PRE 14A 1 c74322pre14a.htm PRE 14A Filed by Bowne Pure Compliance
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
þ   Preliminary Proxy Statement
o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o   Definitive Proxy Statement
o   Definitive Additional Materials
o   Soliciting Material Pursuant to §240.14a-12
 
HEARTWARE LIMITED
 
(Name of Registrant as Specified In Its Charter)
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ   No fee required.
o   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)   Title of each class of securities to which transaction applies:
 
     
     
 
 
  (2)   Aggregate number of securities to which transaction applies:
 
     
     
 
 
  (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
     
     
 
 
  (4)   Proposed maximum aggregate value of transaction:
 
     
     
 
 
  (5)   Total fee paid:
 
     
     
 
o   Fee paid previously with preliminary materials.
 
o   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)   Amount Previously Paid:
 
     
     
 
 
  (2)   Form, Schedule or Registration Statement No.:
 
     
     
 
 
  (3)   Filing Party:
 
     
     
 
 
  (4)   Date Filed:
 
     
     
 


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[LOGOS]
HEARTWARE LIMITED
INFORMATION MEMORANDUM
For schemes of arrangement between HeartWare Limited ABN 34 111 970 257 and the holders of shares, options and performance rights in HeartWare Limited in relation to the proposed re-domiciling of the HeartWare Group from Australia to the United States and for the Extraordinary General Meeting.
Your directors unanimously recommend that you vote in favour of the schemes of arrangement and the resolution to be proposed at the Extraordinary General Meeting.
This document comprises:
  an explanatory statement and notices of meeting in relation to the schemes of arrangement;
 
  an explanatory statement and notice of meeting in relation to an Extraordinary General Meeting;
 
  an information memorandum in relation to the listing of HeartWare International, Inc on ASX.
This Information Memorandum is dated [                    ] 2008. Copies of this Information Memorandum will be sent to shareholders, optionholders and performance rights holders of HeartWare Limited on or about this date.
This document is important and requires your immediate attention. It should be read in its entirety. If you are in any doubt as to how to deal with it, you should consult your legal, financial or other professional adviser.

 

 


 

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IMPORTANT DATES
     
Key Event   Date
 
   
Latest time and date for lodgement of completed proxy forms for Share Scheme Meeting
  [ ] am/pm on [  ] 2008
 
   
Latest time and date for lodgement of completed proxy forms for Option Scheme Meeting
  [ ] am/pm on [  ] 2008
 
   
Latest time and date for lodgement of completed proxy forms for Performance Rights Scheme Meeting
  [ ] am/pm on [  ] 2008
 
   
Latest time and date for lodgement of completed proxy forms for EGM
  [ ] am/pm on [  ] 2008
 
   
Time and date for determining eligibility to vote at Scheme Meetings
  [ ] am/pm on [  ] 2008
 
   
Time and date for determining eligibility to vote at the EGM
  [ ] am/pm on [  ] 2008
 
   
Share Scheme Meeting
  [  ] am/pm on [  ] 2008
 
   
Option Scheme Meeting
  [  ] am/pm on [  ] 2008
 
   
Performance Rights Scheme Meeting
  [  ] am/pm on [  ] 2008
 
   
EGM
  [  ] am/pm on [  ] 2008
 
   
Court hearing for approval of the Schemes
  [  ] 2008
 
   
Effective Date of Schemes
  [  ] 2008
 
   
Suspension of the Shares from trading on ASX
  [  ] 2008
 
   
CDIs commence trading on ASX on a deferred settlement basis
  [  ] 2008
 
   
Scheme Record Date
  [  ] 2008
 
   
Implementation Date for Schemes
  [  ] 2008
 
   
Despatch of CDI holding statements and transmittal letters
  [  ] 2008
 
   
CDIs commence trading on normal T+3 basis
  [  ] 2008
All dates after the dates of the Scheme Meetings and EGM are indicative only and, among other things, are subject to the Court approval process and ASX approval. All dates and times are Sydney, Australia times.
All terms and expressions used in this Information Memorandum have the meaning set out in the Glossary in section 12 of this Information Memorandum.
This Information Memorandum is dated [   ] 2008.

 

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CHAIRMAN’S LETTER
Dear Shareholders and Incentive Holders
As Shareholders or Incentive Holders, you will be aware that the Company has previously announced its intention to redomicile to the United States. In light of the fact that the United States represents the HeartWare Group’s largest single target market and as the Company already has a substantial majority of its operational and institutional Shareholder base located in the United States, redomiciliation represents an obvious and natural evolution for the HeartWare Group.
This Information Memorandum sets out the Board’s rationale in support of the decision to redomicile to the United States (by way of the Proposed Transaction as described in this Information Memorandum), together with the steps required to effect the redomiciliation and other important information concerning this important decision.
If Shareholders and Incentive Holders approve the redomiciliation, HeartWare International. will become the ultimate parent company of the HeartWare Group and the entity which is listed on ASX. In simple terms, HeartWare International, which is incorporated in Delaware in the United States, will acquire all of the ordinary shares in the Company and, in return, will issue shares in HeartWare International which may be received in the form CHESS Depositary Interests (CDIs) or of common stock, with only the former being traded on ASX. Each CDI will, in general terms, be broadly equivalent to one existing ordinary share in the Company. Likewise, all existing Options and Performance Rights in the Company will be replaced with equivalent interests in HeartWare International.
The redomiciliation will be implemented by way of three schemes of arrangement, being court-approved agreements between the Company and its shareholders and other holders of equity securities. Approval of the Schemes will be sought from Shareholders, Optionholders and Performance Rights Holders at a series of meetings which will be held at [location] on [   ].
In presenting the redomiciliation for your consideration, your Directors believe that the transactions contemplated herein are in the best interests of Shareholders, Optionholders and Performance Rights Holders and it is our unanimous recommendation that you vote in favour of the redomiciliation. In making this recommendation, we believe that the HeartWare Group will receive a number of benefits from redomiciliation to the United States, including:
  redomiciliation will enhance the HeartWare Group’s ability to access the large pool of equity capital available in the US market. In addition, US investors who were previously prevented from investing in the Company due to the Company being a non-US based company will now be able to invest in HeartWare International;
 
  the Company is subject to reporting and compliance requirements in both the US and Australia and is not able to benefit from the lesser requirements associated with being a “foreign company” in either jurisdiction. Redomiciliation to the US will reduce certain of the HeartWare Group’s reporting and related compliance obligations thereby significantly reducing the costs, administrative overhead and the general management time that is associated with the current dual compliance requirements;
 
  redomiciliation will enhance HeartWare International’s ability to move quickly to a listing on a US Exchange, should it determine to take this step;

 

