6-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6–K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

May 12, 2020

Commission File Number 001-39059

 

 

AVITA MEDICAL LIMITED

(Name of Registrant)

 

 

Level 7, 330 Collins Street

Melbourne VIC 3000 Australia

Tel: +61 (0) 3 8689 9997

Fax: +61 (0) 8 9474 7742

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  ☒            Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-______.

 

 

 


Table of Contents

AVITA MEDICAL LIMITED

Form 6-K

TABLE OF CONTENTS

 

     Page  

Explanatory Note

     Page 2  

Signatures

     Page 3  

Proposed redomiciliation to the United States of America – registration of Scheme Booklet with ASIC and financial reporting relief granted by ASIC

     Exhibit 99.1  

Scheme Booklet

     Exhibit 99.2  

EXPLANATORY NOTE

Avita Medical Limited (the “Company”) published a news release titled “Proposed redomiciliation to the United States of America – registration of Scheme Booklet with ASIC and financial reporting relief granted by ASIC” (the “Public Notice”) to the Australian Securities Exchange on May 12, 2020. A copy of the Public Notice is attached as exhibit 99.1 and a copy of the Scheme Booklet referenced in the Public Notice is attached as exhibit 99.2 to this report on Form 6-K.

This report on Form 6-K (including the exhibits hereto) shall not be deemed to be “filed” for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

 

2


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Avita Medical Limited
By:  

/s/ David McIntyre

Name:   David McIntyre
Title:   Chief Financial Officer

Date: May 12, 2020

 

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EX-99.1

Exhibit 99.1

 

LOGO    LOGO

AVITA Medical Limited

Proposed redomiciliation to the United States of America –

registration of Scheme Booklet with ASIC and financial reporting

relief granted by ASIC

 

Valencia, Calif., USA, and Melbourne, Australia, 12 May 2020: AVITA Medical Limited (Company) (ASX:AVH, NASDAQ:RCEL) is pleased to announce that the Australian Securities and Investments Commission (ASIC) has registered the scheme booklet (Scheme Booklet) in relation to the proposed scheme of arrangement under which AVITA Therapeutics, Inc. (Avita US), a newly-formed company incorporated in Delaware in the United States of America, will become the parent company of the Company and its subsidiaries (Avita Group) for the purposes of effecting a redomiciliation of the Avita Group from Australia to the United States of America (Scheme).

A copy of the Scheme Booklet in full is attached to this announcement. The Scheme Booklet includes the Notice of Scheme Meeting and an Independent Expert’s Report prepared by BDO Corporate Finance Limited, who has concluded that, in its opinion, the Scheme is in the best interests of the Company’s shareholders as a whole.

Despatch of Scheme Booklet

A copy of the Scheme Booklet, which includes the Notice of Scheme Meeting and Independent Expert’s Report, and a proxy form, will be sent to the Company’s shareholders by post or electronically (for those shareholders who have opted to receive notices electronically) on or before 14 May 2020.

Scheme meeting

The Scheme meeting will be held exclusively as a virtual meeting by way of a live webcast at 9.00am (AEST) on 15 June 2020. The Company’s shareholders are encouraged to read the Scheme Booklet in its entirety and vote at the Scheme meeting either by participating in the live webcast or by appointing a proxy, attorney or corporate representative (as applicable). Details and instructions on how to take part and vote are included in the Scheme Booklet.

Financial reporting relief granted by ASIC

In connection with the Scheme, the Company applied to ASIC for relief from the requirement for the Company to prepare and lodge with ASIC an annual report in accordance with Australian International Financial Reporting Standards (AIFRS) for the financial year in which the Scheme was implemented.

The reason for the Company seeking this relief was to reduce the substantial costs, burden and risks associated with the dual financial reporting and related compliance obligations that the Company currently has in both the United States and Australia as a result of being treated (since 31 December 2019) as a domestic public company in both of these jurisdictions for financial reporting purposes.

The Company is pleased to announce that ASIC has granted relief so that, if the Scheme is implemented on or before 30 June 2020, the Company will not be required to prepare and lodge with ASIC an annual report for the financial year ending 30 June 2020 in accordance with AIFRS.

 

 

Avita Medical Limited c/o Mertons Corporate Services Pty Ltd Level 7, 330 Collins Street, Melbourne Victoria 3000

 

1


In order to comply with the conditions to the relief:

 

   

the Company and its Australian subsidiaries will enter into a new deed of cross guarantee with Avita US as the new parent entity of the Avita Group on and from the Implementation Date of the Scheme; and

 

   

Avita US will prepare and file with the U.S. Securities and Exchange Commission for the financial year ending 30 June 2020 in respect of the Avita Group an Annual Report on Form 10-K in accordance with U.S. Generally Accepted Accounting Principles (which will be audited) by 31 August 2020.

If the Scheme is implemented on or before 30 June 2020, it is anticipated that the Avita Group will save approximately A$400,000 in external professional costs as a result of obtaining this relief.

Authorised for release by the Chief Financial Officer of AVITA Medical Limited.

###

ABOUT AVITA MEDICAL LIMITED

AVITA Medical is a regenerative medicine company with a technology platform positioned to address unmet medical needs in burns, chronic wounds, and aesthetics indications. AVITA Medical’s patented and proprietary collection and application technology provides innovative treatment solutions derived from the regenerative properties of a patient’s own skin. The medical devices work by preparing a REGENERATIVE EPIDERMAL SUSPENSION (RES), an autologous suspension comprised of the patient’s skin cells necessary to regenerate natural healthy epidermis. This autologous suspension is then sprayed onto the areas of the patient requiring treatment.

AVITA Medical’s first U.S. product, the RECELL® System, was approved by the U.S. Food and Drug Administration (FDA) in September 2018. The RECELL System is indicated for use in the treatment of acute thermal burns in patients 18 years and older. The RECELL System is used to prepare Spray-On Skin Cells using a small amount of a patient’s own skin, providing a new way to treat severe burns, while significantly reducing the amount of donor skin required. The RECELL System is designed to be used at the point of care alone or in combination with autografts depending on the depth of the burn injury. Compelling data from randomized, controlled clinical trials conducted at major U.S. burn centers and real-world use in more than 8,000 patients globally, reinforce that the RECELL System is a significant advancement over the current standard of care for burn patients and offers benefits in clinical outcomes and cost savings. Healthcare professionals should read the INSTRUCTIONS FOR USE—RECELL® Autologous Cell Harvesting Device (https://recellsystem.com/) for a full description of indications for use and important safety information including contraindications, warnings and precautions.

In international markets, our products are marketed under the RECELL System brand to promote skin healing in a wide range of applications including burns, chronic wounds and aesthetics. The RECELL System is TGA-registered in Australia and received CE-mark approval in Europe.

To learn more, visit www.avitamedical.com.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This letter includes forward-looking statements. These forward-looking statements generally can be identified by the use of words such as “anticipate,” “expect,” “intend,” “could,” “may,” “will,” “believe,” “estimate,” “look forward,” “forecast,” “goal,” “target,” “project,” “continue,” “outlook,” “guidance,” “future,” other words of similar meaning and the use of future dates. Forward-looking statements in this letter include, but are not limited to, statements concerning, among other things, our ongoing clinical trials and product development activities, regulatory approval of our products, the potential for future growth in our business, and our ability to achieve our key strategic, operational and financial goal. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Each forward- looking statement contained in this letter is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statement.

 

Avita Medical Limited c/o Mertons Corporate Services Pty Ltd Level 7, 330 Collins Street, Melbourne Victoria 3000

 

2


Applicable risks and uncertainties include, among others, the timing of regulatory approvals of our products; physician acceptance, endorsement, and use of our products; failure to achieve the anticipated benefits from approval of our products; the effect of regulatory actions; product liability claims; risks associated with international operations and expansion; and other business effects, including the effects of industry, economic or political conditions outside of the company’s control. Investors should not place considerable reliance on the forward-looking statements contained in this letter. Investors are encouraged to read our publicly available filings for a discussion of these and other risks and uncertainties. The forward-looking statements in this letter speak only as of the date of this release, and we undertake no obligation to update or revise any of these statements.

FOR FURTHER INFORMATION:

 

U.S. Media

Sam Brown, Inc.

Christy Curran

Phone +1 615 414 8668

christycurran@sambrown.com

 

O.U.S Media

Monsoon Communications

Rudi Michelson

Phone +61 (0)3 9620 3333

Mobile +61 (0)411 402 737

rudim@monsoon.com.au

  

Investors:

Westwicke Partners

Caroline Corner

Phone +1 415 202 5678

caroline.corner@westwicke.com

 

AVITA Medical Ltd

David McIntyre

Chief Financial Officer

Phone +1 661 367 9178

dmcintyre@avitamedical.com

 

Avita Medical Limited c/o Mertons Corporate Services Pty Ltd Level 7, 330 Collins Street, Melbourne Victoria 3000

 


 

3

EX-99.2

Exhibit 99.2

 

LOGO   

AVITA MEDICAL LIMITED

 

ABN 28 058 466 523

 

SCHEME BOOKLET

 

11 MAY 2020

  

NOTICE IS GIVEN OF A SCHEME MEETING TO BE HELD ON 15 JUNE 2020 COMMENCING AT 9.00AM (AEST) (WHICH CORRESPONDS TO 7.00PM ON 14 JUNE 2020 IN WILMINGTON IN THE STATE OF DELAWARE IN THE UNITED STATES OF AMERICA) BY WAY OF LIVE WEBCAST

 

 

The purpose of this Scheme Booklet is to provide information to the shareholders of AVITA Medical Limited (the Company) in connection with seeking the approval of shareholders of a scheme of arrangement under which the Company will become a wholly owned subsidiary of AVITA Therapeutics, Inc. (Avita US) and consequently the Avita Group will be redomiciled from Australia to the United States.

 

 

Under the proposed scheme of arrangement:

 

   

a newly-formed company, Avita US, recently incorporated in the United States, will become the new holding company of the Company;

 

   

shareholders will effectively exchange their shares in the Company for equivalent securities in Avita US; and

 

   

the existing listing of the Company on the ASX (as its primary listing) and on NASDAQ (as its secondary listing) will be replaced with a new listing of Avita US on NASDAQ (as its primary listing) and on the ASX (as its secondary listing).

 

 

This Scheme Booklet comprises:

 

   

an explanatory statement required by section 412(1) of the Corporations Act 2001 (Cth) of Australia (Corporations Act) in relation to the scheme of arrangement; and

 

   

an information memorandum for the listing of Avita US on the ASX.

THE DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS VOTE IN FAVOUR OF THE SCHEME RESOLUTION AT THE SCHEME MEETING

THE INDEPENDENT EXPERT HAS CONCLUDED THAT THE SCHEME IS IN THE BEST INTERESTS OF SHAREHOLDERS AS A WHOLE

This is an important document and requires your immediate attention.

You should read the whole of this document carefully (taking notice of the advantages, disadvantages and risks of the proposal) before you decide whether and how to vote on the Scheme Resolution. If you are in doubt as to what you should do, please consult your financial, legal, taxation or other independent and qualified professional adviser. If you have recently sold all of your shares in the Company, please ignore this document.

A notice for the Scheme Meeting is included as Appendix F to this Scheme Booklet. A Proxy Form for the Scheme Meeting also accompanies this Scheme Booklet.

 

1


DISCLAIMER AND IMPORTANT NOTICES

General

This Scheme Booklet is important. You should read this Scheme Booklet and the accompanying appendices in its entirety before making a decision as to how to vote at the Scheme Meeting. If you are in doubt as to what you should do, you should consult your financial, legal, taxation or other independent and qualified professional adviser.

An electronic version of this Scheme Booklet is available for viewing and downloading online on the Company’s website (www.avitamedical.com) and on the ASX website (www.asx.com.au).

Defined terms and interpretation

Capitalised terms used in this Scheme Booklet are defined in the Glossary set out in section 13 of this Scheme Booklet.

Purpose of the Scheme Booklet

The purpose of this Scheme Booklet is to:

 

  explain the terms of the Proposed Transaction and the manner in which the Proposed Transaction will be considered and, if approved, implemented;

 

  set out certain information required by law; and

 

  provide all other information (other than information previously disclosed to Shareholders) which is known to the Company and which is material to the decision of Shareholders whether or not to vote in favour of the Scheme Resolution.

This Scheme Booklet is the explanatory statement for the Scheme required by section 412(1) of the Corporations Act.

This Scheme Booklet is also an information memorandum for the purposes of the listing of Avita US on the ASX and the official quotation of Avita US CDIs on the ASX (to replace both the current listing of the Company on the ASX and official quotation of Shares on the ASX).

This Scheme Booklet will also be furnished to the SEC on a Form 6-K.

This Scheme Booklet is not a prospectus lodged under Chapter 6D of the Corporations Act in respect of the Company’s or Avita US’s securities. Section 708(17) of the Corporations Act provides that an offer of securities does not need disclosure under Chapter 6D if it is made under a compromise or arrangement under Part 5.1 of the Corporations Act approved at a meeting held as a result of an order made by the Court under section 411(1) or section 411(1A) of the Corporations Act.

Foreign Jurisdictions

The release, publication or distribution of this Scheme Booklet in jurisdictions other than Australia may be restricted by law or regulation in such other jurisdictions and persons outside of Australia who come into possession of this Scheme Booklet should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable laws or regulations.

This Scheme Booklet has been prepared in accordance with the laws of the Commonwealth of Australia and the information contained in this Scheme Booklet may not be the same as that which would have been disclosed if this Scheme Booklet had been prepared in accordance with the laws and regulations of a jurisdiction outside of Australia.

No action has been taken to register or qualify the Avita US Shares or the Avita US CDIs or otherwise permit a public offering of such securities in any jurisdiction outside Australia.

Shareholders (whose addresses as shown in the Register on the Record Date are) in the following jurisdictions will be entitled to have Avita US Shares or Avita US CDIs issued to them under and in accordance with the Scheme (subject to the Sale Facility aspect of the Proposed Transaction dealing with Fractional Shareholder Interests discussed at section 2.8 and section 11.5 of this Scheme Booklet and any qualifications set out in section 12.10 of this Scheme Booklet in respect of those jurisdictions):

 

  Australia;

 

  the United States;

 

  Hong Kong;

 

  New Zealand;

 

  the United Kingdom;

 

  France;

 

  Norway;

 

  Switzerland;

 

  the United Arab Emirates;

 

  Singapore; and

 

  any other jurisdiction in respect of which the Company is satisfied, acting reasonably, that the laws of that place permit the offer and issue of Avita US Shares or Avita US CDIs to a Shareholder in that jurisdiction and, in Avita US’s sole discretion, it is not unduly onerous or impractical for Avita US to issue Avita US Shares or Avita US CDIs to a Shareholder with a registered address in that jurisdiction.

Nominees, custodians and other Shareholders who hold Shares on behalf of a beneficial owner resident outside of the jurisdictions referred to above may not forward this Scheme Booklet (or any accompanying documents) to any such persons without the prior written consent of the Company.

 

 

2


Shareholders who are Ineligible Shareholders will not be issued Avita US Shares or Avita US CDIs. Instead, the Avita US Shares or Avita US CDIs that would otherwise have been issued to them under the Scheme will be issued to the Sale Agent (acting on behalf of Avita US) to be dealt with in accordance with the process outlined in section 11.5 of this Scheme Booklet.

Investment decisions

This Scheme Booklet is not personal to you and therefore does not take into account your individual investment objectives, financial situation or any particular needs. The information in this Scheme Booklet is not financial product advice and should not be relied upon as the sole basis for any investment decision in relation to the Proposed Transaction and your Shares.

Before making any investment decision, you should carefully consider whether that decision is appropriate in light of your particular investment needs, objectives and financial circumstances. The Board encourages you to seek professional guidance from your financial, legal, taxation or other independent and qualified professional adviser before making any investment decision and any decision as to whether or not to vote in favour of the Scheme Resolution.

Responsibility statement

The information contained in this Scheme Booklet has been prepared by the Company. The Company takes responsibility for the content of this Scheme Booklet, other than:

 

  the Independent Expert’s Report in relation to the Proposed Transaction (contained in Appendix A to this Scheme Booklet), which has been prepared by BDO Corporate Finance Limited (Australian Financial Services Licence number 245513) (who takes responsibility for that report). Neither the Company, Avita US, nor any of their respective directors, officers, employees or advisers assumes any responsibility for the accuracy or completeness of the Independent Expert’s Report; and

 

  the information relating to Avita US, which has been prepared by, and is the responsibility of, Avita US. Neither the Company nor any of its subsidiaries, directors, officers, employees or advisers assumes any responsibility for the accuracy or completeness of such information.

Role of ASIC, ASX and NASDAQ

A copy of this Scheme Booklet has been given to ASIC pursuant to section 411(2) of the Corporations Act and registered with ASIC pursuant to section 412(6) of the Corporations Act. ASIC has been requested to provide a statement, in accordance with section 411(17)(b) of the Corporations Act, that it has no objection to the Scheme. If ASIC provides the statement, then it will be produced to the Court at the time of the Second Court Hearing.

A copy of this Scheme Booklet has been lodged with the ASX. Avita US will also progress an application for Avita US to be listed on the ASX and for Avita US CDIs to be admitted to quotation and traded on the ASX. The listing of Avita US on the ASX will be subject to Avita US fulfilling all of the listing requirements of the ASX.

The Company will submit a company event form to NASDAQ for review in connection with the Company’s request to transfer the listing of the Company ADSs and quote the Avita US Shares on NASDAQ. The request to transfer the listing of the Company ADSs and quote the Avita US Shares on NASDAQ will be subject to Avita US fulfilling all of the listing requirements of NASDAQ.

Neither ASIC, the ASX, NASDAQ nor any of their officers or employees takes any responsibility for the contents of this Scheme Booklet.

Role of the Court

The fact that the Court, under section 411(1) of the Corporations Act, has ordered that the Scheme Meeting be convened and has approved this Scheme Booklet to accompany the Notice of Meeting, does not constitute an endorsement by the Court of, or any expression of opinion on, the Scheme or the Proposed Transaction. Nor does it mean that the Court has prepared, or is responsible for, the content of this Scheme Booklet.

If Shareholders approve the Scheme at the Scheme Meeting, the Court will be asked to approve the Scheme at the Second Court Hearing.

Any Shareholder may appear at the Second Court Hearing, expected to be held at the Court on 22 June 2020, Law Courts Building, 184 Phillip Street, Sydney NSW 2000. Any change to this date or arrangements for the conduct of the hearing will be announced to the ASX and NASDAQ and via news release, and will also be notified on the Company’s website (www.avitamedical.com). Any Shareholder who wishes to oppose approval of the Scheme at the Second Court Hearing may do so by filing with the Court and serving on the Company a notice of appearance in the prescribed form, together with any affidavit that the Shareholder proposes to rely on.

Privacy and personal information

Avita US, the Company and their respective registries may collect personal information, including from each other, in the process of implementing the Proposed Transaction and administering the holdings of securities arising from the Proposed Transaction.

The personal information collected by Avita US, the Company and their respective registries may include name, address, contact information, bank account information, security holding and other personal information (including the names of individuals appointed by the Shareholders as proxies, attorneys and corporate representatives at the Scheme Meeting).

 

 

3


The personal information may be collected from you as a Shareholder or as a representative / proxy / attorney of a Shareholder. You may be requested to disclose your personal information to Avita US, the Company and their respective registries in a document or orally. Shareholders who appoint an individual as their proxy, attorney or corporate representative to vote at the Scheme Meeting should inform that individual of the matters outlined in this privacy notice.

By completing a form with your personal information or orally disclosing your personal information to the Company, you consent to the collection, use and disclosure of your personal information by Avita US, the Company and their respective registries for the primary purpose of responding to your queries, implementing the Proposed Transaction and administering the holdings of securities arising from the Proposed Transaction (including carrying out appropriate administration of the Proxy Form and dealing with any requests you may have), and in accordance with this privacy notice.

The personal information collected by Avita US, the Company and their respective registries may be disclosed between them (which may include overseas disclosures through the United States), to the Authorised Nominee, to securities brokers, to print and mail service providers, to any other service providers and advisers engaged by the Company, Avita US or their respective registries for this purpose and to any other third party permitted by law. The personal information of Ineligible Shareholders and Fractional Shareholders may also be disclosed to the Sale Agent for the purposes of operating the Sale Facility.

If the information outlined above is not collected, the Company may be hindered in, or prevented from, conducting the Scheme Meeting and implementing the Proposed Transaction. You may have certain rights to access or correct personal information collected about you. You may contact the respective registries of Avita US and the Company in the first instance if you wish to understand and/or exercise those rights, or to discuss any query you may have in relation to the collection of your personal information.

You may contact the Registry on 1300 113 256 (within Australia) or +61 3 9415 4090 (outside Australia) or the Avita US Registry on +1 866 644 4127 (toll free) or +1 781 575 2906.

Collection, maintenance and disclosure of personal information may be governed by the Privacy Act 1988 (Cth), the Corporations Act (as applicable) and certain rules such as the ASX Settlement Operating Rules (where applicable).

For further information about how:

 

  the Company handles your personal information, please read the Company’s Privacy Policy (www.avitamedical.com/privacy-policy);
  Computershare handles your personal information, please read Computershare’s Privacy Policy (www.computershare.com/au/help/Pages/privacy-policies.aspx) or contact its Privacy Officer at privacy@computershare.com.au; and

 

  Computershare Trust Company, N.A. Transfer Agent and Registrar handles your personal information, please read Computershare Trust Company, N.A. Transfer Agent and Registrar’s Privacy Policy (www.computershare.com/us/privacy)

Estimates and rounding

Unless otherwise indicated, all references to estimates (and derivations of the same) in this Scheme Booklet are references to estimates by the Company. Each of the Directors believes that these estimates have been made on reasonable grounds and that the assumptions on which those estimates are based are reasonable. The Company’s estimates are based on views at the date of this Scheme Booklet and actual facts or outcomes may differ materially.

A number of amounts, calculations of value, estimates, figures, fractions, percentages and prices in this Scheme Booklet are subject to the effect of rounding.

Accordingly, the actual calculation of these amounts, calculations of value, estimates, figures, fractions, percentages and prices may differ from the amounts, calculations of value, estimates, figures, fractions, percentages and prices set out in this Scheme Booklet.

Any discrepancies between totals in tables, or in calculations, charts or graphs, are due to rounding.

Forward-looking statements

Certain statements in this Scheme Booklet relate to the future. These statements may include, without limitation, any statements preceded by, followed by, or including words such as “target”, “believe”, “expect”, “aim”, “intend”, “may”, “anticipate”, “estimate”, “plan”, “project”, “will”, “can have”, “likely”, “should”, “would”, “could” and other words and terms of similar meaning or the negative thereof. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other important factors that could cause the actual results, performance or achievements of the Avita Group to be materially different from future results, performance or achievements expressed or implied by such statements. Such forward-looking statements are based on numerous assumptions regarding present and future business strategies, an assessment of present economic and operating conditions and the environment in which the Avita Group will operate in the future, which may prove to be incorrect. Certain important factors that could cause actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, the risk factors described in this Scheme Booklet and other unknown risks and uncertainties. Forward-looking statements should,

 

 

4


therefore, be construed in light of such risk factors and reliance should not be placed on forward-looking statements. Other than as required by law, neither the Company nor Avita US nor any other person gives any representation, assurance or guarantee that the occurrence of the events, results and outcomes expressed or implied in any forward-looking statements in this Scheme Booklet will actually occur. The forward-looking statements in this Scheme Booklet reflect views held only at the date of this Scheme Booklet.

Subject to the Corporations Act, the ASX Listing Rules or any other applicable laws, the Company and its Directors and officers and Avita US and its directors and officers disclaim any obligation or undertaking to disseminate, after the date of this Scheme Booklet, any updates or revisions to any forward-looking statements to reflect any change in expectations in relation to those statements or any change in events, conditions or circumstances on which any such statements are based, other than with respect to information that the Company and Avita US respectively become aware of prior to the Scheme Meeting, which is material to the making of a decision by a Shareholder regarding whether or not to vote in favour of the Scheme Resolution.

Timetable and dates

All times and dates referred to in this Scheme Booklet are according to Australian Eastern Standard Time (AEST), unless otherwise indicated. All times and dates relating to the implementation of the Proposed Transaction referred to in this Scheme Booklet may change and, among other things, are subject to receipt of all necessary approvals from regulatory authorities.

External websites

Unless expressly stated otherwise, the content of the Company’s website (www.avitamedical.com) does not form part of this Scheme Booklet.

Date of this Scheme Booklet

This Scheme Booklet is dated 11 May 2020. Unless otherwise indicated, all information included in this Scheme Booklet (including views, recommendations and statements of intention) is current as at that date.

If you have any questions in relation to the Scheme Meeting or require assistance in understanding the matters raised in this document, please contact your financial, legal, taxation or other independent and qualified professional adviser or contact the Company’s enquiry line on 1300 113 256 (Australia toll free) or +61 3 9415 4090 (outside Australia).

 

 

5


Table of Contents

 

DISCLAIMER AND IMPORTANT NOTICES

     2  

CHAIR’S LETTER

     7  

1.

  KEY DATES      11  

2.

  OVERVIEW OF THE PROPOSED TRANSACTION      13  

3.

  VOTING ON THE PROPOSED TRANSACTION      24  

4.

  FREQUENTLY ASKED QUESTIONS      29  

5.

  BOARD’S RECOMMENDATION AND THE OPINION OF THE INDEPENDENT EXPERT      42  

6.

  THE ADVANTAGES, DISADVANTAGES AND RISKS ASSOCIATED WITH THE PROPOSED TRANSACTION      43  

7.

  INFORMATION ABOUT THE COMPANY      56  

8.

  INFORMATION ABOUT AVITA US FOLLOWING IMPLEMENTATION OF THE PROPOSED TRANSACTION      62  

9.

  IMPLICATIONS OF AVITA US BEING A UNITED STATES INCORPORATED COMPANY      65  

10.

  TAXATION IMPLICATIONS FOR SHAREHOLDERS AND ADS HOLDERS      69  

11.

  IMPLEMENTATION OF THE PROPOSED TRANSACTION      81  

12.

  ADDITIONAL INFORMATION      87  

13.

  GLOSSARY      105  

APPENDIX A: INDEPENDENT EXPERT’S REPORT

     112  

APPENDIX B: IMPLEMENTATION AGREEMENT

     113  

APPENDIX C: SCHEME OF ARRANGEMENT

     114  

APPENDIX D1: AVITA US DEED POLL FOR SHAREHOLDERS

     115  

APPENDIX D2: AVITA US DEED POLL FOR OPTION / RSU / WARRANT HOLDERS

     116  

APPENDIX E: EXPLANATION OF CDI ARRANGEMENTS

     117  

APPENDIX F: NOTICE OF MEETING

     122  

APPENDIX G: COMPARISON OF THE LEGAL REGIMES OF AUSTRALIA AND THE UNITED STATES

     125  

APPENDIX H: COMPARISON OF FINANCIAL REPORTING REQUIREMENTS IN AUSTRALIA AND THE UNITED STATES

     149  

CORPORATE DIRECTORY

     155  

 

6


CHAIR’S LETTER

Dear Shareholder,

On 20 April 2020, the Company announced that it will be seeking Shareholder approval of a scheme of arrangement under which the Avita Group will redomicile from Australia to the United States. This will occur through Avita US (a newly-formed company incorporated in Delaware in the United States for the sole purpose of the redomiciliation) becoming the new holding company of the Company and parent company of the Avita Group.

On behalf of the Board, I am pleased to invite you to take part in the Scheme Meeting that will be held by way of live webcast on 15 June 2020, commencing at 9.00am (AEST), to consider and vote on the Scheme Resolution.

Overview of the Proposed Transaction

If the necessary approvals for the Scheme (including the approval of the Scheme Resolution by the requisite majorities of Shareholders) are obtained and the Scheme becomes Effective, a series of transactions collectively referred to (at section 2.1 of this Scheme Booklet) as the “Proposed Transaction” will occur. Under the Proposed Transaction:

 

 

Avita US will acquire all of the Company’s ordinary shares, and in exchange:

 

   

Eligible Shareholders who hold Shares (other than the ADS Depositary) will receive 5 Avita US CDIs for every 100 Shares held by them on the Record Date;

 

   

the ADS Depositary (who holds Shares for the benefit of ADS Holders) will receive one Avita US Share for every 100 Shares held by it on the Record Date and will distribute those Avita US Shares to ADS Holders who will receive one Avita US Share for every 5 Company ADSs held by them on the Record Date upon surrender by them of their Company ADSs and payment of the ADS Depositary’s fee for that surrender; and

 

   

the entitlements of Ineligible Shareholders and Fractional Shareholder Interests will be sold in accordance with the Sale Facility outlined in section 11.5 of this Scheme Booklet and the relevant net proceeds of that sale will be remitted to the relevant Shareholders.

Therefore, Eligible Shareholders, on receiving the Scheme Consideration, will hold an equivalent proportional interest in Avita US as they held in the Company prior to the implementation of the Proposed Transaction (subject to the Sale Facility aspect of the Proposed Transaction dealing with Fractional Shareholder Interests, discussed at section 2.8 and section 11.5 of this Scheme Booklet).

 

 

The existing listing of the Company on the ASX (as its primary listing) and on NASDAQ (as its secondary listing) will be replaced with a new listing of Avita US on NASDAQ (as its primary listing) and on the ASX (as its secondary listing). Avita US Shares will be quoted on NASDAQ (using the Company’s existing ticker code, “RCEL”) and Avita US CDIs will be quoted on the ASX (using the Company’s existing ticker code, “AVH”). Avita US Shares and Avita US CDIs will be transmutable, so that Avita US Shareholders can convert their Avita US Shares (on NASDAQ) into Avita US CDIs (on the ASX) (and vice versa).

Importantly, the Proposed Transaction will not result in any changes to the operations, management or strategy of the Avita Group.

 

7


Your vote is important

For the Proposed Transaction to be implemented, a requisite majority of Shareholders must vote to approve the Scheme Resolution at the Scheme Meeting (being a majority in number of those Shareholders voting and which votes must represent at least 75% of the votes cast on the Scheme Resolution). You will be entitled to vote at the Scheme Meeting if you are registered as a Shareholder on the Register at 9.00am (AEST) on 13 June 2020. Your vote is important regardless of how many Shares you own.

Due to the COVID-19 pandemic and the restrictions imposed by Australian governments in response to it, the Company has made a successful application to the Federal Court of Australia for orders to permit the Scheme Meeting to be conducted exclusively as a virtual meeting. Accordingly, the Scheme Meeting will be conducted by way of a live webcast only.

On behalf of the Board, I encourage you to participate in the live webcast, which will be available to view via the Company’s website (www.avitamedical.com). Participating in the live webcast will enable you to listen to the Scheme Meeting live, view slides and proxy results, ask questions and cast your vote at the appropriate times whilst the Scheme Meeting is in progress. You are also invited to lodge questions in advance of the Scheme Meeting by sending an email containing your question(s) to info@avitamedical.com by 5.00pm (AEST) on 8 June 2020. Your emailed questions will be addressed during the Scheme Meeting.

If you are unable to participate in the Scheme Meeting and vote by way of the live webcast, or choose not to do so, you can vote by way of proxy, attorney or corporate representative (as applicable).

ADS Holders will be entitled to vote at the Scheme Meeting through The Bank of New York Mellon, the ADS Depositary.

Section 3 of this Scheme Booklet provides further information on voting at the Scheme Meeting, including how to vote by way of live webcast or by proxy, attorney or corporate representative, and on the voting process for ADS Holders.

The Board’s recommendation

For the reasons set out in this Scheme Booklet, the Board unanimously recommends that you vote in favour of the Scheme Resolution at the Scheme Meeting. Each member of the Board intends to vote the Shares which they hold (or that are held on their behalf) in favour of the Scheme Resolution.

Advantages, disadvantages and risks of the proposal

After carefully considering the advantages, disadvantages and risks of the Proposed Transaction, the Board is of the unanimous view that the advantages of the Proposed Transaction significantly outweigh its disadvantages and risks.

The Board believes that the advantages of the Proposed Transaction are that the Proposed Transaction will:

 

 

create a “local” listing as a domestic company in the United States capital market, which is the largest in the world in terms of market capitalisation and trading volume. The Board believes that having its primary listing on NASDAQ, rather than on the ASX, should result in increased demand for, and liquidity of, the Avita Group’s securities in the United States capital market;

 

 

substantially reduce the risk, burden, resourcing and resultant costs associated with the dual financial reporting and related compliance obligations that the Company now has in both the United States and Australia due to it being a domestic public company in both of those jurisdictions (with effect from 31 December 2019). In addition to easing the challenges associated with the Company constantly managing dual reporting under different requirements in both the United States and Australia, the Proposed Transaction will save approximately A$400,000 per annum in external professional costs;

 

8


 

increase the awareness of the Avita Group to a broader range of investors in the United States capital market; and

 

 

better align the Avita Group’s corporate structure with its business operations in the United States (where nearly all of the Avita Group’s employees are located). The Company derives virtually all of its revenue from the United States, has no physical business presence outside of the United States, and a majority of the Shares (taking into account Company ADSs) are currently beneficially held by investors in the United States.

The Board believes that the potential disadvantages and risks of the Proposed Transaction include the following:

 

 

additional fees and costs will need to be incurred by the Company to enable the Proposed Transaction to proceed to completion;

 

 

Shareholders (on the Record Date) in eligible jurisdictions will directly or indirectly become stockholders in a NASDAQ-listed corporation domiciled in the United States as opposed to an ASX-listed company domiciled in Australia (which may be less desirable for those Shareholders in their own personal circumstances);

 

 

the Avita Group may be exposed to increased litigation as a result of its parent company being domiciled in the United States, as the United States legal environment is generally understood to be more litigious than that of Australia;

 

 

Shareholders (on the Record Date) (i) in ineligible jurisdictions or (ii) who hold less than 100 Shares will not be issued Avita US Shares or Avita US CDIs as the Scheme Consideration, but will instead have their entitlements sold pursuant to a sale facility, with those holders then to receive the relevant net proceeds of that sale (which may be less desirable for those Shareholders in their own personal circumstances). Fractional Shareholder Interests will also be dealt with in this manner;

 

 

there may be taxation implications for Shareholders if the Proposed Transaction is implemented or as a result of directly or indirectly becoming stockholders in a NASDAQ-listed corporation domiciled in the United States (discussed further in section 10 of this Scheme Booklet); and

 

 

there may be a loss of demand for, and reduction of liquidity of, Avita US’s securities in the Australian capital market without an offsetting demand for, and increase in liquidity of, Avita US’s securities in the United States capital market.

You should carefully read this Scheme Booklet in full (including the advantages, disadvantages and risks of the Proposed Transaction in section 6 of this Scheme Booklet) before making any decision as to whether and how to vote on the Scheme Resolution.

 

9


Independent Expert

The Company has engaged BDO Corporate Finance Limited to prepare the Independent Expert’s Report for this Scheme Booklet. The Independent Expert has concluded that the Proposed Transaction is in the best interests of Shareholders as a whole. The Independent Expert’s Report is included at Appendix A of this Scheme Booklet.

Further information

This Scheme Booklet sets out important information regarding the Proposed Transaction and I strongly encourage you to consider it carefully and in its entirety.

If you require further information, you should consult your financial, legal, taxation or other independent and qualified professional adviser or contact the Company’s enquiry line on 1300 113 256 (Australia toll free) or +61 3 9415 4090 (outside Australia).

Conclusion

On behalf of the Board, I thank you for your continued support of the Company. We encourage you to vote in favour of the Scheme Resolution, which we believe to be in the best interests of Shareholders.

Thank you,

 

LOGO

Lou Panaccio

Chair

 

10


1.

KEY DATES

 

Key Event

  

Indicative Date

Date of this Scheme Booklet    11 May 2020

Cut-off date for Shareholders to lodge questions in advance of the Scheme Meeting

Shareholders are invited to lodge questions by sending an email containing their question(s) to info@avitamedical.com

  

5.00pm on 8

June 2020

Proxy Forms cut-off date

Latest time and date by which Proxy Forms must be received by the Registry for the Scheme Meeting

  

9.00am on 13

June 2020

Voting Record Date

Date for determining eligibility to vote at the Scheme Meeting

  

9.00am on 13

June 2020

Date of the Scheme Meeting

Shareholders take part in the Scheme Meeting (by way of live webcast) and vote on whether to approve the Proposed Transaction

  

9.00am on 15

June 2020

Following Shareholder approval of the Proposed Transaction:

 

Key Event

  

Indicative Date

ASX and NASDAQ notified

The ASX and NASDAQ are notified of the approval of the Scheme Resolution at the Scheme Meeting

   15 June 2020

Second Court Hearing

Date of the Second Court Hearing for approval of the Scheme

   22 June 2020

Company informs ASX of its intention to lodge the Court order with ASIC

The Company informs the ASX of its intention to lodge the Court order with ASIC on the following Business Day, being 23 June 2020

  

22 June 2020

(after Second

Court Hearing)

Company files Form 6-K with the SEC announcing Court approval of the Scheme   

22 June 2020

(after Second

Court Hearing)

Effective Date

The Company lodges the Court order with ASIC and informs the ASX. Shares are suspended from trading at the close of trading on the ASX

   23 June 2020

File Form 8-K12B with the SEC

Filing of a Form 8-K12B with the SEC to confirm Avita US as the successor issuer to the Company pursuant to Rule 12g-3(f) of the Exchange Act

   23 June 2020

 

11


Listing of Avita US on the ASX1 and trading of Avita US CDIs commences on a deferred settlement basis2    24 June 2020

Record Date

Time and date for determining Shareholders’ entitlements to Avita US Shares and Avita US CDIs

  

7.00pm on 25

June 2020

Last day of trading of Company ADSs on NASDAQ and Avita US CDIs on the ASX on a deferred settlement basis    29 June 2020

Implementation Date

The date of transfer of all Shares to Avita US and the subsequent issue of Avita US CDIs and Avita US Shares to Eligible Shareholders

   29 June 2020

Listing of Avita US on NASDAQ and commencement of trading of Avita US Shares on NASDAQ

(subject to NASDAQ approval)

  

Promptly

following the

Implementation

Date

Despatch of holding statements (to issuer sponsored holders) and confirmation advices (to CHESS holders)    30 June 2020
Avita US CDls commence trading on the ASX on a normal basis    30 June 2020

This timetable is indicative only and, amongst other things, is subject to Court availability (particularly in the current environment) and the Conditions Precedent to the Scheme being satisfied or waived. In particular, the Proposed Transaction is subject to approval by Shareholders, FIRB and the Court. The Company has the right to vary any or all of these dates and times.

