholders Meeting and Optionholders Meeting and the relevant proxy forms (Appendix 5 and Appendix 6 respectively); and

(r)        a summary of the comparison between Australian and Cayman Islands/US legal regimes (Appendix 7);

(s)        details on the rights attaching to CHESS Depositary Interests proposed to be issued by ASSAC (Appendix 8);

(t)        a summary of ASSAC’s 2009 Stock Incentive Plan (Appendix 9); and

(u)        an independent expert’s report prepared by Grant Thornton (Appendix 10).

8.                  The Plaintiff shall dispatch the Scheme Booklet to the Shareholders and Optionholders whose address is in the register maintained by Computershare Investor Services Pty Limited as at 5.00pm (AEDT) on 19 October 2009 by ordinary pre-paid post on or before 22 October 2009.

9.                  The attached notice (for the purpose of this order marked “B”) be inserted in the public notices column of “The Australian”, “The Sydney Morning Herald”, “The Advertiser”, “The West Australian” and “The Age”, such advertisements to be published on or before 22 October 2009.

10.              The attached notice (for the purpose of this order marked “C”) be inserted in the public notices column of “The Australian”, “The Sydney Morning Herald”, “The Advertiser”, “The West Australian” and “The Age”, such advertisements to be published on or before 22 October 2009.

11.              The attached notice (for the purpose of this order marked “D”) be inserted in the public notices column of “The Australian”, “The Sydney Morning Herald” and “The Age”, such advertisements to be published on or before 18 December 2009.

12.              Subject to approval of the Proposed Share Scheme and the Proposed Option Scheme convened under Orders 1 and 2 above, leave is granted to make an application for orders under sub-sections 411(4) and (6) of the Act following the Shareholders Meeting and the Optionholders Meeting for approval of the Proposed Share Scheme and the Proposed Option Scheme.

13.              The application be otherwise adjourned to 10:15am on 18 December 2009 for hearing of the application to approve the Schemes.

14.              There be liberty to apply upon giving two days notice to the Australian Securities & Investments Commission and, where relevant, the Plaintiff.

“A”

Amendments to Schemes Booklet (Annexure JCA-6 to the affidavit of John Charles Atkinson sworn on 10 September 2009)

1.         The body of the Scheme Booklet appearing at Volume 2, pages 138-468 (inclusive) of the affidavit of John Charles Atkinson sworn on 10 September 2009 be amended as marked in in the document that is annexure MRH - 1 to the affidavit of Matthew Richard Hawtin sworn 13 October 2009 and filed herein on 14 October 2009.

“B”

WHITE ENERGY COMPANY LIMITED

ACN 071 527 083

(“the Company”)

NOTICE OF MEETING OF SHAREHOLDERS SUMMONED PURSUANT TO

AN ORDER OF THE FEDERAL COURT OF AUSTRALIA UNDER

SECTION 411 OF THE CORPORATIONS ACT 2001 (CTH)

NOTICE IS HEREBY GIVEN THAT by an Order made on 15 October 2009 the Federal Court has directed that, pursuant to section 411 of the Corporations Act, a meeting of members holding ordinary shares in the Company (“Members”) be convened for the purpose of considering and, if thought fit, approving (with or without modification), a scheme of arrangement proposed to be made between the Company and its Members (“Members Scheme”).

The meeting will be held at 11.00 am (AEDT) on 23 November 2009 at The Theatre Portside Centre, Level 5, 207 Kent Street, Sydney, New South Wales, at which all Members are requested to attend.  Members may obtain a copy of the Members Scheme, the Explanatory Statement and a proxy form from the offices of the Company, Suite 206, The Bentleigh, 1 Katherine Street, Chatswood, New South Wales, Tel (+61 2 9959 0000).

Dated this (*) day of (*) 2009.

White Energy Company Limited

“C”

WHITE ENERGY COMPANY LIMITED

ACN 071 527 083

(“the Company”)

NOTICE OF MEETING OF HOLDERS OF OPTIONS SUMMONED PURSUANT TO

AN ORDER OF THE FEDERAL COURT OF AUSTRALIA UNDER

SECTION 411 OF THE CORPORATIONS ACT 2001 (CTH)

NOTICE IS HEREBY GIVEN THAT by an Order made on 15 October 2009 the Federal Court has directed that, pursuant to section 411 of the Corporations Act, a meeting of holders of options issued by the Company (“Optionholders”) be convened for the purpose of considering and, if thought fit, approving (with or without modification), a scheme of arrangement proposed to be made between the Company and its Optionholders (“Option Scheme”).

The meeting will be held at 11.30 am (AEDT) on 23 November 2009 at The Theatre Portside Centre, Level 5, 207 Kent Street, Sydney, New South Wales, at which all Optionholders are requested to attend.  Optionholders may obtain a copy of the Option Scheme, the Explanatory Statement and a proxy form from the offices of the Company, Suite 206, The Bentleigh, 1 Katherine Street, Chatswood, New South Wales, Tel (+61 2 9959 0000).

Dated this (*) day of (*) 2009.