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  virtually all of the HeartWare Group’s operating and manufacturing activities are based in the US which, as stated above, is also the largest market for the Company’s products. Redomiciliation will more appropriately align the Company’s corporate structure with its operating activities and target market; and
 
  redomiciliation will enable the HeartWare Group to maintain an ASX listing while at the same time facilitating more efficient access to US and international capital markets.
In summary, the Board believes that redomiciliation to the US will produce significant long-term benefits for the HeartWare Group. The Board also believes that these benefits outweigh the potential disadvantages associated with the redomicilation which are outlined in section 4 of this Information Memorandum. The Board has appointed BDO Kendalls as an independent expert to review and opine on the merits of the Proposed Transaction and I am pleased to confirm that BDO Kendalls has formed the view that the redomiciliation to the US is in the best interests of Shareholders, Optionholders and Performance Rights Holders. The full report of the Independent Expert is set out in Appendix 2 of this Information Memorandum and should be read in full.
Closing Comments
The Directors believe that the Company is in an extremely promising position. Our international clinical trial for the HeartWare® Left Ventricular Assist System continues to generate excellent clinical results. As at 31 July 2008, 40 patients have been implanted with the device. On a cumulative basis, these patients have been supported for approximately 26 years. Following a successful capital raising earlier this year, the Company is well financed, with a cash balance at 31 July 2008 of approximately $43 million.
The Company remains firm in its objective of becoming a significant medical device business, and is in pursuit of a leadership position in the market for mechanical circulatory support systems. The ability over the longer term to access and maintain strong ties with the world’s larger capital markets will be critical for the financial viability of the Company. Redomiciliation to the US represents a critical step towards ensuring the HeartWare Group’s ability to directly access the US capital markets and, equally importantly, to expand its penetration in the large US market.
I strongly encourage you to review this Information Memorandum and the supporting documentation carefully and recommend that you seek professional advice in relation to the Schemes in light of your personal financial, investment and taxation circumstances. I sincerely hope that you will vote in favour of the redomiciliation by attending the Scheme Meetings, and EGM, or if you are unable to attend, completing and returning the relevant proxy forms.
Your Directors unanimously recommend approval of the proposed redomiciliation of the HeartWare Group to the United States.
Thank you for your continued support of the HeartWare Group.
Yours sincerely
Rob Thomas
Chairman

 

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WHAT IS THE PROPOSED TRANSACTION?
             
Overview   Section
 
           
  The HeartWare Group will re-domicile in the United States of America.   Section 3
 
           
  HeartWare International (a new company incorporated in the US) will become the parent company of the HeartWare Group.   Sections 3 and 6
 
           
  HeartWare International will replace HeartWare Limited as the ASX listed entity with HeartWare International CDIs being quoted for trading on ASX.   Section 3
 
           
  Three separate schemes of arrangement in relation to the Shares, Options and Performance Rights:   Section 3, and Appendices
3,4 & 5
 
           
 
    Share Scheme — Shares in the Company will be exchanged for CDIs or HeartWare International Shares.   Section 3 and Appendix 3
 
           
 
    Option Scheme — Options in the Company will be exchanged for options in HeartWare International.   Section 3 and Appendix 4
 
           
 
    Performance Rights Scheme — Performance Rights in the Company will be exchanged for restricted stock units in HeartWare International.   Section 3 and Appendix 5
 
           
  Standalone Options in the Company will be exchanged for replacement options in HeartWare International.   Section 3

 

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(FLOW CHART)

 

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YOUR VOTE ON THE PROPOSED TRANSACTION
Scheme Meetings and EGM
The Proposed Transaction requires the approval of Shareholders, Optionholders and Performance Rights Holders. The resolutions which you are being asked to vote on are set out in full in the Notices of Meeting in Appendices 16 — 19 to this Information Memorandum, but in summary:
Shareholders are being asked to approve the Share Scheme under which all of the Shares will be transferred to HeartWare International in exchange for the issue of HeartWare International Shares. Shareholders are also being asked to approve the HeartWare International 2008 Stock Incentive Plan at the EGM.
Optionholders are being asked to approve the Option Scheme under which all of the existing Options will be cancelled in exchange for the issue of HeartWare International Options.
Performance Rights Holders are being asked to approve the Performance Rights Scheme under which all of the Performance Rights will be cancelled in exchange for the issue of HeartWare International Restricted Stock Units.
Your Directors’ recommendation
Your Directors unanimously recommend that you vote in favour of all of the resolutions to be proposed at the Scheme Meetings in favour of the resolution to be proposed at the EGM.
What should you do?
     
Step 1:
  Carefully read this Information Memorandum, the Notices of Meeting and all other documents you have been provided with.
 
   
Step 2:
  If you have any queries concerning the Schemes or the Resolution, please consult your legal, financial or other professional adviser or contact the enquiry line on 1800 707 861 (Australia toll free) or +61 2 8256 3387 (International).
 
   
Step 3:
  Attend and vote at the Scheme Meetings and the EGM or, if you are unable to attend, vote by proxy, attorney or corporate representative.

 

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YOUR VOTE IS IMPORTANT
Who can vote?
If you are registered as a Shareholder or an Incentive Holder at [  ] am/pm on [   ] 2008, you will be entitled to vote at the relevant Scheme Meetings and EGM, as the case may be. Optionholders and Performance Rights Holders on the register at that time will be entitled to vote whether or not their Options or Performance Rights have vested.
How to vote
You may vote:
  in person by attending the relevant Meeting;
 
  by proxy;
 
  by attorney; or
 
  where the Shareholder or Incentive Holder is an entity, by a representative of that entity,
each of which is described in more detail below.
Voting in person
The Meetings to approve the Proposed Transaction are four separate meetings which will be held on the same day at the times set out below.
The Meetings will be held on [   ] 2008 at [address] at the following times:
  Share Scheme Meeting — [   ] am/pm;
 
  Option Scheme Meeting — estimated to take place at [   ] am/pm immediately following the Share Scheme Meeting;
 
  Performance Rights Scheme Meeting — estimated to take place at [   ] am/pm immediately following the Option Scheme Meeting; and
 
  EGM — estimated to take place at [   ] am/pm immediately following the Performance Rights Scheme Meeting.
Voting by proxy
If you are entitled to vote and wish to do so by proxy, you must complete and return your personalised proxy form(s) accompanying this Information Memorandum (together with any power of attorney or other authority under which the proxy form(s) is signed or a certified copy of that power or authority, and a declaration or statement by the proxy that he or she has not received any notice of revocation of appointment) so that it is received by the Company’s share registry by no later than [ ] am/pm (Sydney time) on [   ] 2008.

 

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Please read the instructions on the proxy form(s) carefully when completing the form.
You may return your proxy form(s) (and any supporting documents) by delivering, posting or faxing them to the Company’s share registry at:
Computershare Investor Services Pty Limited
Delivery address: Level 3, 60 Carrington Street, Sydney NSW Australia 2000
Postal address: GPO Box 2975, Victoria, Australia 3001
Facsimile number: + 61 3 9473 2500
Additional or replacement proxy forms may be obtained from the Company’s share registry at the address above.
The sending of a proxy form will not preclude you from attending and voting at the Meetings and you may revoke your proxy at any time prior to the start of the relevant Meeting:
(a)   by providing a written revocation to the Company’s share registry at the above address before the relevant Meeting; or
 
