FEDERAL COURT OF AUSTRALIA

Texon Petroleum Limited, in the matter of Texon Petroleum Limited [2013] FCA 29

IN THE MATTER OF TEXON PETROLEUM Limited (abn 24 119 737 772)

THE COURT ORDERS THAT:

1.    Pursuant to subsection 411(1) of the Corporations Act 2001 (Act) the Plaintiff, Texon Petroleum Ltd ABN 24 119 737 772 (TPL), convene a meeting of its shareholders (Demerger Scheme Meeting) for the purpose of considering, and if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed between TPL and its shareholders (Demerger Scheme) being the scheme substantially in the form of that contained in Appendix 3 of the explanatory statement in relation to the Demerger Scheme (Demerger Scheme Booklet), which is Exhibit 1.

2.    The Demerger Scheme Meeting be held at the offices of Minter Ellison Lawyers, Level 22, Waterfront Place, 1 Eagle Street, Brisbane in the State of Queensland on 25 February 2013 at 11.30 am.

3.    The Chairperson of the Demerger Scheme Meeting be John Dennis Armstrong and, in his absence, Bernard Charles Ernest Rowley.

4.    The Chairperson appointed to the Demerger Scheme Meeting has the power to adjourn the Demerger Scheme Meeting in his absolute discretion.

5.    Except for procedural motions, all voting at the Demerger Scheme Meeting be by poll as declared by the Chairperson.

6.    Pursuant to subsection 411(1) of the Act, the Demerger Scheme Booklet be approved for distribution to the TPL shareholders.

7.    The Demerger Scheme Booklet is to be dispatched to the TPL shareholders be in the form, or to the effect, of that which is Exhibit 1, and may be sent by pre-paid post, and in the case of a member whose registered address is outside the country, by pre-paid airmail post, or dispatched by air courier for overseas pre-paid post.

8.    Regulations 5.6.12 and 5.6.14 to 5.6.36A of the Corporations Regulations 2001 will not apply to the Demerger Scheme Meeting.

9.    Notice of the hearing of an application pursuant to subsection 411(4)(b) of the Act for orders approving the scheme of arrangement be published in substantially the form of "Annexure A" to this order, such advertisement to be published in The Australian Newspaper on or before 21 February 2013, and TPL be otherwise exempted from compliance with rule 3.4 of the Federal Court (Corporations) Rules 2000.

10.    The Originating Application filed on 21 December 2012 be adjourned to 10.15am on 27 February 2013 before Farrell J.

11.    Liberty to apply on 2 days' notice.

12.    These Orders be entered forthwith.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

"ANNEXURE –A"

Form 6    Notice of hearing to approve compromise or arrangement

(rule 3.4)

No. NSD2228 of 2012

Federal Court of Australia

District Registry: New South Wales

Division: General

IN THE MATTER OF TEXON PETROLEUM LTD

ABN 24 119 737 772

Texon Petroleum Limited

(ABN 24 119 737 772)

Plaintiff

TO all the creditors and members of Texon Petroleum Ltd ABN 24 119 737 772.

TAKE NOTICE that at 10.15am on Wednesday, 27 February 2013, the Federal Court of Australia at Levels 17 - 22 of the Law Courts Building, Queens Square, 184 Phillip Street, Sydney in the State of New South Wales will hear an application by Texon Petroleum Ltd ABN 24 119 737 772 seeking the approval of a compromise or arrangement between the above-named company and its members as proposed by a resolution to be put to a meeting of the members of the company to be held on Monday, 25 February 2013.

If you wish to oppose the approval of the compromise or arrangement, 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 Minter Ellison, Level 22, 1 Eagle Street, Brisbane, Queensland, 4001.