White Energy Company Limited

“D”

WHITE ENERGY COMPANY LIMITED

ACN 071 527 083

(“the Company”)

NOTICE TO ALL CREDITORS AND MEMBERS OF THE COMPANY OF HEARING

OF APPLICATION TO APPROVE SCHEMES OF ARRANGEMENT UNDER

SECTION 411 OF THE CORPORATIONS ACT 2001 (CTH)

TAKE NOTICE that at (*) am (WST) on 18 December 2009 the Federal Court of Australia, at 1 Victoria Avenue, Perth, Western Australia, will hear an application by the Company seeking the approval of two schemes of arrangement between the Company, its members and its option holders as proposed by resolutions passed by the meetings of the members and option holders of the Company held on 23 November 2009.

If you wish to oppose the approval of the schemes of arrangement, you must file and serve on the Company 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 Company at its address for service at least one day before the date fixed for the hearing of the application.

The address for service on the Company is c/- Steinepreis Paganin Lawyers, Level 4, The Read Buildings, 16 Milligan Street, Perth, Western Australia, 6000.

This notice is inserted by Steinepreis Paganin, solicitors for The Company.

Dated this (*) day of (*) 2009.

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 MATTER OF WHITE ENERGY COMPANY LIMITED (acn 071 527 083)

REASONS FOR JUDGMENT

1                     This is an application pursuant to s 411(1) of the Corporations Act 2001 (Cth), for the convening of meetings to consider, and if thought fit, approve two proposed schemes of arrangement.

2                     The first proposed scheme of arrangement is a scheme of arrangement between the plaintiff (White Energy), and its members (the share scheme).  The second proposed scheme of arrangement is between White Energy and the holders of five series of unlisted options (the option scheme) to acquire ordinary fully paid shares in White Energy.  These options comprise five tranches of options – each tranche has a different expiry date and a different exercise price.

3                     The share scheme contemplates that the plaintiff will become a wholly owned subsidiary of a company, Asia Special Situation Acquisition Corp (ASSAC) which is incorporated in the Cayman Islands.  ASSAC has raised funds from its shareholders by the issue of shares which are listed on the New York Stock Exchange Amex (NYSE Amex).  Under the proposed share scheme, the members of White Energy will cease to hold shares in White Energy and will receive the scheme consideration, which will comprise CHESS Depositary Interests (CDIs) in respect of the ordinary shares in ASSAC or ASSAC shares directly.

4                     If the share scheme is implemented, the shares of White Energy will be removed from the official quotation on the Australian Stock Exchange (ASX), ASSAC will change its name to White Energy Technology Inc and ASSAC’s shares will be listed on the New York Stock Exchange or the NYSE Amex and the CDIs will be listed on the ASX, subject to approval by the relevant bodies.  The board of ASSAC will be reconstituted so that it is comprised of the members of the current board of White Energy and one nominee of ASSAC, namely, Mr Keith Laslop.

5                     The option scheme anticipates that the persons holding options to acquire White Energy shares will receive options to acquire ASSAC shares.

6                     The purpose of the schemes is to provide capital to White Energy, which, through a subsidiary, has exclusive worldwide rights to commercialise the patented Binderless Coal Briquetting clean coal upgrading technology.  The evidence shows that this technology is being used in a number of projects throughout the world.  ASSAC is a business combination company which was formed under the laws of the Cayman Islands for the purpose of acquiring all or a majority interest in an operating business in Asia, which for the relevant purpose, includes Australia.  A condition of its constitution as a business combination company is that ASSAC must acquire a business by 23 January 2010, failing which it will be required to be wound up and to refund the monies which it currently holds on trust which it raised from shareholders.

7                     When considering whether to make orders for the convening of a meeting to consider the approval of a scheme of arrangement, the principles to apply are those contained in the following observations of Barrett J in Re Hills Motorway Ltd (2002) 43 ACSR 101 at 103, at [5] (Re Hills Motorway):

The task of the court, in deciding whether to make orders under s 411 convening a meeting of members, has been expressed in various ways.  According to the formulation adopted by Santow J in Re NRMA Insurance Ltd (2000) 33 ACSR 523, the court must see, on the material placed before it, that the proposal fits within the statutory concept of arrangement or compromise, that there will be available to members all the main facts relevant to the exercise of their judgment, that ASIC has had a reasonable opportunity to examine the proposal and that the scheme is so conceived and presented as to that structure, purpose and effect that there is no apparent reason, so far as can be foreseen, why it should not, in due course, receive the court’s approval if the necessary majority of members’ votes is achieved.  To substantially similar effect are the recent observations of Austin J in Re GIO Building Society Ltd and Australian Securities and Investments Commission (2001) 39 ACSR 77, French J in Re Foundation Healthcare Ltd (2002) 42 ACSR 252 and Parker J in Re Ranger Minerals Ltd; Ex parte Ranger Minerals Ltd (2002) 42 ACSR 582.

8                     On the materials before me, I am satisfied that the proposal fits within the statutory concept of arrangements or compromise.

9                     I am also satisfied that the Australian Securities and Investments Commission (ASIC) has had a reasonable opportunity to examine the scheme.  There is in evidence a letter from ASIC stating that it does not intend to appear today to oppose at this hearing orders for the convening of meetings for the consideration of the schemes.