(b)   by properly executing and delivering a later dated proxy; or
 
(c)   by attending the relevant Meeting, requesting a return of the proxy before the start of the Meeting and voting in person at that Meeting.
Voting by attorney
If you wish your attorney to attend and vote at the Meetings on your behalf, the original or a certified copy of the power of attorney authorising your attorney to attend and vote at the Meetings, 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 Company’s share registry by the closing time for receipt of proxies for the Meetings (i.e. by [ ] am/pm (Sydney time) on [ ] 2008).
You may lodge the power of attorney (and any supporting documents) by delivering, posting or faxing them to the Company’s share registry at:
Computershare Investor Services Pty Limited
Delivery address: Level 3, 60 Carrington Street, Sydney NSW Australia 2000
Postal address: GPO Box 2975, Victoria, Australia 3001
Facsimile number: + 61 3 9473 2500
Voting by corporate representative
A body corporate may attend and vote at the Share Scheme Meeting or EGM (as applicable) by corporate representative. The appointment of the corporate representative must comply with the requirements of section 250D of the Corporations Act and an instrument purporting to appoint a corporate representative, including any authority under which the appointment is signed, must be lodged with the Company’s share registry by the closing time for receipt of proxies for the meetings (i.e. by [ ] am/pm (Sydney time) on [   ] 2008). A form of the certificate used to appoint a corporate representative can be obtained from the Company’s share registry.
Questions
Further information concerning the resolutions and the voting procedures for the Meetings is set out in the Notices of Meeting in Appendices 16 — 19 to this Information Memorandum.
If you have any further questions about the Meetings or about the Proposed Transaction, please call the enquiry line on 1800 707 861 (Australia toll free) or +61 2 8256 3387 (international).

 

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IMPORTANT NOTICES
Defined terms and interpretation
Capitalised terms used in this Information Memorandum are defined in the Glossary set out in section 12 to this Information Memorandum. The Glossary also sets out some rules of interpretation which apply to this Information Memorandum.
Purpose of Information Memorandum
This Information Memorandum contains the explanatory statement required under Part 5.1 of the Corporations Act in relation to the Schemes. The purpose of this Information Memorandum is to explain the terms of the Schemes and the manner in which they will be implemented (if approved) and to provide information material to the decision of Shareholders and Incentive Holders whether to approve the Schemes.
This Information Memorandum is also an information memorandum for the listing of HeartWare International on ASX and for the CDIs to be granted official quotation on the financial market operated by ASX.
This Information Memorandum also contains the explanatory statement in relation to the EGM.
Under US law, this Information Memorandum is also a solicitation by the Board, the cost of which will be borne by the Company. The Company’s directors, officers and employees may also solicit proxies personally, by telephone, facsimile or other electronic means of communication. The Company’s directors, officers and employees will not receive any additional or special compensation for their solicitation services.
This Information Memorandum complies with Australian and US disclosure requirements and Australian and US accounting standards. These requirements and standards may be different from those in other countries.
Read this document
This document is important. You should read this document in its entirety before you decide whether to vote in favour of the resolutions to be considered at the Meetings. If you are in any doubt as to what you should do, you should consult your legal, financial or other professional adviser.
Investment decisions
This Information Memorandum does not take into account your individual investment objectives, financial situation and needs. The information in this document should not be relied upon as the sole basis for any investment decision in relation to your Shares, Options or Performance Rights.
You should seek independent legal, financial and tax advice before making any investment decision in relation to your Shares, Options or Performance Rights.
Responsibility statement
The information contained in this Information Memorandum has been prepared by the Company and HeartWare International and is the responsibility of the Company and HeartWare International other than:
  the Independent Expert’s Report in relation to the Proposed Transaction (contained in Appendix 2 to this Information Memorandum), which has been prepared by BDO Kendalls, who take responsibility for that Appendix;
 
  the information in section 10.1 and 10.2 of this Information Memorandum with respect to Australian tax consequences of the Proposed Transaction, which has been prepared by PWC Australia and PWC Australia takes responsibility for that section.

 

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  the information in Appendix 11 of this Information Memorandum with respect to the summary of US federal income tax consequences of the HeartWare International 2008 Stock Incentive Plan has been prepared by DLA Piper who take responsibility for that Appendix; and
 
  the information in sections 1.2.4, 2 (Question 22), 4.5, and 10.3 of this Information Memorandum, which has been prepared by the Company and reviewed by PwC Australia in the case of the Australian tax consequences or PwC LLP in the case of the US tax consequences of the Proposed Transaction as indicated in section 10 of this Information Memorandum, and each such PwC partnership takes responsibility for the relevant section that such firm reviewed.
 
    The information contained in this Information Memorandum for which PwC is responsible does not constitute “financial product advice” within the meaning of the Corporations Act. The PwC partnerships which are providing this advice are not licensed to provide financial product advice under the Corporations Act. To the extent that this Information Memorandum contains any information about a “financial product” within the meaning of the Corporations Act, taxation is only one of the matters that must be considered when making a decision about the relevant financial product. The material for which PwC is responsible, has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, you should, before acting on the material for which PwC is responsible, consider taking advice from a person who is licensed to provide financial product advice under the Corporations Act. In addition, before acting on the material for which PwC is responsible, you should also consider the appropriateness of this material having regard to your objectives, financial situation and needs and consider obtaining independent financial advice.
Neither the Company, HeartWare International nor any of their respective directors, officers or advisers (other than as referred to above) assumes any responsibility for the accuracy or completeness of any of the information in the Appendix and sections referred to above.
Role of ASIC and ASX
A copy of this Information Memorandum 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 Schemes. If ASIC provides the statement, then it will be produced to the Court at the time of the Second Court Hearing. Neither ASIC nor any of its officers takes any responsibility for the contents of this Information Memorandum.
A copy of this Information Memorandum has been lodged with ASX. Neither ASX nor any of its officers takes any responsibility for the contents of this Information Memorandum.
Role of the Court
A copy of this Information Memorandum has been lodged with the Court to obtain an order of the Court approving the convening of the Scheme Meetings. Orders made by the Court pursuant to section 411(1) of the Corporations Act convening the Scheme Meetings to approve the Schemes do not constitute an endorsement by the Court of, or any expression of opinion on, the Schemes.
If Shareholders and Incentive Holders approve the Schemes at the required meetings, the Court will be asked to approve the Schemes. The Federal Court Rules provide a procedure for Shareholders and Incentive Holders to oppose the approval by the Court of the Share Scheme, Option Scheme and Performance Rights Scheme, respectively. If you wish to oppose the approval of the Schemes by the Court at the Second Court Hearing, you 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 you wish to rely at the hearing. The notice of appearance and affidavit must be served on the Company at least one day before the Second Court Date. The Second Court Date is currently expected to be [ ] 2008. Any change to this date will be announced through ASX, the SEC and notified on the Company’s website.