Any material variation to the timetable set out above will be announced to the ASX and NASDAQ and via news release, and will also be notified on the Company’s website (www.avitamedical.com). All dates and times are AEST.

 

1 

Assuming Avita US is admitted to the official list of ASX.

2 

Deferred settlement basis refers to a settlement in which the obligation to settle on a trade date plus two (2) business days (T+2) basis is deferred until the Avita US CDIs commence trading on a normal basis, being 30 June 2020.

 

12


2.

OVERVIEW OF THE PROPOSED TRANSACTION

This overview includes information that is described in greater detail elsewhere in this Scheme Booklet. It does not include all of the important information contained in this Scheme Booklet. Accordingly, Shareholders should carefully read the entire Scheme Booklet and other documents referred to in, or accompanying, this Scheme Booklet for a more complete understanding of the Proposed Transaction before deciding how to vote on the Scheme Resolution.

 

2.1

The Proposed Transaction

 

   

The Company is proposing to redomicile the Avita Group from Australia to the United States. The redomiciliation will be effected pursuant to a Court and shareholder approved mechanism known as a ‘scheme of arrangement’, the requirements of which are set out under Part 5.1 of the Corporations Act (Scheme).

 

   

Under the Scheme, the Company will be acquired by Avita US, a newly-formed company incorporated in Delaware in the United States. As at the date of this Scheme Booklet, no Avita US Shares or other securities have been issued by Avita US.

 

   

All of the Shares will be transferred to Avita US under the Scheme, with the result that the Company will become a wholly-owned subsidiary of Avita US.

 

   

As consideration for transferring their Shares to Avita US under the Scheme, Eligible Shareholders will be entitled to receive one Avita US Share for every 100 Shares held by them on the Record Date.

 

   

Bearing in mind the listing and quotation arrangements for Avita US and its securities after implementation of the Scheme (see below), the consideration that will be delivered to each Eligible Shareholder will be either Avita US CDIs (quoted for trading on ASX) or Avita US Shares (quoted for trading on NASDAQ), as follows:

 

   

Eligible Shareholders who hold Shares (other than the ADS Depositary) will receive 5 Avita US CDIs for every 100 Shares held by them on the Record Date; and

 

   

the ADS Depositary (who holds Shares for the benefit of ADS Holders) will receive one Avita US Share for every 100 Shares held by it on the Record Date and will distribute those Avita US Shares to ADS Holders who will receive one Avita US Share for every 5 Company ADSs held by them on the Record Date upon surrender by them of their Company ADSs and payment of the ADS Depositary’s fee for that surrender.

 

   

Following completion of the Scheme, one Avita US Share (which will be traded on NASDAQ under the ticker code “RCEL”) will be equivalent to 5 Avita US CDIs (which will be traded on the ASX under ticker code “AVH”).

 

   

Avita US Shares and Avita US CDIs will be transmutable, so that Avita US Shareholders can convert their Avita US Shares (on NASDAQ) into Avita US CDIs (on the ASX) (and vice versa).

 

13


   

Ineligible Shareholders will have the Avita US CDIs or Avita US Shares that they would otherwise be entitled to under the Scheme sold in accordance with the Sale Facility outlined in section 11.5 of this Scheme Booklet and they will receive the relevant net proceeds of that sale. Fractional Shareholder Interests will also be sold in accordance with the Sale Facility described in section 11.5 of this Scheme Booklet and the relevant Fractional Shareholder will receive the net proceeds of that sale. The ADS Depositary, DTC or DTC participants will separately sell, in accordance with the deposit arrangements between the ADS Depositary and ADS Holders, the aggregated fractions of Avita US Shares to which ADS Holders would otherwise be entitled, and those holders will receive the net proceeds of that sale.

 

   

Avita US will be listed on NASDAQ (as its primary listing) and on the ASX (as its secondary listing), to replace the Company’s current listing on the ASX (as its primary listing) and on NASDAQ (as its secondary listing).

 

   

Avita US Shares will be quoted on NASDAQ (using the Company’s existing ticker code, “RCEL”) and Avita US CDIs will be quoted on the ASX (using the Company’s existing ticker code, “AVH”).

 

   

The existing Options, RSUs and Warrants in the Company on issue will continue; however, they will instead entitle the holder to be issued Avita US Shares on exercise or vesting (as applicable) rather than Shares (in the ratio of one Avita US Share for every 100 Shares to which the holder would otherwise be entitled).

 

   

An additional outcome of the Scheme will be that the exchange ratio referenced above will effect an ‘implicit consolidation’ of the securities a Shareholder holds (as at the Record Date), in that the existing Shares on issue in the Company (being the current holding company of the Avita Group) will effectively be consolidated on a 100-to-1 basis on their replacement with new Avita US Shares to be issued in Avita US (being the new holding company of the Avita Group).

The transactions described above are collectively referred to in this Scheme Booklet as the “Proposed Transaction” and will occur if the Scheme Resolution is passed by the requisite majorities of Shareholders at the Scheme Meeting and the Scheme becomes Effective.

Importantly:

 

   

the Proposed Transaction will not change an Eligible Shareholder’s underlying ownership interests in the Avita Group (subject to the Sale Facility aspect of the Proposed Transaction dealing with Fractional Shareholder Interests, discussed at section 2.8 and section 11.5 of this Scheme Booklet); and

 

   

the parent company of the Avita Group will continue to have its main class of securities quoted and tradeable on both NASDAQ and the ASX.

 

2.2

The corporate structure of the Avita Group before and after the Proposed Transaction

The Proposed Transaction will change the current corporate structure of the Avita Group. On and from the Implementation Date, Avita US will become the parent company of the Avita Group. Avita US will own all of the Shares and the Company will become a wholly-owned subsidiary of Avita US.

The following diagrams show the current corporate structure of the Avita Group and the structure of the Avita Group after the Proposed Transaction is completed.

 

14


LOGO

 

15


2.3

Why the Company is proposing to redomicile the Avita Group to the United States

The Company is proposing to redomicile the Avita Group from Australia to the United States for a number of important reasons. These include:

 

   

to better align the Avita Group’s corporate structure with its business operations in the United States (where nearly all of the Avita Group’s employees are located). The Company derives virtually all of its revenue from the United States, has no physical business presence outside of the United States, and a majority of the Shares (taking into account Company ADSs) are currently beneficially held by investors in the United States; and

 

   

to substantially reduce the costs, burden, resourcing and risks associated with the dual financial reporting and related compliance obligations that the Company now has in both the United States and Australia due to it being viewed since 31 December 2019 as a domestic public company in both of those jurisdictions (whereas formerly it was only viewed as a domestic public company in Australia).

The means by which the Company can resume being a domestic public company in only one jurisdiction (being the United States), but maintain a listing in two jurisdictions (being the United States and Australia), is to redomicile the Avita Group from Australia to the United States.

Section 6 of this Scheme Booklet provides detailed information on the advantages, disadvantages and risks of the Proposed Transaction. The Board, after considering the advantages, disadvantages and risks of the Proposed Transaction, unanimously believes that the redomiciliation of the Avita Group from Australia to the United States is in the best interests of Shareholders.

 

2.4

The opinion of the Independent Expert

The Company appointed the Independent Expert to assess whether in its view the Scheme is in the best interests of Shareholders. The Independent Expert has concluded that the advantages of the Scheme outweigh its disadvantages and risks and, accordingly, has opined that the Scheme is in the best interests of Shareholders as a whole. A copy of the Independent Expert’s Report is set out in Appendix A to this Scheme Booklet.

 

2.5

How the Proposed Transaction will be implemented

For an overview of the key steps involved in implementing the Proposed Transaction, please refer to section 11.3 of this Scheme Booklet. Briefly, if the Scheme Resolution is passed by the requisite majorities of Shareholders, then, subject to the Court approving the Scheme and all Conditions Precedent to the Scheme being satisfied or waived, the Company will lodge the Court order approving the Scheme with ASIC, upon which the Scheme will become Effective and the Proposed Transaction will be implemented. The Court order will also be furnished to the SEC on a Form 6-K.

 

2.6

Shareholders who are entitled to the Scheme Consideration

Shareholders (whose addresses as shown in the Register on the Record Date are) in the following jurisdictions will be “Eligible Shareholders” for the purposes of the Scheme and will be entitled to receive the Scheme Consideration:

 

   

Australia;

 

   

the United States;

 

16


   

Hong Kong;

 

   

New Zealand;

 

   

the United Kingdom;

 

   

France;

 

   

Norway;

 

   

Switzerland;

 

   

the United Arab Emirates;

 

   

Singapore; and

 

   

any other jurisdiction in respect of which the Company is satisfied, acting reasonably, that the laws of that place permit the offer and issue of Avita US Shares or Avita US CDIs to a Shareholder in that jurisdiction and, in Avita US’s sole discretion, it is not unduly onerous or impractical for Avita US to issue Avita US Shares or Avita US CDIs to a Shareholder with a registered address in that jurisdiction.

Eligible Shareholders, on receiving the Scheme Consideration, will hold an equivalent interest in Avita US to that which they held in the Company prior to implementation of the Proposed Transaction (subject to the Sale Facility aspect of the Proposed Transaction dealing with Fractional Shareholder Interests, discussed at section 2.8 and section 11.5 of this Scheme Booklet).

If the Scheme is approved and implemented, the Scheme Consideration will be provided to Eligible Shareholders as follows:

 

  (a)

Eligible Shareholders who hold Shares (other than the ADS Depositary)

Eligible Shareholders who hold Shares (other than the ADS Depositary) will receive (via the Authorised Nominee) 5 Avita US CDIs for every 100 Shares held by them as at the Record Date.

For further information on the Authorised Nominee and CDIs, please refer to Appendix E of this Scheme Booklet and a summary of CDIs provided at section 2.12 of this Scheme Booklet.

 

  (b)

ADS Depositary (who holds Shares for the benefit of ADS Holders)

Shares represented by the outstanding Company ADSs will be replaced with the right to receive Avita US Shares. The ADS Depositary has informed the Company that it will call for the surrender of all outstanding Company ADSs and will deliver the relevant Avita US Shares, and any Sale Facility Proceeds (from the sale of fractional entitlements), to ADS Holders upon surrender by them of their Company ADSs and payment of the fee to the ADS Depositary for such surrender. The ADS Depositary, DTC or DTC participants will sell the aggregated fractions of Avita US Shares to which ADS Holders would otherwise be entitled, and those holders will receive the net proceeds of that sale. The ADS program will also be terminated.

On implementation of the Proposed Transaction, the ADS Depositary will receive one Avita US Share for every 100 Shares held by it as at the Record Date and the ADS Depositary will deliver to each ADS Holder one Avita US Share for every 5 Company ADSs held by the ADS Holder as at the Record Date, subject (as noted above) to the ADS Holder surrendering all of their Company ADSs and paying the ADS Depositary’s fee for the surrender of their Company ADSs (which fee is equal to US$0.05 per Company ADS surrendered).

 

17


After implementation of the Proposed Transaction, Avita US Shares (quoted for trading on NASDAQ) and Avita US CDIs (quoted for trading on ASX) will be transmutable, so that Avita US Shareholders can convert their Avita US Shares into Avita US CDIs (and vice versa) at any time. Each holder of Avita US Shares will be able to convert them to Avita US CDIs in the ratio of five Avita US CDIs for one Avita US Share, and each holder of Avita US CDIs will be able to convert them on the ratio of one Avita US Share for five Avita US CDIs.

Following implementation of the Scheme:

 

   

holders of Avita US CDIs will be able to trade them on the ASX in a similar manner to the way in which Shares are currently traded on the ASX (and under the same ticker code currently used by the Company, “AVH”); and

 

   

holders of Avita US Shares will be able to trade them on NASDAQ in a similar manner to the way in which Company ADSs are currently traded on NASDAQ (and under the same ticker code currently used by the Company, “RCEL”).

 

2.7

The exchange ratio:

 

   

five Avita US CDIs or one Avita US Share for every 100 Shares

 

   

one Avita US Share for every 5 Company ADSs

The exchange ratio has been determined by the Company and Avita US having regard to:

 

   

the current trading price of Shares on the ASX and Company ADSs on NASDAQ;

 

   

the theoretical trading price of Avita US Shares and the trading price that is expected of a stock listing on a major stock exchange in the United States (as well as the ASX);

 

   

the fact that the Company currently has 2,133,434,899 securities on issue, which is greatly in excess of the number of shares of common stock that other comparable medical device companies listed on NASDAQ have on issue; and

 

   

the minimum trading price requirement of US$1.00 on NASDAQ for all continued listings.

The Company and Avita US have determined that an appropriate exchange ratio should deliver approximately 20 to 30 million Avita US Shares on issue, and that it was prudent to determine an exchange ratio that would achieve the lower end of this band. As a result, on implementation of the Proposed Transaction, Avita US will have (subject to rounding) 1/100th of the number of shares on issue (in the form of common stock) as compared with the number of Shares that the Company currently has on issue.

 

2.8

Shareholders who are not entitled to the Scheme Consideration and Fractional Shareholder Interests

 

  (a)

Fractional entitlements

Where an Eligible Shareholder would otherwise be entitled under the Scheme to a fraction of an Avita US Share or a number of Avita US CDIs that will not be sufficient to equate to a whole Avita US Share as part of the Scheme Consideration (each a Fractional Shareholder Interest), the Shareholder’s Fractional Shareholder Interest will be aggregated with all other Fractional Shareholder Interests and issued to the Sale Agent (rather than the Shareholder) to be sold under the Sale Facility. The net proceeds of that sale (after deducting any applicable brokerage, stamp duty and other charges, fees and

 

18


taxes) for those Fractional Shareholder Interests will be distributed to the relevant Shareholders in accordance with the Sale Facility described in section 11.5 of this Scheme Booklet. The ADS Depositary, DTC or DTC participants will separately sell, in accordance with the deposit arrangements between the ADS Depositary and ADS Holders, the aggregated fractions of Avita US Shares to which ADS Holders would otherwise be entitled, and those holders will receive the net proceeds of that sale.

 

  (b)

Ineligible Shareholders

A Shareholder will be an “Ineligible Shareholder” if the Shareholder’s address, as shown in the Register on the Record Date, is a place outside of Australia, the United States, Hong Kong, New Zealand, the United Kingdom, France, Norway, Switzerland, the United Arab Emirates and Singapore (unless the Company is satisfied, acting reasonably, that the laws of that place permit the offer and issue of Avita US Shares or Avita US CDIs to a Shareholder in that jurisdiction and, in Avita US’s sole discretion, it is not unduly onerous or impractical for Avita US to issue Avita US Shares or Avita US CDIs to a Shareholder with a registered address in that jurisdiction). Restrictions outside of these “eligible” jurisdictions make it impractical or unlawful to offer or receive securities in those other jurisdictions. For this reason, Ineligible Shareholders will not be entitled to receive Avita US Shares or Avita US CDIs under the Scheme. The Avita US Shares or Avita US CDIs to which an Ineligible Shareholder would otherwise be entitled will instead be issued to the Sale Agent for sale and the net proceeds from such sale will be remitted to the Ineligible Shareholder in accordance with the Sale Facility outlined in section 11.5 of this Scheme Booklet.

 

2.9

Tax consequences for Shareholders and ADS Holders (as at the Record Date) if the Scheme becomes Effective

 

  (a)

Australian tax considerations

 

  i.

Australian Shareholders and ADS Holders

The Company has sought an ATO Class Ruling to confirm that full or partial scrip for scrip roll-over relief will be available to an Australian resident Shareholder and an Australian resident ADS Holder who would otherwise make a capital gain from the Proposed Transaction. The ATO Class Ruling, if provided by the ATO, will confirm the following Australian tax implications:

 

   

An Australian resident Shareholder or Australian resident ADS Holder who holds their Shares or Company ADSs on capital account and makes a capital gain under the Scheme will be eligible to choose scrip for scrip rollover relief pursuant to Subdivision 124-M of the Income Tax Assessment Act 1997. An Australian resident Shareholder or Australian resident ADS Holder who chooses scrip for scrip rollover will not be subject to Australian capital gains tax on the exchange, as set out below.

 

   

Full scrip for scrip roll-over will be available for an Australian resident Shareholder or Australian resident ADS Holder who receives the Scheme Consideration solely in the form of Avita US Shares or Avita US CDIs. The consequences of obtaining a full roll-over are as follows:

 

   

A capital gain that the Australian resident Shareholder or Australian resident ADS Holder would otherwise make upon disposal of their Shares or Company ADSs will be disregarded. As such, the Australian resident Shareholder or Australian resident ADS Holder will not be subject to Australian capital gains tax from the relevant disposal.

 

19


   

The cost base of the Avita US Shares or Avita US CDIs received should be worked out by reasonably attributing the cost base of the Shares or Company ADSs which were exchanged and for which the rollover was obtained (i.e. taking into account any variances in the number of Avita US Shares or Avita US CDIs subsequently held).

 

   

The acquisition date of the Avita US Shares or Avita US CDIs for the purpose of making a discount capital gain is the date the Australian resident Shareholder or Australian resident ADS Holder acquired the Shares or Company ADSs that were exchanged for Avita US Shares or Avita US CDIs.

 

   

To the extent that Fractional Shareholders who are Australian resident also receive cash in lieu of their fractional entitlements to Avita US Shares or Avita US CDIs, only a partial roll-over will be available. Specifically, the roll-over will be available to the extent of the value of the Avita US Shares or Avita US CDIs received. Any capital gain that is referrable to the receipt of cash will not be disregarded under the roll-over and therefore will give rise to a taxable capital gain or loss to the extent of the cash consideration received.

 

   

For completeness, a Small Shareholder (that is, an Eligible Shareholder that holds less than 100 Shares and is therefore a Fractional Shareholder) who only receives cash consideration will not be eligible for scrip for scrip roll-over and will recognise a taxable capital gain or loss to the extent of the cash consideration received.

To the extent that the Australian resident Shareholders or Australian resident ADS Holders hold their interests as either trading stock or on revenue account, scrip for scrip rollover relief will not be available. As such, any gain or loss made on the disposal of the Shares or Company ADSs when they are held on revenue account or as trading stock will be included in the assessable income of the Australian resident Shareholder or Australian resident ADS Holder.

 

  ii.

Non-Australian Shareholders and ADS Holders

Under Australia’s non-resident capital gains provisions, a non-Australian resident Shareholder or non-Australian resident ADS Holder who holds their Shares or Company ADSs on capital account will be able to disregard any capital gain made on the exchange on the basis that there are no material Australian real property interests disclosed in the Company’s financial statements and therefore the Shares or Company ADSs do not constitute Taxable Australian Real Property.

Non-Australian resident Shareholders or non-Australian resident ADS Holders who hold Shares or Company ADSs as either trading stock or on revenue account will not be able to disregard a gain made under the Scheme. However, non-Australian resident Shareholders and or non-Australian resident ADS Holders may be entitled to relief under the business profits article of a relevant Double Tax Agreement.

 

20


  (b)

United States tax considerations

 

  i.

United States investors

The exchange of the Shares or Company ADSs for Avita US CDIs or Avita US Shares respectively pursuant to the Scheme, is intended to be treated as a transfer to which Section 351 of the US Internal Revenue Code of 1986, as amended (the Code) applies and/or as a reorganisation described in Section 368(a) of the Code in which no gain or loss is recognised to the Company, Avita US, United States Shareholders, Non-US Shareholders, United States ADS Holders or Non-US ADS Holders.

Assuming the exchange so qualifies, a United States Shareholder or United States ADS Holder will generally not recognise any gain or loss on the exchange of the Shares or Company ADSs for Avita US CDIs or Avita US Shares, except that United States Shareholders who are Fractional Shareholders (which includes Small Shareholders) who receive cash in lieu of certain Avita US Shares or Avita US CDIs pursuant to the Scheme may recognise a gain or loss, if any, to the extent of the cash consideration only.

 

  ii.

Non-US investors

Assuming the exchange qualifies as a transfer to which Section 351 of the Code applies and/or a reorganisation described in Section 368(a) of the Code, Non-US Shareholders and Non-US ADS Holders will generally not recognise any gain or loss as a result of the Scheme.

 

  (c)

Hong Kong tax considerations

 

  i.

Hong Kong investors

Any gain that is recognised by a Hong Kong Shareholder or Hong Kong ADS Holder will not be subject to Hong Kong Profits Tax provided that the acquisition of the shareholding or Company ADS holding took place through the ASX or NASDAQ and accordingly is not Hong Kong sourced

Where the Hong Kong Shareholder or Hong Kong ADS Holder purchased the Shares or Company ADSs off market pursuant to a private placement, any gain that is realised will not be subject to Hong Kong Profits Tax provided that the contracts for purchase of the Shares or Company ADSs were effected outside of Hong Kong, or the gain is capital in nature.

Please refer to section 10 of this Scheme Booklet for a more comprehensive summary of the taxation implications of the Proposed Transaction for Shareholders (and ADS Holders) in Australia, the United States and Hong Kong. In addition, Shareholders are strongly urged to consult with their tax advisers as to the specific tax consequences for them in connection with the Proposed Transaction, including the applicability and effect of foreign and local income and other tax laws in their particular circumstances.

 

2.10

Implications if the Proposed Transaction does not proceed

The Proposed Transaction will not proceed if:

 

   

Shareholders do not approve the Scheme Resolution by the requisite majorities;

 

   

the Court does not approve the Scheme;

 

21


   

any Condition Precedent is not satisfied or waived; or

 

   

the Implementation Agreement is terminated by the Company or Avita US.

In that event:

 

   

Shareholders will retain their current interests in the Company (unless they sell them);

 

   

the Company will continue to operate as a separate entity domiciled in Australia and listed on the ASX (as its primary listing) and on NASDAQ (as its secondary listing);

 

   

the Shares and Company ADSs will continue to trade on the basis that the Proposed Transaction will not proceed;

 

   

the advantages of the Proposed Transaction as described in section 6.1 of this Scheme Booklet may not be realised; in particular, the Company will continue to be treated as a domestic public company in both the United States and Australia and will incur the substantial costs, burden and risks associated with the dual financial reporting and related compliance obligations in both the United States and Australia; and

 

   

some of the disadvantages and risks of the Proposed Transaction as described in sections 6.2 and 6.3 of this Scheme Booklet may not arise.

 

2.11

The Proposed Transaction may be implemented even if you vote against the Scheme or you do not vote at all

Even if you vote against the Scheme Resolution, or do not vote, the Scheme may still be implemented if it is approved by the required majorities of Shareholders and by the Court. If this happens, your Shares will be transferred to Avita US and you will receive the Scheme Consideration (subject to the Sale Facility aspect of the Proposed Transaction dealing with Fractional Shareholder Interests and Ineligible Shareholders, discussed at section 2.8 and section 11.5 of this Scheme Booklet) even though you voted against, or did not vote on, the Scheme Resolution.

 

2.12

CDIs

Avita US is incorporated in the State of Delaware in the United States. The electronic transfer system used on the ASX (CHESS) cannot be used to transfer securities of foreign companies. To enable foreign companies, such as Avita US, to have their securities cleared and settled electronically through CHESS, depositary instruments called CDIs are issued.

Eligible Shareholders who hold Shares (other than the ADS Depositary) will receive Avita US CDIs as the Scheme Consideration. The ADS Depositary will receive Avita US Shares and will distribute those Avita US Shares to ADS Holders in the manner set out in section 11.4 of this Scheme Booklet. After implementation of the Proposed Transaction, Avita US Shares and Avita US CDIs will be transmutable, so that Avita US Shareholders can convert their Avita US Shares into Avita US CDIs (and vice versa).

Five Avita US CDIs will be equivalent to one Avita US Share.

The main difference between holding Avita US CDIs and Avita US Shares is that Avita US CDIs will confer the beneficial interest in Avita US Shares on Shareholders whilst the legal title to the Avita US Shares will be held by the Authorised Nominee, which is a subsidiary of ASX. Avita US CDI Holders will obtain the economic benefits of actual ownership of Avita US Shares.

 

22


From an ASX trading perspective, Avita US CDIs will have the same trading capabilities on the ASX as Shares currently quoted on the ASX (with the ticker code of “AVH” unchanged before and after implementation of the Proposed Transaction). Similarly, Avita US Shares will have the same trading capabilities on NASDAQ as Company ADSs currently quoted on NASDAQ (with the ticker code of “RCEL” unchanged before and after implementation of the Proposed Transaction).

Appendix E to this Scheme Booklet provides further detail on CDIs and the rights and entitlements attaching to CDIs.

 

2.13

Warranty and appointment of the Company as agent and attorney by Shareholders

Under the terms of the Scheme, each Shareholder is deemed to have warranted to the Company, and is deemed to have authorised the Company to warrant to Avita US as agent and attorney for the Shareholder, that:

 

   

all of its Shares (including any rights and entitlements attaching to them) transferred to Avita US under the Scheme will, on the date of the transfer, be free from all mortgages, charges, liens, encumbrances, pledges, security interests and other interests of third parties of any kind;

 

   

all of its Shares will be fully paid on the date of transfer; and

 

   

it has full power and capacity to sell and transfer its Shares (including all rights and entitlements attaching to them) to Avita US.

Under the terms of the Scheme, each Shareholder, without the need for any further action, also irrevocably appoints the Company and each of the Directors and officers of the Company, jointly and severally, as its attorney and agent for the purposes of doing all things and executing all deeds, instruments, transfers and other documents that may be necessary or desirable to give full effect to the Scheme and the transactions contemplated by it, as set out in section 12.11 of this Scheme Booklet.

 

2.14

Frequently Asked Questions

If you have any questions in relation to this Scheme Booklet or the Proposed Transaction, please refer to section 4 of this Scheme Booklet for a response to frequently asked questions. Alternatively, you should consult your financial, legal, taxation or other independent and qualified professional adviser or contact the Company’s enquiry line on 1300 113 256 (Australia toll free) or +61 3 9415 4090 (outside Australia).

 

23


3.

VOTING ON THE PROPOSED TRANSACTION

 

3.1

Before you vote

You should read this Scheme Booklet in full (including the advantages, disadvantages and risks of the Proposed Transaction in section 6 of this Scheme Booklet and the Independent Expert’s Report at Appendix A) before making any decision as to whether and how to vote on the Scheme Resolution.

It is important that you consider the information disclosed in light of your own particular investment needs, objectives and financial circumstances.

 

3.2

Your vote is important

For the Proposed Transaction to proceed, the Scheme Resolution must be approved by a majority in number (more than 50%) of Shareholders who are present and voting (either in person or by proxy, attorney or corporate representative) at the Scheme Meeting by way of live webcast. That majority who are present and voting must also represent at least 75% of the total number of votes cast on the Scheme Resolution.

Following approval of the Scheme Resolution by Shareholders, the Court must also approve the Scheme and it has discretion as to whether or not to approve the Scheme even if the Scheme Resolution has been approved by Shareholders.

 

3.3

Who can vote?

Shareholders who are registered as at 9.00am (AEST) on 13 June 2020 will be entitled to vote at the Scheme Meeting. Accordingly, transactions registered after this time will be disregarded for determining a Shareholder’s entitlement to take part in and vote at the Scheme Meeting.

 

3.4

What is being voted for at the Scheme Meeting?

The resolution on which Shareholders are being asked to vote is to approve the Scheme and thereby permit the redomiciliation of the Avita Group from Australia to the United States. The Scheme Resolution is set out in full in the Notice of Meeting in Appendix F to this Scheme Booklet.

 

3.5

What is the Board’s recommendation?

As detailed in section 5 of this Scheme Booklet, the Board unanimously recommends that Shareholders vote in favour of the Scheme Resolution that will be proposed at the Scheme Meeting.

In particular, the Board wishes to emphasise that redomiciliation of the Avita Group to the United States is necessary for the Company to avoid the substantial risk, burden, resourcing and resultant costs associated with the dual financial reporting and related compliance obligations that the Company now has in both the United States and Australia as a result of being treated since 31 December 2019 as a domestic public company in both of those jurisdictions. The mechanism by which the Company can resume being a domestic public company in only one jurisdiction (i.e. the United States), but maintain a listing in two jurisdictions (being the United States and Australia), is to redomicile from Australia to the United States.

Importantly, the Board believes that having its primary listing on NASDAQ, rather than on the ASX, should result in increased demand for, and liquidity of, the Avita Group’s securities in the United States capital market, which is the world’s largest by market capitalisation and trading volume. In addition, the Board believes that having a primary listing on NASDAQ will increase awareness of the Avita Group to larger and more diverse investors in the United States, while also making research much easier, and more intuitive, for those investors.

 

24


3.6

What to do and how to vote

 

  Step 1:

You should read this Scheme Booklet in full and the accompanying appendices in their entirety before making a decision as to how to vote on the Scheme Resolution. If you are in doubt as to what you should do, you should consult your financial, legal, taxation or other independent and qualified professional adviser.

 

  Step 2:

If you have any queries concerning the Scheme Resolution, please consult your financial, legal, taxation or other independent and qualified professional adviser or contact the Company’s enquiry line on 1300 113 256 (Australia toll free) or +61 3 9415 4090 (outside Australia).

 

  Step 3:

Due to the COVID-19 pandemic and the restrictions imposed by Australian governments in response to it, the Company made an application to the Federal Court of Australia for orders to permit the Scheme Meeting to be conducted as an exclusively virtual meeting, and appropriate court orders have been made for this to occur. You will not be able to attend the Scheme Meeting physically and are encouraged to participate by way of the live webcast. For further details on the live webcast, see section 3.7 of this Scheme Booklet. If you are unable to participate in the live webcast, or choose not to do so, you can vote by way of proxy, attorney or corporate representative (as applicable).

 

3.7

Voting by way of live webcast

The Scheme Meeting to approve the Proposed Transaction will be held at 9.00am (AEST) on 15 June 2020 by way of live webcast through the Lumi platform. The Company strongly encourages the participation of Shareholders in the live webcast, which will enable Shareholders to listen to the Scheme Meeting live, view slides and proxy results and to also ask questions and cast their vote at the appropriate times whilst the Scheme Meeting is in progress.

If you are a Shareholder (and eligible to vote at the Scheme Meeting) you can access the live webcast of the Scheme Meeting through the Lumi platform on a:

 

   

computer, by entering the URL in your browser: https://web.lumiagm.com; or

 

   

mobile device, by either entering the URL in your browser: https://web.lumiagm.com or by using the Lumi AGM app, which is available by downloading the app from the Apple App Store or Google Play Store.

A link to the Lumi platform will also be made available on the Company’s website (www.avitamedical.com).

Once you have access to the Lumi platform on your computer or mobile device, you will be asked to enter:

 

  1.

the meeting ID for the Scheme Meeting, which is: 316-817-384;

 

  2.

your username, which is your Security Holder Reference Number (SRN) or Holder Identification Number (HIN) (these can be found towards the top right hand corner of your holding statement and on shareholder communications from the Registry); and

 

25


  3.

your password, which is the postcode registered to your holding if you are a Shareholder in Australia. Shareholders outside of Australia should refer to the Scheme Meeting User Guide, which will be made available on the Company’s website (www.avitamedical.com) prior to the Scheme Meeting, for their password details.

More information regarding participating in the live webcast, including how to vote and ask questions during the live webcast of the Scheme Meeting (as well as browser requirements) will be detailed in the Scheme Meeting User Guide, which will be made available on the Company’s website (www.avitamedical.com) prior to the Scheme Meeting. Instructions will also be provided during the Scheme Meeting.

Shareholders are also invited to lodge questions in advance of the Scheme Meeting by sending an email containing their question(s) to info@avitamedical.com by 5.00pm (AEST) on 8 June 2020. Emailed questions will be addressed during the Scheme Meeting.

ADS Holders are able to listen to the live webcast of the Scheme Meeting as a visitor by selecting the ‘guest’ option (after entering in the meeting ID for the Scheme Meeting on the Lumi platform via a computer or mobile device) and providing their name and email details. However, as a visitor, an ADS Holder will not be able to ask questions or vote at the Scheme Meeting by way of live webcast. Section 3.11 of this Scheme Booklet provides information on how ADS Holders can vote on the Scheme Resolution.

 

3.8

Voting by proxy

All Shareholders who are unable to take part in the Scheme Meeting by way of live webcast, or choose not to, are encouraged to submit their votes by proxy instead.

To vote by proxy, please vote online or complete and sign the enclosed Proxy Form and return it in accordance with the instructions set out on the Proxy Form. Completed Proxy Forms must be received by the Registry by no later than 9.00am (AEST) on 13 June 2020.

A Shareholder entitled to take part in and vote at the Scheme Meeting (by way of live webcast) may appoint an individual or a body corporate as a proxy.

If a body corporate is appointed as a proxy, that body corporate must ensure that it appoints a corporate representative in accordance with section 250D of the Corporations Act to exercise its powers as proxy at the Scheme Meeting.

A proxy need not be a Shareholder.

A Shareholder may appoint up to two proxies and specify the proportion or number of votes each proxy may exercise. If the Shareholder does not specify the proportion or number of votes to be exercised, each proxy may exercise half of the votes in which case any fraction of votes will be disregarded.

Shareholders entitled to take part in the Scheme Meeting and vote on the Scheme Resolution (by way of live webcast) who return their Proxy Forms, but do not nominate the identity of a proxy, will be taken to have nominated the Chair as their proxy to vote on their behalf. If the Proxy Form is returned, but the nominated proxy does not take part in the Scheme Meeting, the Chair will act in the place of the nominated proxy and vote (or abstain from voting) in accordance with the instructions on the Proxy Form.

The Chair intends to vote all valid undirected proxies which he receives

for (or in favour of) the Scheme Resolution.

 

26


Details for completion and lodgement of proxies are on the reverse side of the Proxy Form. Please read the instructions on the Proxy Form carefully when completing the form.

To be effective, the Proxy Form must be received by the Registry by no later than 9.00am (AEST) on 13 June 2020. Proxy forms received after this time will be invalid. Proxies must be received by the Registry before that time by one of the following methods:

 

Online:    www.investorvote.com.au (which can also be accessed via the Company’s website (www.avitamedical.com))
   You will need your SRN or HIN and your allocated Control Number as shown on your proxy form
   You will be taken to have signed the proxy form if you lodge your proxy in accordance with the instructions on the website. Please read the instructions for online proxy submissions carefully before you lodge your proxy
By post:    Computershare Investor Services Pty Limited
   GPO Box 242
   Melbourne VIC 3001
   Australia
Mobile voting:    Scan the QR Code on your Proxy Form and follow the prompts
By custodians:    For Intermediary Online subscribers only (custodians), please visit intermediaryonline.com to submit your voting intentions
Facsimile:    In Australia 1800 783 447
   From outside of Australia +61 3 9473 2555

Additional or replacement Proxy Forms may be obtained from the Registry at the address above.

Completing and returning a Proxy Form will not preclude you from taking part in and voting at the Scheme Meeting by way of live webcast.

You may revoke your proxy at any time prior to the start of the Scheme Meeting by:

 

   

providing a written notice of revocation to the Registry at the above address before the Scheme Meeting;

 

   

properly executing and delivering a later dated proxy to the Registry (either online or by post); or

 

   

taking part in the Scheme Meeting by way of live webcast and voting on the Scheme Resolution.

 

3.9

Voting by attorney

If you wish for your attorney to take part in and vote at the Scheme Meeting (by way of live webcast) on your behalf, the original or a certified copy of the power of attorney authorising your attorney to take part in and vote at the Scheme Meeting (by way of live webcast), and a declaration or statement by the attorney that he or she has not received any notice of revocation of appointment, must be lodged with the Registry by the cut-off time for receipt of proxies for the Scheme Meeting set out above, being 9.00am (AEST) on 13 June 2020.

 

27


You may lodge the power of attorney (and any supporting documents) by delivering, posting or faxing it to the Registry at the address above.

 

3.10

Voting by corporate representative

A body corporate that is a Shareholder, or that has been appointed as a proxy, is entitled to appoint any person to act as its representative at the Scheme Meeting. The appointment of the representative must comply with the requirements under section 250D of the Corporations Act. The representative should lodge with the Registry (by the closing time for receipt of proxies for the Scheme Meeting set out above, being 9.00am (AEST) on 13 June 2020) a properly executed “Certificate of Appointment of Corporate Representative” (available from the Registry or www.investorcentre.com) confirming its authority to act as the body corporate’s representative.

 

3.11

Voting information for ADS Holders

ADS Holders as at a voting record date set by the ADS Depositary and notified by the ADS Depositary to ADS Holders may instruct the ADS Depositary how to vote the number of deposited Shares their Company ADSs represent. The ADS Depositary will notify ADS Holders of the Scheme Meeting and will send or make voting materials available to ADS Holders. Those materials will describe the matters to be voted on at the Scheme Meeting and explain how ADS Holders may instruct the ADS Depositary how to vote. For instructions to be valid, they must reach the ADS Depositary by a date set by the ADS Depositary. The ADS Depositary will try, as far as practicable, subject to applicable laws and the Constitution, to vote or to have its agents vote the deposited Shares as instructed by ADS Holders. In any event, the ADS Depositary will not exercise any discretion in voting deposited Shares and will only vote as instructed.

Except by instructing the ADS Depositary as described above, ADS Holders will not be able to exercise voting rights directly unless they surrender their Company ADSs, withdraw their underlying Shares and arrange to receive those Shares into their securities account in Australia (which is a process that typically takes one to two Business Days to complete). If ADS Holders wish to do this, but do not have a securities account in Australia, then they should contact their financial intermediary to make appropriate arrangements to receive the underlying Shares.