Name of person giving notice or of person’s legal practitioner: David O'Brien

IN THE MATTER OF TEXON PETROLEUM Limited (abn 24 119 737 772)

THE COURT ORDERS THAT:

1.    Pursuant to subsection 411(1) of the Corporations Act 2001 (Cth) (Act) the Plaintiff, Texon Petroleum Ltd ABN 24 119 737 772 (TPL), convene a meeting of the TPL Shareholders (Acquisition Scheme Meeting) for the purpose of considering, and if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed between TPL and its shareholders (Acquisition Scheme) being the scheme substantially in the form of that contained in Appendix 3 of the explanatory statement in relation to the Acquisition Scheme (Acquisition Scheme Booklet), which is Exhibit 1.

2.    The Acquisition Scheme Meeting be held at the offices of Minter Ellison Lawyers, Level 22, Waterfront Place, 1 Eagle Street, Brisbane in the State of Queensland on 25 February 2013 at 12.30 pm (or as soon thereafter as the meeting for the Demerger Scheme (which is the scheme the subject of Proceeding NSD 2228 of 2012) has been concluded or adjourned).

3.    The Chairperson of the Acquisition Scheme Meeting be John Dennis Armstrong and, in his absence, Bernard Charles Ernest Rowley.

4.    The Chairperson appointed to the Acquisition Scheme Meeting has the power to adjourn the Acquisition Scheme Meeting in his absolute discretion.

5.    Except for procedural motions, all voting at the Acquisition Scheme Meeting be by poll as declared by the Chairperson.

6.    Pursuant to subsection 411(1) of the Act, the Acquisition Scheme Booklet is approved for distribution to TPL shareholders.

7.    The Acquisition Scheme Booklet is to be dispatched to TPL Shareholders be in the form, or to the effect, of that which is Exhibit 1, and may be sent by pre-paid post, and in the case of a member whose registered address is outside the country, by pre-paid airmail post, or dispatched by air courier for overseas pre-paid post.

8.    Regulations 5.6.12 and 5.6.14 to 5.6.36A of the Corporations Regulations 2001 (Cth) will not apply to the Acquisition Scheme Meeting.

9.    Notice of the hearing of an application pursuant to subsection 411(4)(b) of the Act for orders approving the scheme of arrangement be published in substantially the form of "Annexure A" to this order, such advertisement to be published in The Australian newspaper on or before 21 February 2013, and TPL be otherwise exempted from compliance with rule 3.4 of the Federal Court (Corporations) Rules 2000.

10.    The Originating Application filed on 21 December 2012 be adjourned to 10.15am on 27 February 2013.

11.    Liberty to apply on 2 days' notice.

12.    These Orders be entered forthwith.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

"ANNEXURE A"

Form 6    Notice of hearing to approve compromise or arrangement

(rule 3.4)

No. NSD2230 of 2012

Federal Court of Australia

District Registry: New South Wales

Division: General

IN THE MATTER OF TEXON PETROLEUM LTD

ABN 24 119 737 772

Texon Petroleum Limited

(ABN 24 119 737 772)

Plaintiff

TO all the creditors and members of Texon Petroleum Ltd ABN 24 119 737 772.

TAKE NOTICE that at 10.15am on Wednesday, 27 February 2013, the Federal Court of Australia at Levels 17 - 22 of the Law Courts Building, Queens Square, 184 Phillip Street, Sydney in the State of New South Wales will hear an application by Texon Petroleum Ltd ABN 24 119 737 772 seeking the approval of a compromise or arrangement between the above-named company and its members as proposed by a resolution to be put to a meeting of the members of the company to be held on Monday, 25 February 2013.

If you wish to oppose the approval of the compromise or arrangement, 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 Minter Ellison, Level 22, 1 Eagle Street, Brisbane, Queensland, 4001.

Name of person giving notice or of person’s legal practitioner: David O'Brien

IN THE MATTER OF TEXON PETROLEUM Limited (abn 24 119 737 772)

REASONS FOR JUDGMENT

1    These are the reasons for the orders I made at the conclusion of a first hearing in relation to two proposed schemes of arrangement on 22 January 2013. By two applications filed 21 December 2012, the plaintiff, Texon Petroleum Limited (Texon) seeks orders under s 411(1) of the Corporations Act 2001 (Cth) (the Act) convening meetings of its members for the purpose of approving two schemes referred to as the Demerger Scheme and the Acquisition Scheme (together the “Schemes”).