 

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Notice to Shareholders resident in New Zealand
The Information Memorandum is being distributed in New Zealand under the Securities Act (Overseas Companies) Exemption Notice 2002 as amended, re-enacted and/or replaced.
Notice to Shareholders, Optionholders and Performance Rights Holders resident in the US
The HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units which will be issued pursuant to the Schemes and the HeartWare International Standalone Options have not been, and will not be, registered under the US Securities Act or the securities laws of any state in the United States. The HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units issued pursuant to the Schemes will be issued in reliance on the exemption from the US Securities Act registration requirements provided in Section 3(a)(10) of the US Securities Act based on the Court’s approval of the Schemes, and will not be “restricted securities” within the meaning of the US Securities Act, except for those HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units held by Affiliates of HeartWare International at the time of issue. However, HeartWare International Options and HeartWare International Restricted Stock Units will not be transferable by their terms (except in limited circumstances).
HeartWare International will register the HeartWare International Shares to be issued pursuant to exercise of options and restricted stock units issued under the HeartWare International Employee Stock Option Plan and HeartWare International Restricted Stock Unit Plan respectively and on registration HeartWare International Shares issued pursuant to such plans, except for the HeartWare International Shares issued to Affiliates of HeartWare International, will be freely transferable, subject to US federal securities law and the HeartWare International stock trading policy.
Affiliates of HeartWare International can only sell HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units issued to them under the Schemes subject to certain restrictions on resale in a public market including:
  the Company and HeartWare International as its successor having complied with their US reporting obligations;
 
  the volume of securities that can be sold in any three month period is limited to an amount equal to the greater of 1% of HeartWare International’s Shares on issue and 1% of the average weekly trading volume of HeartWare International’s Shares (measured over the previous four weeks); and
 
  sales must be conducted by way of unsolicited broker’s transactions and a Form 144 filed with the SEC.
Such limitations on the ability of an Affiliate to sell HeartWare International securities will cease three months after the person ceases to be an Affiliate. Persons who are affiliates solely because they are directors or officers of HeartWare International may also sell shares under Regulation 904 of Regulation S so long as that exemption is available to them, which will generally be the case so long as the HeartWare International shares are listed solely on the ASX.
The HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units issued pursuant to the Schemes have neither been approved or disapproved by the SEC, or by any other securities regulatory authority of any state of the US or of any international jurisdiction. Neither the SEC nor any other securities regulatory authority has approved or disapproved the adequacy or accuracy of this Information Memorandum, and any representation to the contrary will be a criminal offence under applicable US law.
US investors should note that the Schemes will be conducted in accordance with the laws in force in Australia and the Listing Rules. As a result, it may be difficult for you to enforce your rights, including any claim you may have arising under US federal securities laws as the Company is presently located in a foreign country and some of its officers and directors may be residents of a foreign country. As such, you may not be able to take legal action against the Company or its officers and directors in Australia for violations of US securities laws and it may be difficult to compel the Company and its officers and directors to subject themselves to a US court’s judgement.

 

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Notice to Shareholders in jurisdictions outside Australia, New Zealand and the United States
As an investigation of, and compliance with, the potential securities law restrictions in every country in which the Company has Shareholders would be prohibitively costly, Shareholders whose addresses are recorded in the Share Register as outside Australia, New Zealand and the United States will not receive HeartWare International Shares under the Share Scheme unless (without being obliged to conduct any investigations into the matter) the Company is satisfied that HeartWare International Shares can lawfully be issued to such persons pursuant to the Share Scheme.
Instead, CDIs which would otherwise have been issued to Ineligible Overseas Shareholders will be issued to a nominee appointed by HeartWare International, who will procure the nominee to sell those CDIs on ASX at such price and on such terms as the nominee determines. The nominee will then distribute to those Ineligible Overseas Shareholders the net proceeds received (calculated on an averaged basis so that all Ineligible Overseas Shareholders receive the same price per CDI, subject to rounding to the nearest whole cent) after deduction of any brokerage, taxes or other costs of sale (such amounts to be paid in A$).
Forward looking statements
Certain statements in this Information Memorandum are about the future and are forward looking in nature. Generally, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and other similar expressions that are intended to identify forward-looking statements, which are generally not historical in nature.
You should be aware that there are a number of risks (both known and unknown), uncertainties, assumptions and other important factors, some of which are beyond the control of the Company and HeartWare International that could cause the actual conduct, results, performance or achievements of the Company or HeartWare International to be materially different from those expressed or implied by such statements or that could cause future conduct or results to be materially different from the historical conduct or results. Deviations as to future conduct, results, performance and achievements are both normal and to be expected.
The following are some examples of factors which could affect the results and performance of the Company:
  the Schemes including whether or not they are implemented;
 
  continued losses and lack of profitability;
 
  inability to raise capital;
 
  inability to obtain necessary funding;
 
  unsuccessful results of the Company’s clinical trials and failure to obtain regulatory approvals;
 
  failure to prove the safety and efficacy of the Company’s products;
 
  failure to comply with quality standards applicable to the Company’s manufacturing and quality processes;
 
  inability to gain market acceptance of the Company’s products or to otherwise penetrate or grow the market in which the Company operates (now or in the future);
 
  failure to obtain or maintain an adequate level of reimbursement by third party payers;
 
  limited manufacturing, sales, marketing and distribution experience;

 

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  reliance on specialised suppliers for certain components and materials;
 
  inability to protect the Company’s intellectual property;
 
  litigation and product liability;
 
  inability to manage growth;
 
  inability to attract and retain qualified personnel;
 
  failure to achieve and maintain effective internal control over financial reporting;
 
  fluctuations in foreign exchange rates; and
 
  any other factors described by the Company in its filings with the SEC.
Neither the Company, HeartWare International, their respective directors, officers and advisers, or any other person makes any representation, or gives any assurance or guarantee that the occurrence of the events expressed or implied in any forward looking statements in this Information Memorandum will occur. Investors are cautioned about relying on forward looking statements included in this Information Memorandum.
In particular, neither the Company, HeartWare International, their respective directors, officers or advisers is responsible for any forward looking statement in the Independent Expert’s Report or any forward looking statement contained in section 10 of this Information Memorandum.
The forward looking statements in this Information Memorandum reflect views held as at the date of this Information Memorandum, unless otherwise specified. Subject to the Corporations Act, the Listing Rules and any other applicable laws or regulations, including SEC rules, the Company and HeartWare International disclaim any duty to update these statements other than with respect to information that the Company and HeartWare International respectively become aware of prior to the:
  Share Scheme Meeting, which is material to the making of a decision by a Shareholder regarding whether or not to vote in favour of the Share Scheme;
 
  Option Scheme Meeting, which is material to the making of a decision by an Optionholder regarding whether or not to vote in favour of the Option Scheme;
 
  Performance Rights Scheme Meeting, which is material to the making of a decision by a Performance Rights Holder regarding whether or not to vote in favour of the Performance Rights Scheme; or
 
  EGM, which is material to the making of a decision by a Shareholder regarding whether or not to vote in favour of the Resolution.
No offer
This Information Memorandum does not constitute an offer to issue or sell to you, or an offer to buy from you, any securities in the Company or HeartWare International in any jurisdiction in which such an offer would be illegal.
Privacy and personal information
The Company will need to collect personal information to implement the Schemes. The personal information may include the names, contact details and details of the holdings of Shareholders and Incentive Holders and their proxies, body corporate representatives or attorneys at the Meetings. The collection of some of this information is required or authorised by the Corporations Act.

 

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Shareholders and Incentive Holders who are individuals, and other individuals in respect of whom personal information is collected, have certain rights to access the personal information collected about them and may contact the Company by email on scheme@heartwareinc.com if they wish to exercise those rights.
This personal information may be disclosed to print and mail service providers, and to the Company’s advisers to the extent necessary to effect the Schemes and convene the EGM.
If the information outlined above is not collected, the Company may be hindered in, or prevented from, conducting the Meetings or implementing the Schemes effectively, or at all.
Shareholders and Incentive Holders who appoint an individual as their proxy, corporate representative or attorney to vote at the EGM or Scheme Meetings should inform that individual of the matters outlined above.
You should also note that all persons are entitled, under section 173 of the Corporations Act, to inspect and copy the Share Register and Option Register. These Registers contain personal information about the Company’s Shareholders and Optionholders.
If you have any questions in relation to the Meetings or the Schemes, please contact your legal, financial or other professional adviser.