 

3.12

Jointly held securities

If any Share is jointly held with one or more persons, only one of the joint holders may vote. If more than one joint holder attempts to vote in respect of a jointly held Share, only the vote of the Shareholder whose name appears first in the Register (as at 9.00am (AEST) on 13 June 2020) will be counted.

 

3.13

Further information

Further information concerning the Scheme Resolution is set out in the Notice of Meeting in Appendix F to this Scheme Booklet.

If you have any further questions about the Scheme Meeting or about the Proposed Transaction, please call the Company’s enquiry line on 1300 113 256 (Australia toll free) or +61 3 9415 4090 (outside Australia) on Business Days from 8.30am to 5.00pm Monday to Friday. Alternatively, you should seek professional guidance from your financial, legal, taxation or other independent and qualified professional adviser.

 

28


4.

FREQUENTLY ASKED QUESTIONS

 

    

Question

  

Answer

  

More Information

Voting      
1    Why have l received this Scheme Booklet?   

This Scheme Booklet has been sent to you because you are a Shareholder. This Scheme Booklet contains information relevant to your consideration of the Proposed Transaction. The purpose of this Scheme Booklet is to assist you in making a decision as to whether or not to vote in favour of the Scheme Resolution being proposed.

 

However, if you have recently sold all of your Shares, please disregard this document.

   Section 2
2    What am I being asked to vote on?    The resolution on which Shareholders are being asked to vote is to approve the redomiciliation of the Avita Group from Australia to the United States via the Scheme. The Scheme Resolution is set out in full in the Notice of Meeting in Appendix F to this Scheme Booklet.    Appendix F
3    Am I entitled to vote?    Shareholders who are registered as at 9.00am on 13 June 2020 in the Register will be entitled to vote at the Scheme Meeting (by way of live webcast).    Section 3
4    What if I hold Company ADSs?   

ADS Holders as at a voting record date set by the ADS Depositary and notified by the ADS Depositary to ADS Holders may instruct the ADS Depositary how to vote the number of deposited Shares their Company ADSs represent. ADS Holders should refer to section 3.11 of this Scheme Booklet for more information as to how to vote on the Scheme Resolution.

 

ADS Holders are also able to listen to the live webcast of the Scheme Meeting as a visitor by selecting the ‘guest’ option (after entering in the meeting ID for the Scheme Meeting on the Lumi platform via a computer or mobile device - as outlined in section 3.7 of this Scheme Booklet) and providing their name and email details. However, as a visitor, an ADS Holder will not be able to ask questions or vote at the Scheme Meeting by way of live webcast.

   Section 3.11

 

29


5    Should I vote?    You do not have to vote. However, the Board unanimously believes that the Scheme is in the best interests of Shareholders and asks you to read this Scheme Booklet carefully and, if eligible, to vote in favour of the Scheme Resolution by personally taking part in the Scheme Meeting (by way of live webcast) or by proxy, attorney or corporate representative.    Section 3
6    What happens if I do not vote, or vote against the Scheme, and the Scheme is approved?   

The Board unanimously believes that the Proposed Transaction is in the best interests of Shareholders and unanimously recommends that Shareholders vote in favour of the Scheme Resolution to be proposed at the Scheme Meeting.

 

However, if you vote against the Scheme Resolution (or do not vote altogether), and the necessary approvals for the Scheme (including approval by Shareholders by the requisite majorities) are still obtained, the Scheme will become Effective and the Proposed Transaction will be implemented. This will occur regardless of whether you voted for or against the Scheme Resolution or did not vote altogether.

   Section 2.11
7    How do I vote?   

Your vote is very important.

 

Due to the COVID-19 pandemic and the restrictions imposed by Australian governments in response to it, the Company made an application to the Federal Court of Australia for orders to permit the Scheme Meeting to be conducted as an exclusively virtual meeting, and appropriate court orders have been made.

 

Shareholders entitled to vote are encouraged to participate in the virtual meeting by way of live webcast, and can do so via a mobile or computer device in accordance with the instructions provided at section 3.7 of this Scheme Booklet.

 

Taking part in the Scheme Meeting by way of live webcast will enable Shareholders to listen to the Scheme Meeting live, view slides and proxy results and to also ask questions and cast their vote at the appropriate times whilst the meeting is in progress.

 

Additional information regarding participating in the live webcast, including browser requirements, will be detailed in the Scheme Meeting User Guide which will be made available at the Company’s website (www.avitamedical.com) prior to the Scheme Meeting.

 

If you are unable to participate in the Scheme Meeting and vote by way of live webcast, or choose not to do so, you can vote by way of proxy, attorney or corporate representative (as applicable).

   Section 3

 

30


Proposed Transaction and Scheme   
8    What is the Proposed Transaction?   

The Proposed Transaction is a transaction to redomicile the Avita Group from Australia to the United States by way of the Scheme. Under the proposed Scheme, the Company will be acquired by a newly-formed holding company, Avita US, incorporated in Delaware in the United States.

 

Subject to approval of the Scheme by Shareholders and the Court and the satisfaction or waiver of all other Conditions Precedent, the Scheme will become Effective and Avita US will list on NASDAQ (as its primary listing) and on the ASX (as its secondary listing), to replace the Company’s current listing on the ASX (as its primary listing) and on NASDAQ (as its secondary listing).

   Section 2.1
9    How will the Proposed Transaction be implemented?   

In summary, if the Scheme Resolution is passed by the requisite majorities of Shareholders, then, subject to the Court approving the Scheme and all Conditions Precedent to the Scheme being satisfied or waived, the Company will lodge the Court order approving the Scheme with ASIC, upon which the Scheme will become Effective and the Proposed Transaction will be implemented. Upon implementation:

 

•   Avita US will acquire all of the Shares and provide the Scheme Consideration to Eligible Shareholders. In the case of Ineligible Shareholders, the Avita US CDIs or Avita US Shares that they would otherwise be entitled to receive under the Scheme will be issued to the Sale Agent (acting on behalf of Avita US) for sale and distribution in accordance with the Sale Facility described in section 11.5 of this Scheme Booklet. Fractional Shareholder Interests will also be issued to the Sale Agent to be dealt with in accordance with the Sale Facility described in section 11.5 of this Scheme Booklet;

 

•   Avita US will be listed on NASDAQ (as its primary listing) and on the ASX (as its secondary listing), to replace the Company’s current listing on the ASX (as its primary listing) and on NASDAQ (as its secondary listing); and

   Section 11.3

 

31


     

 

•   Avita US Shares will be quoted on NASDAQ (using the Company’s existing NASDAQ ticker code, “RCEL”) and on the ASX in the form of Avita US CDIs (using the Company’s existing ASX ticker code, “AVH”).

  
10    What is the effect of approving the Scheme?    If the Scheme is approved by Shareholders and the Court and all other Conditions Precedent are satisfied or waived, the Proposed Transaction will be implemented and the Avita Group will redomicile from Australia to the United States. The Company will become a wholly-owned subsidiary of Avita US and will delist from the ASX and NASDAQ and in its place Avita US will become listed on those exchanges.    Sections 2.1, 6.1, 8 and 9
11    What are the advantages if the Proposed Transaction is implemented?   

The Board believes that the Proposed Transaction will:

 

•   create a “local” listing as a domestic company in the United States capital market, which is the largest in the world in terms of market capitalisation and trading volume. The Board believes that having its primary listing on NASDAQ, rather than on ASX, should result in increased demand for, and liquidity of, the Avita Group’s securities in the United States capital market;

 

•   substantially reduce the risk, burden, resourcing and resultant costs associated with the dual financial reporting and related compliance obligations that the Company now has in both the United States and Australia due to it being a domestic public company in both of those jurisdictions (with effect from 31 December 2019). In addition to easing the challenges associated with the Company constantly managing dual reporting under different requirements in both the United States and Australia, the Proposed Transaction will save approximately A$400,000 per annum in external professional costs;

 

•   increase the awareness of the Avita Group to a broader range of investors in the United States capital market; and

 

•   better align the Avita Group’s corporate structure with its business operations in the United States (where nearly all of the Avita Group’s employees are located). The Company derives virtually all of its revenue from the United States, has no physical business presence outside of the United States, and a majority of the Shares (taking into account Company ADSs) are currently beneficially held by investors in the United States.

   Section 6.1

 

32


12    What are the potential disadvantages and risks if the Proposed Transaction is implemented?   

The Board believes that the potential disadvantages and risks of the Proposed Transaction include the following:

 

•   additional fees and costs will need to be incurred by the Company to enable the Proposed Transaction to proceed to completion;

 

•   Eligible Shareholders will directly or indirectly become stockholders in a NASDAQ-listed corporation domiciled in the United States as opposed to an ASX-listed company domiciled in Australia (which may be less desirable for those Shareholders in their own personal circumstances);

 

•   the Avita Group may be exposed to increased litigation as a result of its parent company being domiciled in the United States, as the United States legal environment is generally understood to be more litigious than that of Australia;

 

•   Shareholders (on the Record Date):

 

•   in ineligible jurisdictions (being Ineligible Shareholders); or

 

•   who hold less than 100 Shares (being Small Shareholders),

 

will not be issued Avita US Shares or Avita US CDIs as the Scheme Consideration, but will instead have their entitlements sold pursuant to a sale facility, with those holders then to receive the relevant net proceeds of that sale (which may be less desirable for those Shareholders in their own personal circumstances). Fractional Shareholder Interests will also be dealt with in this manner;

 

•   there may be taxation implications for Shareholders if the Proposed Transaction is implemented or as a result of directly or indirectly becoming stockholders in a NASDAQ-listed corporation domiciled in the United States (discussed further in section 10 of this Scheme Booklet); and

  

Sections 6.2

and 6.3

 

33


     

 

•   there may be a loss of demand for, and reduction of liquidity of, Avita US’s securities in the Australian capital market without an offsetting demand for, and increase in liquidity of, Avita US’s securities in the United States capital market.

  
13    Is the Proposed Transaction subject to any conditions?    The Proposed Transaction is subject to Shareholder approval and Court approval, as well as a number of other Conditions Precedent. A list of the Conditions Precedent to which the Proposed Transaction is subject can be found in the Implementation Agreement contained in Appendix B. A summary of the Conditions Precedent is contained in section 11.7 of this Scheme Booklet.    Appendix B and section 11.7
14    Can the Scheme be terminated?    Yes. The Implementation Agreement (contained in Appendix B of this Scheme Booklet) may be terminated in certain circumstances, the details of which are summarised in section 11.8 of this Scheme Booklet. If the Implementation Agreement is terminated, the Scheme, and Proposed Transaction, will not proceed.    Appendix B and section 11.8
Securities in the Company and Avita US   
15    What will I receive if the Scheme becomes Effective?   

Eligible Shareholders

 

Shareholders (whose addresses as shown in the Register on the Record Date are) in the following jurisdictions are “Eligible Shareholders” for the purposes of the Scheme and will be entitled to receive the Scheme Consideration:

 

•   Australia;

 

•   the United States;

 

•   Hong Kong;

 

•   New Zealand;

 

•   the United Kingdom;

 

•   France;

 

•   Norway;

 

•   Switzerland;

 

•   the United Arab Emirates;

 

•   Singapore; and

 

•   any other jurisdiction in respect of which the Company is satisfied, acting reasonably, that the laws of that place permit the offer and issue of Avita US Shares or Avita US CDIs to a Shareholder in that jurisdiction and, in Avita US’s sole discretion, it is not unduly onerous or impractical for Avita US to issue Avita US Shares or Avita US CDIs to a Shareholder with a registered address in that jurisdiction.

   Sections 2.6, 2.7, 2.8, 11.4 and 11.5

 

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Eligible Shareholders will hold an equivalent interest in Avita US to that which they held in the Company prior to implementation of the Proposed Transaction (subject to the Sale Facility aspect of the Proposed Transaction dealing with Fractional Shareholder Interests, discussed at section 2.8 and section 11.5 of this Scheme Booklet).

 

Under the Scheme:

 

•   Eligible Shareholders who hold Shares (other than the ADS Depositary) will receive 5 Avita US CDIs for every 100 Shares held by them on the Record Date.

 

•   The ADS Depositary (who holds Shares for the benefit of ADS Holders) will receive one Avita US Share for every 100 Shares held by it on the Record Date and will distribute those Avita US Shares to ADS Holders who will receive one Avita US Share for every 5 Company ADSs held by them on the Record Date upon surrender by them of their Company ADSs and payment of the ADS Depositary’s fee for that surrender (which fee is equal to US$0.05 per Company ADS surrendered).

 

•   Eligible Shareholders who hold less than 100 Shares (“Small Shareholders”) will be Fractional Shareholders and they will not be issued any Avita US CDIs or Avita US Shares. Their Fractional Shareholder Interests will be issued to the Sale Agent and sold in accordance with the process outlined in section 11.5 of this Scheme Booklet and the relevant net proceeds will be remitted to them. As at 1 May 2020, there are approximately 222 Shareholders who would be Small Shareholders on the Record Date if their holdings remain unchanged up to that date.

 

•   Eligible Shareholders who would otherwise have a fractional entitlement to an Avita US Share or an entitlement to Avita US CDIs that is not sufficient to equate to a whole Avita US Share (i.e. less than five Avita US CDIs) as part of their Scheme Consideration (which will include Small Shareholders) will be “Fractional Shareholders” and those fractional entitlements will be sold by the Sale Agent in the manner noted above in respect of Small Shareholders and the relevant net proceeds will be remitted to them.

  

 

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Ineligible Shareholders:

 

A Shareholder who is not an Eligible Shareholder is an Ineligible Shareholder and will therefore not be issued any Avita US CDIs or Avita US Shares.

 

The Avita US Shares or Avita US CDIs to which Ineligible Shareholders would otherwise be entitled under the Scheme will be issued to the Sale Agent for sale and the net proceeds from such sale will be remitted to the Ineligible Shareholders in accordance with the Sale Facility outlined in section 11.5 of this Scheme Booklet.

  
16    When will I receive the Scheme Consideration, if the Scheme becomes Effective?    If the Scheme becomes Effective, it is expected that implementation of the Proposed Transaction will take place on 29 June 2020. The Avita US CDIs and Avita US Shares (as applicable) will be issued on the Implementation Date, and holding statements will be despatched shortly thereafter.    N/A
17    How will fractional entitlements be treated?    As noted at question 15 above, any entitlements to fractional Avita US Shares or any entitlement to Avita US CDIs that is not sufficient to equate to a whole Avita US Share (i.e. less than five Avita US CDIs) as part of the Scheme Consideration will not be issued to Eligible Shareholders and will instead be aggregated and issued to the Sale Agent to be sold under the Sale Facility. The Sale Facility Proceeds will then be paid to the relevant Fractional Shareholders.    Section 11.5
18    Will I have to pay brokerage fees or stamp duty?   

Unless you are a Fractional Shareholder or an Ineligible Shareholder, you will not have to pay brokerage or stamp duty in connection with the exchange of your Shares for Avita US CDIs or Avita US Shares (as applicable). However, the Company understands that ADS Holders will need to pay a surrender fee to the ADS Depositary equal to US$0.05 per Company ADS surrendered to the ADS Depositary for the Avita US Shares to be delivered to them by the ADS Depositary.

 

Fractional Shareholders and Ineligible Shareholders will have any applicable brokerage, fees, taxes and charges deducted from the proceeds of sale of their Fractional Shareholder Interests or Avita US Shares or Avita US CDIs (as applicable) under the Sale Facility.

   Section 11.5

 

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19    Will I pay any tax on the exchange of my Shares?    Please refer to section 2.9 of this Scheme Booklet for a short summary of, and to section 10 of this Scheme Booklet for a more comprehensive summary of, the taxation implications of the Proposed Transaction for Shareholders (and ADS Holders) in Australia, the United States and Hong Kong as at the Record Date. In addition, Shareholders and ADS Holders are strongly urged to consult their tax advisers as to the specific tax consequences for them in connection with the Proposed Transaction, including the applicability and effect of foreign and local income and other tax laws in their particular circumstances.    Section 2.9 and 10
20    Are there differences between the rights attaching to existing Shares and the rights attaching to the Avita US Shares I will receive under the Scheme?   

Yes. While the rights attaching to Avita US Shares are similar to the rights attaching to the Shares, they are securities in a United States company governed by the laws and regulations of the United States and, in particular, the laws and regulations of Delaware. The rights attaching to Avita US Shares are discussed at section 9.3 and Appendix G of this Scheme Booklet.

 

Please note that if you presently hold Shares in the Company you will, unless you are the ADS Depositary, receive Avita US CDIs which will be quoted for trading on the ASX, rather than Avita US Shares which will be quoted for trading on NASDAQ. Avita US CDIs may be converted into Avita US Shares in the ratio of five Avita US CDIs to one Avita US Share.

   Section 9.3 and Appendix G
21    Are there differences between the laws of Australia and the laws of Delaware/the United States?   

Yes. There are a number of differences between the laws governing the Company’s securities and the laws governing Avita US’s securities, some of which could be viewed as advantageous to Shareholders, while others could be viewed as disadvantageous. For example, Australia’s takeover laws will not apply to Avita US. Instead, United States takeover laws will apply to Avita US and its securities.

 

Appendix G of this Scheme Booklet sets out a comparative table of a number of the major differences between relevant corporate laws of Australia and the United States (including takeover laws). Appendix E of this Scheme Booklet contains details of the rights that attach to Avita US CDIs and how CDIs operate.

   Appendix G and Appendix E

 

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22    How has the exchange ratio of one Avita US Share for 100 Shares been determined?   

The exchange ratio of one Avita US Share for 100 Shares has been determined by the Company and Avita US having regard to:

 

•   the current trading price of Shares on the ASX and Company ADSs on NASDAQ;

 

•   the theoretical trading price of Avita US Shares and the trading price that is expected of a stock listing on a major stock exchange in the United States (as well as listing and quotation on the ASX in the form of CDIs);

 

•   the fact that the Company currently has 2,133,434,899 Shares on issue, which is greatly in excess of the number of shares of common stock on issue by other comparable medical device companies listed on NASDAQ; and

 

•   the minimum trading price requirement of US$1.00 on NASDAQ for all continued listings.

   Section 2.7
Avita US   
23    Who is Avita US?   

Avita US is a newly formed holding company incorporated in the State of Delaware in the United States, for the sole purpose of the Proposed Transaction. If the Scheme becomes Effective, Avita US will become the ultimate parent company of the Company and Avita Group.

 

As at the date of this Scheme Booklet, no Avita US Shares or other securities have been issued by Avita US. Immediately following implementation of the Proposed Transaction, all of the Avita US Shares will be owned by Eligible Shareholders (in the form of Avita US Shares or Avita US CDIs) in approximately the same proportions as their existing holdings in the Company, subject to the Sale Facility aspect of the Proposed Transaction dealing with Fractional Shareholder Interests and Ineligible Shareholders (discussed at section 2.8 and section 11.5 of this Scheme Booklet).

   Sections 2.8, 11.5 and 8
24    Who will be the directors of Avita US following implementation of the Scheme?    On the Implementation Date, the members of the Avita US Board will be the same persons as the current members of the Board.    Section 12.1

 

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25    Why is Avita US incorporated in the State of Delaware in the United States?    The Board considers that the State of Delaware is an appropriate jurisdiction for the domicile of Avita US. More than 50% of all publicly-traded companies in the United States, including more than 60% of the Fortune 500, are incorporated in Delaware. In addition, Delaware provides a well-developed body of law defining the fiduciary duties and decision-making processes expected of boards of directors in a variety of contexts, including evaluating potential and proposed corporate takeover offers and business combinations.    Section 0
26    Will there be changes to the Company’s assets, business or operations as a result of the Proposed Transaction?   

No.

 

On and from the Implementation Date, the assets, business and operations of the Company will be unchanged, and Avita US intends to continue the business of the Company and the Avita Group as it was conducted prior to the Implementation Date. It should be noted that the Company does not have a physical business presence in Australia.

 

Further information on the Avita Group’s business plans and strategy can be found in the various announcements made by the Company on the ASX website (www.asx.com.au) and filings made by the Company with the SEC.

   Section 8.7
27    Where will Avita US’s annual meetings be held in the future?    As a Delaware corporation, pursuant to Avita US’s certificate of incorporation and by-laws, Avita US’s annual meetings will be held within or outside the State of Delaware as the Avita US Board shall determine from time to time. If determined by the Avita US Board, annual meetings may also be conducted in Australia or virtually.    N/A
Other   
28    What are CDIs?    A CDI is a financial product quoted on the ASX which allows the securities of foreign-incorporated entities to be traded on the ASX and securities transactions on the ASX to be settled in accordance with the ASX settlement system (currently CHESS). CDIs are units of beneficial ownership in foreign securities, where legal title to the securities is held by the Authorised Nominee for the purpose of enabling trading and settlement to occur in the securities of foreign-incorporated entities on the ASX. Holders of CDIs receive the economic benefits of actual ownership of the underlying securities.    Appendix E

 

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29    Who is the Authorised Nominee?    The Authorised Nominee is CHESS Depositary Nominees Pty Limited (ACN 071 346 506, Australian Financial Licence number 254514), which is an approved general participant of ASX Settlement and a wholly-owned subsidiary of ASX. The Authorised Nominee will be the registered holder of Avita US Shares held for the benefit of Avita US CDI Holders. The Authorised Nominee does not charge a fee for providing this service to Avita US CDI Holders.    Appendix E
30    What will happen to the existing Options, RSUs and Warrants in the Company?    The existing Options, RSUs and Warrants in the Company arise out of contracts between the Company and the holders of those securities. Under those contracts, the existing Options, RSUs and Warrants will continue after implementation of the Proposed Transaction; however, the entitlements of holders to be issued Shares will instead become entitlements to be issued Avita US Shares (in the ratio of one Avita US Share for every 100 Shares to which the holder would otherwise be entitled). In all other respects, the existing Options, RSUs and Warrants will continue to be subject to the contractual terms pursuant to which they were granted. Avita US has separately covenanted (by way of deed poll) in favour of holders of existing Options, RSUs and Warrants in the Company to ensure that holders’ entitlements are made available in accordance with their contractual rights.    Section 12.6, Appendix D2
31    What happens at the Second Court Hearing?   

If the Scheme is approved by Shareholders at the Scheme Meeting, the Court will be asked to approve the Scheme at the Second Court Hearing.

 

If Shareholders wish to oppose the approval by the Court of the Scheme at the Second Court Hearing, they may do so by filing with the Court and serving on the Company a notice of appearance in the prescribed form, together with any affidavit on which they wish to rely at the hearing.

   N/A
32    Can I sell my Shares now?    The Scheme does not preclude you from selling some or all of your Shares on the ASX (or, if you are an ADS Holder, selling some or all of your Company ADSs on NASDAQ) for cash prior to implementation of the Scheme, if you wish, provided that you sell your Shares before the close of trading on the ASX on the Effective Date (or, for ADS Holders, the last day of trading of Company ADSs on NASDAQ).    N/A

 

40


33    Who can help answer my questions about the Proposed Transaction?   

If you have any questions about the Proposed Transaction, please consult your financial, legal, taxation or other independent and qualified professional adviser.

 

Additionally, you can call the Company’s enquiry line on 1300 113 256 (Australia toll free) or +61 3 9415 4090 (outside Australia) on Business Days from 8.30am to 5.00pm Monday to Friday.

   N/A

 

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5.

BOARD’S RECOMMENDATION AND THE OPINION OF THE INDEPENDENT EXPERT

 

5.1

The Board’s recommendation

The Board unanimously believes that the Proposed Transaction is in the best interests of Shareholders. Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Scheme Resolution to be proposed at the Scheme Meeting.

In making this recommendation, the Board has considered the advantages, disadvantages and risks of the Proposed Transaction as described in section 6 of this Scheme Booklet and also the conclusion reached by the Independent Expert. The Board considers that the advantages of the Proposed Transaction significantly outweigh its disadvantages and risks.

In particular, the Board believes that the approval of the Scheme and implementation of the Proposed Transaction is important for the Company in order to allow it to resume being regarded as a domestic public company in only one jurisdiction (i.e. the United States, noting that, as outlined in section 6.1 of this Scheme Booklet, it is not currently possible to have Australia as its sole domestic jurisdiction). This will mean that the Company can avoid the unnecessary costs, risks, resourcing and burden associated with being regarded as a domestic public company in each of the United States and Australia. The Proposed Transaction is the means by which the Company can achieve that objective whilst ensuring that the parent company of the Avita Group retains a listing in both the United States and Australia. This is discussed in more detail in section 6.1 of this Scheme Booklet.

All Directors who hold or control Shares intend to vote in favour of the Scheme Resolution in relation to the Shares which they hold (or which are held on their behalf).

In considering whether to vote in favour of, or against, the Scheme Resolution (or abstain from voting on the Scheme Resolution), the Board encourages you to:

 

   

read the whole of this Scheme Booklet, including its appendices;

 

   

have regard to your financial circumstances, individual risk profile, portfolio strategy and tax position; and

 

   

obtain advice on the Proposed Transaction from your financial, legal, taxation or other independent and qualified professional adviser, which takes into account your particular circumstances.

 

5.2

The Independent Expert’s opinion

The Independent Expert has concluded that the Scheme is fair and reasonable to, and in the best interests of, Shareholders as a whole. A copy of the Independent Expert’s Report, which includes the reasons for the Independent Expert’s conclusion, is contained in Appendix A. Shareholders are encouraged to read the Independent Expert’s Report carefully and in full.

 

42


6.

THE ADVANTAGES, DISADVANTAGES AND RISKS ASSOCIATED WITH THE PROPOSED TRANSACTION

The Proposed Transaction has a number of potential advantages, disadvantages and risks which Shareholders should consider before deciding how to vote on the Scheme Resolution.

This section does not take into account the investment objectives, financial situation, taxation position or particular needs of Shareholders. Shareholders should have regard to the entire Scheme Booklet and its appendices, consider their personal circumstances and consult with their financial, legal, taxation or other independent and qualified professional adviser before deciding how to vote on the Scheme Resolution.

Shareholders who vote against the Scheme Resolution are ultimately voting against the Proposed Transaction. This will prevent the Company from realising the benefits that may arise from the advantages of the Proposed Transaction identified at section 6.1 of this Scheme Booklet. At the same time, the potential disadvantages and risks associated with the Proposed Transaction, identified at section 6.2 and section 6.3 of this Scheme Booklet, may not arise (except for some of the Proposed Transaction’s implementation costs, which have already been incurred, or will be incurred in any event).

As noted in section 5 of this Scheme Booklet, the Board has considered the advantages, disadvantages and risks of the Proposed Transaction as part of the process it undertook to make its unanimous recommendation to approve the Proposed Transaction.

 

6.1

What are the potential advantages of the Proposed Transaction?

 

  (a)

Avoidance of being a “dual compliant” company and reduced compliance burden and costs

It is not uncommon for entities to have their securities traded on more than one exchange (referred to as cross-listing or, in certain cases, a dual listing). Since October 2019, the Company’s securities have been quoted on two exchanges, with Shares traded on the ASX (in Australia) and Company ADSs traded on NASDAQ (in the United States).

All companies, including cross-listed companies, must prepare and lodge financial statements and comply with, among other things:

 

   

the corporate and securities law requirements of the jurisdiction in which they are incorporated (i.e. Australia for the Company); and

 

   

the regulations imposed by the relevant corporate regulator.

Since the Company is a public company incorporated in Australia, it is subject to regulatory oversight by ASIC and is required to prepare financial statements under applicable Australian laws in accordance with AIFRS. This costs the Company approximately A$400,000 per annum in external professional costs and is a significant burden on internal management and resources.

A cross-listed company is treated as a “foreign company” in the jurisdiction it elects for the secondary trading of its securities (i.e. the United States for the Company). In that second jurisdiction, the company is generally subject to lower levels of regulation and compliance, as its main compliance obligations continue to be imposed by the regulators in its country of origin (i.e. Australia for the Company). The Company, as a foreign company in the United States, has historically qualified for what is known as “foreign private issuer” exemption status by the SEC and, as a result, has been exempt from the financial reporting requirements applicable to United States companies under applicable United States laws (such as preparing financial statements in accordance with US GAAP).

 

43


However, since 31 December 2019, the Company has ceased to qualify for the foreign private issuer exemption due to a majority of the Shares (taking into account Company ADSs) being beneficially held by investors in the United States (as at that date).

If no restructuring is undertaken, the practical consequences of this (beginning on 1 July 2020) will be:

 

   

the Company will no longer be treated as a foreign private issuer in the United States;

 

   

in addition to the Company’s domestic status in Australia, the Company will be treated as having a domestic status in the United States for the purposes of applicable rules and regulations of the SEC;

 

   

the Company will no longer be eligible to report in the United States as a foreign company using financial statements prepared under applicable Australian laws (in accordance with AIFRS), but instead will be required to report in accordance with US GAAP (in the same fashion as all other public companies incorporated in the United States);

 

   

the Company will be exposed to heightened oversight by corporate regulatory bodies as a consequence of being a domestic public company in two jurisdictions (Australia and the United States); and

 

   

the Company will need to incur substantial additional costs and increase resourcing to comply with the distinct legal, financial and reporting requirements of both Australia and the United States.

In particular, in addition to continuing to incur the costs associated with preparing financial statements under applicable Australian laws (in accordance with AIFRS), the Company will be required to prepare a second set of financial statements under applicable United States laws (in accordance with US GAAP). The preparation of two different sets of financial statements is onerous, time-consuming and costly for the Company.

If the Proposed Transaction is implemented, Avita US will be subject to those Australian laws that are applicable to Australian registered foreign companies and it will also be subject to the ASX Listing Rules. Importantly, however, if the Proposed Transaction is implemented, Avita US will only have domestic status in the United States and will therefore only be required to prepare its financial statements under applicable United States laws (in accordance with US GAAP) and will not be required to also prepare its financial statements in accordance with AIFRS, thereby avoiding the most substantial part of the duplication of costs, burdens and risks associated with dual compliance.

Therefore, the Proposed Transaction would mean that the Company would not be required to undertake an Australian audit and incur audit-related expenses and ongoing compliance costs for each financial year, which will save approximately A$400,000 per annum in external professional costs.

If the Proposed Transaction is implemented, Shareholders will continue to receive audited, and detailed, financial reports on corporate activities and developments, although these financial reports will be prepared in accordance with US GAAP rather than AIFRS (in accordance with which the Company currently prepares its financial report). Avita US will file its financial statements with the SEC and ASIC, and make them generally available on its website and file them with both the ASX and NASDAQ.

 

44


  (b)

Align the Avita Group’s structure with its operating model

The Proposed Transaction will reorganise the Avita Group’s corporate structure by inserting Avita US as the new parent company of the Avita Group.

Having a company incorporated in the United States as the Avita Group’s parent company will mean the Avita Group’s corporate structure will be aligned with its business operations, since:

 

   

a majority of the Shares (taking into account Company ADSs) are currently beneficially held by investors in the United States;

 

   

all of the Avita Group’s current business operations are located in the United States, where nearly all of the Avita Group’s employees are located; and

 

   

the key market for the Avita Group’s business is the United States, where the Company derives virtually all of its revenue.

This structure will be more easily understood by potential investors and transaction partners in the United States. This may also increase the Avita Group’s attractiveness to potential merger partners, as well as increase opportunities with potential licensing partners and other commercial parties. In addition, if the Avita Group sought to acquire a target or asset, the Avita Group would have the ability to issue NASDAQ-listed Avita US Shares as consideration to sellers, which may be more attractive to certain third-party sellers.

 

  (c)

A “local” listing where the Avita Group’s strategy is to grow its visibility and presence

In September 2018, the Company was granted approval by the FDA in respect of its RECELL® System for the treatment of acute thermal burns in adults. Building upon that successful approval, the Company, in January 2019, formally launched its United States sales force and began selling RECELL to burn centres in the United States, which to date has been well received. Whilst the Company expects to continue to supply and support existing users of its products outside of the United States, the Board’s expectation is that, in the near term, the Company will devote most of its commercial efforts and resources to ensuring a successful and growing presence in the United States, the largest market for the treatment of burns.

Changing the primary listing of the Avita Group’s parent company from the ASX to NASDAQ is consistent with the Company’s strategy to grow its United States presence by enhancing the Avita Group’s visibility and market presence in the United States.

 

  (d)

Increase the attractiveness of the Avita Group to investors in the United States

Avita US’s primary listing after implementation of the Proposed Transaction will be on NASDAQ in the United States. The United States capital market is the largest in the world in terms of market capitalisation and trading volume and, in October 2019, the Company listed Company ADSs on NASDAQ in order to access some of this opportunity. Whilst the Company has maintained this secondary listing to date, the Board believes that having its primary listing on NASDAQ, rather than on the ASX, should result in increased demand for, and liquidity of, the Avita Group’s securities in the United States market, because the Board believes that investors in the United States are more likely to invest in a United

 

45


States incorporated company with a primary listing on a United States trading platform, as compared with an Australian incorporated company that has its primary listing on the ASX. While the Company believes that this advantage will accrue to the Company, there is a risk that the Proposed Transaction may lead to a potential loss of demand for, and reduction of liquidity of, Avita US’s securities in the Australian capital market. Notwithstanding that the use of the CDI structure is not uncommon in the Australian market, there could be some investor discomfort with that structure (i.e. investors in Australia may be less likely to invest in a company with a secondary listing in Australia, as compared with a company with a primary “local” listing on the ASX). In addition, due, for example, to investment mandate limitations, certain Australian institutional investors may be prohibited from holding CDIs or foreign securities, or may be limited in the amount of CDIs or foreign securities that they can hold, or may be restricted by the amount or proportion that CDIs or foreign securities are permitted to represent within a diversified portfolio. Nevertheless, the Company believes that the potential increased demand for, and liquidity of, the Avita Group’s securities in the United States capital market would offset this risk and result in a net benefit for the Avita Group.

In addition, ADSs are generally less favourable for United States holders than common stock, because ADS holders must pay depositary fees to the ADS Depositary, whilst holders of common stock and CDIs do not have to pay depositary fees. The Proposed Transaction will result in holders of Company ADSs receiving common stock in Avita US in place of Company ADSs through and pursuant to their depositary arrangement with the ADS Depositary, and therefore those ADS Holders will no longer be required to pay fees to the ADS Depositary, including annual service fees and fees for distributing cash and other distributions. Similarly, holders of Avita US CDIs will not be required to pay depositary fees in respect of their Avita US CDIs.

Another important benefit of the Proposed Transaction is that there are certain investment funds which cannot, or choose not to, invest in companies that do not have an incorporated presence in the United States because they cannot qualify for inclusion in United States indices. As a United States incorporated entity, Avita US may be eligible for inclusion on major United States indices. The Board believes that this should increase the awareness of the Avita Group to United States institutional investors and, if it did, could result in broader access to capital pools. This may lead to an improvement in the Avita Group’s ability to accelerate growth by attracting further investment and raising future capital for projects on more attractive terms.

Avita US may also still qualify for major Australian indices (which do not require an Australian corporate domicile or incorporation in Australia as a criterion for inclusion in these indices).

 

  (e)

Increase the awareness of the Avita Group to investors in the United States

Undertaking research on entities trading on NASDAQ via ADSs is comparatively more difficult for investors in the United States, because certain well-used research platforms (e.g. S&P’s Market Intelligence platform) provide detailed data on entities with primary listings only.

In this regard, a search for the Company ADSs using the ticker code “RCEL” or the search term of “Avita” either:

 

   

does not direct the reader to the Company; or

 

   

only provides ASX trading patterns.

 

46


Since the implementation of the Proposed Transaction will result in Avita US having a primary listing on NASDAQ, research will be much easier, and more intuitive, for investors in the United States, which are generally both larger in number and capitalisation as compared to investors in Australia.

 

  (f)

Increased exposure of the Avita Group to larger and more diverse investors in the United States market

The implementation of the Proposed Transaction is expected to expose the Avita Group to a larger and more diverse range of investors in the United States. The Board believes that changing the domicile of the Avita Group to the United States will provide access to a broader range of institutional investors in a market which, in the Board’s view, relative to the Australian market, is more familiar with, and has historically had a stronger interest in, medical device and pharmaceutical companies. If successful, this may potentially lead to a re-rating of the Avita Group, a stronger market capitalisation/valuation and increased liquidity in trading.

Exposure to larger and more diverse investors may also result in greater access to lower-cost debt or equity capital in the United States. The Board believes that this access may enable future growth and development of the Avita Group to be financed at a lower cost than it has been to date.

 

  (g)

Retention of ASX listing and familiarity with local exchange

While the Proposed Transaction will have a number of benefits from a United States perspective, the Company is very conscious of the fact that it has a number of Australian based investors. Accordingly, if the Proposed Transaction is implemented, the Avita Group will retain its listings on both the ASX and NASDAQ. Accordingly, following implementation of the Proposed Transaction, Eligible Shareholders will still be able to continue to hold their investment in the Avita Group through the ASX, as Avita US CDIs will be quoted on the ASX, and Avita US will be required to comply with the ASX Listing Rules (as well as the NASDAQ Listing Rules), including disclosure requirements under the continuous disclosure rules and the lodgement of financial statements and quarterly reports.

 

  (h)

Familiar legal system for Avita Group management

Avita US, as a company domiciled in the United States and incorporated in Delaware, will be governed by the laws and regulations of the United States and, in particular, the laws and regulations of Delaware. The regulatory environment in the United States is broadly comparable to that in Australia (although there are some differences between the relevant corporate laws, some of which could be viewed as advantageous to Shareholders, while others could be viewed as disadvantageous). Appendix G of this Scheme Booklet sets out a comparative table of a number of the major differences between relevant corporate laws of Australia and the United States.

Whilst the legal system in the United States is considered to be a relatively predictable one and is broadly comparable to that of Australia, it will be more familiar to the Company’s management, which is entirely located in the United States. This will mean that senior management will have ready access to legal, accounting and other resources in time zones where they are located. The Company anticipates that this will, over time, result in reductions in the Company’s overhead costs.

 

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6.2

What are the potential disadvantages of the Proposed Transaction?