10                  The process of disclosure has been assisted by the involvement of ASIC.  As a result of the communication which has occurred between ASIC and the proponents of the scheme, there have been some significant changes to the scheme booklet.  I am satisfied that there has been a sufficient disclosure of the main elements of the schemes to satisfy the Re Hills Motorway requirements.

11                  There are a number of issues which have been brought to my attention by counsel for the plaintiff who, if I may say, has provided very helpful detailed submissions to the Court.

12                  The first issue relates to the valuation method for determining the voting entitlements in respect of the optionholders.  Counsel referred me to the case of Re MIA Group Ltd (2004) 50 ACSR 29 (Re MIA Group), where Barrett J was content to accept the evidence that the Black Scholes method of valuation of options was an appropriate basis on which to determine the value of the options for the purposes of determining voting entitlement.

13                  Barrett J then went on to observe at [13]:

…if anyone should for some reason would think that the particular approach to pricing and valuation involves unfairness, it will be possible for the matter to be raised if and when an application for approval of the scheme concerning options comes back before the court.  At this point, no such possibility is so discernible as to cause me to hesitate in ordering that the meeting be convened.

14                  In this case, I have evidence from an expert valuer, Mr Andrea De Cian, that the appropriate methodology for valuation in these circumstances is the Cox‑Ross‑Rubenstein Binomial Model.  That arises from the fact that the options that are issued by White Energy are considered to be what is referred to as “American style options”.  I accept that evidence.

15                  I also adopt the observations of Barrett J, to which I have just referred, in respect to the right of a person subsequently to complain as to the methodology adopted in relation to determining voting entitlement, if they so wish, at the second hearing.

16                  Incidentally, I would also mention that Mr De Cian has compared the valuation that would be accorded to the options if the Black Scholes method was applied, and the difference between the application of the two methodologies is very small.

17                  The second issue is in relation to the question of whether there is a sufficient commonality of interest between the optionholders to permit the holding of a single meeting.  In Re MIA Group, Barrett J dealt with a similar situation.  In that case, there were also several tranches of options having different exercise prices and expiry dates.  Barrett J held that there was a sufficient commonality of interest to regard all the optionholders as being of one class.  At [14] of his reasons, Barrett J states:

In relation to the second matter, that is, the matter of classes, it is always necessary to go back to the question posed by Lord Esher MR in Sovereign Life Assurance Co Ltd v Dodd [1892] 2 QB 573, namely, whether different creditors have “different interests” in the sense that there prevails “a different state of facts existing among different creditors which may differently affect their minds and their judgment...”.  In the present case, consistent and indiscriminate application of the same pricing or valuation methodology to options having different characteristics in terms of exercise price and expiry, being a methodology that has regard to value criteria in one market at one time, should lay to rest any argument that those different characteristics so destroy community of interest as to indicate different classes.  The matter is, to my mind, sufficiently clear to make it appropriate that a single meeting of all optionholders be convened on the basis that separate classes do not exist.  Any contrary view can be agitated in due course should anyone see fit to raise it.

18                  I adopt those observations.

19                  Counsel for the plaintiff has also drawn my attention to the fact that the Merger Implementation Agreement makes provision for the payment of a break fee of $6 million which, on the evidence, amounts to about 1.25% of the market value of White Energy.

20                  The concern in relation to break fees is that an excessive break fee may have a different effect upon the making of a competing offer and may affect the manner in which members exercise their vote.  (See Re APN News & Media Ltd (2007) 62 ACSR 400.)

21                  I have taken into account the following considerations in determining that the break fee provision is not a sufficient reason for withholding orders for the convening of meetings for the consideration of the schemes, notwithstanding that the break fee is slightly in excess of the 1% guideline referred to in the Takeover Panel’s guidance note on lock‑up devices.

22                  First, Mr John Atkinson, a director of White Energy has given evidence as to the reasons for agreeing to the payment of a break fee.  That evidence is sufficient to persuade me that in light of the conditions associated with ASSAC’s constitution as a business combination company, there are good commercial reasons for agreeing to pay a break fee in the sum of $6 million.

23                  Secondly, the break fee does not become payable simply by reason of the fact that the members do not approve the share scheme.  Thus, the existence of the obligation to pay the break fee will not by itself preclude persons from voting against the approval of the scheme.

24                  Thirdly, there is adequate disclosure in the scheme booklet of the break fee and the circumstances in which it will become payable.

25                  As to the performance risk, I note that there is a deed poll which has been executed by ASSAC.  I also note that there is a warranty as part of the Merger Implementation Agreement that the implementation of the proposed schemes would not contravene Cayman Island law.  I understand that a second deed poll will be provided at the time of the second hearing.

26                  There is no apparent reason related to the structure, purpose and effect of the schemes, why, so far as can be foreseen, the schemes should not, in due course, receive the Court’s approval if the necessary majority vote is achieved.

27                  Accordingly, I am content to make the orders which are set out in the amended minute of proposed orders.

Associate:

Dated:         28 October 2009