 

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1   Summary of the Proposed Transaction
This summary highlights selected information that is described in greater detail elsewhere in this Information Memorandum. This summary does not contain all of the important information contained in this Information Memorandum. Shareholders and Incentive Holders should carefully read this entire Information Memorandum and other documents referred to or accompanying this Information Memorandum for a greater understanding of the Proposed Transaction.
1.1   The Proposed Transaction
  1.1.1   Overview
 
  This Information Memorandum outlines the Proposed Transaction, as a result of which the HeartWare Group will re-domicile in the United States, whilst maintaining a listing on ASX. The Proposed Transaction will be implemented by the establishment of a new corporate structure under which HeartWare International (a new company incorporated in the US) will become the ultimate parent company of the HeartWare Group.
 
  The Proposed Transaction will take place under Australian law and will be implemented by way of three separate schemes of arrangement in relation to the Shares, Options and Performance Rights. The terms of the Schemes are set out in full at Appendices 3, 4 and 5.
 
  1.1.2   Effect of the Proposed Transaction
    As a result of the Proposed Transaction:
    all of the existing Shares will be transferred to HeartWare International with the result that the Company will become a wholly-owned subsidiary of HeartWare International.
 
    consideration of Shareholders transferring their Shares to HeartWare International, those Shareholders will be issued HeartWare International Shares. Unless a Shareholder elects otherwise, they will receive their HeartWare International Shares in the form of CDIs, which can be traded on ASX. Subject to rounding, a CDI will be equivalent to one Share. Shareholders whose addresses are recorded as outside Australia, New Zealand or the United States will not receive HeartWare International Shares, but will instead be entitled to the net proceeds of the sale of HeartWare International Shares (in the form of CDIs) to which they would have otherwise been entitled;
 
    those shareholders who do not elect to receive CDI’s will receive one HeartWare International Share for every 35 Shares they hold. The effect of this will be that HeartWare International Shares will be priced above the required and recommended prices necessary to facilitate a listing on NASDAQ should this occur.

 

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    all existing Options and Performance Rights will be cancelled in exchange for the issue of new options and units of restricted stock in HeartWare International to Optionholders and Performance Rights Holders;
 
    the existing Standalone Options will be cancelled in exchange for equivalent securities or rights in HeartWare International;
 
    HeartWare International will seek a listing and quotation of the CDIs on ASX thereby “replacing” the Company as the ASX listed entity in the HeartWare Group; and
 
    the Company will eventually be converted into a proprietary company and will remain largely inactive.
 
  1.1.3   Potential Advantages
    The potential advantages of the Proposed Transaction are set out in section 4.2 of this Information Memorandum. The Directors believe that the implementation of the Proposed Transaction will better position the Company to achieve its strategic goals, as it is expected to:
    provide HeartWare International with the opportunity to consolidate its operations in the US by allowing for all corporate, manufacturing, development, research and clinical efforts to be undertaken within or from the US;
 
    allow the HeartWare Group to align its corporate structure with its operating structure;
 
    enhance HeartWare International’s ability to effectively manage and grow its business in key markets;
 
    enhance HeartWare International’s ability to pursue growth and diversification opportunities in accordance with its strategic plans;
 
    enable HeartWare International to be an Australian-listed publicly owned company as it continues to grow internationally;
 
    facilitate further US-based demand for HeartWare International’s securities. The Directors believe that in excess of 65% of the Company’s Shares are already held by Shareholders who are resident in the US;
 
    remove the FORUS restriction on the Company’s Shares allowing HeartWare International unfettered access to US investors, which the Directors believe should ultimately result in increased demand for HeartWare International securities;
 
    allow for the adoption of a US corporate structure for the HeartWare Group which will be more digestible and understandable for both US investors and US employees and enhance HeartWare International’s ability to attract and retain employees, especially key management with industry specific knowledge and experience who can enhance the development and commercialisation of the Company’s products;

 

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    provide easier access to capital as certain US investors who were previously prevented from investing in the Company due to the Company being a non-US based company will now be able to invest in HeartWare International;
 
    reduce compliance costs of the HeartWare Group by eliminating the need to prepare Australian financial statements under Australian equivalents to International Financial Reporting Standards (IFRS) in addition to US GAAP financial statements thereby also eliminating the need to have Australian financial statements audited under Australian auditing standards; and
 
    reduce the resources used and time spent by management of the Company in reconciling and managing the differences between US and Australian law, particularly those differences associated with securities law.
 
  1.1.4   Potential disadvantages and risks
    Before voting on the Schemes, the Directors advise you to consider the potential disadvantages and risks relating to the Proposed Transaction which are set out more fully in section 4 of this Information Memorandum. The potential disadvantages and risks of the Proposed Transaction may include:
    the effect of different legal regimes (please see Appendix 14 for a comparison of the Australian and US legal regimes);
 
    exposure to US estate taxes in certain circumstances;
 
    potential loss of demand for HeartWare International’s shares in the Australian market;
 
    exposure to the more litigious environment of the US; and
 
    loss of future dividend franking credit benefits should the Company make a dividend payment in the future (although the Company does not presently make dividend payments nor does it currently contemplate making dividend payments in the foreseeable future).
1.2   What will Shareholders and Incentive Holders receive under the Schemes?
 
    As a result of the Proposed Transaction, Shareholders, Optionholders and Performance Rights Holders will receive HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units respectively.
  1.2.1   Share Scheme Consideration
    Under the Share Scheme, Scheme Shareholders will receive an equivalent interest in HeartWare International which can be taken in the form of CDIs or HeartWare International Shares.

 

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    Unless a Scheme Shareholder elects otherwise, the HeartWare International Shares will be issued in the form of CDIs to enable Shareholders to trade them on ASX. Each CDI will be equivalent to an interest in one thirty-fifth of a HeartWare International Share and accordingly Shareholders will essentially receive one CDI for each Share held by them on the Scheme Record Date. If you make an election to receive HeartWare International Shares you will receive:
      One HeartWare International Share for every 35 Shares held in the Company.
    Fractional entitlements to the Share Scheme Consideration will be rounded down to the nearest whole number of HeartWare International Shares (if a Shareholder has elected to receive HeartWare International Shares) or nearest multiple of 35 CDIs, after aggregating all holdings of the relevant Shareholder.
 
    Ineligible Overseas Shareholders will not receive HeartWare International Shares, but will instead be entitled to the net proceeds that result from the sale of HeartWare International Shares (in the form of CDIs) to which they would have otherwise been entitled.
 
    HeartWare International intends to seek a listing for HeartWare International Shares on NASDAQ in the future. However, there is no guarantee as to when this will occur or that it will occur at all. Accordingly, you should be aware that in the meantime following implementation of the Schemes, the only market for trading HeartWare International Shares will be ASX, where they will only trade in the form of CDIs.
 