Relevant law

2    Section 411(1) of the Act relevantly provides that, where an arrangement is proposed between a company and its members the Court may, on the application of the company in a summary way, order a meeting of the members of the company to be convened in such manner and to be held at such place as the Court directs. The Court may also approve the explanatory statement required by s 412(1)(a) to accompany the notice of such a meeting.

3    Section 412(1)(a) of the Act relevantly provides that, where a meeting is convened under s 411(1), the company must, with every notice convening the meeting, send a statement explaining the effect of the arrangement. Such a statement must state any material interests of the directors and the effect of the proposed arrangement on those interests insofar as they may differ from the effect on like interests of other persons. The statement must also set out such information as is prescribed and any other information that is material to a member’s decision to agree or not agree to the arrangement. The Court must not make an order pursuant to an application under s 411(1) unless 14 days notice of the hearing of the application has been given to the Australian Securities and Investments Commission (ASIC) and the Court is satisfied that ASIC has had a reasonable opportunity to examine the terms of the proposed arrangement and the draft explanatory statement, and to make submissions to the Court regarding the arrangement and statement.

4    The Court will not ordinarily convene a meeting of members to consider a scheme of arrangement unless the Court is satisfied that the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting of members, the Court would be likely to approve the scheme on the hearing of an unopposed application: Re Central Pacific Minerals NL [2002] FCA 239 at [8]; Re CSR Ltd (2010) 183 FCR 358 at [12]; Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 504. By granting leave to convene the meeting, the Court does not give its imprimatur to the proposed scheme or foreshadow its approval at the second court hearing for the purposes of s 411(4)(b): Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [36]; Australian Securities Commission v Marlborough Gold Mines Limited at 504-505. The question for the Court is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed as being beneficial to members: In re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 at 243; Re CSR Ltd at [80]. The Court does not need to be satisfied that no better scheme could have been proposed: Re Foundation Healthcare Ltd at [44]. Ultimately, the question is for the members themselves: see FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72.

5    Given the ex parte nature of these applications, it is the duty of counsel to bring to the Court’s attention all matters that could be considered relevant to the exercise of its discretion. See: Re Permanent Trustee Co Ltd (2002) 43 ACSR 601 at [7].

Background

Texon, the plaintiff

6    Texon is a public company registered in Australia under the Act and its shares are listed for quotation on the Australian Stock Exchange (ASX). Texon describes its business as oil and gas exploration and production and its operations are located in south Texas in the United States of America. For present purposes, the assets of Texon and its subsidiaries (Texon group) can be divided into those related to the Eagle Ford Shale interests (EFS Assets) and its other assets (non-EFS Assets). Some, but not all of the non-EFS Assets are held by Talon Petroleum Limited (Talon) and its subsidiaries (Talon group).

Sundance, the bidder

7    Sundance Energy Australia Limited (Sundance) is a public company registered in Australia under the Act and its shares are listed for quotation on the ASX. It is an Adelaide based independent energy exploration company with headquarters in Denver, Colorado in the United States of America.

Meetings of members of Texon

8    Texon proposes that shareholders will consider four resolutions at three meetings which will be held consecutively. These are resolutions to:

(1)    to approve the Demerger Scheme at the court-ordered meeting;

(2)    to approve the Acquisition Scheme at the court-ordered meeting and;

(3)    to approve an equal capital reduction pursuant to 256C of the Act (Capital Reduction) and the Wandoo Interest Acquisition Agreement (Wandoo Approval Resolution) at an extraordinary general meeting (Extraordinary General Meeting).

Demerger Scheme

9    The effect of the Demerger Scheme, if approved, will be that:

(a)    all of Texon’s non-EFS Assets will be transferred to Talon and Talon group will then hold all of the non-EFS Assets.

(b)    Texon group will hold all of the EFS Assets.