 

  (a)

Implementation costs

The Proposed Transaction, if approved, will result in additional fees and costs being incurred to implement the Proposed Transaction (including regulatory application fees payable to ASIC and FIRB and listing fees payable to the ASX). It should be noted, however, that a majority of these fees, such as advisor fees, have already been incurred as part of the exploratory phase of the Proposed Transaction, obtaining the Independent Expert’s Report and preparing and distributing this Scheme Booklet. For more information about these fees and costs, please refer to section 12.3 of this Scheme Booklet.

 

  (b)

Change to a new jurisdiction for Non-US Shareholders

Upon implementation of the Proposed Transaction, Eligible Shareholders will either directly (through holding Avita US Shares) or indirectly (through holding Avita US CDIs) become stockholders in Avita US, a Delaware corporation. Shareholders might not be familiar with the laws and regulations of the United States and the State of Delaware, to which Avita US will be subject. Currently, Shareholders wishing to take action to enforce the provisions of the Constitution or corporations or securities laws as they relate to the Company may take action in Australian courts, applying Australian law. After implementation of the Proposed Transaction, it may be necessary, depending on the circumstances, to undertake any such actions in relation to Avita US in accordance with the applicable laws of the United States and Delaware.

 

  (c)

Exposure to a more litigious environment

While the Company conducts the vast majority of its business in the United States already, Avita US may be exposed to increased litigation as a United States (Delaware) corporation, as the United States legal environment is generally understood to be more litigious than that of Australia. Under Delaware law, a stockholder must meet certain eligibility and standing requirements to bring a derivative action (i.e. proof of stock ownership), but settlement or dismissal of a derivative action requires the approval of the court and notice to stockholders of the proposed dismissal. Stockholders of United States incorporated companies are entitled to commence class action suits on their own behalf and on behalf of any other similarly situated stockholders to enforce an obligation directly owed to the stockholders where the requirements for maintaining a class action under Delaware law have been met. There is a risk that any material or costly dispute or litigation could adversely affect Avita US’s reputation, financial performance or value. It should be noted, however, that the contrast between levels of securities litigation in the United States and Australia is less pronounced now than in previous decades, because of the growth in Australia of shareholder class actions based on allegations of misleading or inadequate disclosure to the market.

 

  (d)

Ineligible Shareholders and Small Shareholders will not be able to receive Avita US Shares or Avita US CDIs

The Avita US Shares or Avita US CDIs that would otherwise have been issued under the Scheme to Ineligible Shareholders will be issued to the Sale Agent (on behalf of Avita US) to be sold in accordance with the process outlined in section 11.5 of this Scheme Booklet. Fractional Shareholder Interests will also be dealt with in this manner.

Similarly, Eligible Shareholders who are classified as Small Shareholders (being Eligible Shareholders who hold less than 100 Shares and who are therefore Fractional Shareholders) will have their entitlement to Avita US CDIs sold in accordance with the process outlined in section 11.5 of this Scheme Booklet because their entitlement to Avita US CDIs will represent less than a whole Avita US Share. As at 1 May 2020, there are approximately 222 Shareholders who would be Small Shareholders on the Record Date if their holdings remain unchanged up to that date.

 

48


Therefore, Ineligible Shareholders and Small Shareholders (and other Fractional Shareholders to the extent of their Fractional Shareholder Interests) will no longer hold equivalent securities in Avita US to that which they previously held in the Company and will not be able to benefit in any potential future increase in value of those securities in the future.

 

  (e)

Taxation implications if the Proposed Transaction is implemented

Please refer to section 10 of this Scheme Booklet for a comprehensive summary of the taxation implications of the Proposed Transaction for Shareholders (and ADS Holders) in Australia, the United States and Hong Kong as at the Record Date. In addition, Shareholders (and ADS Holders) are strongly urged to consult their tax advisers as to the specific tax consequences for them in connection with the Proposed Transaction, including the applicability and effect of foreign and local income and other tax laws in their particular circumstances.

 

6.3

Risks associated with the Company and the Proposed Transaction

Existing risks relating to the Company’s business

There are some risks that will continue to exist regardless of whether or not the Proposed Transaction is approved due to the nature of the Company’s business. Shareholders are currently already exposed to these risks given that they relate to the assets, operations and business of the Avita Group. Eligible Shareholders will continue to be exposed to materially the same risks after implementation of the Proposed Transaction. These risks have previously been disclosed to Shareholders through various public announcements made by the Company to the ASX and NASDAQ and through various periodic filings made by the Company with ASIC and the SEC. Some of the more material risks relating to the Company’s business are summarised below.

 

  (a)

General market risks

Like many companies, the Company is exposed to a number of general risks that could materially adversely affect its financial position, assets and liabilities, reputation, profits, prospects and the market price and/or value of Shares and Company ADSs.

These could include any or all of the following:

 

   

fluctuations in economic conditions in Australia, the United States and internationally, including fluctuations in economic growth, interest rates, exchange rates, the level of inflation and employment levels;

 

   

liquidity, functionality and openness of the public equity and debt markets in key geographies around the world;

 

   

geopolitical risk within and between countries (e.g. tariffs, embargo etc.);

 

   

fluctuations in Australian, United States and other overseas stock-markets;

 

   

changes in government fiscal, monetary, regulatory and/or foreign policy in relevant jurisdictions and changes to political or judicial policies or conditions (including the impact of referendums in relevant jurisdictions);

 

49


   

increases in expenses (including wage inflation);

 

   

changes to accounting or financial reporting standards; and

 

   

natural disasters (including bushfires and floods), catastrophic events, terrorism and epidemics/pandemics (including COVID-19, which is discussed below).

 

  (b)

COVID-19

Recently, governments around the world have been launching unprecedented public health and economic responses to the expanding COVID-19 pandemic, including implementing travel, movement, social distancing and related practices and policies (collectively, “COVID Restrictions”). The Company is closely monitoring the impact of COVID-19 on its business and operations and remains committed to addressing the needs of patients, healthcare providers, employees and broader stakeholders. The Company believes that it is well-positioned to address the challenges that may arise over the coming months by:

 

   

identifying (and limiting) the adverse effects of these challenges; and

 

   

remaining flexible as events unfold.

An overview of the impact of COVID-19 is set out below.

Commercial opportunities and demand for RECELL

The treatment of serious burns is not elective and cannot be deferred. This is because the loss of skin through a burn creates immediate and serious health complications that require immediate hospitalisation and care. In the period up to 31 March 2020, the Company had not experienced a material negative change in the ordering habits of customers for the RECELL System as a result of the COVID-19 pandemic, nor had the incidence of burn injuries seemed to reduce (acknowledging that burn injuries have not historically shown any seasonal or consistent pattern, and are generally impacted by numerous unpredictable factors such as weather, geography and vacation periods).

However, at the date of this Scheme Booklet, it is difficult to predict the extent to which COVID-19 may impact the Company’s commercial opportunities going forward, especially given it is presently indeterminate how long the COVID Restrictions will be enforced for, or the rate at which commercial conditions will normalise once the COVID-19 Restrictions are removed or reduced.

In the United States (where the Company derives more than 95% of its revenue), healthcare institutions have implemented various restrictions, and together with the Company’s own operating COVID-19 protocols, the results have been that the Company has dramatically reduced face-to-face interactions with its existing, new and potential customers. In the majority of territories in which the Company operates, the Company’s clinical and commercial support employees are no longer providing live case support at the hospitals and these resources and communications have been re-positioned to digital, audio and related remote interfaces. There has also been the cancellation of some professional meetings (e.g. the 2020 Annual American Burn Association Meeting in March 2020) resulting in a loss of ability to educate burn care providers on the benefits of the RECELL System.

 

50


If these operating conditions were to persist, then it is likely that new account acquisition and new user uptake may be delayed or be more graduated than would otherwise have been the case, with a resultant negative impact on the Company’s revenues. Additionally, hospital resources are expected to be focused on treating COVID-19 patients and therefore investigational studies will be deprioritised, paused or terminated. It is also worth noting that the broader drop-off in general economic activity being experienced across the entire United States has, for example, led to reduced motor vehicle accidents, and thus it is possible that the number of burn patients could likewise decline and, if this were to occur, this would have a negative impact on the Company’s revenues. Lastly, some of the Company’s partner hospitals have paused enrollment in the Company’s studies. Therefore, the recruitment of new patients (and the addition of new sites into Company studies) is expected to slow dramatically, which will result in delays to the completion of those studies, and the timeline to potential regulatory approval of those studies (if successful) is likely to be delayed or jeopardised.

Supply chain and logistics

The Company remains committed to providing continuity of service, and the uninterrupted supply of the RECELL System, to the burns community during this time. Many of the Company’s customers already carry on-hand inventory to treat new patients, and the Company is fortunate to not have any material exposure to foreign-sourced materials. To this end, the Company is confident in its ability to continue to supply its partner hospitals and is not anticipating any interruptions to its supply chain or distribution network this calendar year. Notwithstanding the above, the Company is continuing to manufacture the RECELL System under controlled conditions but is reliant on its employees to continue such manufacturing. As a result, an extended or exaggerated outbreak of COVID-19 within the Company’s manufacturing facility in Valencia, California could lead to supply interruptions if production were to cease for an extended period.

The Company will continue to provide updates on COVID-19 as appropriate through its website (www.avitamedical.com) and via the ASX and NASDAQ, and, as appropriate, through filings with the SEC.

 

  (c)

Specific risks relating to the Company

The Company faces specific risks which could materially and adversely affect its business, operations and financial condition. In such event, the trading price of Shares and Company ADSs (or Avita US Shares and Avita US CDIs after implementation of the Proposed Transaction) would likely decline. Specific risks relating to the Company include the following:

 

  i.

Achieving profitability

The Company has not yet achieved profitability, and losses are expected to continue in the foreseeable future, at least until margins from the sales of the RECELL System in the United States are adequate to fund operating expenses. Successful transition to profitable operations depends on achieving a level of revenues adequate to support the Company’s cost structure. However, the Company may never successfully achieve or sustain profitability.

 

51


  ii.

Reliance on regulatory approval

The viability of the Company’s future success depends significantly on obtaining and maintaining regulatory approvals in key jurisdictions for the Company. For example, key products produced by the Company either currently have, or are awaiting, approval by the FDA. Development and commercialisation of any products requires successful completion of the regulatory approval process, which can often take an extended period of time to complete or in some cases is not capable of being successfully completed. Further, obtaining and maintaining regulatory approval for a product in one jurisdiction does not guarantee success in obtaining and maintaining regulatory approval for that product in other jurisdictions.

In addition, the Company relies on third parties to conduct, supervise and monitor its clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, the Company may not be able to obtain regulatory approval for its product candidates and its business could be substantially harmed.

 

  iii.

Unfavourable pricing regulations or third party coverage and reimbursement policies

The Company cannot guarantee that it will receive favourable pricing and reimbursement for the use of its products and it may be unsuccessful in commercialising the RECELL System, or other future products, due to unfavorable pricing regulations or third-party coverage and reimbursement policies. The rules and regulations that govern pricing and reimbursement for medical products vary widely from country to country or from condition to condition and, within the United States, can also vary widely from one health system or hospital to the next.

As a result, even after obtaining regulatory approval for a product in a particular country, the Company may be subject to adverse price regulations or limited reimbursement which may:

 

   

delay or limit the commercial launch of its product;

 

   

negatively impact the revenue the Company is able to generate from the sale of the product in that country; or

 

   

hinder the Company’s ability to recoup its total investment in the product or other future products.

If the Company is unable to promptly obtain coverage and profitable payment rates for the RECELL System (or any future products) from hospital budgets, government-funded purchasers or private purchasers, this could have a material adverse effect on the Company’s operating results, ability to raise capital needed to commercialise products and overall financial condition.

 

52


  iv.

Industry competition

The medical device, biotechnology and pharmaceutical industries in which the Company currently markets, or intends to market, the RECELL System (or future products) are intensely competitive and subject to significant changes due to technology and medical practice standards. The Company’s commercial opportunity could be reduced or eliminated if competitors develop and commercialise products, treatments or procedures that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than the RECELL System or any future products the Company develops.

 

  v.

Intellectual property

The Company’s success is heavily dependent on its ability to obtain and maintain meaningful patent protection for its technologies and products throughout the world. The Company may be hindered in effectively protecting its intellectual property because of any or all of the following:

 

   

filing, prosecuting and defending patents in every jurisdiction is expensive and competitors could reverse engineer the Company’s technologies in jurisdictions where the Company has not obtained patent protection to develop their own products;

 

   

proceedings to enforce the Company’s patents in foreign jurisdictions where it has obtained patent protection could result in substantial costs and divert the efforts and attention of key personnel from other aspects of the Company’s business;

 

   

patent law is evolving in the life sciences industry, and therefore the validity and enforceability of the Company’s patents cannot be predicted with certainty; and

 

   

the laws of various foreign countries in which the Company plans to compete may not protect intellectual property to the same extent as do the laws of the United States, which could make it difficult for the Company to stop the infringement of its patents.

If the Company is unable to effectively protect its intellectual property, it may not be able to operate its business and third parties may be able to use and profit from the Company’s technology, both of which would impair the Company’s ability to be competitive.

In addition, the Company’s intellectual property may be affected by provisions in contracts with the United States government for funding of the Company’s activities, including through the contract with the United States Biomedical Advanced Research and Development Authority (BARDA). When new technologies are developed with United States government funding, the government obtains certain rights in any resulting patents, including the right to a non-exclusive license authorising the government to use the invention and rights that may permit the government to disclose the Company’s confidential information to third parties and to exercise “march-in” rights.

 

  vi.

Reliance on funding

The Company is currently unable to finance its operations from commercial revenue and therefore is highly dependent on the ability to raise capital or receive funding. The Company may be required to raise additional capital if, among other things, the Company is unable to achieve profitability sufficient to fund its operations and other planned actions.

 

53


There can be no assurance that such capital would be available on favourable terms, or at all. If additional capital is raised through the issuance of equity or convertible debt securities, the percentage ownership held by Shareholders (or Avita US Shareholders (including Avita US CDI Holders) after implementation of the Proposed Transaction) may be reduced, and the market price of Shares and Company ADSs (or Avita US Shares and Avita US CDIs after implementation of the Proposed Transaction) could fall due to an increased number of shares being available for sale in the market. Debt financing, if available, may involve restrictive covenants, which may limit the Company’s operating flexibility with respect to certain business matters. If the Company is unable to secure additional capital as circumstances require, the Company may not be able to fund planned activities or continue its operations.

 

  vii.

Manufacturing risks

The Company has limited experience in manufacturing its products in large-scale commercial quantities and may face manufacturing risks that could adversely affect its ability to manufacture products and its overall business. Manufacturing risks specific to the Company include, among other things, a failure to:

 

   

increase production capacity or volumes to meet demand;

 

   

maintain compliance with quality system requirements or pass regulatory quality systems; and

 

   

secure raw materials, components and materials in a timely manner, in sufficient quantities or on commercially reasonable terms.

The Company produces, packages and warehouses the RECELL System at its manufacturing facility in Ventura, California, and relies on global third-party manufacturers for production of some of the components used in the RECELL System. If the Company’s facility, or the facilities of third-party contract manufacturers, suffer damage, or a force majeure event, this could materially impact the Company’s ability to operate.

 

  viii.

Other risks

The Company’s prospects for continued successful development and commercialisation of its products are, to varying degrees, dependent upon the research, development, commercialisation and marketing efforts of the Company and its collaborators. The Company’s growth and success also depends on its ability to attract and retain highly qualified and skilled sales and marketing, research and development, operational, managerial and finance personnel. Any failure to manage future growth effectively could have a material adverse effect on the Company’s business and results of operations.

 

54


Risks associated with the Proposed Transaction

If the Proposed Transaction is implemented, then in addition to the risks mentioned above, Eligible Shareholders may gain exposure to the following risks:

 

  (a)

The Proposed Transaction may fail to realise the anticipated advantages

The Proposed Transaction may fail to realise some or all of the anticipated advantages for the Avita Group, either in a timely manner or at all.

 

  (b)

Exact value of Avita US Shares and Avita US CDIs is not certain

Under the terms of the Scheme, the holdings of Eligible Shareholders will effectively be converted from Shares (or Company ADSs) to equivalent holdings of Avita US CDIs and/or Avita US Shares. The exact value of the Avita US CDIs and/or Avita US Shares to be received by Eligible Shareholders will be dependent on the price at which the Avita US CDIs and/or Avita US Shares trade after the Implementation Date (which may be different from the equivalent price at which the Shares and/or Company ADSs traded before the Implementation Date).

 

  (c)

Loss of demand and liquidity in Australia

As mentioned in section 6.1(d) of this Scheme Booklet, the Proposed Transaction may lead to a potential loss of demand for, and reduction of liquidity of, Avita US’s securities in the Australian capital market. Notwithstanding that the use of the CDI structure is not uncommon in the Australian market, investors in Australia may be less likely to invest in a company with a secondary listing in Australia, as compared with a company with a primary “local” listing on the ASX. In addition, due, for example, to investment mandate limitations, certain Australian institutional investors may be prohibited from holding CDIs or foreign securities, or may be limited in the amount of CDIs or foreign securities that they can hold, or may be restricted by the amount or proportion that CDIs or foreign securities are permitted to represent within a diversified portfolio. The Company’s securities (in the form of Shares) currently have higher liquidity in the Australian market (i.e. on the ASX) than they do (in the form of Company ADSs) in the United States market (i.e. on NASDAQ). However, holders of Avita US CDIs quoted on the ASX will be able to convert their holdings into Avita US Shares quoted on NASDAQ, if the NASDAQ market provides more liquidity.

The outline of these risks is a summary only and should not be considered exhaustive. This section does not purport to list every risk that may be applicable to Shareholders now or in the future. Further, the occurrence or consequences of some of the risks described in this section may be partially or completely outside the control of the Company, its Board and senior management.

These risk factors do not take into account any Shareholder’s individual investment objectives, financial situation, position or particular needs. Before deciding how to vote in relation to the Scheme Resolution, Shareholders should have a sufficient understanding of these matters, having regard to their own individual risk profile, portfolio strategy, investment objectives, financial circumstances and taxation position. If Shareholders do not understand any part of this Scheme Booklet or are in any doubt as to how to vote in relation to the Scheme Resolution, the Board strongly recommends that Shareholders seek professional guidance from their financial, legal, taxation or other independent and qualified professional adviser before deciding how to vote on the Scheme Resolution.

 

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7.

INFORMATION ABOUT THE COMPANY

 

7.1

Corporate overview

The Company is a public limited liability company incorporated in Australia and registered as a reporting entity in the United States under the US Exchange Act. The Company is regulated by Australian law including the Corporations Act and the ASX Listing Rules, and by the NASDAQ Listing Rules and the securities laws of the United States.

The Company was incorporated on 21 December 1992 under the laws of the Commonwealth of Australia, and was listed on the ASX on 9 August 1993 under the ticker symbol “GRC” and is currently trading under the ticker symbol “AVH”. The Company was listed on NASDAQ on 1 October 2019 under ticker symbol “RCEL”.

The Company’s registered office is located at Level 7, 330 Collins Street, Melbourne VIC 3000, Australia.

The Company’s principal office in the United States is located at 28159 Avenue Stanford, Suite 220, Valencia, California and the Company has a production plant in Ventura, California.

As at 1 May 2020, there are 91 employees, of which 88 are located in the United States, 2 are located in the United Kingdom and one is located in Australia.

 

7.2

Business overview

The Company is a regenerative medicine company with a technology platform positioned to address unmet medical needs in burn injuries, trauma injuries, chronic wound and dermatological and aesthetics indications. The Company’s patented and proprietary platform technology harnesses the regenerative properties of a patient’s own skin to help patients who have lost the outer layer of the skin (known as the epidermis) through injury, or have skin or skin cells that are otherwise defective.

The Company’s Spray-On Skin Cell suspension is an autologous cellular suspension comprised of the patient’s skin cells necessary to regenerate natural healthy epidermis. This autologous suspension is sprayed onto the areas of the patient requiring treatment.

The Company’s first product in the United States, the RECELL® System, was approved by the FDA in September 2018 for treatment of acute thermal burn injuries in patients 18 years and older. The RECELL System is used to prepare Spray-On Skin Cell suspension using a small amount of a patient’s own skin, providing a new way to treat severe burns that significantly reduces the amount of donor skin required.

The RECELL System is designed to be used at the point of care alone or in combination with autografts, depending on the depth of the burn injury.

Data from randomised, controlled clinical trials conducted at major burn centres in the United States and real-world use in more than 8,000 patients globally indicates that the RECELL® System is a significant advancement over the current standard of care for burn patients and offers benefits in clinical outcomes and costs savings.

The RECELL System is registered by the Therapeutic Goods Administration (TGA) in Australia for use in the treatment of burns, acute wounds, scars and vitiligo. In Europe, the RECELL System received “CE-Mark approval” (a term used by the European Union to certify that a product may be sold freely in any part of the European Economic Area) for the treatment of burns, chronic wounds, scars and vitiligo. However, virtually all of the Company’s revenue is derived from commercial sales in the United States.

 

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7.3

Market opportunity and competition

Market opportunity

As noted above, the Company is commercialising the RECELL System for the treatment of acute thermal burn injuries in patients 18 years and older. Acute thermal burns are life-threatening and debilitating injuries that are very expensive and complex to manage due to extended and costly hospitalisation, rehabilitation and scar treatment.

In the United States, the largest market for the treatment of burns, approximately 486,000 people seek treatment for burns each year. Of these, at least 40,000 have burn injuries severe enough to require in-patient treatment, and it is estimated that 3,800 people die from such injuries each year. The majority of patients treated on an in-patient basis in the United States are treated in specialised burn centres. Countries outside of the United States are smaller markets for the treatment of burns and the Company is therefore predominately focused on the United States market.

Burn treatment is dictated by the depth and extent of the injury, and deeper and more extensive injuries are most commonly treated with autologous split-thickness skin grafts (STSG) to achieve definitive closure of the burn wound. In a STSG, or autograft, the donor skin is harvested from a healthy part of the patient using a device called a dermatone. The donor skin is then transferred to the burn injury that has been prepared (debrided or cleaned).

Treatment with STSG creates additional trauma for the patient due to the harvesting of healthy donor skin. Although the use of STSG has been a standard treatment for more than 50 years, grafting is associated with significant pain, pruritus, infection, dyschromia, dyspigmentation, delayed healing and hypertrophic scarring of the donor site.

In large total body surface area (TBSA) injuries, the patient may not have enough donor skin available to allow for immediate treatment of the entire area of burn injuries with traditional grafting techniques. The lack of available healthy donor skin in patients with high TBSA burn injuries is often the central problem impacting time to autografting and definitive closure of the wounds. In severely burned patients, doctors often must wait until the donor sites have healed so that they can re-harvest from the site, resulting in delays in treatment and healing, requiring multiple procedures and extended hospital time. The overall cost of treatment with STSG is expensive; for example, in the United States, it costs approximately US$579,000 and involves 59.4 days in hospital for a patient with a 40% TBSA mixed or full-thickness burn.3

Trauma wounds (soft tissue injuries)

Examples of traumatic wounds include abrasions, lacerations, punctures, gunshot wounds, crush wounds, and degloving. Severe traumatic wounds may require surgical intervention to close the wound and stabilise the patient. The most common trauma injuries requiring autografting are degloving and lacerations. The RECELL System receives the most interest in connection with degloving and abrasion injuries. The harvesting and autografting procedures for trauma wounds are similar to the treatment of severe burn injuries, as are the limitations and shortcomings. Patients requiring autografting for trauma wounds are often treated in trauma centres in hospitals

 

 

3 

Stacey Kowel et al, ‘Cost-Effectiveness of the Use of Autologous Cell Harvesting Device Compared to Standard of Care for Treatment of Severe Burns in the United States’ (2019) 36(7) Advances in Therapy 1715, 1725.

 

57


by trauma surgeons, plastic surgeons and burn surgeons. Approximately half of the burn centres treating patients with severe burns requiring autografting in the United States are also trauma centres that treat trauma patients requiring autografting; therefore, the soft tissue injury market complements the Company’s commercialisation efforts related to the United States burn market.

The Company is presently conducting a clinical trial in pursuit of FDA approval for a soft tissue reconstruction authorisation.

Vitiligo and other dermatological indications

Vitiligo is a disease that causes the loss of skin pigmentation or colour in patches which tends to increase in size over time. The extent and rate of colour loss from vitiligo is unpredictable, can affect the skin on any part of the body and may also affect hair and the inside of the mouth. Non-segmental vitiligo is the most common variant, impacts the majority of patients and is characterised by symmetrical patches that appear on both sides of the body, as on hands and knees.

Vitiligo occurs when melanocytes, the pigment-producing skin cells, die or stop producing melanin, the pigment that gives skin, hair and eyes colour. Vitiligo is believed to be an autoimmune disorder in which a patient’s immune system attacks and destroys the melanocytes in the skin. It may also be caused by heredity factors or a triggering event, such as sunburn, stress or exposure to industrial chemicals.

Vitiligo affects people of all skin types, but it may be more noticeable in people with darker skin. The condition is not life-threatening or physically painful but can significantly alter physical appearance, have negative emotional and psychological consequences, and impair quality of life.

Vitiligo cannot be cured at present. However, the RECELL System has been used internationally in over 1,000 patients to improve pigmentation in patients suffering from vitiligo. In the United States, the Company is currently pursuing a feasibility study ahead of a potential registration study in vitiligo.

Competition

The RECELL System is the only product to be granted premarket approval by the FDA in over 20 years following the completion of two randomised controlled clinical studies. However, the medical device, biotechnology and pharmaceutical industries are intensely competitive and subject to significant technological change, together with changes in clinical and commercial practice. While the Company believes that its innovative technology, knowledge, experience and scientific resources provide it with competitive advantages, the Company faces competition from many different sources with respect to the RECELL System and any product candidates that the Company may seek to develop and commercialise in the future. Possible competitors may include (among others) medical device, pharmaceutical and wound care companies, academic and medical institutions, governmental agencies, medical practitioners, and public and private research institutions.

Any product that the Company successfully develops and commercialises will compete with existing therapies and new therapies that may become available in the future. In addition, in the treatment of acute burns, the Company faces competition from the current standard of care, primarily split-thickness autografts. Although the RECELL System is complementary with autografts for the treatment of many burn injuries, the Company faces competition from this traditional surgical procedure for many burn patients. However, based on its clinical trials, the Company believes that the RECELL System has sustainable competitive clinical and economic advantages over the current standard of care.

 

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7.4

Company’s issued securities

As at the date of this Scheme Booklet, the securities of the Company on issue are as follows:

 

Security

   Number  

Shares (including those represented by Company ADSs)

     2,133,434,899  

Options (with each Option entitling the holder to be issued one Share on exercise)

     125,994,582  

RSUs (with each RSU entitling the holder to be issued one Share on vesting)

     44,642,174  

Warrants (with each Warrant entitling the holder to be issued one Share on exercise)

     862,415  
  

 

 

 

Total

     2,304,934,070  
  

 

 

 

 

7.5

Company’s current group structure

The corporate structure of the Company and the Avita Group as at the date of this Scheme Booklet is provided at section 2.2 of this Scheme Booklet.

 

7.6

Board and senior management

Board

As at the date of this Scheme Booklet, the Board consists of the following persons:

 

   

Mr Lou Panaccio, Chair

 

   

Dr Michael Perry, CEO & Executive Director

 

   

Mr Jeremy Curnock Cook, Non-Executive Director

 

   

Prof. Suzanne Crowe, Non-Executive Director

 

   

Mr Louis Drapeau, Non-Executive Director

 

   

Mr Damien McDonald, Non-Executive Director

Further information about the Board, their experience and qualifications can be obtained by visiting the Company’s website (avitamedical.com/leadership). The security holdings that each Director has in the Company are detailed in section 12.1 of this Scheme Booklet.

 

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Senior management

As at the date of this Scheme Booklet, the senior management of the Company consists of the following persons:

 

   

Dr Michael Perry, CEO

 

   

David McIntyre, CFO

 

   

Erin Liberto, Chief Commercial Officer

 

   

Timothy Rooney, Chief Administrative Officer

 

   

Andrew Quick, Chief Technology Officer

 

   

Donna Shiroma, General Counsel

Further information about the senior management team of the Company can be obtained by visiting the Company’s website (avitamedical.com/leadership).

 

7.7

Financial information

The historical financial information for the Company is contained in the consolidated financial statements for the Company, copies of which can be found on the ASX’s website (www.asx.com.au) and the Company’s website (www.avitamedical.com/investors#investorResources).

Other than as disclosed in this Scheme Booklet, in the Company’s announcements to the ASX and NASDAQ, in its filings with the SEC and via the Company’s website, within the knowledge of the Board, the financial position of the Company has not materially changed since 31 December 2019, being the last half-year balance date of the Company’s financial statements in the Company’s most recent half-year financial report.

The Board considers that there are no reasonable grounds for including any financial information in this Scheme Booklet in light of the nature of the Proposed Transaction and the limited impact which the Proposed Transaction will have on the operations, assets and liabilities of the Company.

 

7.8

Other information about the Company

The Company is a “disclosing entity” for the purposes of the Corporations Act and is subject to regular reporting and disclosure obligations under the Corporations Act and the ASX Listing Rules. The Company is required to notify the ASX (subject to certain exceptions) immediately if it becomes aware of any information concerning the Company which a reasonable person would expect to have a material effect on the price or value of its securities. Following implementation of the Proposed Transaction, Avita US will be subject to the same disclosure and (subject to any waivers granted by ASX) reporting obligations under the ASX Listing Rules by virtue of its listing on the ASX.

The Company is also subject to reporting requirements under the US Exchange Act and is required to file annual, quarterly and current reports, proxy statements and other information with the SEC. Upon implementation of the Proposed Transaction, Avita US will become a successor to the Company’s registration under the US Exchange Act and will therefore be required to file such annual, quarterly and current reports, proxy statements and other information with the SEC.

Copies of announcements made by the Company to the ASX are available on the ASX website (www.asx.com.au).

 

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Further announcements concerning developments relating to the Company will continue to be made available on the ASX website after the date of this Scheme Booklet in accordance with the Company’s continuous disclosure obligations in Australia and periodic disclosure obligations in the United States.

In addition, Shareholders can obtain annual and half-yearly reports lodged by the Company with ASIC from ASIC, as well as any document filed by the Company with the SEC through the SEC website (www.sec.gov).

 

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8.

INFORMATION ABOUT AVITA US FOLLOWING IMPLEMENTATION OF THE PROPOSED TRANSACTION

 

8.1

Corporate overview

Avita US was incorporated on 17 April 2020 in Delaware in the United States, as a corporation under the DGCL.

Avita US was incorporated for the sole purpose of the Proposed Transaction. Consequently, Avita US has not conducted, and will not conduct, any business prior to the Implementation Date (whereupon it will become the ultimate holding company of the Company and its subsidiaries) other than entering into the agreements and performing the acts which are detailed in this Scheme Booklet. As Avita US is a newly formed entity, Avita US’s initial financial statements will be the Company’s historical financial statements.

As at the date of this Scheme Booklet, Avita US has the authority to issue 200,000,000 shares of voting common stock, par value $0.0001 per share (Common Stock), and 10,000,000 shares of preferred stock, par value $0.0001 per share (Preferred Stock). As at the date of this Scheme Booklet, no Avita US Shares or other securities have been issued by Avita US.

Avita US is not currently listed on any securities exchange. The Company will submit a company event form to NASDAQ for review in connection with the Company’s request to transfer the listing of the Company ADSs and quote the Avita US Shares on NASDAQ and Avita US will apply to be admitted to the official list of ASX, which forms part of the Conditions Precedent to completion of the Proposed Transaction. Avita US will also be registered in Australia as a foreign company under the Corporations Act.

If the Proposed Transaction is implemented, on the Implementation Date, all of the Avita US Shares will be owned by Eligible Shareholders (in the form of Avita US Shares or Avita US CDIs) in approximately the same proportions as the Eligible Shareholders’ existing holdings in the Company, subject to the Sale Facility aspect of the Proposed Transaction dealing with Fractional Shareholder Interests and Ineligible Shareholders (discussed at section 2.8 and section 11.5 of this Scheme Booklet).

 

8.2

Capital structure

The capital structure of Avita US immediately following implementation of the Proposed Transaction will be as set out in the following table.

 

Shares

  

Number

Avita US Shares of Common Stock    200,000,000 shares of common stock authorised, and estimated 21,334,349 outstanding4
Avita US Shares of Preferred Stock    10,000,000 shares of preferred stock authorised, and nil outstanding

 

4 

Subject to rounding in connection with the Sale Facility aspect of the Proposed Transaction dealing with Fractional Shareholder Interests and Ineligible Shareholders (discussed at section 2.8 and section 11.5 of this Scheme Booklet).

 

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Please refer to section 12.6 of this Scheme Booklet for further information regarding the number of Avita US Shares that may be issued to holders of Options, RSUs and Warrants in Avita US upon exercise or vesting (as applicable) after implementation of the Proposed Transaction.

 

8.3

Choice of jurisdiction

The Board considers that the State of Delaware is an appropriate jurisdiction for the domicile of Avita US. More than 50% of all publicly-traded companies in the United States, including more than 60% of the Fortune 500, are incorporated in Delaware. In addition, Delaware provides a well-developed body of law defining the fiduciary duties and decision-making processes expected of boards of directors in a variety of contexts, including evaluating potential and proposed corporate takeover offers and business combinations.

As the Company’s aim is to redomicile the Avita Group to the United States and obtain the advantages of Avita US being a United States company, Avita US has adopted a customary form of by-laws for a Delaware corporation, which it believes is appropriate for a NASDAQ listed company. A description of a number of the key differences between the Australian and Delaware corporate legal regimes and their implications for stockholders of Avita US is set out at Annexure G of this Scheme Booklet.

 

8.4

Corporate governance and structure

As a Delaware entity listed on NASDAQ, Avita US will adopt corporate governance policies and new board committee charters in line with NASDAQ listing standards. Avita US intends to adopt the same policies and charters as are currently in effect for the Company, with such changes as are necessary for Avita US to comply with the rules applicable to United States companies listed on NASDAQ.

Pursuant to the NASDAQ Listing Rules, Avita US will establish and adopt charters for its Audit Committee and Nominating and Governance Committee. Avita US will also establish a Compensation Committee, the main functions of which are to review, approve and recommend the base salary, equity-based incentives and short-term incentive compensation for executive officers, approve all long-term equity incentives to employees, review Avita US’s cash and stock-based incentive compensation plans to assess their effectiveness in meeting Avita US’s goals and objectives and take other actions to meet its responsibilities as set out in its written charter. Avita US may adopt other charters and policies as the Avita US Board determines is necessary or appropriate.

Avita US is committed to ensuring that its corporate governance systems comply with statutory and stock exchange requirements and to maintaining its focus on transparency, responsibility and accountability.

 

8.5

Directors and management structure

On the Implementation Date, the Avita US Board and senior management will be the same as currently exists for the Company.

 

8.6

Dividend policy

The Avita US Board will review the amount of any future dividends that may be paid having regard to Avita US’s profits, its financial position and the Avita US Board’s assessment of the capital required to grow the business of the Avita Group.

 

 

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8.7

Avita US’s intentions for the business, assets and employees of the Company

 

  (a)

Listing on NASDAQ and the ASX

Broadly speaking, if the Proposed Transaction is implemented, the existing listing of the Company on the ASX (as its primary listing) and on NASDAQ (as its secondary listing) will be replaced with a new listing of Avita US on NASDAQ (as its primary listing) and on the ASX (as its secondary listing). In particular, this means that the Company will be removed from the official lists of the ASX and NASDAQ and, contemporaneously, Avita US will be listed on NASDAQ (as its primary listing) and on the ASX (as its secondary listing).

 

  (b)

Avita US’s assets, business and operations

On and from the Implementation Date, the assets, business and operations of the Company will be unchanged, and the Avita US Board intends to continue the business and principal activities of the Avita Group as they were conducted prior to the Implementation Date, in a manner consistent with past practice. In particular, the Avita US Board intends to continue the employment of its current employees, without any major change or amendment (although the Avita US Board may undertake a review of the Avita Group after the Implementation Date to consider whether there are appropriate measures required to streamline its operations and structure further). All of the Avita Group’s operations are located in the United States and that will be unchanged from the Implementation Date. Notwithstanding the above, current and future economic, market and business conditions may cause the Avita US Board to make changes that it considers necessary and in the interests of its stockholders.

Further information on the Avita Group’s business plans and strategy can be found in the various announcements made by the Company on the ASX website (www.asx.com.au) and filings made by the Company with the SEC (www.sec.gov).

 

  (c)

Status of the Company

On and from the Implementation Date, Avita US will own all of the Shares, and the Company will become a wholly-owned subsidiary of Avita US.

Shortly after the Implementation Date, Avita US expects to pass a special resolution to convert the Company from a public company to a proprietary company limited by shares and to lodge all necessary documentation with ASIC to give effect to that conversion.

No winding up, merger or liquidation of the Company, nor any transfer of material assets from the Company to Avita US or any other member of the Avita Group, is currently contemplated.

 

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9.

IMPLICATIONS OF AVITA US BEING A UNITED STATES INCORPORATED COMPANY

 

9.1

The listing of Avita US on the ASX and NASDAQ

The Conditions Precedent to the Proposed Transaction include the approval by:

 

   

ASX to the admission of Avita US to the official list of ASX and to the quotation of the Avita US CDIs on the ASX; and

 

   

NASDAQ to the listing of Avita US on NASDAQ and to the quotation of the Avita US Shares on NASDAQ.

In connection with the above:

 

   

Avita US will apply to ASX for admission to the official list of ASX as a standard ASX listing and for official quotation of the Avita US CDIs on the ASX within seven days after the date of this Scheme Booklet;

 

   

subject to Avita US fulfilling all of the listing requirements of ASX and the Scheme being Effective, it is currently anticipated that on or about 24 June 2020, Avita US will be admitted to the official list of ASX and the Avita US CDIs will commence trading on the ASX on a deferred settlement basis. Normal settlement trading of the Avita US CDIs on the ASX is then expected to commence on 30 June 2020; and

 

   

subject to Avita US fulfilling all of the listing requirements of NASDAQ and the Scheme being Effective, trading of the Avita US Shares on NASDAQ is expected to commence shortly after the Implementation Date.