    If HeartWare International is approved for listing on NASDAQ in the future, Shareholders holding CDIs will be able to convert their CDIs into HeartWare International Shares so that they will be able to trade HeartWare International Shares on NASDAQ.
  1.2.2   Option Scheme Consideration
    Under the Option Scheme, Scheme Optionholders will receive:
      One HeartWare International Option for every 35 Options held.
    Each HeartWare International Option will be issued under the HeartWare International Employee Stock Option Plan and will be on essentially the same terms as the current Options including having an exercise period equal to the unexpired exercise period of, and a vesting schedule identical to, the Option it replaces. However, the exercise price per HeartWare International Option will be equal to 35 times the exercise price of the Options that the HeartWare International Options replace, to reflect the effective consolidation of shares under the Share Scheme. The exercise price will remain in Australian dollars.
 
    Fractional entitlements to Option Scheme Consideration will be rounded down to the nearest whole number of HeartWare International Options after aggregating all holdings of the relevant Optionholder.

 

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  1.2.3   Performance Rights Scheme Consideration
    Under the Performance Rights Scheme, Scheme Performance Rights Holders will receive:
      One HeartWare International Restricted Stock Unit for every 35 Performance Rights held.
    Each HeartWare International Restricted Stock Unit will be issued on the terms set out in the HeartWare International Restricted Stock Unit Plan and will be on essentially the same terms as the existing Performance Rights, including having equivalent vesting conditions to the Performance Rights that the HeartWare International Restricted Stock Units replace.
 
    Fractional entitlements to Performance Rights Scheme Consideration will be rounded down to the nearest whole number of HeartWare International Restricted Stock Units after aggregating all holdings of the relevant Performance Rights Holder.
  1.2.4   Tax Consequences
    Australian Tax Consequences
 
    The Company has been advised that the exchange of Shares, Options and Performance Rights for HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units (as relevant) under the Schemes will not cause any Australian tax to be paid by Shareholders and Incentive Holders that are eligible for capital gains tax or Division 13A employee share/option scheme tax rollover.
 
    In addition to the tax advice from PwC Australia set out in section 10 of this Information Memorandum, class ruling applications have been lodged with the ATO seeking confirmation that the conditions for capital gains scrip for scrip rollover relief and Division 13A employee share/option scheme rollover relief are satisfied and that rollover relief is available in relation to the transfer of Shares to HeartWare International under the Share Scheme, the cancellation of Options under the Option Scheme and the cancellation of Performance Rights under the Performance Rights Scheme. Shareholders and Incentive Holders will be advised of the outcome of the ruling process once the final ruling has been issued. Receipt of the final ruling is not a condition to the implementation of the Schemes.
 
    US Tax consequences
 
    Shareholders and Incentive Holders should be aware that as a result of the implementation of the Proposed Transaction US estate taxes may be payable in certain circumstances.

 

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    Subject to the limitations and qualifications set fourth in section 10 of this Information Memorandum, the Company has also been advised that:
    the exchange of Shares for HeartWare International Shares should not cause any US federal income tax to be paid by Shareholders who are otherwise not subject to US federal income tax;
 
    for Shareholders otherwise subject to US federal income tax (and except for Ineligible Overseas Shareholders), the exchange of Shares for HeartWare International Shares should not cause any US federal income tax to be paid by such Shareholders if certain US federal income tax filings are made by Shareholders in connection with the Share Scheme (further detailed in section 10 of this Information Memorandum);
 
    the exchange of Options, Standalone Options and Performance Rights for HeartWare International Options, HeartWare International Standalone Options or HeartWare Restricted Stock Units, respectively, should not cause any US federal income tax to be paid by Optionholders, Standalone Optionholders and Performance Rights Holders who are otherwise not subject to US federal income tax;
 
    for Optionholders, Standalone Optionholders and Performance Rights Holders who are subject to US federal income tax, it is more likely than not that the exchange of Options, Standalone Options and Performance Rights for HeartWare International Options, HeartWare International Standalone Options and HeartWare International Restricted Stock Units (as relevant) under the Proposed Transaction will not cause any US federal income tax to be paid by such Optionholders, Standalone Optionholders and Performance Rights Holders.
    Further information on the tax implications for Shareholders and Incentive Holders under the Proposed Transaction is set out in section 10 of this Information Memorandum.
 
    However, this Information Memorandum only provides general information and , accordingly, you should consult with your own tax adviser regarding the consequences of acquiring, holding or disposing of Shares, Options, Standalone Options, Performance Rights, HeartWare International Shares, HeartWare International Options, HeartWare International Standalone Options or HeartWare International Restricted Stock Units in light of current tax laws and your particular investment circumstances.

 

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1.3   Structure of the HeartWare Group if the Schemes become Effective
 
    As a result of the Proposed Transaction, the Company will become a wholly owned subsidiary of HeartWare International and will be delisted from ASX. HeartWare International will apply for admission and for quotation of the CDIs on ASX and, will, subject to obtaining the necessary approvals, replace the Company as the ASX listed entity in the HeartWare Group..
 
    The board of HeartWare International immediately after the Proposed Transaction will be the same as the current Board. Further information about these directors can be found in sections 5 and 6 of this Information Memorandum.
 
    Once the Schemes become Effective, Shareholders and Incentive Holders will hold HeartWare International Shares or CDIs, and HeartWare International Options and HeartWare International Restricted Stock Units respectively with each being bound by the Scheme to which they are a party (including Shareholders, Optionholders and Performance Rights Holders who did not vote or voted against the Schemes).
 
1.4   Independent Expert’s opinion
 
    The Company has appointed an independent expert, BDO Kendalls, to comment on the Proposed Transaction. The Independent Expert has concluded that the Proposed Transaction and the Schemes are in the best interests of the Shareholders, Optionholders and Performance Rights Holders.
 
    A copy of the Independent Expert’s Report is set out in Appendix 2 to this Information Memorandum.
 
1.5   Resolution
 
    In conjunction with the Schemes, an EGM will be held at which an ordinary resolution will be proposed to approve the new 2008 Stock Incentive Plan for HeartWare International for use following implementation of the Proposed Transaction.
 
1.6   Directors’ recommendation
 
    The directors of the Company and HeartWare International believe that the Proposed Transaction is in the best interests of the HeartWare Group and, that the Schemes are in the best interests of Shareholders, Optionholders and Performance Rights Holders respectively.
 
    The directors of the Company and HeartWare International believe that the approval of the 2008 Stock Incentive Plan is in the best interests of HeartWare International and Shareholders.

 

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    The Directors unanimously recommend that:
    Shareholders vote in favour of the Share Scheme at the Share Scheme Meeting;
 
    Optionholders vote in favour of the Option Scheme at the Option Scheme Meeting;
 
    Performance Rights Holders vote in favour of the Performance Rights Scheme at the Performance Rights Scheme Meeting; and
 
    Shareholders vote in favour of the Resolution at the EGM.
 
  All Directors who hold or control the right to vote Shares, Options or Performance Rights intend to vote all such Shares, Options and Performance Rights in favour of the Schemes and the Resolution.
1.7   Other Information
 
    This overview does not contain all of the information which is material to a Shareholder or Incentive Holder to assess how to vote. You are urged to read this Information Memorandum in its entirety and, if in any doubt, seek advice from your legal, financial or other professional adviser.