(c)    Immediately before the Capital Reduction takes effect, Talon will capitalise debt it owes to Texon by the issue of sufficient Talon shares to meet the requirements of the Demerger Scheme.

(d)    Texon will transfer to each of its members two Talon shares for every five Texon shares which they hold (other than ineligible foreign shareholders for whom there will be a share sale facility). The issue of those Talon shares is in satisfaction of the Capital Reduction.

(e)    Texon shareholders will hold Texon shares and Talon shares, and Talon shares will be listed for quotation on the ASX.

(f)    The Demerger Scheme is conditional on (among other things) the Capital Reduction being approved by Texon shareholders. It is not conditional on the Acquisition Scheme being approved.

Acquisition Scheme

10    The effect of the Acquisition Scheme is that Texon (then holding all EFS Assets) will become a wholly owned subsidiary of Sundance. Texon shareholders will transfer all of their Texon shares to Sundance and Sundance will issue Texon shareholders (other than ineligible foreign shareholders for whom there will be a share sale facility) with Sundance shares in the ratio of one Sundance share for every two Texon shares transferred. The Acquisition Scheme is conditional (among other things) on the Demerger Scheme being approved and implemented.

Capital Reduction

11    The Extraordinary General Meeting will be asked to approve an equal reduction of capital pursuant to s 256C of the Act, subject only to the approval of the Demerger Scheme by the Court and the orders being lodged with ASIC. Texon’s capital will be reduced by $19,220,000 and the entitlement of Texon shareholders arising from the Capital Reduction will be satisfied by transferring Talon shares to members of Texon under the Demerger Scheme.

Wandoo Approval Resolution

12    The Extraordinary General Meeting will also be asked to approve the issue of up to 4,480,000 Talon shares to Wandoo Energy LLC (Wandoo), a corporation whose majority shareholder is David James Melville Mason (Mr Mason), a director of Texon and Talon. The issue of these Talon shares is pursuant to the Wandoo Interest Acquisition Agreement under which Wandoo is to sell its working interests in EFS Assets to a subsidiary of Texon. Wandoo will also receive cash consideration of up to $US1.2 million. The Wandoo Approval Resolution is proposed as a basis for seeking a waiver from the Australian Securities Exchange (ASX) from compliance with ASX Listing Rule 10.11 which requires shareholder approval of the issue of equity securities to related parties.

13    The Wandoo Acquisition Agreement is conditional on the implementation of the Demerger Scheme and the Acquisition Scheme. However, it is not conditional on the Wandoo Approval Resolution being passed. Accordingly, if both of the Schemes are approved by members of Texon and this Court, but the Wandoo Approval Resolution is not passed, Wandoo may have a cause of action against a subsidiary of Texon which will become a subsidiary of Sundance. That subsidiary of Texon may in turn have remedies against Talon under the Demerger Deed between Texon and Talon dated 14 January 2013.

14    The Wandoo Approval Resolution is subject to a voting exclusion by interests associated with Wandoo and Mr Mason has refrained from making any recommendation regarding how Texon shareholders should vote on this resolution.

Issues to be addressed

Part 5.1 body

15    Texon is a “Part 5.1 body”. Talon and Sundance are also public companies registered in Australia under the Act. Each has a constitution which would not prohibit entry into the Schemes or performance of obligations referenced in the Schemes.

Compromise or arrangement

16    I am satisfied that each of the proposed Schemes is an “arrangement” within the meaning of s 411 between Texon and its members. Each Scheme follows a well-worn path, and each proposal involves the shareholders giving and receiving benefits.

Options to be cancelled

17    Texon has 17,500,000 unlisted options on issue. Texon and Sundance have entered into option cancellation deeds with each of the 10 option holders under which the options will be cancelled for no consideration at 5.00 pm on the date the Court approves the Demerger Scheme unless the options have been exercised before then. Any Texon shares issued on exercise of the options will be included in the definition of “Scheme Shares”. Accordingly there is no need for a separate creditors compromise or arrangement to accommodate the interests of option holders.