 

9.2

Differences between the laws of Australia and the laws of Delaware/the United States

As the Company is incorporated under the laws of Australia, it is subject to, and the rights and obligations attaching to the Shares are governed by, the laws of Australia and the Constitution. The Company is also subject to the ASX Listing Rules and the NASDAQ Listing Rules by virtue of its listing on the ASX and NASDAQ.

As Avita US is incorporated under the laws of Delaware in the United States, it is subject to, and the rights and obligations attaching to the Avita US Shares are governed by, United States/Delaware law, Avita US’s certificate of incorporation and by-laws, the NASDAQ Listing Rules (upon listing on NASDAQ) and the federal securities laws of the United States. As a result of Avita US’s secondary listing on the ASX and its registration as a foreign company in Australia in connection with the Proposed Transaction, Avita US will also be subject to the ASX Listing Rules and certain provisions of the Corporations Act that are applicable to registered foreign companies in Australia (see section 9.5 of this Scheme Booklet).

There are a number of differences between the laws governing the Company’s securities and those that will govern Avita US’s securities, some of which could be viewed as advantageous to Shareholders, while others could be viewed as disadvantageous. For example, Australia’s takeover laws will not apply to Avita US. Instead, United States takeover laws will apply to Avita US and its securities. Appendix G of this Scheme Booklet sets out a comparative table of a number of the major differences between relevant corporate laws of Australia and the United States (including takeover laws).

If Shareholders would like to read Avita US’s certificate of incorporation or by-laws or the Constitution, copies can be obtained free of charge by writing to the company secretary of the relevant company. In addition, the Constitution has been filed as an exhibit to the Company’s Form 20-F Annual Report for the financial year ended 30 June 2019, filed with the SEC on 31 October 2019. If the Scheme is implemented, Avita US’s certificate of incorporation and by-laws will be publicly filed with the SEC at the time of implementation of the Scheme.

 

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9.3

The rights attaching to Avita US Shares

This section provides an outline of the rights attaching to Avita US Shares, which are described in greater detail in Appendix G of this Scheme Booklet.

 

  (a)

Annual meetings

A meeting of Avita US Shareholders for the election of directors and to transact other business must be held annually at such time as may be designated by the Avita US Board.

 

  (b)

Right to bring a resolution before a meeting

Special meetings of Avita US Shareholders may be called by the Avita US Board, the Chair of the Avita US Board, the CEO or Avita US Shareholders holding at least 25% of the then-outstanding shares of Avita US’s voting stock, at such time and for such purpose as the persons calling the meeting shall see fit.

 

  (c)

Number and election of directors

The number of directors of Avita US must not be less than one. Subject to ASX granting the waiver referred in section 12.9 of this Scheme Booklet to allow plurality of voting (which it has indicated that it will grant on receipt of Avita US’s application to be admitted the official list of ASX), the directors will be elected at the annual meeting of Avita US Shareholders by either a plurality of the votes cast in a contested election or by a majority of the votes cast in an uncontested election. Plurality voting provides that each candidate for a particular board seat is elected if he or she receives the most votes in favour for such director for that board seat.

 

  (d)

Removal of directors

Any director or the entire Avita US Board may be removed, with or without cause, by the holders of a majority of Avita US Shareholders then entitled to vote at an election of directors.

 

  (e)

Amendments to constituent documents

Avita US’s certificate of incorporation may be adopted, amended or repealed by the affirmative vote of a majority of the voting power of all of the then-outstanding Avita US Shares entitled to vote. Avita US’s by-laws may be adopted, amended or repealed by at least 66 2/3% of the voting power of all of the then-outstanding Avita US Shares entitled to vote generally in the election of directors, voting together as a single class. The Avita US Board may also amend the by-laws of Avita US.

 

  (f)

Voting and quorum

Avita US Shareholders are entitled to one vote for each Avita US Share on all matters voted on by Avita US Shareholders, including the election of directors. Avita US’s by-laws provide that the holders of a majority of Avita US Shares entitled to vote at the meeting, present in person or represented by proxy, will constitute a quorum for the transaction of business, unless or except to the extent that the presence of a larger number may be required by law or by the NASDAQ Listing Rules.

 

  (g)

Dividends

Avita US Shareholders are entitled to receive dividends when and as declared by the Avita US Board out of funds legally available for that purpose; provided, however, that any dividend on Avita US Shares that is payable in common stock must be paid only in common stock.

 

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  (h)

Transfer of Avita US Shares

Subject to applicable securities laws, Avita US Shares are deemed personal property and are freely transferable.

 

  (i)

Variation of rights attaching to Avita US Shares

Under the DGCL, a variation of rights attached to Avita US Shares would require an Avita US Board resolution recommending an amendment to Avita US’s certificate of incorporation and the approval of a majority of the outstanding shares of common stock entitled to vote and a majority of the outstanding shares of each class entitled to vote.

 

  (j)

Winding up

Avita US Shareholders do not have any conversion, redemption or pre-emptive rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of Avita US, Avita US Shareholders will be entitled to receive all of the remaining Avita US assets available for distribution to Avita US Shareholders, pro rata in proportion to the number of common stock held by them.

 

9.4

Changes in financial reporting and reporting obligations

As discussed in more detail in section 6.1 of this Scheme Booklet, the Company currently has dual financial reporting obligations in Australia and the United States, and currently must prepare two sets of financial statements, one under applicable Australian law (in accordance with AIFRS) and another under applicable United States law (in accordance with US GAAP). If the Proposed Transaction is successful, the Company will only have to prepare one set of financial statements under the applicable laws of one jurisdiction (being the United States) in accordance with one set of accounting principles (being US GAAP).

The Board believes that there is no material difference in reported results under the different sets of financial statements and that Shareholders who currently rely on the Company’s financial statements prepared in accordance with AIFRS will continue to understand the content of Avita US’s financial statements when prepared solely in accordance with US GAAP.

Financial reporting under US GAAP will be similar to that under AIFRS, although several items would be classified differently and the required reporting timetable would be different. In fact, after implementation of the Proposed Transaction (or, if not implemented, but as a result of the Company no longer qualifying as a foreign private issuer), the level of financial disclosure will increase with the addition of detailed quarterly financial reports reported on Form 10-Q under United States law (that are currently not otherwise required).

Shareholders should refer to Appendix H of this Scheme Booklet, which provides a comparison of the financial reporting requirements in Australia and the United States.

On and following implementation of the Proposed Transaction, it is also the Company’s intention to change its financial year end from 30 June to 31 December, to align with that of Avita US and other typical United States corporations listed on NASDAQ.

 

9.5

Consequences of being a registered foreign company in Australia

Avita US will be registered as a foreign company in Australia pursuant to Part 5B.2 of the Corporations Act. Accordingly, in addition to the laws and regulations set out elsewhere in this section, Avita US will also be subject to the provisions of Part 5B.2 of the Corporations Act.

 

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The key obligations that will be imposed on Avita US as a registered foreign company in Australia are:

 

  (a)

Avita US must display its name and place of origin, in a conspicuous position in legible characters, outside every office and place of business of Avita US in Australia that is open and accessible to the public, as well as the expression “Limited” or “Ltd” if the liability of its members is limited;

 

  (b)

Avita US must always have a local agent;

 

  (c)

Avita US is required to lodge financial statements with ASIC at least once every calendar year (which will be prepared in accordance with US GAAP) and at intervals of not more than 15 months;

 

  (d)

Avita US may cause a branch register of members to be kept in Australia. If such a register is kept, Avita US must keep the register in the same manner as set out in sections 168 and 169 of the Corporations Act; and

 

  (e)

Avita US must notify ASIC within one month after a change in:

 

  (i)

its by-laws;

 

  (ii)

its directors;

 

  (iii)

the powers of any directors who are resident in Australia and members of an Australian board of directors;

 

  (iv)

its local agent;

 

  (v)

the name or address of its local agent; or

 

  (vi)

the situation of:

 

  a.

its registered office (for the purposes of a foreign law); or

 

  b.

its principal place of business in its place of origin.

As a foreign entity in Australia, Avita US will not be subject to Chapters 6, 6A, 6B and 6C of the Corporations Act dealing with the acquisition of shares (for example, substantial holdings and takeovers). However, consistent with Avita US’s application for admission to the official list of ASX, Avita US will undertake to inform the ASX upon becoming aware of:

 

   

any person becoming a substantial holder of Avita US within the meaning of section 671B of the Corporations Act, and to disclose any details of the substantial holding of which Avita US is aware; and

 

   

any subsequent changes in the substantial holdings of Avita US of which Avita US is aware.

The insider trading provisions under the Corporations Act will also apply to Avita US for any acts or omissions within Australia in relation to ‘Division 3 financial products’ (regardless of where the issuer of the products is formed, resides or is located and of where the issuer carries on business). The Avita US CDIs will constitute ‘Division 3 financial products’ and, as such, Avita US will be subject to the insider trading provisions under the Corporations Act in relation to the Avita US CDIs traded on the ASX.

 

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10.

TAXATION IMPLICATIONS FOR SHAREHOLDERS AND ADS HOLDERS

This section provides a general summary of the tax implications for certain Shareholders (and ADS Holders) as at the Record Date, as a result of the Proposed Transaction being implemented. The information in this section is general in nature and does not take into account the individual circumstances of Shareholders or ADS Holders. As such, it is not intended to be, nor should it be, construed as legal or tax advice to any Shareholder or ADS Holder. The Company recommends that Shareholders and ADS Holders consult a professional tax advisor in respect of the tax and reporting consequences that may arise from the implementation of the Proposed Transaction, as these may vary in accordance with their individual circumstances.

The Australian, United States and Hong Kong tax comments provided below are based on current taxation law, existing judicial interpretations thereof and administrative practices of Australian, the United States and Hong Kong revenue authorities as at the date of this Scheme Booklet. Shareholders and ADS Holders should appreciate that the tax law and administrative practices of revenue authorities are frequently being changed, both prospectively and retrospectively. No assurance can be given that any of the foregoing authorities will not be modified, revoked, supplemented, revised or overruled, or that any such change will not adversely affect the tax consequences addressed herein. This Scheme Booklet does not address changes in the taxation law after the date of this Scheme Booklet.

Based on current shareholder information, the majority of the Shareholders are residents of Australia, the United States or Hong Kong. Below is a broad summary of the potential tax implications for Shareholders and ADS Holders that are resident of these aforementioned jurisdictions. This Scheme Booklet does not take into account the taxation consequences for Shareholders or ADS Holders who are residents of countries other than Australia, the United States and Hong Kong.

 

10.1

Australian tax implications of the Proposed Transaction

The summary below is intended to provide a general overview of the Australian income tax, GST and stamp duty implications arising from the Proposed Transaction for Shareholders and ADS Holders.

The Company has sought an ATO Class Ruling to confirm that Australian resident Shareholders who hold their Shares on capital account and make a capital gain from the exchange of their Shares for Avita US Shares or Avita US CDIs under the Scheme and Australian resident ADS Holders who hold their Company ADSs on capital account and make a capital gain from the ADS Depositary exchanging the Shares it holds for the account of ADS Holders for Avita US Shares received under the Scheme in accordance with the terms of the depositary arrangements between the ADS Depositary and the ADS Holders will be eligible to choose full or partial scrip for scrip roll-over under paragraph 124-780(3)(d) of Income Tax Assessment Act 1997. The ATO Class Ruling, when issued, will be available to view via the website of the ATO (www.ato.gov.au) and, following completion of the Scheme, on the Company’s website (www.avitamedical.com).

 

  (a)

Australian resident Shareholders and ADS Holders

 

  i.

Capital Gains Tax (CGT)

Where an Australian resident Shareholder or ADS Holder holds Shares or Company ADSs (as applicable) on capital account, a CGT event will occur when the Shares or Company ADSs are exchanged for Avita US CDIs or Avita US Shares respectively under the Proposed Transaction as described in section 2.6 and section 11.4 of this Scheme Booklet.

 

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Subject to the availability of rollover relief (detailed below) any Australian resident Shareholder or ADS Holder will make a capital gain to the extent that the capital proceeds received for the Shares (including those Shares represented by the Company ADSs) exceed their cost base.

Alternatively, an Australian resident Shareholder or ADS Holder will make a capital loss to the extent that their capital proceeds from the Shares (including those Shares represented by the Company ADSs) are less than the reduced cost base of those Shares or Company ADSs.

Under the Australian CGT provisions, the capital proceeds for the Shares or Company ADSs will be the market value of the Avita US CDIs or Avita US Shares received by Shareholders or ADS Holders on the Implementation Date.

 

  ii.

The availability of scrip for scrip rollover relief

The Company has lodged a request for an ATO Class Ruling to confirm that full or partial scrip for scrip roll-over relief will be available for Australian resident Shareholders and ADS Holders who hold their Shares or Company ADSs (as applicable) on capital account and make a capital gain from the Proposed Transaction. The Company expects that the ATO Class Ruling will confirm that the aforementioned Australian resident Shareholders and ADS Holders will be eligible to choose scrip for scrip roll-over to disregard any capital gain, to the extent that the capital gain is attributable to the Shares or Company ADSs for which they receive replacement Avita US CDIs or Avita US Shares (including by delivery of such Avita US Shares to the ADS Holders by the ADS Depositary). Any capital gain attributable to the cash received in relation to the fractional entitlements will be taxable. The Class Ruling will confirm the following Australian tax implications.

 

   

An Australian resident Shareholder or Australian resident ADS Holder who holds the Shares or Company ADSs on capital account and makes a capital gain from the disposal of the Shares or Company ADSs in exchange for Avita US CDIs or Avita US Shares under or in connection with the Scheme will be eligible to choose full or partial scrip for scrip rollover relief pursuant to Subdivision 124-M of the Income Tax Assessment Act 1997.

 

   

Full scrip for scrip roll-over will be available for an Australian resident Shareholder or ADS Holder who receives Scheme Consideration (in the case of ADS Holders through the ADS Depositary) solely in the form of Avita US Shares or Avita US CDIs.

 

   

To the extent that the Fractional Shareholders who are Australian resident also receive cash from the Sale Agent in lieu of their fractional entitlements to Avita US Shares or Avita US CDIs, then only a partial roll-over will be available. The roll-over will only be available to the extent of the value of the Avita US Shares or Avita US CDIs received. Any capital gain that is referable to the receipt of cash will not be disregarded under the roll-over and will give rise to a capital gain or loss as appropriate.

 

   

For completeness, a Small Shareholder who only receives cash consideration will not be eligible for scrip for scrip roll-over and will recognise a taxable capital gain or loss to the extent of the cash consideration received.

 

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There are no formal requirements for a Shareholder or ADS Holder to follow if they elect for scrip for scrip roll-over to apply. Rather, the ATO considers that the Shareholder or ADS Holder has made an election of this nature where the tax return for the relevant entity / individual is completed on the basis that scrip for scrip rollover has been applied.

 

  iii.

Consequences if scrip for scrip rollover relief is chosen

Where an Australian resident Shareholder or ADS Holder chooses to apply scrip for scrip roll-over to any capital gain made on the exchange of their Shares or Company ADSs (in the case of ADS Holders through the ADS Depositary) for Avita US CDIs or Avita US Shares pursuant to the Scheme, the Australian resident Shareholder or ADS Holder can disregard the capital gain.

For the purpose of determining whether a subsequent disposal of the Avita US Shares or Avita US CDIs by an Australian resident Shareholder or ADS Holder can qualify as a discounted capital gain for Australian CGT purposes, the acquisition date of the Avita US CDIs or Avita US Shares will be the date on which the Australian resident Shareholder or ADS Holder acquired the Shares or Company ADSs that were subsequently exchanged (in the case of ADS Holders through the ADS Depositary) for Avita US Shares or Avita US CDIs.

To the extent that an Australian resident Shareholder or ADS Holder qualifies for full scrip for scrip roll-over relief, the first element of the cost base and reduced cost base of the Avita US Shares or Avita US CDIs received (in the case of ADS Holders through the ADS Depositary) will be worked out by reasonably attributing the cost base and reduced cost base of the original Company ADSs or Shares which were exchanged and for which rollover relief was obtained, taking into account any variances in the number of shares subsequently held.

To the extent that an Australian resident Shareholder that is a Fractional Shareholder qualifies for partial scrip for scrip roll-over relief, the cost base and reduced cost base of the Shares or Company ADSs will be apportioned between the Avita US Shares or Avita US CDIs received and the cash received in lieu of their fractional entitlements.

 

  iv.

Consequences if scrip for scrip rollover relief is not chosen

An Australian resident Shareholder or ADS Holder who does not choose rollover, or cannot choose rollover, must take into account any capital gain or capital loss from the disposal of the Shares or Company ADSs in working out their net capital gain or net capital loss for the income year in which the CGT event occurs. This may occur, for example, because a capital loss arises at the time that a Shareholder or ADS Holder disposes of the Shares or Company ADSs.

Where an Australian resident Shareholder or ADS Holder makes a capital gain and rollover is not chosen or cannot be chosen, they may be entitled to a CGT discount as outlined below. In order to be entitled to a discounted gain, an Australian resident Shareholder or ADS Holder must have held their interest in the Shares or Company ADSs for at least 12 months. Under the discount CGT provisions, a Shareholder or ADS Holder who is an Australian resident individual or the trustee of a trust can obtain a 50% discount on any realised capital gain. Where the Shareholder or ADS Holder is a qualifying Australian superannuation fund, a discount of 33 1/3% is available. A CGT discount is not available to companies.

 

71


To the extent that a capital loss is made, scrip for scrip rollover relief will not be available. Instead, a capital loss is treated as arising at the time of the disposal of the Shares or Company ADSs. This capital loss could be utilised to offset a capital gain derived by an Australian resident Shareholder or ADS Holder in that or later income years (subject to satisfying certain conditions). However, this capital loss cannot be offset against ordinary income, nor be carried back to offset net gains arising in earlier income years.

 

  v.

Where shareholding interests are held as trading stock or on revenue account

Australian resident Shareholders or ADS Holders that hold their interests as either trading stock or on revenue account will not be eligible for scrip for scrip rollover relief.

Any gain or loss made on the disposal of the Shares or Company ADSs will be included in the assessable income of the Australian resident Shareholder or ADS Holder. The gain is calculated as the market value of the Avita US CDIs or Avita US Shares received (in the case of ADS Holders through the ADS Depositary) less the cost of the Shares or Company ADSs.

The tax cost base of the Avita US Shares or Avita US CDIs received from the transfer should be its market value at the time that the Scheme is implemented.

 

  vi.

GST

No GST should be payable in respect of the disposal of the Shares or Company ADSs and the issuance of Avita US Shares or Avita US CDIs.

Shareholders or ADS Holders registered for GST are recommended to seek their own advice to determine whether they will be entitled to claim input tax credits for GST incurred on costs (such as brokerage or advisory fees) associated with the Proposed Transaction.

 

  vii.

Stamp duty

No Australian stamp duty will be payable by the Shareholders and ADS Holders in respect of the Proposed Transaction on the basis neither the Company nor Avita US will hold any material land or interests in land in any State or Territory of Australia (nor have entered into any agreements to acquire land in any State or Territory of Australia at that time).

 

  (b)

Non-Australian resident Shareholders and non-Australian resident ADS Holders

The content that follows is intended to summarise the Australian income tax, GST and stamp duty implications that may arise for Shareholders or ADS Holders that are non-residents for Australian tax purposes.

 

  i.

CGT

Where a non-Australian resident Shareholder or ADS Holder holds the Shares or Company ADSs on capital account, a disposal should prima facie trigger a CGT event.

Notwithstanding this, under Australia’s non-resident CGT rules, a capital gain or loss made by a non-resident from a CGT event will be disregarded where the asset is not taxable Australian property for Australian income tax purposes.

 

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The Shares or Company ADSs will be considered to be taxable Australian property only if:

 

  1

The Shares or Company ADSs are an “indirect Australian real property interest”. This means that:

 

   

more than 50% of the market value of the Company’s underlying assets (including underlying direct and indirect assets and investments of its associates and group entities) constitute Taxable Australian Real Property; and

 

   

the non-resident Shareholder or ADS Holder and their respective associates collectively hold a 10% or more interest in the Company at the time of disposal or for 12 months that began no earlier than 24 months before the disposal; or

 

  2

The relevant Shareholder or ADS Holder uses the Shares or Company ADSs at any time in carrying on a business through a permanent establishment in Australia.

The Shares or Company ADSs should not be considered an “indirect Australian real property interest” for Australian income tax purposes on the basis that there are no material Australian real property interests disclosed in the Company’s financial statements.

Accordingly, any capital gain or loss made by a non-resident Shareholder or ADS Holder on the disposal of the Shares or Company ADSs will be disregarded, unless used by the Shareholder or ADS Holder in carrying on a business through a permanent establishment in Australia.

 

  ii.

Rollover relief where non-resident holds Shares or Company ADSs through an Australian permanent establishment

A non-Australian resident Shareholder or ADS Holder who holds Shares or Company ADSs on capital account through an Australian permanent establishment, to the extent that any capital gain arises, will generally be eligible for scrip for scrip rollover relief to disregard the capital gain in the same way as an Australian resident Shareholder or ADS Holder will be eligible for scrip for scrip rollover. Please refer to section 10.1(a) for the application of the scrip for scrip rollover relief.

 

  iii.

Where interests are held as trading stock or on revenue account

Non-Australian resident Shareholders or ADS Holders who hold their Shares or Company ADSs as either trading stock or on revenue account, will not be eligible for rollover relief. Any gain derived by a non-Australian resident Shareholder or ADS Holder in association with the Scheme would be characterised as ordinary income and subject to Australian income tax if the gain from the transfer is Australian sourced. Given the exchange involves the transfer of Shares or Company ADSs in an Australian company and will take place under a scheme of arrangement governed by the Corporations Act, there is a material risk that the gain would be Australian sourced pursuant to the reasoning of the Full Federal Court of Australia in Commissioner of Taxation v Resource Capital Fund IV LP [2019] FCAFC 51 and therefore subject to Australian tax.

Non-Australian resident Shareholders or ADS Holders may be entitled to relief under the business profits article of a relevant Double Tax Agreement or another exemption (such as the Investment Manager Regime, as defined under subdivision 842-I of Income Tax Assessment Act 1997).

 

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  iv.

GST

The GST implications are the same as outlined at 10.1(a)(vi) above, however it is likely that the majority of related professional services (e.g. brokerage etc.) provided to non-Australian resident Shareholders and non-Australian resident ADS Holders would not be subject to GST.

 

  v.

Stamp duty

The Australian stamp duty implications are the same as outlined at 10.1(a)(vii).

 

10.2

United States Federal Taxation Implications

The following is a summary of certain material United States federal income tax consequences of the Scheme. This discussion is based in part upon the assumption that each obligation in the ADS Depositary’s deposit agreement with the ADS Holders and any related agreements will be performed according to its terms.

The following summary assumes the Scheme will be consummated as described in this Scheme Booklet, and applies only to Shareholders and ADS Holders that hold their Shares or Company ADSs, and that will hold their Avita US CDIs and Avita US Shares received respectively pursuant to the Scheme, as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This summary does not address all aspects of United States federal income taxation that may be relevant to a Shareholder or ADS Holder in light of such Shareholder’s or ADS Holder’s particular circumstances, including any tax consequences arising under the Medicare contribution tax on net investment income, the alternative minimum tax, or to any Shareholder or ADS Holder subject to special treatment under the Code, including, but not limited to:

 

   

a person who directly, indirectly or constructively owns 10 percent or more of the Shares and/or Company ADSs;

 

   

financial institutions or broker-dealers;

 

   

mutual funds;

 

   

tax-exempt organisations (including private foundations);

 

   

insurance companies;

 

   

dealers in securities or foreign currencies;

 

   

traders in securities who elect to use a mark-to-market method of accounting;

 

   

controlled foreign corporations and their shareholders, or any foreign corporation with respect to which there are one or more “United States shareholders” within the meaning of Section 951(b) of the Code;

 

   

passive foreign investment companies and their shareholders;

 

   

United States expatriates and certain former United States citizens or long-term residents;

 

   

“S” corporations, partnerships and their partners, or other entities or arrangements classified as partnerships for United States federal income tax purposes, grantor trusts, or other passthrough entities (and investors therein);

 

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Shareholders who acquired their Shares or ADS Holders who acquired their Company ADSs through the exercise of options or otherwise as compensation;

 

   

Shareholders who hold their Shares or ADS Holders who hold their Company ADSs (or Avita US Shares or Avita US CDIs after the Scheme) as part of a hedge, straddle, constructive sale, conversion transaction, or other integrated transaction for United States federal income tax purposes;

 

   

a person that is or may have been liable for alternative minimum tax;

 

   

regulated investment companies;

 

   

real estate investment trusts;

 

   

investors subject to special tax accounting rules as a result of any item of gross income with respect to the ADSs or common stock being taken into account in an applicable financial statement; or

 

   

Shareholders or ADS Holders that have a functional currency other than the United States dollar.

In addition, this summary does not address any aspect of foreign (except as otherwise provided herein) state, local, alternative minimum, estate, gift or other tax law that may be applicable to a holder. This summary is intended to provide only a general summary of certain material United States federal income tax consequences of the Scheme to holders of Shares or Company ADSs. The United States federal income tax laws are complex and subject to varying interpretation. Accordingly, the United States Internal Revenue Service (IRS) may not agree with the tax consequences described in this Scheme Booklet, and there is no assurance that the IRS’s position would not be sustained in a court. Shareholders and ADS Holders should consult their own tax advisor regarding the United States federal, state, local, non-US and other tax consequences to them of the receipt of Avita US Shares and Avita US CDIs in exchange for the Company ADSs or Shares pursuant to the Scheme and the ownership and disposition thereof.

For purposes of this summary, a “United States Shareholder” includes a beneficial owner of Shares or Company ADSs that is, for United States federal income tax purposes:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation, created in, or organised under the laws of, the United States or any state thereof or the District of Columbia;

 

   

an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source; or

 

   

a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (B) that has made a valid election to be treated as a United States person under the Code.

If a partnership (or other entity treated as a “tax transparent” entity for United States tax purposes) is the beneficial owner of Shares or Company ADSs, the tax treatment of a partner in the partnership (or interest holder in the “tax transparent” entity) will generally depend on the status of the partner (or interest holder) and the activities of the partnership (or “tax transparent” entity). In general, for United States federal income tax purposes, United States Shareholders of Company ADSs will be treated as the beneficial owners of the underlying Shares represented by the Company ADSs.

 

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A Non-US Shareholder is a beneficial owner (other than a partnership) of Shares or Company ADSs that is not a United States Shareholder (defined above). The following summary assumes that a Non-US Shareholder does not have a trade or business (or permanent establishment) in the United States.

As holders of Company ADSs are treated as the beneficial owners of the underlying Shares represented by the Company ADSs, we refer to holders of both Shares and Company ADSs as Shareholders for purposes of the discussion that follows.

 

10.2.1

 Material United States Federal Income Tax Consequences of the Scheme

The exchange of Shares or Company ADSs for Avita US CDIs or Avita US Shares, respectively, pursuant to the Scheme, is intended to be treated as a transfer to which Section 351 of the Code applies and/or as a reorganisation described in Section 368(a) of the Code in which no gain or loss is recognised to the Company, Avita US, United States Shareholders or Non-US Shareholders. This summary assumes that the exchange of Shares or Company ADSs for Avita US CDIs or Avita US Shares, respectively, pursuant to the Scheme will be treated as a transfer to which Section 351 of the Code applies and/or a reorganisation described in Section 368(a) of the Code.

 

  (a)

United States Shareholders

 

  i.

Passive Foreign Investment Company

The Code provides special, generally adverse, rules regarding sales, exchanges and other dispositions of the stock of a passive foreign investment company (PFIC). A foreign (non-US) corporation will be treated as a PFIC for any taxable year if at least 75% of its gross income for the taxable year is passive income or at least 50% of its gross assets during the taxable year, based on a quarterly average and generally by value, produce or are held for the production of passive income. Passive income for this purpose generally includes, among other things, dividends, interest, rents, royalties, gains from commodities and securities transactions and gains from assets that produce passive income. In determining whether a foreign corporation is a PFIC, a pro-rata portion of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.

Depending upon the value and the nature of the Company’s assets and income over time, the Company could be classified as a “passive foreign investment company”, or “PFIC”, for United States federal income tax purposes. Based on the Company’s income and assets, the Company does not believe that it has been a PFIC and does not presently expect to be a PFIC for the current taxable year for United States federal income tax purposes. Since PFIC status is a factual determination made annually after the end of each taxable year, including ascertaining the fair market value of the Company’s assets on a quarterly basis and the character of each item of income the Company earns, the Company can provide no assurance that it will not be a PFIC for the current taxable year (prior to the Scheme). The below discussion assumes the Company is not, will not be, and has not been a PFIC at any point prior to the completion of the Scheme.

Upon the completion of the Scheme, the Company expects that the PFIC regime and associated implications discussed above will no longer be relevant to the Avita United States Shareholders. This is because United States Shareholders will then directly own Avita US Shares or Avita US CDIs in Avita US, which will be treated as a United States corporation and therefore not subject to the PFIC rules. Furthermore, PFIC status of any of the Avita US non-US subsidiaries could only be attributed to any of the United States Shareholders if such shareholder owned 50 percent or more of the outstanding Avita US Shares (including those Avita US Shares represented by Avita US CDIs), which is not expected to occur.

 

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  ii.

Exchange of Shares or Company ADSs for Avita US CDIs or Avita US Shares

A United States Shareholder will generally not recognise any gain or loss on the exchange of Shares or Company ADSs for Avita US CDIs or Avita US Shares, respectively, except that United States Shareholders that are Fractional Shareholders (which includes Small Shareholders) who receive cash in lieu of Avita US Shares or Avita US CDIs pursuant to the Scheme may recognise a gain or loss, if any, to the extent of the cash consideration only.

 

  iii.

Receipt of Avita US Shares or Avita US CDIs

United States Shareholders will have an aggregate adjusted United States federal tax basis in the Avita US Shares or Avita US CDIs received pursuant to the Scheme equal to their aggregate adjusted United States federal tax basis in the Company ADSs or Shares surrendered. Thus, to the extent a United States Shareholder has a loss in its Company ADSs or Shares, such loss generally will be preserved. The holding period for Avita US Shares or Avita US CDIs received pursuant to the Scheme will generally include the holding period of Company ADSs or Shares surrendered pursuant to the Scheme.

United States Shareholders who are Fractional Shareholders and who receive cash in lieu of fractional Avita US Shares or Avita US CDIs pursuant to the Scheme will generally be treated as having received such fractional Avita US Shares or Avita US CDIs, and then having received cash in exchange for such fractional Avita US Shares or Avita US CDIs. Any such United States Shareholder will generally recognise a gain or loss equal to the amount of the cash received less the United States Shareholder’s adjusted United States federal tax basis in the fractional Avita US Share or Avita US CDIs deemed received and sold. Such gain or loss will generally be a capital gain or loss. If the United States Shareholder has a holding period in the Avita US Shares or Avita US CDIs sold of more than one year (taking into account such United States holder’s holding period in the Company ADSs or Shares surrendered), such capital gain or loss will be a long-term capital gain or loss. The deductibility of capital losses is subject to significant limitations.

 

  iv.

Information Reporting and Backup Withholding

United States backup withholding tax and information reporting requirements will generally apply to payments to non-corporate United States Shareholders. Information reporting will apply to proceeds from the disposition of Avita US Shares or Avita US CDIs by a paying agent within the United States to United States Shareholders who are Fractional Shareholders (which includes Small Shareholders), other than United States Shareholders that are exempt from information reporting and properly certify their exemption. A paying agent within the United States will be required to withhold at the applicable statutory rate, currently 24%, in respect of any payments of the proceeds from the disposition of Avita US Shares or Avita US CDIs within the United States to United States Shareholders who are Fractional Shareholders (which includes Small Shareholders) (other than United States Shareholders that are exempt from backup withholding and properly certify their exemption) if the Shareholder fails to furnish its correct taxpayer identification number or otherwise fails to comply with applicable backup withholding requirements. United States Shareholders who are required to establish their exempt status generally must provide a properly completed IRS Form W-9.

 

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Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a United States Shareholder’s United States federal income tax liability. A United States Shareholder generally may obtain a refund of any amounts withheld under the backup withholding rules in excess of such United States Shareholder’s United States federal income tax liability by filing the appropriate claim for refund with the IRS in a timely manner and furnishing any required information.

 

  (b)

Non-US Shareholders

 

  i.

Exchange of Shares or Company ADSs for Avita US CDIs or Avita US Shares

Non-US Shareholders will generally not recognise any gain or loss as a result of the Scheme, except that Non-US Shareholders that receive cash (from dispositions of fractional shares because they are Fractional Shareholders, or because they are Ineligible Shareholders or Small Shareholders) may recognise a gain or loss, if Avita US is considered a “United States real property holding corporation” (USRPHC) within the meaning of Section 897 of the Code, immediately after the Scheme. As discussed, below, the Company does not expect Avita US to be a USRPHC immediately after the Scheme. Assuming so, any gain recognised by a Non-US Shareholder that receives cash will generally not be subject to United States federal income taxation.

 

  ii.

Receipt of Avita US CDIs or Avita US Shares

Non-US Shareholders will have an aggregate adjusted United States federal tax basis in the Avita US CDIs or Avita US Shares received pursuant to the Scheme equal to their aggregate adjusted United States federal tax basis in the Shares or Company ADSs surrendered. The holding period for Avita US CDIs or Avita US Shares received pursuant to the Scheme will generally include the holding period of Shares or Company ADSs surrendered pursuant to the Scheme.

Non-US Shareholders who (i) are Fractional Shareholders and receive cash in lieu of fractional Avita US CDIs or Avita US Shares or (ii) are Ineligible Shareholders or Small Shareholders and receive cash in respect of the Avita US CDIs or Avita US Shares they otherwise would have received will generally be treated as having received such Avita US CDIs or Avita US Shares, and then having received cash in exchange for such Avita US CDIs or Avita US Shares. Subject to the considerations described in “Exchange of Shares or Company ADSs for Avita US CDIs or Avita US Shares” above, any gain recognised by a Non-US Shareholder with respect to the receipt of cash in exchange for such fractional Avita US CDIs or Avita US Shares will generally not be subject to United States federal income taxation.

 

  iii.

Information Reporting and Backup Withholding

The payments of cash proceeds made to Non-US Shareholders who are Fractional Shareholders, Ineligible Shareholders or Small Shareholders by brokers upon a sale of Avita US Shares or Avita US CDIs will generally not be subject to information reporting or backup withholding, in each case so long as the Non-US Shareholder certifies its non-resident status (and a paying agent does not have actual knowledge or reason to know that the Non-US Shareholder is a United States person or that the conditions of any other exemption are not, in fact, satisfied) or otherwise establishes an exemption. A Non-US Shareholder who provides a valid IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable documentation) will generally satisfy the certification requirements necessary to avoid backup withholding.

 

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Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a Non-US Shareholder’s United States federal income tax liability. A Non-US Shareholder generally may obtain a refund of any amounts withheld under the backup withholding rules in excess of such Non-US Shareholder’s United States federal income tax liability by filing the appropriate claim for refund with the IRS in a timely manner and furnishing any required information.

 

10.3

Hong Kong Taxation Implications

 

  (a)

Hong Kong Shareholders who are natural persons and trade Shares or Company ADSs on personal account

Natural persons who trade Shares or Company ADSs on personal account are generally not subject to Hong Kong Profits Tax on the basis that the individual in such circumstances are generally not regarded as carrying on a trade or business. However, Shareholders and ADS Holders should contact their own tax advisor to confirm this position for their own personal circumstances.

 

  (b)

Hong Kong Shareholders who carry on business in Hong Kong

Section 14(1) of the Inland Revenue Ordinance (IRO) charges to profits tax every person in respect of their Hong Kong sourced profits from a trade, profession or business carried on in Hong Kong. Profits from the sale of capital assets are specifically excluded from chargeability to profits tax.

Accordingly, to the extent a person does not carry on business in Hong Kong, or the profits in question are not Hong Kong sourced, or the gain is Hong Kong sourced but is ‘capital’ in nature, the person will not be chargeable to profits tax.

In considering whether any gain to the Hong Kong Shareholders or ADS Holders from the Scheme may be Hong Kong sourced, the first question to consider is whether the Hong Kong investors will recognise a realised profit in their respective financial statements from the Scheme, since this would be the amount of the taxable gain if the gain were regarded as Hong Kong sourced. If no gain is recognised in the accounts then prima-facie no profits tax issue would arise. However, even if the gain is recognised and considered realised, the gain will be taxable only if it is considered Hong Kong sourced and not capital in nature.

For gains arising on listed securities, where both the purchase and sale of listed securities take place through an overseas exchange the source of the profit is the location of the exchange through which the purchase and sale take place.

Given that under the Scheme the substantive activities relating to formulating the proposal to Shareholders, Shareholders taking part in the shareholders’ meeting to approve the Scheme, and ultimate approval of the Scheme by the courts and regulators, will take place in Australia, or otherwise outside of Hong Kong, any gain arising on the exchange can be considered to be non-Hong Kong sourced where the acquisition of the original shareholdings in the Shares (including in the case of ADS Holders in the Shares represented by the ADSs they hold) took place through the ASX or NASDAQ.

Where the Hong Kong Shareholder or an ADS Holder originally purchased their Shares or Company ADSs off market pursuant to a private placement, any gain that is realised under the Scheme will not be subject to Hong Kong Profits Tax provided that the contracts for the original purchase of the Shares or Company ADSs were effected outside of Hong Kong.