 

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2   Frequently asked questions
This section sets out frequently asked questions that Shareholders and Incentive Holders may have in relation to the Proposed Transaction. The answers to these questions should be read in conjunction with this entire Information Memorandum and, if you are in any doubt you should, seek advice from your legal, financial or other professional adviser.
                 
            Relevant
            Section of
            Information
Question   Answer   Memorandum
 
               
The Proposed Transaction            
 
               
1
  Why have I received this Information Memorandum?   The Information Memorandum has been sent to you because you are a Shareholder, Optionholder or Performance Rights Holder. The Information Memorandum contains information relevant to your consideration of the Proposed Transaction. Its purpose is to assist you in making a decision as to whether or not to approve the Schemes and the Resolution being proposed.     3  
 
               
2
  What is the Proposed Transaction?   The Proposed Transaction is a transaction to re-domicile the HeartWare Group in the US.   1 & 3
 
               
3
  How will the Proposed Transaction be implemented?   The Proposed Transaction will be implemented by:

    a new US company, HeartWare International, acquiring all of the existing Shares from Shareholders in exchange for the issue of new HeartWare International Shares or CDIs to Shareholders under the Share Scheme;
    3 & 9  
 
               
 
     
    all of the existing Options being cancelled in exchange for HeartWare International issuing HeartWare International Options to Optionholders under the Option Scheme;
       
 
               
 
     
    all of the existing Performance Rights being cancelled in exchange for HeartWare International issuing HeartWare International Restricted Stock Units to Performance Rights Holders under the Performance Rights Scheme; and
       
 
               
 
     
    all of the existing Standalone Options being cancelled in exchange for HeartWare International issuing HeartWare International Standalone Options.
       
 
               
 
      The Option Scheme and Performance Rights Scheme are conditional on the Share Scheme becoming Effective.        

 

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            Relevant
            Section of
            Information
Question   Answer   Memorandum
 
               
4
  What is the effect of approving the Schemes?   If the Schemes are approved, the Proposed Transaction will be implemented and the HeartWare Group will re-domicile fin the US with HeartWare International becoming the ultimate parent company of the HeartWare Group. Shareholders and Incentive Holders (other than Ineligible Overseas Shareholders) will receive new HeartWare International Shares or CDIs, HeartWare International Options and HeartWare International Restricted Stock Units respectively and HeartWare International will become the listed entity on ASX.     4  
 
               
5
  Is The Proposed Transaction subject to any conditions?   The Proposed Transaction is subject to Shareholder, Optionholder, Performance Rights Holder and Court approvals, as well as a number of regulatory and other approvals, including with respect to the listing of HeartWare International on ASX.     9  
 
               
6
  Who is HeartWare International?   HeartWare International is a newly incorporated Delaware company which is presently a subsidiary of the Company and which, if the Share Scheme becomes Effective, will become the ultimate parent company of the HeartWare Group. Subject to the Share Scheme becoming effective and to ASX approval, HeartWare International will become listed on ASX.     6  
 
               
7
  Who will be the directors of HeartWare International following implementation of the Share Scheme.   Upon the Share Scheme becoming Effective, all members of the Board will be appointed to the board of HeartWare International.     6  
 
               
8
  Why is HeartWare International incorporated in Delaware?   Over 50% of all US publicly listed companies are incorporated in the State of Delaware. Delaware is usually chosen because of its well developed corporations laws.     6  
 
               
9
  Will there be changes to the operations or strategy of the HeartWare Group as a result of the Proposed Transaction?   Following the Proposed Transaction, the HeartWare Group will continue to have the same assets and liabilities. The Directors expect very few changes to the HeartWare Group’s operations as a result of the Proposed Transaction. It is the intention of the Directors that the business of the HeartWare Group will largely remain the same as before the Proposed Transaction and the HeartWare Group does not intend to change its strategy as a result of the Proposed Transaction.     5  
 
               
 
      Following implementation of the Proposed Transaction, the Directors will convert the present Company to a proprietary company limited by shares. In addition, the Directors may also consider an internal restructure of the HeartWare Group as discussed in Section 6.7.        

 

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            Relevant
            Section of
            Information
Question   Answer   Memorandum
 
               
10
  Where will HeartWare International’s annual meetings be held in the future?   HeartWare International intends to alternate the venue for holding its annual meetings between Sydney and the US.  
 
               
Scheme Consideration            
 
               
11
  What will I receive if the Share Scheme becomes Effective?   Unless you elect otherwise, if you hold Shares in the Company and the Share Scheme becomes Effective, you will receive your HeartWare International Shares in the form of CDIs to allow you to trade them on ASX. Subject to rounding, a CDI will be equivalent to one Share. If you make an election to receive HeartWare International Shares you will receive one HeartWare International Share in exchange for every 35 Shares you hold as at the Scheme Record Date (subject to rounding of fractional entitlements).     3 & 9  
 
               
12
  What will I receive if the Option Scheme becomes Effective?   If you hold Options and the Option Scheme becomes Effective, you will receive one HeartWare International Option in exchange for every 35 Options you hold as at the Scheme Record Date (subject to rounding of fractional entitlements).     3 & 9  
 
               
13
  What will I receive if the Performance Rights Scheme becomes Effective?   If you hold Performance Rights and the Performance Rights Scheme becomes Effective you will receive one HeartWare International Restricted Stock Unit in exchange for every 35 Performance Rights you hold as at the Scheme Record Date (subject to rounding of fractional entitlements).     3 & 9  
 
               
14
  When will I receive HeartWare International Shares, HeartWare International Options or HeartWare International Restricted Stock Units if the Schemes become Effective?   If the Schemes become Effective, it is expected that implementation of the Proposed Transaction will take place approximately 15 days after the Scheme Meetings. The HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units will be issued on the Implementation Date and holding statements and transmittal letters will be mailed shortly thereafter.     3 & 9  
 
               
15
  Can I trade HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units on the ASX?   Subject to ASX approval, after the Share Scheme becomes Effective, HeartWare International will be listed and HeartWare International Shares will be able to be traded on ASX in the form of CDIs. As is the case with the current Options and Performance Rights, HeartWare International Options and HeartWare International Restricted Stock Units will not be quoted and will not be able to be traded on ASX.     9  
 
               
 
      Unless and until HeartWare International Shares are listed for trading on NASDAQ or another exchange, there will be no US public market for HeartWare International Shares. In addition, there can be no assurance that a listing on NASDAQ or exchange will be sought by HeartWare International in the future. There can be no assurance that HeartWare International Shares will be listed on NASDAQ or any other exchange.        

 

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            Relevant
            Section of
            Information
Question   Answer   Memorandum
 
               
16
  Are there differences between my Shares and the HeartWare International Shares I will receive under the Share Scheme?   Yes. While the rights attaching to HeartWare International Shares are based on the rights of the existing Shares, there are certain important differences. In addition, there are a number of significant differences between US/Delaware law and Australian law. A summary of these differences is set out in Appendix 14 to this Information Memorandum.   6

Appendix 14
 
               
17
  What are CDIs?   The electronic transfer system used on ASX, known as CHESS, cannot be used directly for the transfer of securities of foreign companies. To enable companies such as HeartWare International to have their securities cleared and settled electronically through CHESS, depositary instruments called CHESS Depositary Interests (CDIs) are issued.   Appendix 13
 
               
 
      CDIs confer beneficial interests in securities traded on ASX. CDI holders receive all of the economic benefits of actual ownership of the underlying shares.        
 