Classes

18    I am satisfied, at this stage, that none of the Texon shareholders have interests which are dissimilar to such a degree which would “make it impossible for them to consult together with a view to their common interest” within the formulation of Bowen LJ in Sovereign Life Assurance Company v Dodd [1892] 2 QB 573 at 583 – the time honoured formulation of the test on this point.

19    Having said this, I note that Texon has advised ASIC that it will “tag” the votes of Texon director Mr Mason at the meetings of Texon members to approve the Schemes, and Texon will provide ASIC and the Court with relevant material about voting on the Schemes. This issue may fall to be finally determined at the second hearing if the Court is asked to approve the Scheme pursuant to s 411(4)(b).

20    As to ineligible foreign shareholders, the Court received evidence that, as at 15 January 2013, there were eight such shareholders (0.23% of all Texon members) holding 0.12% of the issued shares. In order to meet the exigencies of foreign laws, it is proposed that instead of issuing share consideration to these shareholders under the Schemes (if they are approved) there will be a share sale facility under which the share consideration will be issued to a nominee for sale and the cash proceeds after expenses will be paid to the ineligible foreign shareholders. This is now a typical practice where there are a relatively few foreign shareholders (Re Rural Press Ltd (2007) 61 ACSR 373 at [20]) and these members should not be treated as a separate class: Straits Resources Limited, in the matter of Straits Resources Limited [2010] FCA 1466 at [28]; Re Hills Motorway Ltd (2002) 43 ACSR 101 at [10]-[13].

Capital reduction and consent to receive share consideration

21    As consideration for the reduction of capital, Texon members will receive Talon shares under the Demerger Scheme. The Demerger Scheme is therefore appropriately coupled with a capital reduction proposal. Each Scheme includes a provision under which Texon shareholders agree to accept shares as scheme consideration: see eg. Re Hunter Resources Limited (1992) 34 FCR 418; Re Advance Bank Australia Limited (1997) 22 ACSR 513 at 528-529; Re CSR Ltd (2010) 183 FCR 358.

Schemes are bona fide and properly proposed

22    There is no evidence, at this stage, to suggest that either Scheme is being proposed for an improper purpose. The evidence that the Schemes are bona fide and properly proposed includes:

(a)    A Scheme Implementation Agreement between Texon and Sundance dated 13 November 2012 under which Texon agrees to propose the Schemes and both Texon and Sundance agree to take the steps necessary on their respective parts to implement the Schemes; and

(b)    A Demerger Scheme Deed Poll executed by Talon on 15 January 2013 and a Deed Poll executed by Sundance on 16 January 2013 – each for the benefit of Texon shareholders and undertaking to perform the steps attributed to them under the relevant Scheme.

23    These documents also address the “performance risk” inherent in the Schemes. In the Demerger Scheme, performance risks are low because it is essentially a rearrangement of the assets comprised in the Texon group. On the other hand, Sundance is a stranger to the Acquisition Scheme and the risk of its failure to perform is also addressed by the fact that the issue of the Sundance shares as consideration precedes the transfer of Texon shares to Sundance under clause 3.3 of the Acquisition Scheme.

Is there proper disclosure to shareholders in relation to the proposed Schemes?

24    The proposed explanatory statement for each of the Schemes is in the form of a booklet, the text of which appears to include material which is required by the Act. It also appears to contain material which it has become customary to provide in circumstances where the scheme consideration includes shares in another body corporate and where, as in the Acquisition Scheme, its implementation has the same effect as a takeover. Each booklet includes the terms of the Scheme, a notice of meeting and proxy form for the court-ordered Scheme meeting as well as explanatory material. The booklet for the Demerger Scheme also includes a notice and proxy form for the Extraordinary General Meeting.