 

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Shareholders and ADS Holders are urged to contact their own tax advisor regarding the source of profits from a Hong Kong Profits Tax perspective. In addition, to the extent that the gain is Hong Kong sourced, consideration may also be given to treating any gain as capital in nature as arising outside the ordinary course of business if the profits tax treatment were questioned by the Inland Revenue Department.

Investment funds may also consider the applicability of the fund tax exemptions contained within sections 20AC to 20AY of the IRO.

 

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11.

IMPLEMENTATION OF THE PROPOSED TRANSACTION

 

11.1.

Key dates for implementation of the Scheme

Please refer to section 1 of this Scheme Booklet for a table of key dates.

 

11.2.

Voting majorities required to approve the Scheme

For the Proposed Transaction to proceed, it is necessary that the Scheme Resolution be approved by a majority in number (more than 50%) of Shareholders who are present and voting (either in person or by proxy, attorney or corporate representative) at the Scheme Meeting by way of live webcast. That majority must also represent at least 75% of the total number of votes cast in favour of the Scheme Resolution.

 

11.3.

Steps for implementing the Proposed Transaction

As at the date of this Scheme Booklet, the following steps have been taken to prepare the Proposed Transaction for implementation:

 

   

the Company and Avita US entered into the Implementation Agreement on 20 April 2020, under which they agreed to implement the Scheme. A copy of the Implementation Agreement is included in Appendix B;

 

   

on or about 6 May 2020, Avita US executed the Deed Poll for the benefit of Shareholders, under which Avita US undertook to perform certain obligations under the Implementation Agreement and the Scheme, including covenanting to provide the Scheme Consideration. A copy of the Deed Poll is included in Appendix D1;

 

   

on or about 6 May 2020, Avita US executed a deed poll for the benefit of holders of certain Options, RSUs and Warrants, under which Avita US undertook to perform certain obligations upon the exercise or vesting of those rights after the Implementation of the Scheme. A copy of the deed poll is included in Appendix D2; and

 

   

on 11 May 2020, the Court ordered that the Company convene the Scheme Meeting by virtual means at 9.00am (AEST) on 15 June 2020 (and ordered that the Scheme Booklet be distributed to Shareholders) for Shareholders to consider whether to approve the Scheme by voting on the Scheme Resolution.

The key steps required to implement the Proposed Transaction going forward are:

 

   

if Shareholders vote in favour of the Scheme Resolution, and all Conditions Precedent to implementation of the Scheme (other than Court approval and lodgement of that Court approval with ASIC) have been satisfied or waived (where applicable), the Company will apply to the Court for approval of the Scheme. The Court has discretion to refuse to make orders approving the Scheme, even if the Scheme Resolution is approved by the requisite majorities of Shareholders;

 

   

if the Court approves the Scheme, the Company will lodge with ASIC an office copy of the court order approving the Scheme. The date on which this occurs will be the Effective Date and will be the last day for the trading of Shares on the ASX;

 

   

on the Implementation Date, Avita US will acquire all of the Shares and will provide the Scheme Consideration to Eligible Shareholders, and the Sale Agent will sell the Fractional Shareholder Interests and the Avita US Shares or Avita US CDIs to which Ineligible Shareholders would otherwise be entitled in accordance with the terms of the Sale Facility, with the net proceeds subsequently being paid to the Ineligible Shareholders and relevant Fractional Shareholders (for more information on the Sale Facility, please refer to section 11.5 of this Scheme Booklet); and

 

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on implementation of the Scheme, the Company will be removed from the ASX and NASDAQ and in its place Avita US will be listed on NASDAQ and the ASX, subject to authorisations for those listings being obtained and official notices of issuance of Avita US Shares and Avita US CDIs being issued (as applicable).

 

11.4.

Eligible Shareholders entitled to Scheme Consideration

Shareholders (whose addresses as shown in the Register on the Record Date are) in the following jurisdictions will be “Eligible Shareholders” for the purposes of the Scheme and will be entitled to receive the Scheme Consideration:

 

   

Australia;

 

   

the United States;

 

   

Hong Kong;

 

   

New Zealand;

 

   

the United Kingdom;

 

   

France;

 

   

Norway;

 

   

Switzerland;

 

   

the United Arab Emirates;

 

   

Singapore; and

 

   

any other jurisdiction in respect of which the Company is satisfied, acting reasonably, that the laws of that place permit the offer and issue of Avita US Shares or Avita US CDIs to a Shareholder in that jurisdiction and, in Avita US’s sole discretion, it is not unduly onerous or impractical for Avita US to issue Avita US Shares or Avita US CDIs to a Shareholder with a registered address in that jurisdiction.

Shareholders (whose addresses as shown in the Register on the Record Date are) outside of the jurisdictions referred to above will be “Ineligible Shareholders” for the purposes of the Scheme, and the Avita US CDIs or Avita US Shares that they would otherwise be entitled to under the Scheme will be issued to the Sale Agent and dealt with in accordance with the process outlined in section 11.5 of this Scheme Booklet.

The Company has determined which jurisdictions would be “eligible” for the purposes of the Scheme based on a detailed analysis of its Register coupled with the regulatory and practical considerations of issuing securities in the various jurisdictions in which its Shareholders are located.

Eligible Shareholders, on receiving the Scheme Consideration, will hold an equivalent proportional interest in Avita US as they held in the Company prior to implementation of the Proposed Transaction (subject to the Sale Facility aspect of the Proposed Transaction dealing with Fractional Shareholder Interests, discussed at section 11.5 of this Scheme Booklet). The ratios for determining the number of Avita US Shares or Avita US CDIs to be exchanged for a particular Company shareholding are explained below.

 

  (a)

Eligible Shareholders who hold Shares (other than the ADS Depositary)

On implementation of the Proposed Transaction, Eligible Shareholders who hold Shares (other than the ADS Depositary) will receive the Scheme Consideration in the form of Avita US CDIs to enable the underlying Avita US Shares to be traded on the ASX in a similar manner as Shares are currently traded on the ASX (and under the same ticker code currently used by the Company, “AVH”). This will occur through the Authorised Nominee, who will hold the legal title to the Avita US Shares for the benefit of Avita US CDI Holders.

 

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Eligible Shareholders who hold Shares (other than the ADS Depositary) will receive (via the Authorised Nominee) 5 Avita US CDIs for every 100 Shares held by them on the Record Date.

For further information on the Authorised Nominee and CDIs, please refer to Appendix E of this Scheme Booklet and a summary of CDIs provided at section 2.12 of this Scheme Booklet.

 

  (b)

ADS Depositary (who holds Shares for the benefit of ADS Holders)

If the Scheme is approved and implemented, the Shares represented by the outstanding Company ADSs will be replaced with the right to receive Avita US Shares. The ADS Depositary has informed the Company that it will call for the surrender of all outstanding Company ADSs and will deliver the relevant Avita US Shares, and any Sale Facility Proceeds (from the sale of fractional entitlements), to ADS Holders upon surrender by them of their Company ADSs and payment of the fee to the ADS Depositary for such surrender. The ADS Depositary, DTC or DTC participants will sell the aggregated fractions of Avita US Shares to which ADS Holders would otherwise be entitled, and those holders will receive the net proceeds of that sale. The ADS program will also be terminated.

On implementation of the Proposed Transaction, the ADS Depositary will receive one Avita US Share for every 100 Shares held by it as at the Record Date and the ADS Depositary will deliver to each ADS Holder one Avita US Share for every 5 Company ADSs held by the ADS Holder as at the Record Date, subject (as noted above) to the ADS Holder surrendering all of their Company ADSs and paying the ADS Depositary’s fee for the surrender of their Company ADSs (which fee is equal to US$0.05 per Company ADS surrendered).

Avita US Shares will be able to be traded on NASDAQ in a similar manner to the way in which Company ADSs are currently traded on NASDAQ (and under the same ticker code currently used by the Company, “RCEL”).

After implementation of the Proposed Transaction, each holder of Avita US Shares will be able to convert them to Avita US CDIs in the ratio of five Avita US CDIs for one Avita US Share, and each holder of Avita US CDIs will be able to convert them to Avita US Shares in the ratio of one Avita US Share for five Avita US CDIs.

 

11.5.

The Sale Facility for Ineligible Shareholders and Fractional Shareholder Interests

Where a Shareholder is an Ineligible Shareholder or a Fractional Shareholder (each, a Selling Shareholder), the number of Avita US Shares or Avita US CDIs (in the case of an Ineligible Shareholder) or Fractional Shareholder Interests (in the case of a Fractional Shareholder) to which that Selling Shareholder would otherwise be entitled under the Scheme will be aggregated with those of all the other Selling Shareholders (together, the Sale Securities) and issued to the Sale Agent in the form of Avita US CDIs to be dealt with in accordance with the Sale Facility. If the number of Sale Securities in aggregate does not represent a whole Avita US Share, then the number of Sale Securities will be rounded up to the next whole Avita US Share and be issued to the Sale Agent.

Under the Sale Facility, Avita US will procure that, after the Implementation Date, the Sale Agent must:

 

   

as soon as is reasonably practicable (and, in any case, within one month after the Implementation Date) offer all such Sale Securities for sale on the ASX in the form of Avita US CDIs in such manner, at such price and on such other terms as the Sale Agent determines in good faith and at the risk of the Selling Shareholders; and

 

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as soon as is reasonably practicable (and, in any case, within 10 Business Days after settlement of the last of those sales of Sale Securities) remit in Australian dollars the net proceeds to Avita US who will remit to each Selling Shareholder the same portion of the net proceeds of all such sales (after deduction of any applicable brokerage, stamp duty and other charges, fees and taxes) as the Sale Securities issued to the Sale Agent in respect of the Selling Shareholder bears to the total Sale Securities issued to and sold by the Sale Agent in respect of all Selling Shareholders (Sale Facility Proceeds).

The respective proportion of the Sale Facility Proceeds will be remitted by Avita US to each Selling Shareholder (at its discretion) by:

 

   

making a deposit in Australian currency into a bank account notified by the Selling Shareholder to the Company and recorded in the Register at the Record Date; or

 

   

sending a cheque for the relevant share of the net proceeds of sale in Australian currency by prepaid post to the Selling Shareholder’s address as recorded in the Register at the Record Date.

The amount of money to be received by each Selling Shareholder will be calculated on an averaged basis, so that all Selling Shareholders will receive the same price per Sale Security, subject to rounding to the nearest whole cent. Consequently, the amount received by a Selling Shareholder for each Sale Security may be more or less than the actual price that is received by the Sale Agent (acting on behalf of Avita US) for the sale of that particular Sale Security.

The remittance by the Sale Agent (acting on behalf of Avita US) to each Selling Shareholder of the Sale Facility Proceeds is in full and final satisfaction of that Selling Shareholder’s rights and entitlements to the Sale Securities referable to it.

Under the Scheme, each Selling Shareholder, without the need for any further action, irrevocably appoints Avita US and each of the directors and officers of Avita US, jointly and severally, as its attorney and agent for the purposes of receiving any financial services guide or other notice given by the Sale Agent under the Corporations Act.

 

11.6.

Shareholder instructions, notifications and elections

Except for tax file numbers, and to the extent permitted by law, all instructions, notifications or elections by each Shareholder to the Company binding or deemed binding between the Shareholder and the Company relating to the Company or its securities, including instructions, notifications or elections relating to:

 

   

whether distributions or dividends are to be paid by cheque or into a specific account; and

 

   

notices or other communications from the Company (including by email),

will be deemed from the Implementation Date (except to the extent determined otherwise by Avita US in its sole discretion) to be made by the Shareholder to Avita US and to be a binding instruction, notification or election to, and accepted by, Avita US in respect of any Avita US CDIs or Avita US Shares provided to that Shareholder until and unless that instruction, notification or election is revoked or amended in writing addressed to the Avita US Registry in Australia.

 

11.7.

Conditions Precedent to the Proposed Transaction

The obligations of the Company and Avita US to implement the Scheme are subject to the following Conditions Precedent being satisfied or, where applicable, waived in accordance with the terms of the Implementation Agreement:

 

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  (a)

(ASIC and ASX): Before 8.00am on the date of the Second Court Hearing, ASIC and ASX issue or provide all reliefs, waivers, confirmations, exemptions, consents or approvals, and have performed all other acts, necessary, or which the Company and Avita US agree are desirable, to implement the Scheme and such reliefs, waivers, confirmations, exemptions, consents, approvals or other acts (as the case may be) have not been withdrawn, suspended or revoked at 8.00am on the date of the Second Court Hearing.

 

  (b)

(Shareholder Approval): Shareholder approval is obtained at the Scheme Meeting convened in accordance with the orders made under section 411(1) of the Corporations Act.

 

  (c)

(Court approval of the Scheme): The Court makes orders under section 411(4)(b) of the Corporations Act approving the Scheme.

 

  (d)

(Regulatory Approvals): Before 8.00am on the date of the Second Court Hearing:

 

  (i)

(FIRB approval) one of the following occurs:

 

  (1)

The Company has received written notification by or on behalf of the Treasurer of the Commonwealth of Australia (Treasurer) under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) to the effect that the Commonwealth Government has no objection (unconditionally or on conditions acceptable to Avita US acting reasonably) under its foreign investment policy to Avita US acquiring all of the Shares under the Scheme (or is precluded from objecting because the time for doing so has passed);

 

  (2)

the period provided for under the FATA during which the Treasurer may make an order or interim order under the FATA prohibiting Avita US from acquiring all of the Shares under the Scheme has elapsed without such an order being made; or

 

  (3)

if an interim order has been made by the Treasurer to prohibit Avita US from acquiring the Shares under the Scheme, the subsequent period for making a final order under the FATA has elapsed without any final order being made; and

 

  (ii)

(Other approvals) the approvals of all other Government Authorities which the Company and Avita US agree (acting reasonably) are necessary to implement the Scheme or conduct the Avita Group’s business on and from Implementation occurring are obtained.

 

  (e)

(Independent Expert’s Report): The Independent Expert issues an Independent Expert’s Report on or before the date on which the Scheme Booklet is lodged with ASIC, which concludes that the Scheme is in the best interests of Shareholders as a whole (which has been satisfied as at the date of this Scheme Booklet), without changing that conclusion prior to 8.00am on the date of the Second Court Hearing.

 

  (f)

(No restraint adversely affecting Implementation): No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal prohibition or restraint preventing the acquisition of all the Shares by Avita US or otherwise preventing Implementation is in effect as at 8.00am on the date of the Second Court Hearing.

 

  (g)

(ASX listing and quotation of CDIs): Prior to 8.00am on the date of the Second Court Hearing, ASX approves:

 

  (i)

Avita US for admission to the official list of ASX; and

 

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  (ii)

the Avita US CDIs for official quotation on the ASX,

which approval may be conditional on the Scheme becoming Effective and any such other conditions that are acceptable to the boards of the Company and Avita US.

 

  (h)

(NASDAQ listing): Prior to 8.00am on the date of the Second Court Hearing, NASDAQ has approved the Company’s request to transfer the listing of the Company ADSs and quote the Avita US Shares on NASDAQ, subject to official notice of issuance following Implementation and any customary conditions.

 

  (i)

(Sale Agent): Prior to 8.00am on the date of the Second Court Hearing, Avita US appoints the Sale Agent and the Sale Agent has agreed to be issued and to sell the Sale Securities as contemplated by clause 2.8 of the Implementation Agreement.

 

  (j)

(Authorised Nominee): Prior to 8.00am on the date of the Second Court Hearing, Avita US appoints the Authorised Nominee and the Authorised Nominee has agreed to the allotment to it of Avita US Shares under the Scheme.

 

  (k)

(ATO Class Ruling): The ATO confirms that an appropriate class ruling will be issued to the effect that Australian Shareholders or ADS Holders who hold their Shares or Company ADSs on capital account and who make a capital gain from the exchange of their Shares or Company ADSs for Avita US Shares or Avita US CDIs under the Scheme will be eligible for scrip-for-scrip roll-over relief under the relevant Australian tax laws.

 

11.8.

Termination of the Implementation Agreement

The Implementation Agreement can be terminated by the Company or Avita US by any of the ways outlined below.

 

  (a)

Termination for breach

The Implementation Agreement may be terminated at any time prior to 8.00am on the date of the Second Court Hearing by the Company or Avita US if:

 

   

the other party is in material breach of any term of the Implementation Agreement, or there has been a material breach of a warranty or representation given by the other party under the Implementation Agreement, before the date of the Second Court Hearing;

 

   

the non-defaulting party has given notice to the defaulting party specifying the breach and stating an intention to terminate the Implementation Agreement; and

 

   

the breach is not capable of remedy or has not been remedied within 5 Business Days (or any shorter period ending at 5.00pm on the last Business Day before the date of the Second Court Hearing) from the date a notice is given.

 

  (b)

Termination by agreement

The Implementation Agreement may be terminated at any time prior to 8.00am on the date of the Second Court Hearing by written agreement between the Company and Avita US.

 

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12.

ADDITIONAL INFORMATION

 

12.1.

Interests of Directors

Each of the Directors’ security holdings in the Company, as at the date of this Scheme Booklet, are set out below.

 

Director

   Shares      Options      RSUs      Total Share and
Share-based
Holdings
 

Mr Lou Panaccio

     2,006,536        —          —          2,006,536  

Dr Michael Perry

     19,969,513        15,000,000        39,742,174        74,711,687  

Mr Jeremy Curnock Cook

     —          —          —          —    

Prof. Suzanne Crowe

     304,617        —          —          304,617  

Mr Louis Drapeau

     33,938        —          —          33,938  

Mr Damien McDonald

     1,631,074        —          —          1,631,074  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     23,945,678        15,000,000        39,742,174        78,687,852  
  

 

 

    

 

 

    

 

 

    

 

 

 

None of the Directors currently hold any equity interests in Avita US. Immediately after implementation of the Proposed Transaction, the Directors will hold approximately the same proportionate equity interests in Avita US as they currently hold in the Company (with the only differences being on account of any Fractional Shareholder Interests of the Directors being sold pursuant to the Sale Facility).

 

12.2.

Payments and other benefits

 

  (a)

Appointment of Directors to the Avita US Board

Each Director will become a director of Avita US.

Those Directors who are non-executive directors will not receive any increase in their director’s remuneration on account of becoming directors of Avita US as a result of the Scheme or Proposed Transaction.

 

  (b)

Agreements with Directors conditional on, or connected to, the Proposed Transaction

Other than as set out below or elsewhere in this Scheme Booklet, there are no agreements or arrangements made between a Director and any other person in connection with, or conditional upon, the outcome of the Scheme or the Proposed Transaction (other than in their capacity as a Shareholder).

 

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  (c)

Payments or other benefits to Directors, secretaries and executive officers

Except as disclosed elsewhere in this Scheme Booklet, no payment or other benefit is proposed to be made or given to any Director, secretary or executive officer of the Company or any Related Body Corporate of the Company as compensation for the loss of, or as consideration for or in connection with his or her retirement from, office as a Director, secretary or executive officer of the Company or any Related Body Corporate of the Company as a result of the Scheme or the Proposed Transaction.

 

  (d)

Disclaimer of interests

Other than as set out above or elsewhere in this Scheme Booklet, neither the Independent Expert, nor any director or proposed director of Avita US, and no entity in which a director or proposed director of Avita US is or was a member or partner in the last two years, holds, or held at any time during the last two years before the date of lodgement of this Scheme Booklet with ASIC, any interest in:

 

   

the formation or promotion of Avita US;

 

   

any property acquired or proposed to be acquired by Avita US in connection with its formation or promotion; or

 

   

the Scheme or the Proposed Transaction,

and no amounts (whether in cash or securities or otherwise) have been paid or agreed to be paid, and no one has given or agreed to give a benefit, to any director or proposed director of Avita US either to induce them to become, or to qualify them as, a director of Avita US, or otherwise for services rendered by them in connection with the formation or promotion of Avita US or the Proposed Transaction.

 

12.3.

Payments to professional advisors in connection with the Proposed Transaction

The fees incurred by the persons named in this Scheme Booklet as performing a function in a professional, advisory or other capacity in connection with the preparation or distribution of this Scheme Booklet, up to the date of this Scheme Booklet, are:

 

   

KPMG Law, approximately A$950,000 (excluding GST and disbursements);

 

   

KPMG, approximately A$570,000 (excluding GST and disbursements);

 

   

BDO Corporate Finance Limited, approximately A$110,000 (excluding GST and disbursements); and

 

   

K&L Gates, approximately US$135,000 (excluding GST and disbursements).

Each of them will be entitled to receive professional fees charged as agreed with the Company, and in accordance with their normal basis of charging, up until implementation of the Proposed Transaction.

 

88


12.4.

Substantial Shareholders

As extracted from filings released on the ASX, as at the date of this Scheme Booklet, the following persons have disclosed pursuant to the Corporations Act to be Substantial Shareholders of the Company and carry 5% or more of the voting rights attached to the issued securities of the Company:

 

Name of Substantial Shareholder

   Number of Shares
(including Shares
represented by
Company ADSs)
     % of Issued
capital
 

The Bank of New York Mellon Group (The Bank of New York Mellon Corporation and each group entity)

     603,780,430        28.30

Redmile Group, LLC and Jeremy C. Green

     200,178,780        9.38

Blackcrane (Blackcrane Capital, LLC and other listed parties)

     165,187,032        7.74

Vanguard Group (The Vanguard Group, Inc. and its controlled entities)

     111,991,869        5.25

 

12.5.

Existing Options, RSUs and Warrants

Options

Employee options

In November 2016, the Company adopted an Employee Incentive Option Plan (ESOP).

The ESOP is administered by the Remuneration Committee (to whom the Board delegated its powers under the ESOP). Subject to Board approval (where required), the Remuneration Committee has the authority, in its sole discretion, to grant unlisted Options under the ESOP to eligible employees of the Company and Directors (Employee Options).

The aggregate number of Shares which may be issued on exercise of all Employee Options issued under the ESOP cannot exceed 7.5% of the total number of issued Shares.

The ESOP gives eligible employees of the Company and Directors, who have been granted Employee Options, a right to purchase Shares upon the payment of a specified exercise price, which is determined at the time the Employee Option is granted. The ESOP is designed to, among other things:

 

   

attract, motivate and retain key employees;

 

   

foster an ownership culture within the Company; and

 

   

motivate Directors and employees of the Company to achieve certain performance targets.

 

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As at the date of this Scheme Booklet, there are 92 holders of outstanding Employee Options issued under the ESOP who have a right to purchase a total of 125,994,582 Shares, a summary of the exercise prices and expiration dates of which is outlined in the following table:

 

Number of outstanding

Employee Options

 

Exercise Price (A$)

 

Expiration Date

12,760,415

  $0.085   18 May 2027

1,072,916

  $0.082   26 May 2027

1,038,333

  $0.080   27 June 2027

4,000,000

  $0.063   6 September 2027

1,400,000

  $0.056   12 June 2028

1,700,000

  $0.059   25 June 2028

13,675,000

  $0.089   1 November 2028

19,241,250

  $0.082   30 November 2028

3,000,000

  $0.057   18 April 2028

8,360,000

  $0.057   16 April 2028

700,000

  $0.057   14 June 2028

15,000,000

  $0.082   30 November 2028

6,546,250

  $0.082   2 January 2029

330,000

  $0.089   2 January 2029

6,866,250

  $0.300   1 April 2029

8,717,084

  $0.420   28 June 2029

1,000,000

  $0.440   1 July 2029

930,000

  $0.590   1 October 2029

13,500,000

  $0.560   25 November 2029

4,627,084

  $0.790   13 February 2030

1,530,000

  $0.515   1 April 2030

Total outstanding Employee Options: 125,994,582

 

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A full set of the terms and conditions of the ESOP can be found on the ASX’s website (www.asx.com.au) and the Company’s website (www.avitamedical.com).

Options granted to Dr Michael Perry, CEO

At the Company’s 2018 AGM on 30 November 2018, Shareholders approved the issue to the Company’s CEO, Dr Michael Perry, of 15,000,000 unlisted Options (Perry Options), which were issued to Dr Perry on 30 November 2018.

The Perry Options are subject to vesting conditions based on the tenure of Dr Perry, the Company’s share price and various performance milestones.

Each Perry Option, once vested, gives Dr Perry the right to be issued one Share at an exercise price of A$0.082 per Perry Option.

As at the date of this Scheme Booklet, there are 15,000,000 outstanding Perry Options on issue, which expire on 30 November 2028.

A full set of the terms and conditions of the Perry Options can be found on the ASX’s website (www.asx.com.au) and the Company’s website (www.avitamedical.com).

Warrants

In February 2016, the Company issued warrants, in the nature of unlisted Options, to various advisers who assisted the Company with a private placement in late 2015 (Warrants).

Each Warrant gives the holder the right to be issued one Share at an exercise price of A$0.126 per Warrant.

As at the date of this Scheme Booklet, there are 862,415 outstanding Warrants on issue, which expire on 31 December 2020.

Restricted Stock Units (RSUs)

RSUs are unfunded and unsecured contractual entitlements to be issued or transferred one Share per RSU on a future date (after vesting of the entitlement) without the requirement for the RSU holder(s) to pay monetary consideration.

As at the date of this Scheme Booklet, 44,642,174 RSUs have been issued, and remain outstanding, to the following persons:

 

   

Dr Michael Perry, CEO (39,742,174 RSUs);

 

   

David McIntyre, CFO (4,500,000 RSUs);

 

   

Timothy Rooney, Chief Administrative Officer (250,000 RSUs); and

 

   

Donna Shiroma, General Counsel (150,000 RSUs).

 

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The RSUs issued are subject to vesting conditions based on, among other things:

 

   

continued tenure with the Company;

 

   

Company share price milestones; and

 

   

specific operational milestone performance criteria.

 

12.6.

Impact of the Proposed Transaction on the existing Options, RSUs and Warrants

The existing Options, RSUs and Warrants in the Company arise out of contracts between the Company and the holders of those securities. Under those contracts, the existing Options, RSUs and Warrants will continue after implementation of the Proposed Transaction; however, the entitlements of holders to be issued Shares will instead become entitlements to be issued Avita US Shares (in the ratio of one Avita US Share for every 100 Shares to which the holder would otherwise be entitled). Avita US has separately covenanted (by way of deed poll) in favour of holders of existing Options, RSUs and Warrants in the Company to ensure that holders’ entitlements are made available in accordance with their contractual rights. In all other respects, the existing Options, RSUs and Warrants will continue to be subject to the contractual terms pursuant to which they were granted.

Holders of existing Options, RSUs and Warrants in the Company will be given a copy of this Scheme Booklet (for reference only) at the same time as Shareholders, and will receive a further notice from Avita US on or shortly after the Implementation Date advising them of particulars relating to the number of Avita US Shares that may be issued to the holder of Options, RSUs or Warrants in Avita US upon exercise or vesting (as applicable).

The Company does not intend to grant any further Options (under the ESOP or outside of it), RSUs, Warrants or similar rights and, once all of the existing Employee Options have been exercised or lapsed, the Company intends to terminate the operation of the ESOP. However, at the annual meeting of Avita US Shareholders, which is expected to take place in the last quarter of 2020, Avita US intends to seek Avita US Shareholder approval of a new employee incentive plan, which will generally contain similar or equivalent commercial terms to the ESOP.

 

12.7.

Auditors of the Company

As at the date of this Scheme Booklet, Grant Thornton Audit Pty Ltd are the auditors of the Company, and were appointed as such at the Company’s annual general meeting on 18 November 2011.

On and from implementation of the Proposed Transaction, it is expected that Grant Thornton LLC will be the auditors of the Avita Group.

 

12.8.

Latest trading price of Shares and Company ADSs

As at close of trading, being:

 

   

4pm (AEST) on 5 May 2020, the Shares were trading at A$0.44 on the ASX; and

 

   

4pm (Eastern Daylight Time) on 4 May 2020, the Company ADSs were trading at US$5.66 on NASDAQ.

 

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12.9.

ASIC and ASX waivers, confirmations and approvals

 

  (a)

ASIC relief

Financial reporting relief

If the Scheme is implemented on or before 30 June 2020, ASIC has granted relief from the requirement for the Company to prepare and lodge with ASIC an annual report for the financial year ending 30 June 2020 in accordance with AIFRS.

In order to comply with the conditions to that relief:

 

  (i)

the Company and its Australian subsidiaries will enter into a new deed of cross guarantee with Avita US as the new parent entity of the Avita Group on and from the Implementation Date of the Scheme; and

 

  (ii)

Avita US will prepare and file with the SEC for the financial year ending 30 June 2020 in respect of the Avita Group an Annual Report on Form 10-K in accordance with US GAAP (which will be audited) by 31 August 2020.

Fundraising relief

In accordance with ASIC Corporations (Sale Offers That Do Not Need Disclosure) Instrument 2016/80, the Avita US Shares and Avita US CDIs issued pursuant to the Scheme will be freely tradable.

ASIC has indicated that it will grant relief for the purposes of:

 

  (i)

sections 708A(5) and 708A(12A) of the Corporations Act so that, within the first 3 months after implementation of the Proposed Transaction, the Avita US Shares (which will be quoted on the ASX in the form of Avita US CDIs) will be regarded as “continuously quoted securities”; and

 

  (ii)

the definition of “continuously quoted securities” for the purposes of section 713(1) of the Corporations Act so that, within the first 3 months after implementation of the Proposed Transaction, the Avita US Shares (which will be quoted on the ASX in the form of Avita US CDIs) will be regarded as “continuously quoted securities”.

Scheme Booklet content relief

ASIC has granted relief for the purposes of clause 8302(h) of Part 3 of Schedule 8 of the Corporations Regulations so that the Company is only required to disclose in this Scheme Booklet whether the financial position of the Company had materially changed since 31 December 2019 (being the last half-year balance date of the Company’s financial statements in the Company’s most recent half-year report) as opposed to 30 June 2019 (being the last annual balance date of the Company’s financial statements in the Company’s most recent annual report).

The Company will ensure that a copy of its financial reports for the financial year ended 30 June 2019 and the half-year ended 31 December 2019 is made available, free of charge, to any Shareholder who requests a copy before the Scheme becomes Effective.

 

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  (b)

ASX waivers and confirmations

ASX has indicated that it is likely to grant the Company and Avita US the following confirmations and waivers on receipt of Avita US’s application to be admitted to the official list of ASX:

 

  (i)

(By-laws) a confirmation that the by-laws of Avita US satisfy the requirements of ASX Listing Rule 1.1, condition 2, on the basis that the by-laws contain the provisions in Appendix 15A of the ASX Listing Rules;

 

  (ii)

(information memorandum) a confirmation that Avita US may use this Scheme Booklet in connection with the proposed Scheme as an information memorandum for the purposes of its application to list on the ASX, and that the ASX will not require Avita US to lodge a prospectus or PDS with the ASX under ASX Listing Rule 1.1 condition 3;

 

  (iii)

(free float requirement) a confirmation that Avita US will satisfy the free float requirement under ASX Listing Rule 1.1, condition 7, on the condition that the Company continues to comply with ASX Listing Rule 12.4 until it is removed from the official list of ASX, and therefore Avita US will comply with ASX Listing Rule 12.4 at the time of its admission to the official list of ASX;

 

  (iv)

(asset or profit test) a waiver from ASX Listing Rule 1.1, condition 9, to the extent necessary to permit Avita US to be admitted to the official list of ASX without complying with either the profit test rule in ASX Listing Rules 1.2 or the assets test rule in ASX Listing Rule 1.3 on the condition that the Company satisfies ASX Listing Rules 12.1 and 12.2 at the time that Avita US is admitted to the official list of ASX;

 

  (v)

(Options exercise price) a waiver from ASX Listing Rule 1.1, condition 12, to the extent necessary to permit Avita US to have Options, Warrants and RSUs on issue with an exercise price less than A$0.20;

 

  (vi)

(good fame and character) a confirmation that ASX is satisfied that the directors and the CEO of Avita US are of good fame and character on the condition that no further director appointments or resignations are made prior to Avita US’s admission to the official list of ASX (ASX Listing Rule 1.1, condition 20);

 

  (vii)

(prospectus information) a waiver from ASX Listing Rule 1.4.1 to the extent necessary to permit the Scheme Booklet to not include a statement that it contains all information that would otherwise be required under section 710 of the Corporations Act, on the condition that:

 

  (A)

Avita US releases to the market as a pre-quotation disclosure all of the documents incorporated by reference into the Scheme Booklet; and

 

  (B)

the Company provides a statement to the market that it is in compliance with ASX Listing Rule 3.1 at the time that Avita US is admitted to the official list of ASX;

 

  (viii)

(date) a waiver from ASX Listing Rule 1.4.4 to the extent necessary to permit the Scheme Booklet to be dated on or about the date on which the Court makes orders convening the Scheme Meeting;

 

  (ix)

(capital raising) a waiver from ASX Listing Rule 1.4.7 to the extent necessary to permit the Scheme Booklet to not include a statement that Avita US has not raised any capital for the three months prior to the date of issue of this Scheme Booklet, and will not raise any capital in the three months after that date;

 

  (x)

(supplementary information) a waiver from ASX Listing Rule 1.4.8 to the extent necessary to permit the Scheme Booklet to not include a statement that a supplementary Scheme Booklet will be issued if, between the date of issue of this Scheme Booklet and the date on which the Avita US CDIs are quoted on the ASX, Avita US becomes aware of the matters referred to in ASX Listing Rule 1.4.8, on the condition that the Company undertakes to release such information on the ASX announcements platform, with such undertaking to be given to the ASX in the form of a deed dated no later than the date on which this Scheme Booklet is issued to Shareholders;

 

 

94


  (xi)

(Appendix 1A Information Form and Checklist) a confirmation that Avita US is not required to comply with the following paragraphs of the Appendix 1A Information Form and Checklist (Listing Checklist), and a waiver of ASX Listing Rule 1.7 to the extent necessary to permit Avita US not to comply with the following paragraphs of the Listing Checklist:

 

  (A)

paragraphs 12 - 18 of the Listing Checklist, to the extent necessary so that the requirements of these paragraphs may only need to be met in respect of new directors of Avita US, being those persons that have not been previously subject to criminal history and bankruptcy checks in connection with an existing director or relevant officer position with the Company;

 

  (B)

paragraphs 22 and 23 of the Listing Checklist, to the extent necessary to permit the Scheme Booklet to not include the nature of each material child entity’s business;

 

  (C)

paragraph 34 of the Listing Checklist, to the extent necessary to permit the Scheme Booklet to not include a description of the history of Avita US;

 

  (D)

paragraph 35 of the Listing Checklist, to the extent necessary to permit the Scheme Booklet to not include a description of Avita US’s existing and proposed activities and level of operations;

 

  (E)

paragraph 36 of the Listing Checklist, to the extent necessary to permit the Scheme Booklet to not include a description of the material business risks faced by Avita US;

 

  (F)

paragraph 43 of the Listing Checklist, to the extent necessary to permit the Scheme Booklet to not include details of the existence and main terms of, and the provision of copies of, any material contracts to ASX;

 

  (G)

paragraphs 44 and 45 of the Listing Checklist, to the extent necessary, to permit the Scheme Booklet to not include a summary of the material terms of, or a copy of, any employment, service or consultancy agreement, and a summary of any other material contract, which Avita US or any of its subsidiaries has entered into with:

 

  (i)

its CEO (or equivalent) or proposed CEO (or equivalent);

 

  (ii)

any director or proposed director; and

 

  (iii)

any other person or entity who is a related party of the persons referred to in (i) or (ii);

 

  (H)

paragraph 46 of the Listing Checklist, to the extent necessary to permit Avita US to not provide a confirmation that all information that a reasonable person would expect to have a material effect on the price or value of the securities to be quoted is included in or provided with the Listing Checklist, on the condition that the Company complies with ASX Listing Rule 3.1 up until its removal from ASX’s official list; and

 

  (I)

paragraphs 51 to 68 (inclusive) of the Listing Checklist, to the extent necessary to permit Avita US to not provide the information in connection with ASX Listing Rules 1.2 and 1.3, on the basis that ASX waives Avita US’s requirement to comply with ASX Listing Rule 1.1, condition 9;

 

95


  (xii)

(voting) a waiver from ASX Listing Rule 6.10 to the extent necessary to permit Avita US to provide the method for determining whether an Avita US Shareholder is entitled to vote at a stockholders meeting in accordance with the laws of Delaware;

 

  (xiii)

(proxies) a waiver from ASX Listing Rule 14.2.1 to the extent necessary to permit Avita US not to provide the option in its proxy form for holders of Avita US CDIs to vote against a resolution to elect a director or to appoint an auditor, on standard conditions;

 

  (xiv)

(financial reports) a confirmation for the purposes of ASX Listing Rule 19.11A that Avita US may continue to prepare its accounts in accordance with US GAAP and Avita US will not be required to provide a statement reconciling its accounts to Australian accounting standards or other international accounting standards.

The Company has applied to ASX for the following additional waivers, which are still subject to ASX’s consideration as at the date of this Scheme Booklet:

 

  (xv)

(half yearly accounts) a waiver from ASX Listing Rule 4.2A and 4.2B so that Avita US will not be required to lodge an Appendix 4D (half-yearly report) with the ASX on the condition that Avita US lodges with the ASX the Form 10Q it is required to lodge with the SEC in accordance with its obligations under the rules and regulations of the SEC, and also on the condition that Avita US provides a cover sheet to the ASX under the heading “Results for Announcement to the Market” which contains the information required by paragraph 2 of Appendix 4D, at the same time that the Form 10Q is provided to the SEC.

 

  (xvi)

(quarterly cash flow reports) a waiver from ASX Listing Rule 4.7B to the extent necessary to permit Avita US to lodge its quarterly cash flow reports with ASX in the form of a Form 10-Q that is prepared under the rules and regulations of the SEC (rather than an Appendix 4C) and lodge them with ASX in accordance with the SEC timetable (rather than the ASX timetable).

 

12.10.