25    Texon provided evidence of the diligence process in relation to the content of the booklets for each Scheme. That evidence included a planning memorandum which set out the information requirements of the Act and regulations for schemes under Part 5.1, the consequences of failing to meet those information requirements, ASIC’s regulatory requirements and, lastly, materiality standards for the conduct of inquiries. The planning memorandum provides for the delivery of “sign-offs” to the Texon board by Texon’s lawyers and by KPMG concerning certain financial information. The diligence process also involves verification of statements in the booklets by senior officers of the relevant companies which were reported to the board of Texon. This process formed an element of the basis on which the Texon directors unanimously recommended the Schemes and it is typical of diligence inquires for disclosure documents. This is an important step in avoiding misleading or deceptive statements and omissions of material information.

Experts’ Reports

26    The explanatory statement for the Demerger Scheme provides an independent expert report by BDO Corporate Finance (QLD) Ltd (BDO) dated 17 January 2013. In order to prepare this report, BDO asked Moyes & Co to prepare a fair market valuation report on the reserves, resources and value of the producing properties and undeveloped leasehold mineral interests of Texon. The Moyes report was provided with information current as of 1 December 2012. BDO concludes that, on balance, the advantages of the proposed demerger outweigh the disadvantages and that, in the absence of any other information or a superior proposal, the proposed demerger is in the best interest of Texon shareholders. BDO specifically noted that:

    The proposed capital reduction is an equal capital reduction and all Texon shareholders are treated equally;

    There will be no change in the underlying economic interests of Texon shareholders (excluding any changes that relate to ineligible foreign shareholders) as the proposed demerger is essentially splitting a Texon share into both a Texon share and a Talon share. There is no change of control in the shareholding in Texon and, but for the ineligible foreign shareholders ultimately having their shares sold by a sale agent, the shareholding in Talon at the time of the proposed demerger will be equal to the shareholding in Texon;

    The benefits of being able to consider the Acquisition Scheme, having a separate value attributed to the assets in Talon and a greater focus being afforded to the non-EFS Assets outweighs the increase corporate costs and less diversified assets; and

    The position of Texon shareholders if the proposed demerger is not approved. This includes the fact that the proposed acquisition will not proceed and that Texon would be required to identify an alternative entity to complete a transaction with and/or Texon would be required to raise additional capital.

27    At ASIC’s prompting, Texon obtained a further report from BDO in relation to the value of the assets to be acquired from Wandoo under the Wandoo Interest Acquisition Agreement. This report is included at Appendix 8 of the booklet for the Demerger Scheme. BDO concludes that the value of the consideration payable to Wandoo is less than the assets may be worth. I note that the inclusion of this report and additional wording in other areas of the booklet relating to this matter was relevant to address concerns about whether this aspect of the proposals had been given sufficient prominence in the booklet – having regard to the fact that Wandoo is controlled by a director of Texon.

28    The booklet for the Acquisition Scheme also provides a report by BDO dated 17 January 2013 as an independent expert. For this purpose, BDO requested Moyes & Co to prepare a fair market valuation report on the interests held by Texon and demerged interests to be held by Texon as of 1 December 2012. BDO concludes that the proposed acquisition is fair and reasonable to members of Texon. On that basis, in the absence of any other information or a superior proposal, the proposed acquisition is in the best interest of members of Texon.

Lock-up devices and break fees

29    Section 3.4 of the explanatory statement for the Acquisition Scheme summarises the measures which Texon has agreed with Sundance and those measures are set out more fully in paragraph 6 of Appendix 5 of the booklet. These include a “no shop” restriction, a “no talk” restriction (subject to a fiduciary carve out), a “no due diligence” restriction (subject to a fiduciary carve out), notification obligations and matching rights. These arrangements are to last until the end of the Exclusivity Period, which commenced on 13 November 2012 when the Scheme Implementation Agreement was signed and will end when the Acquisition Scheme is implemented or 30 April 2013 unless a later date is agreed by Texon and Sundance.