Foreign selling restrictions

 

  (a)

United States

The Avita US Shares have not been registered under the US Securities Act or under the securities laws of any state or other jurisdiction of the United States. Instead, Avita US intends to rely on an exemption from the registration requirements of the US Securities Act provided by Section 3(a)(10) of the US Securities Act in connection with the consummation of the Scheme and the issuance of Avita US Shares. Section 3(a)(10) exempts securities issued in exchange for other securities from the general requirement of registration where the terms and conditions of the issuance and exchange have been approved by any court of competent jurisdiction, after a hearing upon the fairness of the terms and conditions of the issuance at which all persons to whom the securities will be issued have the right to appear. Approval of the Scheme by the Court will be relied upon by the Company and Avita US for purposes of qualifying for the Section 3(a)(10) exemption.

Persons who are Affiliates (generally defined to include board members, executive officers and 10% of greater shareholders) of the Company prior to the Implementation Date of the Scheme and who are Affiliates of Avita US after the Implementation Date of the Scheme will be subject to certain restrictions on resale in a United States public market including:

 

   

sales may be made only if Avita US has been a United States reporting company for at least 90 days and has complied with its United States reporting obligations;

 

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the volume of securities that can be sold in any three month period is limited to an amount equal to 1% of Avita US Shares on issue or, if the Avita US Shares are listed on a national US exchange (such as NASDAQ), the greater of 1% of Avita US Shares on issue and 1% of the average reported weekly trading volume of Avita US Shares (measured over the previous four weeks); and

 

   

sales must be conducted by way of unsolicited broker’s transactions.

The Avita US Shares issued pursuant to the Scheme have neither been approved nor disapproved by the SEC, or by any other securities regulatory authority of any United States state or of any international jurisdiction.

This Scheme Booklet has not been filed with or reviewed by the SEC or any United States state securities authority (but instead furnished to the SEC on a Form 6-K) and none of them has passed upon or endorsed the merits of the Scheme or the accuracy, adequacy or completeness of this Scheme Booklet. Any representation to the contrary is a criminal offence.

 

  (b)

Hong Kong

WARNING: The contents of this Scheme Booklet have not been reviewed or approved by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the Scheme. If you are in any doubt about any of the contents of this Scheme Booklet, you should obtain independent professional advice.

This Scheme Booklet does not constitute an offer or invitation to the public in Hong Kong to acquire or subscribe for or dispose of any securities. This Scheme Booklet also does not constitute a prospectus (as defined in section 2(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong)) or notice, circular, brochure or advertisement offering any securities to the public for subscription or purchase or calculated to invite such offers by the public to subscribe for or purchase any securities, nor is it an advertisement, invitation or document containing an advertisement or invitation falling within the meaning of section 103 of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong).

Accordingly, unless permitted by the securities laws of Hong Kong, no person may issue or cause to be issued this Scheme Booklet in Hong Kong, other than to persons who are “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder or in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance or which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance.

No person may issue or have in its possession for the purposes of issue, this Scheme Booklet or any advertisement, invitation or document relating to these securities, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than any such advertisement, invitation or document relating to securities that are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder.

Copies of this Scheme Booklet may be issued to a limited number of persons in Hong Kong in a manner which does not constitute any issue, circulation or distribution of this Scheme Booklet, or any offer or an invitation in respect of these securities, to the public in Hong Kong. The document is for the exclusive use of Shareholders in connection with the Scheme, and no steps have been taken to register or seek authorisation for the issue of this Scheme Booklet in Hong Kong.

 

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This Scheme Booklet is confidential to the person to whom it is addressed and no person to whom a copy of this Scheme Booklet is issued may issue, circulate, distribute, publish, reproduce or disclose (in whole or in part) this Scheme Booklet to any other person in Hong Kong or use it for any purpose in Hong Kong other than in connection with consideration of the Scheme by the person to whom this Scheme Booklet is addressed.

 

  (c)

New Zealand

This Scheme Booklet is not a New Zealand disclosure document and has not been registered, filed with or approved by any New Zealand regulatory authority under or in accordance with the Financial Markets Conduct Act 2013 (or any other relevant New Zealand law). The offer of Avita US Shares and Avita US CDIs under the Scheme is being made to Shareholders in reliance upon the Financial Markets Conduct (Incidental Offers) Exemption Notice 2016 and, accordingly, this Scheme Booklet may not contain all the information that a disclosure document is required to contain under New Zealand law.

 

  (d)

United Kingdom

Neither the information in this document nor any other document relating to the Scheme has been delivered for approval to the Financial Conduct Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (FSMA)) has been published or is intended to be published in respect of the Avita US Shares or the Avita US CDIs.

This document does not constitute an offer of transferable securities to the public within the meaning of the Prospectus Regulation (2017/1129/EU) or the FSMA. Accordingly, this document does not constitute a prospectus for the purposes of the Prospectus Regulation or the FSMA.

Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the Avita US Shares or the Avita US CDIs has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to the Company.

In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who fall within Article 43 (members of certain bodies corporate) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005, or (ii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

 

  (e)

France

This Scheme Booklet is not being distributed in the context of a public offering of financial securities (offer au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (AMF). The Avita US Shares and Avita US CDIs have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.

 

98


This Scheme Booklet and any other offering material relating to the Scheme have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to be distributed, directly or indirectly, to the public in France.

Such offers, sales and distributions have been and shall only be made in France (i) in a transaction that, in accordance with Article L. 411-2-I of the French Monetary and Financial Code and Article 211-2 of the General Regulation of the AMF, does not constitute a public offering of financial securities and/or (ii) to qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-Il-2°, D.411-1, L.533-16, L.533-20, D.533-11, D.533-13, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (iii) to a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2°, D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.

Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the Avita US Shares and the Avita US CDIs cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.

 

  (f)

Norway

This Scheme Booklet has not been approved by, or registered with, any Norwegian securities regulator under the Norwegian Securities Trading Act of 29 June 2007. Accordingly, this Scheme Booklet shall not be deemed to constitute an offer to the public in Norway within the meaning of the Norwegian Securities Trading Act of 2007.

The Avita US Shares and the Avita US CDIs may not be offered or sold, directly or indirectly, in Norway except:

 

   

to “professional clients” (as defined in Norwegian Securities Regulation of 29 June 2007 no. 876 and including non-professional clients having met the criteria for being deemed to be professional and for which an investment firm has waived the protection as non-professional in accordance with the procedures in this regulation);

 

   

to fewer than 150 natural or legal persons (other than “professional clients”); or

 

   

in any other circumstances provided that no such offer of Avita US Shares or Avita US CDIs shall result in a requirement for the registration, or the publication of a prospectus pursuant to the Norwegian Securities Trading Act of 29 June 2007.

 

99


  (g)

Switzerland

The Avita US Shares and the Avita US CDIs may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange or on any other stock exchange or regulated trading facility in Switzerland. Neither this Scheme Booklet nor any other document relating to the Scheme constitutes a prospectus or a similar notice, as such terms are understood under art. 35 of the Swiss Financial Services Act or the listing rules of any stock exchange or regulated trading facility in Switzerland. Neither this Scheme Booklet nor any other document relating to the Scheme may be publicly distributed or otherwise made publicly available in Switzerland. This document may only be distributed to existing Shareholders and is not for general circulation in Switzerland.

No offering or marketing material relating to the Avita US Shares or the Avita US CDIs has been, nor will be, filed with or approved by any Swiss regulatory authority or authorised review body. In particular, this Scheme Booklet will not be filed with, and the offer of Avita US Shares and Avita US CDIs will not be supervised by, the Swiss Financial Market Supervisory Authority.

 

  (h)

United Arab Emirates

Neither this Scheme Booklet nor the Avita US Shares nor the Avita US CDIs have been approved, disapproved or passed on in any way by the Emirates Securities and Commodities Authority (ESCA) or any other governmental authority in the United Arab Emirates. The Company has not received authorisation or licensing from the ESCA or any other governmental authority in the United Arab Emirates to market or sell the Avita US Shares or the Avita US CDIs within the United Arab Emirates. This Scheme Booklet does not constitute, and may not be used for the purpose of, an offer of securities in the United Arab Emirates (excluding the Dubai International Financial Centre). No services relating to the Avita US Shares or the Avita US CDIs, including the receipt of applications, may be rendered within the United Arab Emirates.

In the Abu Dhabi Global Market and the Dubai International Financial Centre, the Avita US Shares and the Avita US CDIs may be offered, and this Scheme Booklet may be distributed, only to existing Shareholders as an “Exempt Offer”, as defined and in compliance with the markets rules issued by the regulatory authorities in these financial zones. No regulatory authority has approved this Scheme Booklet nor taken any steps to verify the information set out in it.

 

  (i)

Singapore

This Scheme Booklet and any other document or material in connection with the offer, sale or distribution, or invitation for subscription, purchase or receipt of Avita US Shares or Avita US CDIs have not been and will not be registered as a prospectus with the Monetary Authority of Singapore and this offering is not regulated by any financial supervisory authority pursuant to any legislation in Singapore. Accordingly, statutory liabilities in connection with the contents of prospectuses under the Securities and Futures Act, Cap. 289 (SFA) will not apply.

This Scheme Booklet and any other document or material in connection with the offer, sale or distribution, or invitation for subscription, purchase or receipt of Avita US Shares or Avita US CDIs may not be offered, sold or distributed, or be made the subject of an invitation for subscription, purchase or receipt, whether directly or indirectly, to persons in Singapore except pursuant to exemptions in Subdivision (4) Division 1, Part XIII of the SFA, including the exemption under section 273(1)(c) of the SFA, or otherwise pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFA.

 

100


Any offer is not made to you with a view to Avita US Shares or Avita US CDIs being subsequently offered for sale to any other party. You are advised to acquaint yourself with the SFA provisions relating to on-sale restrictions in Singapore and comply accordingly.

This document is being furnished to you on a confidential basis and solely for your information and may not be reproduced, disclosed, or distributed to any other person. Any investment referred to in this document may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investment.

Neither the Company nor Avita US is in the business of dealing in securities or holds itself out, or purports to hold itself out, to be doing so. As such, the Company and Avita US are neither licensed nor exempted from dealing in securities or carrying out any other regulated activities under the SFA or any other applicable legislation in Singapore.

 

12.11.

Warranty and appointment of the Company as agent and attorney by Shareholders

Warranty by Shareholders

Under the Scheme, each Shareholder is deemed to have warranted to the Company, and is deemed to have authorised the Company to warrant to Avita US as agent and attorney for the Shareholder, that:

 

   

all of its Shares (including any rights and entitlements attaching to them) transferred to Avita US under the Scheme will, on the date of the transfer, be free from all mortgages, charges, liens, encumbrances, pledges, security interests and other interests of third parties of any kind;

 

   

all of its Shares will be fully paid on the date of transfer; and

 

   

it has full power and capacity to sell and transfer its Shares (including all rights and entitlements attaching to them) to Avita US.

Appointment of the Company as agent and attorney

Under the terms of the Scheme, each Shareholder, without the need for any further action, irrevocably appoints the Company and each of the Directors and officers of the Company, jointly and severally, as its attorney and agent for the purposes of doing all things and executing all deeds, instruments, transfers and other documents that may be necessary or desirable to give full effect to the Scheme and the transactions contemplated by it, including:

 

  (a)

in the case of Shares in a CHESS holding:

 

   

causing a message to be transmitted to ASX Settlement in accordance with the ASX Settlement Operating Rules so as to transfer the Shares held by Shareholders from the CHESS sub-register of the Company to the issuer sponsored sub-register operated by the Company or the Registry at any time after Avita US has provided the Scheme Consideration which is due under the Scheme to Eligible Shareholders; and

 

   

completing and signing on behalf of Shareholders any required form of transfer of Shares;

 

  (b)

in the case of Shares registered in the issuer sponsored sub-register operated by the Company or the Registry, completing and signing on behalf of Shareholders any required form of transfer;

 

  (c)

in all cases, executing any document or doing any other act necessary or desirable to give full effect to the Scheme and the transactions contemplated by it, including executing a proper instrument of transfer of Shares for the purposes of section 1071B of the Corporations Act (which may be a master transfer); and

 

  (d)

enforcing the Deed Poll against Avita US.

 

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12.12.

Creditors of the Company

The Proposed Transaction will not have an adverse impact on the interests of creditors and will not materially prejudice the Company’s ability to pay its creditors. No material new liability (other than transaction costs) is expected to be incurred by the Company as a consequence of the implementation of the Proposed Transaction. The Company has paid and is paying all of its creditors within normal terms and is solvent and trading in an ordinary commercial manner.

 

12.13.

Consents and disclaimers

Avita US

Avita US has consented to:

 

   

be named in this Scheme Booklet in the form and context in which it is named; and

 

   

the inclusion of relevant information about Avita US in this Scheme Booklet.

Interested Persons

The following persons (together, the Interested Persons) have given and have not, before the date and time of lodgement of this Scheme Booklet with ASIC, withdrawn their written consent to:

 

   

be named in this Scheme Booklet in the form and context in which they are named;

 

   

include their respective reports or statements noted next to their names and the references to those reports or statements in the form and context in which they are included in this Scheme Booklet; and

 

   

include other statements in this Scheme Booklet which are based on or referable to statements made in those reports or statements, or which are based on or referable to other statements made by those persons in the form and context in which they are included.

 

Name of person

  

Named as

BDO Corporate Finance Limited    Independent Expert
Computershare Investor Services Pty Limited    Registry and Avita US Registry in Australia
Computershare Trust Company, N.A. Transfer Agent and Registrar    Avita US Registry in the United States
Computershare Dealing Services Pty Limited    Sale Agent
KPMG Law    Australian legal advisor to the Company and Avita US
K&L Gates    United States legal advisor to the Company and Avita US
KPMG    Tax advisor to the Company
The Bank of New York Mellon    ADS Depositary

 

102


Each of the Interested Persons:

 

   

has not authorised or caused the issue of this Scheme Booklet;

 

   

does not make, or purport to make, any statement in this Scheme Booklet or any statement on which a statement in this Scheme Booklet is based, other than those statements referred to above and as consented to by that person; and

 

   

to the maximum extent permitted by law, expressly disclaims all liability in respect of, makes no representation regarding, and takes no responsibility for, any part of this Scheme Booklet other than a reference to its name and the statement or report (if any) that has been included in this Scheme Booklet with the consent of that person as set out above.

 

12.14.

Consent to lodgement

Directors

Each Director has given, and not withdrawn, his or her consent to the lodgement of this Scheme Booklet as an information memorandum for listing with the ASX and an explanatory statement in relation to the Scheme with ASIC.

By order of the Board

 

LOGO

Lou Panaccio, Chair

 

103


Avita US directors

Each director of Avita US has given, and not withdrawn, his or her consent to the lodgement of this Scheme Booklet as an information memorandum for listing with the ASX and an explanatory statement in relation to the Scheme with ASIC.

By order of the Avita US Board

 

LOGO

Michael Perry, Director

 

104


13.

GLOSSARY

 

Expression

  

Meaning

ADS    an American Depositary Share
ADS Depositary    The Bank of New York Mellon
ADS Holder    a holder of one or more Company ADSs
AEST    Australian Eastern Standard Time
AIFRS    Australian International Financial Reporting Standards
Appendix    section(s) at the end of this Scheme Booklet categorised by an alphabetical letter (unless the context requires otherwise)
ASIC    the Australian Securities and Investments Commission
ASX    ASX Limited (ABN 98 008 624 691) or the securities market which it operates, as the context requires
ASX Listing Rules    the official listing rules of the ASX
ASX Settlement    ASX Settlement Pty Limited (ABN 49 008 504 532) as the holder of a licence to operate a clearing and settlement facility
ASX Settlement Operating Rules    the operating rules of the clearing and settlement facility operated by ASX Settlement for the time being and from time to time, as modified by any express written exemption or waiver given by ASX or ASX Settlement
ATO    the Australian Taxation Office
ATO Class Ruling    the class ruling which the Company will seek from the ATO to the effect that Australian resident Shareholders or ADS Holders who hold their Shares or Company ADSs on capital account and make a capital gain from the exchange of their Shares (or Company ADSs) for Avita US Shares or Avita US CDIs under the Scheme will be eligible to choose full or partial scrip for scrip roll-over under paragraph 124-780(3)(d) of Income Tax Assessment Act 1997
Australian Takeovers Panel    the Takeovers Panel constituted under the Australian Securities and Investments Commission Act 2001 (Cth)
Authorised Nominee    CHESS Depositary Nominees Pty Limited (ACN 071 346 506, Australian Financial Licence number 254514), an approved general participant of ASX Settlement and a wholly-owned subsidiary of ASX

 

105


Avita Group    the Company and its subsidiaries and, after implementation of the Scheme, Avita US and its subsidiaries
Avita US    AVITA Therapeutics, Inc., the proposed ultimate holding company of the Company, incorporated in the United States, which will acquire and hold all of the issued share capital of the Company if the Scheme becomes Effective
Avita US Board    the board of directors of Avita US
Avita US CDI    a CDI representing a 1/5 interest in one Avita US Share (i.e. 5 Avita US CDIs is equivalent to one Avita US Share)
Avita US CDI Holder    Eligible Shareholders who receive the Scheme Consideration in the form of Avita US CDIs
Avita US Register    the register of members of Avita US maintained by the Avita US Registry in the United States
Avita US Registry   

the person operating the Avita US Register, being:

 

•  in the United States: Avita US’s stock registry, being Computershare Trust Company, N.A. Transfer Agent and Registrar (250 Royall Street, Canton, MA 02021)

 

•  in Australia: Avita US’s CDI registry, Computershare Investor Services Pty Limited (Level 11, 172 St Georges Terrace Perth, WA 6000 Australia)

Avita US Share    a fully paid share of voting common stock in the capital of Avita US
Avita US Shareholder    a holder of one or more Avita US Shares
Board    the board of directors of the Company
Business Day    a day that is not a Saturday, Sunday or a public holiday or bank holiday in Melbourne, Australia
CDI    a CHESS Depositary Interest, being a unit of beneficial ownership in a share that is registered in the name of the Authorised Nominee in accordance with the ASX Settlement Operating Rules for the purpose of enabling that share to be recorded and transferred in accordance with those operating rules
CEO    Chief Executive Officer
CFO    Chief Financial Officer
Chair    the presiding officer of the Board or Avita US Board, as the context requires
CHESS    the Clearing House Electronic Sub-Register System of share transfers operated by ASX Settlement

 

106


Code    the United States Internal Revenue Code of 1986, as amended from time to time
Company    AVITA Medical Limited ABN 28 058 466 523
Company ADS    an ADS representing 20 Shares, which trade on NASDAQ under the ticker code “RCEL”
Conditions Precedent    each of the conditions set out in clause 4.1 of the Implementation Agreement and which are summarised at section 11.7 of this Scheme Booklet
Constitution    the constitution of the Company, as adopted or amended from time to time
Corporations Act    Corporations Act 2001 (Cth)
Corporations Regulations    Corporations Regulations 2001 (Cth)
Court    the Federal Court of Australia or any other court of competent jurisdiction under the Corporations Act agreed in writing by the Company and Avita US
COVID Restrictions    as defined in section 6.3(b) of this Scheme Booklet
Deed Poll    the deed poll executed by Avita US contained in Appendix D1, pursuant to which Avita US covenants in favour of Shareholders to perform certain of its obligations under the Implementation Agreement and certain steps attributed to it under the Scheme, with such amendments as are approved in accordance with its terms
DGCL    Delaware General Corporation Law
Directors    the directors of the Company
Double Tax Agreement    formal bilateral agreement between two jurisdictions that aim to prevent double taxation, fiscal evasion, and assist each country’s tax authorities in enforcing their respective tax laws
DTC    The Depository Trust Company
Effective    in relation to the Scheme, the coming into effect, under section 411(10) of the Corporations Act, of the order of the Court made under section 411(4)(b) of the Corporations Act in relation to the Scheme, but in any event at no time before an office copy of the order of the Court is lodged with ASIC
Effective Date    the date on which the Scheme becomes Effective
Eligible Shareholder    a Shareholder as at the Record Date who is not an Ineligible Shareholder
Employee Options    as defined in section 12.5 of this Scheme Booklet

 

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ESOP    as defined in section 12.5 of this Scheme Booklet
FDA    United States Food and Drug Administration
FIRB    Foreign Investment Review Board of Australia
Fractional Shareholder    an Eligible Shareholder to the extent only to which it has a Fractional Shareholder Interest and which includes a Small Shareholder
Fractional Shareholder Interest    a fractional entitlement to an Avita US Share or an entitlement to Avita US CDIs that is not sufficient to equate to a whole Avita US Share
Government Authority   

•  a government, whether foreign, federal, state, territorial or local;

 

•  a department, office or minister of a government (whether foreign, federal, state, territorial or local) acting in that capacity; or

 

•  a commission, delegate, instrumentality, agency, board, or other government, semi-government, judicial, administrative, monetary or fiscal authority, whether statutory or not and whether foreign, federal, state, territorial or local,

 

and includes ASX, ASIC, NASDAQ, FIRB, the Australian Takeovers Panel and any regulatory organisation established under statute

Hong Kong Shareholder    a Shareholder who is established in Hong Kong, or who is established outside Hong Kong but otherwise carries on business in Hong Kong for Hong Kong Profits Tax purposes
Implementation    the implementation of the Scheme in accordance with its terms on the Scheme becoming Effective
Implementation Agreement    the scheme implementation agreement entered into between the Company and Avita US contained in Appendix B of this Scheme Booklet
Implementation Date    the Business Day which is a minimum of one Business Day, but a maximum of five Business Days, after the Record Date, as the Company and Avita US may agree in writing, whereby there is a transfer of all of the Shares to Avita US and issue of Avita US Shares and Avita US CDIs to Eligible Shareholders
Independent Expert    BDO Corporate Finance Limited ACN 010 185 725 (Australian Financial Services Licence number 245513), being the independent expert in respect of the Scheme appointed by the Company to consider whether the Scheme is in the best interests of Shareholders as a whole
Independent Expert Report    the report prepared by the Independent Expert for inclusion in this Scheme Booklet stating whether or not in the Independent Expert’s opinion the Scheme is in the best interests of Shareholders as a whole, contained in Appendix A of this Scheme Booklet

 

108


Ineligible Shareholder    a Shareholder whose address, as shown in the Register (as at the Record Date), is in a place outside Australia, the United States, Hong Kong, New Zealand, the United Kingdom, France, Norway, Switzerland, the United Arab Emirates and Singapore (unless the Company is satisfied, acting reasonably, that the laws of that place permit the offer and issue of Avita US Shares or Avita US CDIs to a Shareholder in that jurisdiction and, in Avita US’s sole discretion, it is not unduly onerous or impractical for Avita US to issue Avita US Shares or Avita US CDIs to a Shareholder with a registered address in that jurisdiction)
NASDAQ    the NASDAQ Stock Market LLC and its various markets, as context requires
NASDAQ Listing Rules    the official listing rules of NASDAQ
Non-US Shareholder    as defined in section 10.2 of this Scheme Booklet
Notice of Meeting    the notice of the Scheme Meeting contained in Appendix F of this Scheme Booklet
Option    an option to subscribe for a share in a company, at a certain exercise price, within a certain exercise period
Proposed Transaction    the transaction collectively described in section 2.1 of this Scheme Booklet
Proxy Form    a proxy form for the Scheme Meeting which accompanies this Scheme Booklet and which is available from the Registry
Record Date    7.00pm (AEST) on the day which is two Business Days after the Effective Date (currently anticipated to be 25 June 2020), or any other date (after the Effective Date) agreed by the Company and Avita US to be the record date to determine entitlements to receive the Scheme Consideration under the Scheme
Register    the register of members of the Company maintained in Australia under the Corporations Act
Registry    1.1.the person operating the Register, being Computershare Investor Services Pty Limited (Level 11, 172 St Georges Terrace Perth, WA 6000 Australia)
Related Body Corporate    as defined by section 50 of the Corporations Act
RSU    a restricted security unit of a company, being an unfunded and unsecured contractual entitlement to be issued or transferred a share in the company on a future date (after vesting of the entitlement)

 

109


Sale Agent    the person nominated by the Company to sell the Avita US CDIs referrable to Selling Shareholders, being Computershare Dealing Services Pty Limited (ABN 76 085 801 350), an authorised representative (#473240) of CPU Share Plans Pty Ltd (AFSL 309884)
Sale Facility    the facility (outlined in section 11.5 of this Scheme Booklet) to be established by the Company and managed by the Sale Agent (acting on behalf of Avita US) under which the Avita US CDIs or Avita US Shares which would otherwise be received by Ineligible Shareholders and Fractional Shareholder Interests will be sold in accordance with the Scheme
Sale Facility Proceeds    as defined in section 11.5 of this Scheme Booklet
Sale Security    the Avita US CDIs or Avita US Shares issued to the Sale Agent (acting on behalf of Avita US) for the purposes of the Sale Facility
Scheme    as defined in section 2.1 of this Scheme Booklet, being the proposed scheme of arrangement between the Company and its Shareholders under which the Company will become a wholly owned subsidiary of Avita US and consequently the Avita Group will be redomiciled from Australia to the United States
Scheme Booklet    this document, including its appendices, to assist Shareholders in deciding how to vote on the Scheme Resolution
Scheme Consideration   

the Avita US CDIs or Avita US Shares that Eligible Shareholders will receive as consideration for transferring their Shares to Avita US under the Scheme, being:

 

•  for Eligible Shareholders who hold Shares (other than the ADS Depositary), 5 Avita US CDIs for every 100 Shares held by them as at the Record Date; and

 

•  for the ADS Depositary (who holds Shares for the benefit of ADS Holders), one Avita US Share for every 100 Shares held by it as at the Record Date

Scheme Meeting    the meeting of Shareholders ordered by the Court to be convened under section 411(1) of the Corporations Act to consider the approval of the Scheme Resolution
Scheme Resolution    a resolution of Shareholders to approve the Scheme under section 411(4)(a)(ii) of the Corporations Act
SEC    the United States Securities and Exchange Commission
Second Court Hearing    the first day on which the Court hears the application for an order under section 411(4)(b) of the Corporations Act approving the Scheme or (if the application is adjourned or subject to appeal for any reason) the first day on which the adjourned or appealed application is heard
Selling Shareholder    as defined in section 11.5 of this Scheme Booklet

 

110


Share    a fully paid ordinary share in the capital of the Company
Shareholder    a person who is registered in the Register as the holder of one or more Shares
Small Shareholder    an Eligible Shareholder who holds less than 100 Shares
Substantial Shareholder    a Shareholder who has a ‘substantial holding’ (defined in section 9 of the Corporations Act as having 5% or more of the total number of votes attached to voting shares) in a company
Taxable Australian Real Property    a freehold or leasehold interest in Australian real property, or mining, quarrying or protecting rights in land in Australia
United States or US    the United States of America
United States Shareholder    as defined in section 10.2 of this Scheme Booklet
US Exchange Act    the Securities Exchange Act of 1934 (US), as amended from time to time
US GAAP    Generally Accepted Accounting Principles in the United States
US Securities Act    the Securities Act of 1933 (US), as amended from time to time
Warrants    as defined in section 12.5 of this Scheme Booklet

 

111


APPENDIX A: INDEPENDENT EXPERT’S REPORT

Attached.

 

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FINANCIAL SERVICES GUIDE

Dated: 5 May 2020

The Financial Services Guide (‘FSG’) is provided to comply with the legal requirements imposed by the Corporations Act 2001 and includes important information regarding the general financial product advice contained in this report (‘this Report’). The FSG also includes general information about BDO Corporate Finance Ltd ABN 54 010 185 725, Australian Financial Services Licence No. 245513 (‘BDOCF’ or ‘we’, ‘us’ or ‘our’), including the financial services we are authorised to provide, our remuneration and our dispute resolution.

BDOCF holds an Australian Financial Services Licence to provide the following services:

 

  a)

Financial product advice in relation to deposit and payment products (limited to basic deposit products and deposit products other than basic deposit products), securities, derivatives, managed investment schemes, superannuation, and government debentures, stocks and bonds; and

 

  b)

Arranging to deal in financial products mentioned in a) above, with the exception of derivatives.

General Financial Product Advice

This Report sets out what is described as general financial product advice. This Report does not consider personal objectives, individual financial position or needs and therefore does not represent personal financial product advice. Consequently, any person using this Report must consider their own objectives, financial situation and needs. They may wish to obtain professional advice to assist in this assessment.

The Assignment

BDOCF has been engaged to provide general financial product advice in the form of a report in relation to a financial product. Specifically, BDOCF has been engaged to provide an independent expert’s report to the shareholders of AVITA Medical Limited (‘AVITA Medical’ or ‘the Company’) in relation to a proposed restructure that will result in the redomicile of AVITA Medical and its subsidiaries (‘the Avita Group’) from Australia to the United States of America (‘the Redomiciliation Transaction’). The Redomiciliation Transaction is to be implemented by way of a Scheme of Arrangement (‘the Scheme’).

Further details of the Redomiciliation Transaction are set out in Section 4. The scope of this Report is set out in detail in Section 3.3. This Report provides an opinion on whether or not the Redomiciliation Transaction is in the ‘best interests’ of AVITA Medical’s shareholders (‘the Shareholders’) and has been prepared to provide information to the Shareholders to assist them to make an informed decision on whether to vote in favour of or against the Redomiciliation Transaction. Other important information relating to this Report is set out in more detail in Section 3.

This Report cannot be relied upon for any purpose other than the purpose mentioned above and cannot be relied upon by any person or entity other than those mentioned above, unless we have provided our express consent in writing to do so. A shareholder’s decision to vote in favour of or against the Redomiciliation Transaction is likely to be influenced by their particular circumstances, for example, their taxation considerations and risk profile. Each shareholder should obtain their own professional advice in relation to their own circumstances.

Fees, Commissions and Other Benefits We May Receive

We charge a fee for providing reports. The fees are negotiated with the party who engages us to provide a report. We estimate the fee for the preparation of this Report will be approximately $110,000 plus GST. Fees are usually charged as a fixed amount or on an hourly basis depending on the terms of the agreement with the engaging party. Our fees for this Report are not contingent on the outcome of the Redomiciliation Transaction.

Except for the fees referred to above, neither BDOCF, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of this Report.

Directors of BDOCF may receive a share in the profits of BDO Group Holdings Limited, a parent entity of BDOCF. All directors and employees of BDO Group Holdings Limited and its subsidiaries (including BDOCF) are entitled to receive a salary. Where a director of BDOCF is a shareholder of BDO Group Holdings Limited, the person is entitled to share in the profits of BDO Group Holdings Limited.

Associations and Relationships

From time to time BDOCF or its related entities may provide professional services to issuers of financial products in the ordinary course of its business. These services may include audit, tax and business advisory services. Neither BDOCF nor its related entities have provided any professional services to AVITA Medical in the last two years.

The signatories to this Report do not hold any shares in AVITA Medical and no such shares have ever been held by the signatories.

To prepare our reports, including this Report, we may use researched information provided by research facilities to which we subscribe or which are publicly available. Reference has been made to the sources of information in this Report, where applicable. Research fees are not included in the fee details provided in this Report.

 

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Complaints

We are members of the Australian Financial Complaints Authority. Any complaint about our service should be in writing and sent to BDO Corporate Finance Ltd, GPO Box 457, Brisbane QLD 4001.

We will endeavour to resolve the complaint quickly and fairly. If the complaint cannot be satisfactorily resolved within 45 days of written notification, there is a right to lodge a complaint with the Australian Financial Complaints Authority. They can be contacted on 1800 931 678. This service is provided free of charge.

If the complaint involves ethical conduct, a complaint may be lodged in writing with Chartered Accountants Australia and New Zealand, Queensland Branch, GPO Box 2054, Brisbane QLD 4001. The Australian Securities and Investments Commission (‘ASIC’) also has an Infoline on 1300 300 630 which can be used to make a complaint and obtain information about investor rights.

Compensation Arrangements

BDOCF and its related entities hold Professional Indemnity insurance for the purpose of compensating retail clients for loss or damage suffered because of breaches of relevant obligations by BDOCF or its representatives under Chapter 7 of the Corporations Act 2001. These arrangements and the level of cover held by BDOCF satisfy the requirements of section 912B of the Corporations Act 2001.

Contact Details

BDO Corporate Finance Ltd

 

Location Address:    Postal Address:
Level 10    GPO Box 457
12 Creek Street    BRISBANE QLD 4001
BRISBANE QLD 4000   
Phone: (07) 3237 5999    Email: cf.brisbane@bdo.com.au
Fax: (07) 3221 9227   

 

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CONTENTS   

 

Financial Services Guide

     i  

Glossary

     iv  

PART I: ASSESSMENT OF THE REDOMICILIATION TRANSACTION

     1  

1.0

   Introduction      1  

2.0

   Assessment of the Redomiciliation Transaction      2  
   2.1    Basis of Evaluation and Assessment Methodology      2  
   2.2    Advantages of the Redomiciliation Transaction      2  
   2.3    Disadvantages of the Redomiciliation Transaction      4  
   2.4    Other Considerations      5  
   2.5    Position of the Shareholders if the Redomiciliation Transaction is Not Approved      7  
   2.6    Best Interests Opinion      7  

3.0

   Important Information      8  
   3.1    Read this Report, and other documentation, in full      8  
   3.2    Shareholders’ individual circumstances      8  
   3.3    Scope      8  
   3.4    Purpose of this Report      9  
   3.5    Current Market Conditions      9  
   3.6    Reliance on Information      10  
   3.7    Glossary      10  
   3.8    Sources of Information      10  
   3.9    Qualifications      11  

PART II: INFORMATION SUPPORTING OUR OPINION ON THE REDOMICILIATION TRANSACTION

     12  

4.0

   Overview of the Redomiciliation Transaction      12  
   4.1    Summary of the Redomiciliation Transaction      12  
   4.2    Conditions Precedent to the Redomiciliation Transaction      15  
   4.3    Strategic Rationale for the Redomiciliation Transaction      15  

5.0

   Background of AVITA Medical      16  
   5.1    Overview of AVITA Medical      16  
   5.2    Equity Structure of AVITA Medical      18  
   5.3    Listing on the NASDAQ as Foreign Private Issuer      19  
   5.4    Share Performance of AVITA Medical      21  
   5.5    Historical Financial Information of AVITA Medical      25  

6.0

   Industry Overview      28  
   6.1    Overview of the Global Medical Device Industry      28  

 

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GLOSSARY

 

Reference

  

Definition

$    Australian dollars
AASB    Australian Accounting Standards Board
ADS Depositary    ADS depositary represented by The Bank of New York Mellon
ADS    An American depositary share representing twenty (20) ordinary shares in AVITA Medical
AIFRS    International Financial Reporting Standards in Australia
Analysis Period, the    12 month periods ended 30 June 2018 and 30 June 2019 and the 6 month period ended 31 December 2019
Avita Group, the    AVITA Medical and its subsidiaries
AVITA Medical    AVITA Medical Limited
Avita US    AVITA Therapeutics, Inc the newly incorporated holding company set up in the US as part of the Scheme which will acquire and hold all of the issued share capital of the Company if the Scheme becomes effective
Avita US CDIs    CDIs to be issued to Eligible Shareholders in Avita US as part of the Scheme
Avita US Share    A share of common stock to be issued to Eligible Shareholders in Avita US as part of the Scheme
ASIC    Australian Securities and Investments Commission
ASX    Australian Securities Exchange
BARDA    Biomedical Advanced Research and Development Authority
BDO Persons    BDOCF, BDO or any of its partners, directors, agents or associates
BDOCF    BDO Corporate Finance Ltd
Board, the    The board of directors of the Company
C&A    Corporate and administrative
CAGR    Compound annual growth rate
CDI    Chess depositary interests listed on the ASX
CFDA-cleared    China Food and Drug Administration cleared
CHIA    Chi-X Australia
Company, the    AVITA Medical Limited
Corporations Act, the    The Corporations Act 2001 (Cth)
DB    Deutsche Boerse AG
Directors, the    The directors of the Company
EB    Epidermolysis bullosa
Eligible Shareholders    Shareholders whose addresses in the Company’s shareholder register are within Australia, US, Hong Kong, Norway, Switzerland, United Arab Emirates, United Kingdom, Singapore, France, New Zealand and any Other Jurisdiction.
ENT    Ear, nose, and throat
FDA    United States Food and Drug Administration
FPI    Foreign private issuer
Fractional Entitlements    A fractional entitlement to an Avita US Share or an entitlement to Avita US CDIs that is not sufficient to equate to a whole Avita US Share
Fractional Shareholders    Eligible Shareholders who have a Fractional Entitlement to an Avita US Share or Avita US CDI as part of the Scheme Consideration
FSG    Financial Services Guide
FY18    Financial year ended 30 June 2018
FY19    Financial year ended 30 June 2019
GAAP    Generally Accepted Accounting Principles
GICS    Global Industry Classification Standards
HY19    Half year ended 31 December 2019
IDE    Investigational device exemptions
Ineligible Foreign Shareholders    Shareholders whose addresses in the Company’s shareholder register are outside Australia, US, Hong Kong, Norway, Switzerland, United Arab Emirates, United Kingdom, Singapore, France, New Zealand and any Other Jurisdiction.
LTI    Long term incentive plan
Management, the    The management of AVITA Medical Limited and its advisers
NYSE    New York Stock Exchange

 

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Reference

  

Definition

OTC    Over the counter
Other Jurisdiction    Jurisdiction whereby the laws permit the offer and issue of Avita US Shares or Avita US CDIs to a shareholder and, in Avita US’s sole discretion, it is not unduly onerous or impractical for Avita US to issue Avita US Shares or Avita US CDIs to a shareholder with a registered address in that jurisdiction
PS    Pink Sheets LLC
Record Date    The date for determining entitlements to Avita US Shares or CDIs
Redomiciliation Transaction, the    The proposed re-incorporation of AVITA Medical and its subsidiaries from Australia to the United States
Regulations, the    The Corporations Regulations 2001
RES    Regenerative epidermal suspension
Report, this    This independent expert’s report prepared by BDOCF and dated 5 May 2020
R&D    Research and development
RG 111    Regulatory Guide 111: Content of Expert Report, issued by ASIC
RGs    Regulatory guides published by ASIC
RSUs    Restricted stock units
Sale Agent    Person nominated by Avita US to sell the scheme consideration of behalf of Ineligible Foreign Shareholders
SBP    Share based payment
Scheme    Scheme of arrangement
Scheme Booklet, the    The scheme booklet prepared by the Company dated on or about 11 May 2020
Scheme Consideration    Consideration offered to Shareholders under the Scheme
Scheme Meeting, the    Scheme meeting proposed to be held on 15 June 2020 at 9:00am AEST
SEC    United States’ Securities and Exchange Commission
Selling Shareholders    The Ineligible Foreign Shareholders and Fractional Shareholders
Shareholders, the    The holders of fully paid ordinary shares in the Company
SIA    Scheme implementation agreement dated 20 April 2020
SOX    Sarbanes-Oxley Act of 2002
TGA – registered    Therapeutic Goods Administration registered
US    United States of America
$USD    United States Dollars
US Markets    The markets AVITA Medical’s ADSs have been traded, in this instance NASDAQ and OTC market
VWAP    Volume weighted average price
We, us, our    BDO Corporate Finance Ltd

 

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  Tel: +61 7 3237 5999    Level 10, 12 Creek St
  Fax: +61 7 3221 9227    Brisbane QLD 4000
  www.bdo.com.au    GPO Box 457 Brisbane QLD 4001
     Australia

PART I: ASSESSMENT OF THE REDOMICILIATION TRANSACTION

The Shareholders

C/- The Directors

AVITA Medical Limited

Level 7, 330 Collins Street

Melbourne VIC 3000

5 May 2020

Dear Shareholders,

 

1.0

Introduction

BDO Corporate Finance Ltd (‘BDOCF’, ‘we’, ‘us’ or ‘our’) has been engaged to provide an independent expert’s report (‘this Report’) to the shareholders (‘the Shareholders’) of AVITA Medical Limited (‘AVITA Medical’ or ‘the Company’) in relation to the proposed redomiciliation of AVITA Medical and its subsidiaries (‘the Avita Group’) from Australia to the United States of America (‘US’) (‘the Redomiciliation Transaction’).

The Redomiciliation Transaction will be implemented by way of a scheme of arrangement (‘Scheme’) under Part 5.1 of the Corporations Act 2001 (‘the Corporations Act’) whereby AVITA Medical will be acquired by a newly formed holding company incorporated in Delaware in the US. The holding vehicle used to acquire AVITA Medical is named AVITA Therapeutics, Inc (‘Avita US’).

As consideration for eligible AVITA Medical shareholders transferring their shares to Avita US under the Scheme, an implicit consolidation of securities will occur, whereby eligible AVITA Medical shareholders will receive the equivalent of one share of common stock of Avita US (‘Avita US Share’) for every 100 AVITA Medical shares held as at the date for determining entitlements (‘Record Date’). The Redomiciliation Transaction will not materially change an eligible shareholders underlying ownership interests. The common stock in Avita US will be listed on the NASDAQ as the primary listing and as CHESS Depositary Interests (‘CDIs’) which will be traded on the Australian Securities Exchange (‘ASX’) as the secondary listing. AVITA Medical (the former Australian head entity) will subsequently delist from the ASX and the NASDAQ.

The assets and business activities of AVITA Medical immediately following the Redomiciliation Transaction will remain the same as those prior to the Redomiciliation Transaction. Following the Redomiciliation Transaction, Avita US does not intend to make any major changes to the underlying business or operations of the Company.

A more detailed description of the Redomiciliation Transaction is set out in Section 4.

The Shareholders are requested by the directors of AVITA Medical (‘the Directors’) to vote in favour of or against the Redomiciliation Transaction at the scheme meeting expected to be held on 15 June 2020 (‘the Scheme Meeting’).

In this Report we provide our opinion on whether the Redomiciliation Transaction is in the best interests of the Shareholders as a whole. The scope and purpose of this Report are detailed in Sections 3.3 and 3.4 respectively.

This Report, including Part I and Part II, should be read in full along with all other documentation provided to the Shareholders, including the scheme booklet prepared by AVITA Medical and dated on or about 11 May 2020 (‘the Scheme Booklet’).

BDO Corporate Finance Ltd ABN 54 010 185 725 AFS Licence No. 245513 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Corporate Finance Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation.

 


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2.0

Assessment of the Redomiciliation Transaction

This section is set out as follows:

 

   

Section 2.1 sets out our assessment methodology in relation to the Redomiciliation Transaction;

 

   

Section 2.2 sets out the advantages of the Redomiciliation Transaction to the Shareholders;

 

   

Section 2.3 sets out the disadvantages of the Redomiciliation Transaction to the Shareholders;

 

   

Section 2.4 sets other considerations which are relevant to the Redomiciliation Transaction;

 

   

Section 2.5 sets out the position of Shareholders if the Redomiciliation Transaction is not approved; and

 

   

Section 2.6 sets out our opinion on whether the Redomiciliation Transaction is in the best interests of the Shareholders.

 

2.1

Basis of Evaluation and Assessment Methodology

In undertaking our work we have considered the legal requirements and guidance of the Corporations Act 2001 (Cth) (‘the Corporations Act’), the Corporations Regulations 2001 (‘the Corporations Regulations’), the regulatory guides (‘RGs’) published by the Australian Securities and Investments Commission (‘ASIC’) although note that there is no legal definition of the expression ‘in the best interests’.

To form our view on the most appropriate manner to assess the Redomiciliation Transaction we considered certain characteristics of the Redomiciliation Transaction including:

 

   

The Redomiciliation Transaction effectively represents the creation of a new corporate structure, with a new holding company for the group. The underlying economic interests of the Shareholders will remain unchanged (with the exception of Ineligible Foreign Shareholders1 and Fractional Shareholders2); and

 

   

The assets, operation and business activities of AVITA Medical immediately following the Redomiciliation Transaction will remain the same as those prior to the Redomiciliation Transaction.

Having regard to the above, it is our view that the Redomiciliation Transaction does not represent a control transaction and that it is appropriate to assess the Redomiciliation Transaction having regard to the guidance set out in paragraphs RG 111.35 to RG 111.37 of ASIC Regulatory Guide 111: Content of expert reports (‘RG 111’).

RG 111.35 to RG 111.36 state that in the absence of a change in the underlying economic interest of the security holders, a change of control, or selective treatment of different security holders, the issue of ‘value’ may be of secondary importance. In these circumstances, the expert should provide an opinion as to whether the advantages of the transaction outweigh the disadvantages.

RG 111.37 states that where such a transaction involves a scheme of arrangement and the expert concludes the advantages of the transaction outweigh the disadvantages, the expert should conclude that the scheme is in the best interests of the security holders.

In forming our view on whether or not the Redomiciliation Transaction is in the best interests of the Shareholders, we have considered the following:

 

   

Advantages of the Redomiciliation Transaction to the Shareholders (refer to Section 2.2);

 

   

Disadvantages of the Redomiciliation Transaction to the Shareholders (refer to Section 2.3); and

 

   

Other considerations of the Redomiciliation Transaction that may apply to the Shareholders (refer to Section 2.4) and the position of Shareholders if the Redomiciliation Transaction is not approved (refer to Section 2.5).

Our opinion on the Redomiciliation Transaction is set out in Section 2.6 below.

 

2.2

Advantages of the Redomiciliation Transaction

2.2.1 Avoidance of Being a ‘Dual Compliant’ Company and Reduced Compliance Costs

AVITA Medical is incorporated in Australia as an Australian public company with a primary listing on the ASX and is required to prepare financial statements under applicable Australian laws in accordance with the International Financial Reporting Standards in Australia (‘AIFRS’). The Company also has a substantial commercial presence in the US and since September 2019, has been listed on the NASDAQ as a secondary listing. Consequently, AVITA Medical is a dual listed company with shares traded on the ASX, under the ticker AVH. The Company is also listed on the NASDAQ, with a ticker RCEL, through American depositary shares (‘ADSs’). For completeness one (1) ADS represents twenty (20) ordinary shares in AVITA Medical.

All companies, including dual listed companies, must prepare and lodge financial statements and comply with, among other things:

 

1 

Shareholders whose addresses recorded in the share register are outside Australia, US, Hong Kong, Norway, Switzerland, United Arab Emirates, United Kingdom, Singapore, France, New Zealand and any other jurisdiction which is not prohibited.

2 

Eligible Shareholder to which it has a fractional entitlement to an Avita US Share or entitlement to Avita US CDIs that is not sufficient to equate to a whole security.

 

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The corporate and securities law requirements of the jurisdiction in which they are incorporated;

 

   

The regulations imposed by the relevant corporate regulator; and

 

   

The requirements of the relevant securities exchange.

A dual listed company is treated as a ‘foreign company’ in the jurisdiction it elects for the secondary trading of its securities. A ‘foreign company’ is generally subject to meaningfully lower levels of regulation and compliance in the second jurisdiction. Given the NASDAQ is the Company’s secondary listing, it is treated as a ‘foreign company’ in the US.

AVITA Medical historically qualified for the ‘foreign private issuer’ exemption status by the United States’ Securities and Exchange Commission (‘SEC’) and was exempt from the financial reporting requirements applicable to US domestic companies under applicable laws in the US (such as preparing financial statements in accordance with US Generally Accepted Accounting Principles (‘GAAP’)).

We understand that effective from 31 December 2019, the Company is considered to have domestic status in the US as it does not qualify as a foreign private issuer (‘FPI’). Further background on AVITA Medical’s FPI status is set out in Section 5.3 of this Report.

The practical consequences of not qualifying as a FPI are that AVITA Medical will be required to comply with the listing and compliance requirements of two jurisdictions (i.e. it is not currently possible to have Australia as the sole domestic jurisdiction while remaining listed on the NASDAQ). In addition to continuing to incur the costs (e.g. the Company estimates external professional costs are approximately $400,000 per annum) and burdens on internal management and resources associated with preparing financial statements under applicable Australian laws (in accordance with AIFRS), the Company will also be required to prepare a second set of financial statements under applicable United States laws (in accordance with US GAAP). Preparing financial statements in accordance with US GAAP will require the Company to engage US-based auditors and legal counsel to assist in the preparation, filing and auditing of the financial statements and related corporate filings. AVITA Medical has estimated that the additional costs of preparing financial statements in accordance with US GAAP will be approximately United States Dollars (‘$USD’) 850,000 per annum for professional fees in addition to being a burdensome and time consuming process for AVITA Medical management (‘Management’).

If the Redomiciliation Transaction is approved, Avita US will be a domestic public company in only one jurisdiction (i.e. the US) and the jurisdiction it will be located in is the one where its operations are located and it is seeking to grow its market presence. Avita US will only have domestic status in the United States and it will only be required to prepare its financial statements under US GAAP. As there will be no requirement to also prepare financial statements in accordance with AIFRS, Management expect that the duplication of costs, resourcing, burdens and risks associated with dual compliance will be largely avoided.

We note that if the Redomiciliation Transaction is implemented, Shareholders will continue to receive detailed financial reports on corporate activities and developments as Avita US will file its financial statements with the SEC and ASIC and make them publicly available through the ASX, NASDAQ and the Company’s website.

2.2.2 Alignment of Corporate Structure with Operating Model

AVITA Medical’s primary place of business is in the US and with the exception of three individuals, all of the Company’s employees are situated in the US (refer to Section 5 for more details on the Company’s background).

The Redomiciliation Transaction will make the Company’s structure more aligned with:

 

   

Its principal place of business, which is the US;

 

   

Where the majority of its employees are located;

 

   

Where the majority of issued capital is beneficially held; and

 

   

Its growth strategy to continue to increase market presence in the US where 95% of the revenue is currently sourced. We note that the Company completed a national market launch of its RECELL System in the US in January 2019 and that Management have identified a $USD 2+ billion market opportunity in the US for the use of the RECELL System in both in-patient and out-patient burns, paediatric scalds, trauma and vitiligo.

This structure may be better understood by potential investors in the US, and may assist in simplifying future merger, sale or acquisition transactions, which may increase Avita US’s attractiveness to potential future merger partners or acquirers in the US.

This structure will also provide a more suitable framework to pursue the Avita Group’s growth strategy in the US as Management is based in the US and are therefore more familiar with the legislative and regulatory requirements in the US. Further, senior management will have easier access to legal, accounting and other resources to comply with US laws and regulations, which Management anticipates should help reduce the Avita Group’s overhead costs.

2.2.3 Increased Attractiveness to Investors in the USA

The US is the largest medical device market globally (refer Section 6 below for a summary of the listed medical device markets) and the market that Management expect to direct their efforts and commercial resources toward in the first instance.

 

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The Redomiciliation Transaction may assist to increase investor awareness of the Avita Group in the US and attract a broader universe of potential investors. In particular, we note that:

 

   

It may be easier for US investors with restrictive investment mandates to invest in Avita US;

 

   

Avita US will have greater exposure and be more accessible to a number of specialist investment funds which are often more comfortable investing in US domiciled companies and companies reporting under US GAAP;

 

   

Professional US investors may have a preference for investing in US domiciled and regulated companies. One reason for this is that investors in the US, and their advisers, are more familiar, in broad terms, with US corporations and securities legislation, rules and practices. We also note that it may be easier to undertake research on a company with a primary listing on the NASDAQ (relative to a secondary listing utilising ADSs); and

 

   

US shareholders with ADSs are required to pay depositary fees. Following the Redomiciliation Transaction, these fees will no longer be payable by US investors (and, for completeness, we note that holders of Avita US CDIs will not be required to pay depositary fees in respect of their Avita US CDIs either).

The US capital market is one of the largest in the world and, for the reasons set out above, moving the primary listing to the US may result in increased investor demand and increased liquidity. Exposure to larger and more diverse financial markets may also result in greater access to lower-cost debt and/or equity capital relative to a company domiciled in Australia with a primary listing on the ASX.

We note that we would expect the CDI trading price, adjusted for foreign exchange and the correct ratio, to broadly track the NASDAQ trading price given that 5 Avita US CDIs will be able to be converted into one Avita US Share. On this basis, increased demand as a result of increased attractiveness to investors in the US may also flow through to holders of CDIs.

2.2.4 Retention of Dual Listing

Following the Redomiciliation Transaction, the Avita Group will remain dual listed, albeit with a primary listing on the NASDAQ and a secondary listing of CDIs on the ASX. The associated ticker code for the NASDAQ and the ASX will remain unchanged. For the reasons set out in Section 2.2.3, a primary listing on the NASDAQ may increase the attractiveness of the Avita Group to investors relative to a primary listing on the ASX. A secondary listing on the ASX has certain benefits to the holders of those securities (relative to ADSs on the NASDAQ) as, unlike ADS holders, CDI holders are not required to pay depositary fees.

We have discussed further implications of the change in securities held in Section 2.4.3 below.

 

2.3

Disadvantages of the Redomiciliation Transaction

2.3.1 Implementation Costs

The Redomiciliation Transaction involves one-off transaction costs related to the implementation of the Scheme, advisory fees, registration and filing fees which are estimated to be in the range of $USD 1.0 million to $USD 1.3 million. However, these are largely sunk costs as the Directors expect that the majority of the implementation costs will have been incurred before the Scheme Meeting which is expected to be held on 15 June 2020.

2.3.2 Changes to Protection of Shareholders under New Jurisdiction

On implementation of the Scheme, the Shareholders will become holders of Avita US Shares or CDIs as a company incorporated in Delaware in the US. Under the revised incorporation, Avita US will not be subject to the majority of the provisions of the Corporations Act to which AVITA Medical is currently subject and may be more familiar to the Shareholders residing in Australia. The rights of Avita US stockholders will instead be governed by the Corporations Act requirements for registered foreign companies and the laws of the State of Delaware, including the Delaware General Corporation Law, US federal securities laws, NASDAQ listing rules and Avita US’s certificate of incorporation and by laws.

The Shareholders receiving Avita US Shares (or Avita US CDIs) in exchange for their ordinary shares may also have reduced takeover protection under Delaware and US laws, compared to the protection available under Australian law.

AVITA Medical, as an Australian-listed company, is subject to the takeover provisions of the Corporations Act, which protect minority shareholders on a change of control or acquisition above 20% and restrict the AVITA’s board of Directors (‘the Board’) ability to take defensive steps that could impact competition for control of the Company. Delaware law provides alternate and in some respects reduced protection, which may impact shareholders negatively in certain circumstances.

Shareholders should refer to Appendix G of the Scheme Booklet for further information in relation to the US provisions to which Avita US will be subject to.

2.3.3 Exposure to Additional Litigation Risk

Avita US may be exposed to increased litigation as a Delaware US based corporation, as the legal environment in the Delaware is generally understood to be more litigious than Australia. For instance, under Delaware law, derivative action brought by shareholders must be settled or dismissed through a court approval process. Further, shareholders in the US are entitled to commence class action suits to enforce any obligations directly owed to them by a company. Consequently, there is increased risk that a dispute could add litigation costs as well as adversely affect Avita US’s reputation, financial performance or value. For completeness we note the gap between the legal environments is closing due to increased class action litigation in Australia in recent years.

 

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2.3.4 Implications for Ineligible Foreign Shareholders and Fractional Shareholders

The Avita US Shares that would otherwise have been issued under the Scheme to foreign shareholders who are restricted from receiving shares under the Scheme (‘Ineligible Foreign Shareholders’) and Fractional Shareholders, in respect of their fractional entitlements (collectively, ‘Selling Shareholders’) will be issued to a Sale Agent to disburse proceeds through a sale facility.

Under the sale facility, the amount of money to be received by each Selling Shareholder will be calculated on an averaged basis using the net proceeds of all such sales after deduction of any applicable brokerage and associated taxes to ensure the Selling Shareholders receive the same price.

Consequently, Selling Shareholders in AVITA Medical will no longer hold equivalent securities in Avita US that they previously held in the Company and will not be able to benefit in any potential future upside that may have resulted from such a holding. They will however be able to deploy the sale proceeds as they see fit (including repurchasing Avita US Shares).

Refer to Section 11 of the Scheme Booklet for more information on the sale facility.

 

2.4

Other Considerations

2.4.1 Legal Implications for Shareholders

If the Redomiciliation Transaction is implemented, the parent entity (i.e Avita US) will be incorporated in Delaware and will be subject to US laws, which differ from Australian laws. There are differences between the regulatory regimes in the US and Australia. These are detailed in Appendix G of the Scheme Booklet. While some differences may be advantageous to Shareholders, some differences may also be disadvantageous to Shareholders.

2.4.2 Avita US will Report Under US GAAP

We understand, as outlined in Section 5.3, with the loss of FPI status, effective from 30 June 2020, the Company is required to prepare an annual report under the following accounting standards:

 

   

AIFRS and the resulting AIFRS annual report is lodged with ASIC and the ASX; and

 

   

US GAAP and the resulting US GAAP financial report is lodged with the SEC.

On implementation of the Scheme, we have been informed Avita US will only be required to prepare an annual report in US dollars adopting US GAAP to lodge with the SEC and ASX. The AVITA Medical Board have considered the different accounting standards and expect the financial statements to be comparable, noting several items will be classified differently under the different accounting principles. We also understand there will be additional financial disclosure given the requirement under US laws for detailed quarterly financial reports, reported on Form 10-Q.

While there may be differences in the measurement criteria in the financial statements, the AVITA Medical Board do not expect any impact on the ability to generate underlying operating cash flows. We also note that the preparation of financial statements under US GAAP will align the Avita Group’s financial statements with other medical device companies reporting in the US.

2.4.3 Change in Equity Interests Held

Impact on ADS Holders Holding Avita US Shares Instead of ADSs

AVITA Medical currently has a secondary listing on the NASDAQ where the Company’s shares are traded as ADSs. ADS holders are required to pay fees to the ADS depositary, being the Bank of New York Mellon (‘ADS Depositary’). These are periodic service fees to compensate the depositary bank for providing custodial services.

Additionally, ADS holders are not entitled to vote and instead ADS holders are required to instruct the ADS Depositary, who vote on their behalf.

Given the ADS holders will have their ADSs converted to Avita US Shares, the following will occur:

 

   

The depositary fees associated with ADSs will no longer be applicable; and

 

   

Avita US stockholders will be entitled to vote directly.

Impact on Shareholders Holding CDIs Instead of Shares

Shareholders who receive their shares in Avita US as CDIs will not be recorded on Avita US’s share register as shareholders. Rather, the Authorised Nominee3 will be recorded as the holder of shares held as CDIs. Consequently, holders of CDIs will have ‘beneficial’ ownership rather than ‘legal’ ownership.

 

3 

The authorised nominee is CHESS Depositary Nominees Pty Limited (ACN 071 346 503, Australian Financial Licence number 254514), a wholly-owned subsidiary of ASX.

 

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Section 13 of the Australian Settlement and Transfer Corporation Settlement Rules contain provisions which ensure that CDI holders have the direct economic and other benefit of holding the underlying securities with the exception of voting arrangements. We are advised that holders of CDIs will be able to exercise their rights to attend and vote at Avita US’s general meetings either by:

 

   

Instructing the authorised nominee; or

 

   

Attending as the authorised nominee’s proxy.

For completeness we note that holders of Avita US CDIs are able to transmute their CDIs to Avita US Shares at any point in time and vice versa.

2.4.4 Foreign Exchange Implications

In our view, there is unlikely to be a material change in foreign exchange implications for Shareholders as a result of the Redomiciliation Transaction. In particular, we note:

 

   

Avita Medical’s operating cash flows are largely in $USD and this will not change as a result of the Redomiciliation Transaction;

 

   

Avita Medical’s assets and liabilities are largely in $USD and this will not change as a result of the Redomiciliation Transaction; and

 

   

the Company has not entered into any foreign currency swaps or other derivative arrangements for the benefit of Australian shareholders prior to the proposed redomiciliation and has no intention of doing so in the future.

2.4.5 Exchange Ratio under the Redomiciliation Transaction

As set out in the Scheme Booklet we understand the exchange ratio has been determined having regard to:

 

   

the current trading price of Shares on the ASX and Company ADSs on the NASDAQ;

 

   

the theoretical trading price of Avita US Shares and the trading price that is expected of a stock listing on a major stock exchange in the US (as well as the ASX);

 

   

the issued capital profile of various comparable companies that are listed on NASDAQ and the ASX; and

 

   

the minimum trading price requirement of $USD 1.00 on NASDAQ for all continued listings.

While there will be less shares on issue in Avita US and the share price per share will be higher accordingly, we would not expect the exchange ratio to have a material impact on the equity value attributable to all Shareholders in aggregate.

2.4.6 Trading Price of Avita US Shares and Avita US CDIs May Differ from Shares and ADSs of AVITA Medical

The value of Avita US Shares and Avita US CDIs to be received by Eligible Shareholders will depend on the price at which Avita US Shares and Avita US CDIs trade on the NASDAQ and ASX after the implementation of the Redomiciliation Transaction. This price may be different from the price at which AVITA Medical ADSs and AVITA Medical shares trade on the NASDAQ and the ASX prior to the implementation of the Redomiciliation Transaction (although we note for completeness the underlying equity interest of Eligible Shareholders in the Avita Group will essentially remain unchanged).

2.4.7 Liquidity of Avita US Shares and Avita US CDIs May Differ from Shares and ADSs of AVITA Medical

The liquidity of Avita US CDIs may be significantly different from the liquidity of AVITA Medical shares on the ASX as investors in Australia might be less likely to invest in a secondary listing in Australia. For completeness, we note that we have not performed a liquidity analysis of Avita US CDIs or Avita US Shares post the Redomiciliation Transaction as the liquidity will be dependent on market conditions and demand of shares and CDIs of Avita US at that time. AVITA Medical’s securities currently have greater liquidity on the ASX then they do on the NASDAQ via ADSs (refer to Section 5.4 for liquidity analysis of AVITA Medical’s securities on the listed markets).

2.4.8 Taxation Implications for Shareholders

An overview of the tax implications of the Redomiciliation Transaction for Shareholders is set out in Section 4.1.6 of our Report. Shareholders are directed to Section 10 of the Scheme Booklet for a more detailed explanation. The tax position of each Shareholder can differ significantly and individual Shareholders are advised to obtain their own tax advice, having regard to their personal circumstances and relevant jurisdiction.

2.4.9 Change in Eligibility for Market Specific Indices

We understand that AVITA Medical is currently included on ASX indices such as the ASX 200 and the ASX 300. Only stocks listed on the ASX are considered for inclusion in any of the ASX indices. Generally speaking, indices draw from the complete set of ASX listed stocks which includes secondary listings on the ASX and foreign domiciled entities which are registered overseas and whose primary listing is on an exchange other than the ASX.

However, we note securities classified as ‘foreign domiciled’ are ineligible to be included on the ASX All Australian Indices, therefore post the Redomiciliation Transaction, Avita US will not meet eligibility requirements for the ASX All Australian 200, but may meet the requirements for other ASX Indices. We understand Avita US may meet the requirements of some NASDAQ specific indices on implementation of the Scheme.

 

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2.5

Position of the Shareholders if the Redomiciliation Transaction is Not Approved

The position of the Shareholders if the Redomiciliation Transaction is not approved will remain predominately the same as the current circumstances in that they will continue to remain Shareholders in an Australian listed company, notwithstanding that the advantages and disadvantages (as discussed in Sections 2.2 and 2.3 of this Report) of being a company domiciled in the US will not come to fruition.

We note that the transaction costs associated with the Scheme are estimated to be in the range of $USD 1.0 million to $USD 1.3 million as at the date of the Scheme Booklet (refer to Section 12.3 of the Scheme Booklet for further details on costs incurred by AVITA Medical). If the Scheme is implemented, Shareholders will be able to capitalise on the funds already invested by the Company and benefit from the expected advantages of the Scheme. Should the Scheme not be implemented, the transaction cost associated with the Scheme will become sunk costs that Shareholders will be unable to derive benefit.

Irrespective of whether or not the Redomiciliation Transaction is approved, we cannot guarantee that the share price of AVITA Medical or Avita US will be maintained at a level commensurate with the price at which AVITA Medical has traded on the ASX recently or at any time in the past.

 

2.6

Best Interests Opinion

It is our view that, on balance and considering the Shareholders as a whole, the advantages of the Redomiciliation Transaction outweigh its disadvantages. Therefore, in our opinion, the Redomiciliation Transaction is in the best interests of the Shareholders as a whole in the absence of an alternative proposal or any further information.

Before forming a view on whether to vote in favour of or against the Redomiciliation Transaction, we strongly recommend that Shareholders:

 

   

Have regard to the information set out in the Scheme Booklet and the balance of this Report, including the Important Information set out in Section 3, before deciding whether to vote in favour of or against the Redomiciliation Transaction;

 

   

Consult their own professional advisers; and

 

   

Consider their specific circumstances.

 

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3.0

Important Information

 

3.1

Read this Report, and other documentation, in full

This Report, including Part I and Part II, should be read in full to obtain a comprehensive understanding of the purpose, scope, basis of evaluation, limitations, information relied upon, analysis, assumptions underpinning our work and our findings.

Other information provided to the Shareholders in conjunction with this Report should also be read in full, including the Scheme Booklet.

 

3.2

Shareholders’ individual circumstances

Our analysis has been completed and our conclusions expressed at an aggregate level having regard to the Shareholders as a whole. BDOCF has not considered the impact of the Redomiciliation Transaction on the particular circumstances of individual Shareholders. Individual Shareholders may place a different emphasis on certain elements of the Redomiciliation Transaction relative to the emphasis placed in this Report. Accordingly, individual Shareholders may reach different conclusions as to whether or not the Redomiciliation Transaction is in their best interests having regard to their individual circumstances.

The decision of an individual shareholder to vote in favour of or against the Redomiciliation Transaction is likely to be influenced by their particular circumstances and accordingly, the Shareholders are advised to consider their own circumstances and seek their own independent advice.

Voting in favour of or against the Redomiciliation Transaction is a matter for individual Shareholders based on their expectations as to the expected value, future prospects and market conditions together with their particular circumstances, including risk profile, liquidity preference, portfolio strategy and tax position. The Shareholders should carefully consider the Scheme Booklet. Shareholders who are in doubt as to the action they should take in relation to the Redomiciliation Transaction should consult their professional adviser.

With respect to taxation implications of the Redomiciliation Transaction, it is strongly recommended that the Shareholders obtain their own taxation advice, tailored to their own particular circumstances.

 

3.3

Scope

In this Report we provide our opinion on whether the Redomiciliation Transaction is in the best interests of the Shareholders as a whole.

This Report has been prepared at the request of the Directors to assist Shareholders in their decision to vote in favour of or against the Redomiciliation Transaction. This Report is to accompany the Scheme Booklet to be sent to the Shareholders to consider the Redomiciliation Transaction and was not prepared for any other purpose. Accordingly, this Report and the information contained herein may not be relied upon by anyone other than the Directors and the Shareholders without our written consent. We accept no responsibility to any person other than the Directors and the Shareholders in relation to this Report.

This Report should not be used for any other purpose and we do not accept any responsibility for its use outside this purpose. Except in accordance with the stated purpose, no extract, quote or copy of this Report, in whole or in part, should be reproduced without our written consent, as to the form and context in which it may appear.

We have consented to the inclusion of this Report with the Scheme Booklet. Apart from this Report, we are not responsible for the contents of the Scheme Booklet or any other document associated with the Redomiciliation Transaction. We acknowledge that this Report may be lodged with regulatory authorities to obtain the relevant approvals prior to it being made available to the Shareholders.

The scope of procedures we have undertaken has been limited to those procedures required in order to form our opinion. Our procedures did not include verification work nor did they constitute an audit or assurance engagement in accordance with Australian Auditing and Assurance Standards. In preparing this Report we considered a range of matters, including the necessary legal requirements and guidance of the Corporations Act, the Corporations Regulations, the RGs published by ASIC, the listing requirements of the relevant exchanges (where relevant), and commercial practice.

In forming our opinion, we have made certain assumptions and outline these in this Report including:

 

   

We have performed our analysis on the basis that the conditions precedent to the scheme implementation agreement between AVITA Medical Limited and AVITA Therapeutics, Inc (‘the SIA’) are satisfied;

 

   

That matters such as title to all relevant assets, compliance with laws and regulations and contracts in place are in good standing, and will remain so, and that there are no material legal proceedings, other than as publicly disclosed;

 

   

All information which is material to the Shareholders’ decision on the Redomiciliation Transaction has been provided and is complete, accurate and fairly presented in all material respects;

 

   

ASX announcements and other publicly available information relied on by us are accurate, complete and not misleading;

 

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If the Redomiciliation Transaction is implemented, that it will be implemented in accordance with the stated terms;

 

   

The legal mechanism to implement the Redomiciliation Transaction is correct and effective;

 

   

There are no undue changes to the terms and conditions of the Redomiciliation Transaction, or complex issues unknown to us; and

 

   

Other assumptions, as outlined in this Report.

In this Report we have not provided any taxation, legal or other advice of a similar nature in relation to the Redomiciliation Transaction. Other advisers have provided advice in relation to those matters to AVITA Medical in relation to the Redomiciliation Transaction.

AVITA Medical has acknowledged that the Company’s engagement of BDOCF is as an independent contractor and not in any other capacity including a fiduciary capacity.

The statements and opinions contained in this Report are given in good faith and are based upon our consideration and assessment of information provided by the Board, executives and management of all the entities.

 

3.4

Purpose of this Report

An independent expert, in certain circumstances, must be appointed to meet the requirements set out in the Corporations Act, the Corporations Regulations, the RGs and in some cases the listing requirements of the relevant exchanges. These requirements have been set out in Sections 3.4.1 and 3.4.2 below.

3.4.1 Requirements of the Corporations Acts

The Redomiciliation Transaction will be implemented by scheme of arrangement. Section 411 of the Corporations Act relates to schemes of arrangement. Under section 411 of the Corporations Act, in order for a scheme of arrangement to be approved certain steps, including the following, must occur:

 

   

Unless the court orders otherwise, there must be a majority in number (i.e. more than 50%) of the shareholders present and voting (either in person, by proxy attorney or corporate representative) in favour of the Scheme resolution;

 

   

No less than 75% of the votes cast on the resolution must vote in favour of the scheme; and

 

   

If approved by shareholders, the scheme of arrangement is then subject to approval by the court.

Part 3 of Schedule 8 of the Corporations Regulations details the prescribed information relating to schemes of arrangement. Specifically, clause 8303 of Schedule 8 states that an independent expert’s report prepared to determine whether, in the opinion of the expert, the proposed scheme is in the best interests of the company’s shareholders must accompany a scheme document if:

 

   

A party to the proposed scheme has a prescribed shareholding4 in the company subject to the scheme; or

 

   

The directors of the company are also directors of the other party to the scheme.

In the case of the Redomiciliation Transaction, an independent expert’s report is required to be prepared as it is proposed that each director of AVITA Medical will become a director of Avita US.

3.4.2 Listing Requirements

We have been instructed that AVITA Medical will not be using this Report or our assessment of the Redomiciliation Transaction for the purpose of complying with the listing requirements of the ASX or any other stock exchange.

 

3.5

Current Market Conditions

Our opinion and the analysis set out in this Report is based on economic, market and other conditions prevailing at the date of this Report. Such conditions can change significantly over relatively short periods of time and may have a material impact on the results presented in this Report and result in any valuation or other opinion becoming quickly outdated and in need of revision (particularly as the full impact of the COVID-19 outbreak continues to evolve as at the date of this Report).

In circumstances where we become aware of and believe that a change in these conditions, prior to the Scheme Meeting, results in a material statement in this Report becoming misleading, deceptive or resulting in a material change in valuation, we will provide supplementary disclosure to AVITA Medical. BDOCF is not responsible for updating this Report following the Scheme Meeting or in the event that a change in prevailing circumstance does not meet the above conditions.

 

4 

Clause 8306 of schedule 8 states that a person has a prescribed shareholding in a company if he or she is entitled to not less than 30% of the voting shares in the company.

 

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3.6

Reliance on Information

AVITA Medical recognises and confirms that, in preparing this Report, except to the extent to which it is unreasonable to do so, BDOCF, BDO Services Pty Ltd or any of the partners, directors, agents or associates (together ‘BDO Persons’), will be using and relying on publicly available information and on data, material and other information furnished to BDO Persons by AVITA Medical, its management, and other parties, and may assume and rely upon the accuracy and completeness of, and is not assuming any responsibility for independent verification of, such publicly available information and the other information so furnished.

Unless the information we are provided suggests the contrary, we have assumed that the information provided was reliable, complete and not misleading, and material facts were not withheld. The information provided was evaluated through analysis and inquiry for the purpose of forming an opinion as to whether or not the Redomiciliation Transaction is in the best interests of Shareholders.

We do not warrant that our inquiries have identified or verified all of the matters which an audit, extensive examination or due diligence investigation might disclose. In any event, an opinion as to whether a corporate transaction is in the best interests is in the nature of an overall opinion rather than an audit or detailed investigation.

It is understood that the accounting information provided to us was prepared in accordance with generally accepted accounting principles.

Where we relied on the views and judgement of Management the information was evaluated through analysis and inquiry to the extent practical. Where we have relied on publicly available information, we have considered the source of the information and completed our own analysis to assist us to determine the reliability of the information. However, in many cases, the information we have relied on is often not capable of external verification or validation and on that basis we provide no opinion or assurance on the information.

The Directors represent and warrant to us, for the purpose of this Report, to the best of their knowledge the information and documents furnished by AVITA Medical (either by Management directly or through advisors) in connection or for use in the preparation of this Report do not contain any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein. We have received representations from the Directors in relation to the completeness and accuracy of the information provided to us for the purpose of this Report.

Under the terms of our engagement, AVITA Medical has agreed to indemnify BDO Persons against any claim, liability, loss or expense, costs or damage, arising out of reliance on any information or documentation provided, which is false or misleading or omits any material particulars, or arising from failure to supply relevant documentation or information.

 

3.7

Glossary

Capitalised terms used in this Report have the meanings set out in the glossary. A glossary of terms used throughout this Report is set out immediately following the Table of Contents at the start of this Report.

All dollar (‘$’) references in this Report are in Australian dollars unless otherwise stated.

 

3.8

Sources of Information

This Report has been prepared using information obtained from sources including the following:

 

   

AVITA Medical’s annual report for the year ended 30 June 2018, and 30 June 2019;

 

   

AVITA Medical’s half year report for the six months ended 31 December 2019;

 

   

AVITA Medical’s ASX announcements;

 

   

AVITA Medical’s filings with the SEC;

 

   

AVITA Medical’s Scheme Booklet dated on or about 11 May 2020;

 

   

Scheme Implementation Agreement dated 20 April 2020;

 

   

AVITA Medical’s shareholder register;

 

   

AVITA Medical Investor Tracking Report;

 

   

AVITA Medical’s company documents including board presentations, redomiciliation memo and management accounts as at 31 January 2020

 

   

Capital IQ;

 

   

IBISWorld;

 

   

Transaction documents provided in the virtual data room;

 

   

Other research publications and publicly available data as sourced throughout this Report; and

 

   

Discussions and correspondence with AVITA Medical, Management and their advisers.

 

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3.9

Qualifications

BDOCF has extensive experience in the provision of corporate finance advice, including takeovers, valuations and acquisitions. BDOCF holds an Australian Financial Services Licence issued by ASIC for preparing expert reports pursuant to the Listing Rules of the ASX and the Corporations Act.

BDOCF and its related parties in Australia have a wide range of experience in transactions involving the advising, auditing or expert reporting on companies that have operations domestically and in foreign jurisdictions. BDO in Queensland and in Australia is a national association of separate partnerships and entities and is a member of the international BDO network of individual firms.

Mark Whittaker and Scott Birkett have prepared this Report with the assistance of staff members. Mr Whittaker, BCom (Hons), CA, CFA, and Mr Birkett, BCom/BBusMan, CFA, are directors of BDOCF. Both Mr Whittaker and Mr Birkett have extensive experience in corporate advice and the provision of valuation and professional services to a diverse range of clients, including large private, public and listed companies, financial institutions and professional organisations. Mr Whittaker and Mr Birkett are considered to have the appropriate experience and professional qualifications to provide the advice offered within this Report.