30    Texon has also agreed to pay a break fee of $US1,000,000 to Sundance if, among other things, the directors of Texon cease to support the Acquisition Scheme or publicly announce their intention to support a Competing Proposal. Sundance may also be liable to pay the same amount to Texon if, as a result of a material breach of the Scheme Implementation Agreement, Texon terminates the Agreement and the Acquisition Scheme is not implemented. The disclosure concerning break fees is made in section 3.4(b) and paragraph 7 of Appendix 5 of the Acquisition Scheme booklet. It is also made at section 3.4(a) of the booklet for the Demerger Scheme Texon provided evidence that the break fee is approximately, but slightly less than, 1% of Texon’s equity value. Texon also provided evidence of the commercial negotiations, in the context of legal and commercial advice, leading up to Texon agreeing to these arrangements.

31    All of these measures are of a kind described in the Takeover Panel’s Guidance Note 7: Lock-up devices. Such devices have been considered by courts in a number of proceedings relating to schemes of arrangement. The Court has not intervened where the terms of the devices generally conform to the guidance provided by the Takeovers Panel and I will not depart from that practice here.

32    Counsel for Texon submitted that no break fee is payable if Texon shareholders do not approve either of the Schemes (recognising that approval of the Demerger Scheme is a condition precedent to the Acquisition Scheme). That appears to be a correct construction of the Scheme Implementation Agreement. It is indeed a factor indicating that the arrangements are not likely to have a coercive effect on members of Texon in deciding whether to vote in favour or against the Acquisition Scheme.

33    However, this fact was not included in the summary of the break fee arrangements, which are mentioned in both Scheme booklets. While disclosure of the lock-up device and break fee arrangements is undoubtedly required, express disclosure of the fact that a “no” vote will not incur the break fee is desirable to ensure that there is balanced disclosure and any concern that Texon shareholders may have had on that score is addressed. Texon agreed to amend Section 3.4 of both booklets accordingly.

ASIC letter

34    ASIC has issued the “usual” letter in relation to both the Demerger Scheme and the Acquisition Scheme. The letter indicates that ASIC has had a reasonable opportunity to examine the proposed Schemes and explanatory statements and to make submissions to the Court. ASIC had at least 14 days’ notice of the hearing.

35    ASIC also states that it decided not to appear to make submissions to the Court having regard to Texon’s intention to “tag” Mr Mason’s votes at the meetings to approve the Schemes. In making the orders, I noted that voting at the meetings is to be conducted by way of a poll, which facilitates this process.

Orders

Reference to specific appendix in which scheme terms are proposed

36    Texon proposed a draft order convening the Scheme meetings which referred only to the booklets as a whole – not to the specific appendix containing the terms of the Scheme. I considered that for compliance with r 3.3(1) of the Federal Court (Corporations) Rules 2000 (Rules), the orders should identify the specific appendix.

Chairman of meeting

37    Texon provided evidence of consent to act by the proposed chairman and alternate chairman of the meetings for consideration of the Demerger Scheme and the Acquisition Scheme. Texon also proposed that the Chairman should have the power to adjourn the meeting, and I saw no reason not to agree to this proposal.

Convening the meeting

38    Texon proposes to convene the meetings of shareholders in accordance with Part 2G.2 of the Act and the terms of its constitution in accordance with r 3.3(2) of the Rules and the order proposed conforms with Texon’s constitution. Texon does not propose to use electronic communications for service of the booklets.

Notice of hearing

39    Texon proposes that the second court hearing occur in a timeframe which would not allow at least 5 days notice (as required by the r 3.4(3)(b) of the Rules) if the advertisement is published after the outcome of the Scheme meetings is known. Texon proposed that the order permitting this publication not be specific as to the method of publication, noting that ASIC now has a website where such notices may be published. I was not satisfied that this system had been in operation long enough to expect that Texon members would be aware of it. While it has become customary for the Court to agree to the publication of the notice required by Form 6 at the first court hearing, at this stage I consider that publication should occur in a newspaper circulating throughout Australia and I have accordingly ordered that publication should occur in the Australian newspaper.

40    The Schemes are appropriate to be given to Texon shareholders for consideration.

Associate:

Dated:    31 January 2013