               
 
      Each CDI will represent an interest in one thirty-fifth of an underlying HeartWare International Share. As one HeartWare International Share will be issued for every 35 Shares, it is expected that CDIs will begin to trade on ASX at or near the trading price of the Shares prior to implementation of the Proposed Transaction.        
 
               
 
      A more detailed description of CDIs is set out in Appendix 13 to this Information Memorandum.        
 
               
18
  Will my HeartWare International Options be granted under the same plans and on the same terms as my existing Options?   The HeartWare International Options will have largely the same terms as your current Options. The HeartWare International Options will be granted under the new HeartWare International Employee Stock Option Plan. A summary of the terms of the HeartWare International Options is set out in section 9 and a copy of the HeartWare International Employee Stock Option Plan is set out in Appendix 9 to this Information Memorandum.   9

Appendix 9
 
               
19
  How will my Standalone Options be treated as a result of the Proposed Transaction?   In accordance with the terms of the Implementation Agreement, the Company has agreed with each Standalone Optionholder to cancel the Standalone Options held by such holder upon the Share Scheme becoming Effective. In consideration for that cancellation, HeartWare International will grant to each Standalone Optionholder HeartWare International Standalone Options.     9  

 

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            Relevant
            Section of
            Information
Question   Answer   Memorandum
 
               
20
  How will fractional entitlements be treated?   Fractional entitlements to HeartWare International Shares, HeartWare International Options, HeartWare International Restricted Stock Units and HeartWare International Standalone Options will be rounded down to the nearest whole number of HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units respectively after aggregating all holdings of the relevant Scheme Participant.     3  
 
               
21
  Will I have to pay brokerage fees or stamp duty?   Unless you are an Ineligible Overseas Shareholder you will not have to pay brokerage or stamp duty in connection with the exchange of your Shares for HeartWare International Shares. Ineligible Overseas Shareholders will have some brokerage deducted from the proceeds of sale of their CDIs under the nominee sale process.     9  
 
               
22
  Will I pay any tax on the exchange of my Shares, Options or Performance Rights?   The Company has been advised that the exchange of:

    Shares for CDIs or HeartWare International Shares;
    10  
 
               
 
     
    Options for HeartWare International Options; and
       
 
               
 
     
    Performance Rights for HeartWare International Restricted Stock Units,
       
 
               
 
      will not cause any Australian tax to be paid by Shareholders holding shares on capital account and Incentive Holders that are eligible for capital gains tax or Division 13A employee share/option scheme tax rollover.        
 
               
 
      Two class ruling applications have been lodged with the ATO seeking confirmation that the conditions for capital gains scrip for scrip rollover relief and Division 13A employee share/option rollover relief are satisfied and that rollover relief is available in relation to the transfer of Shares to HeartWare International under the Share Scheme, the cancellation of Options under the Option Scheme and the cancellation of Performance Rights under the Performance Rights Scheme. Shareholders and Incentive Holders will be advised of the outcome of the ruling process once the final rulings have been issued.        
 
               
 
      Receipt of the final rulings is not a condition to the implementation of the Schemes.        
 
               
 
      However, as a result of the Proposed Transaction Shareholders and Incentive Holders may be subject to US estate taxes.        
 
               

 

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            Relevant
            Section of
            Information
Question   Answer   Memorandum
 
               
 
      Subject to the limitations and qualifications set out in section 10 of this Information Memorandum, the Company has also been advised that:        
 
               
 
     
    the exchange of Shares for HeartWare International Shares should not cause any US federal income tax to be paid by Shareholders who are otherwise not subject to US federal income tax;
       
 
               
 
     
    for Shareholders otherwise subject to US federal income tax (except for Ineligible Overseas Shareholders) the exchange of Shares for HeartWare International Shares should not cause any US federal income tax to be paid by such Shareholders if certain US federal income tax filings are made by such Shareholders in connection with the Share Scheme;
       
 
               
 
     
    the exchange of Options, Standalone Options and Performance Rights for HeartWare International Options, HeartWare International Standalone Options or HeartWare Restricted Stock Units, respectively, should not cause any US federal income tax to be paid by Optionholders, Standalone Optionholders and Performance Rights Holders who are otherwise not subject to US federal income tax;
       
 
               
 
     
    for Optionholders, Standalone Optionholders and Performance Rights Holders otherwise subject to US federal income tax, it is more likely than not that the exchange of Options, Standalone Options and Performance Rights for HeartWare International Options, HeartWare International Standalone Options and HeartWare International Restricted Stock Units (as relevant) under the Proposed Transaction should not cause any US federal income tax to be paid by such Optionholders, Standalone Optionholders and Performance Rights Holders.
       
 
               
 
      Each individual’s tax position is different and Shareholders and Incentive Holders are strongly urged to consult their tax advisers as to the specific tax consequences to them of the Share Scheme, Option Scheme and Performance Rights Scheme, respectively, including the applicability and effect of local and foreign income and other tax laws in their particular circumstance.        

 

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            Relevant
            Section of
            Information
Question   Answer   Memorandum
 
               
Approvals            
 
               
23
  What happens at the Court hearing?   If the Schemes are approved by Shareholders Optionholders and Performance Rights Holders at the Scheme Meetings, the Court will be asked to approve the Schemes at the Second Court Hearing.     9  
 
               
 
      If Shareholders or Incentive Holders wish to oppose the approval by the Court of the Schemes 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.        
 
               
24
  What happens if the Share Scheme is approved but the Option Scheme is not?   The Share Scheme is not conditional on the approval of the Option Scheme, so that if the Option Scheme resolution is not passed, the Share Scheme will still proceed. However, Optionholders will still hold options exercisable over Shares in the Company rather than options over HeartWare International Shares.     4  
 
               
 
      In this case, HeartWare International would consider all of the alternatives available to it, including compulsory acquisition (or cancellation) of the Options, either under the Corporations Act or by private treaty, or taking no immediate action, in which case Optionholders who subsequently exercise their Options would become minority shareholders of the Company (which will have become a subsidiary of HeartWare International and delisted from ASX). In those circumstances, the Company may consider acquiring the Shares or cancelling the Options (as the case requires) at a subsequent time.        
 
               
25
  What happens if the Share Scheme is approved but the Performance Rights Scheme is not?   The Share Scheme is not conditional on the Performance Rights Scheme so that if the Performance Rights Scheme resolution is not passed, the Share Scheme will still proceed. However, Performance Rights Holders will still hold rights over Shares in the Company rather than over HeartWare International Shares.     4  
 
               
 
      In this case, HeartWare International would consider all of the alternatives available to it, including compulsory acquisition (or cancellation) of the Performance Rights, either under the Corporations Act or by private treaty, or taking no immediate action, in which case Performance Rights Holders who subsequently exercise their rights would become minority shareholders of the Company (which will have become a subsidiary of HeartWare International and delisted from ASX). In those circumstances, the Company may consider acquiring the Shares or cancelling the Performance Rights (as the case requires) at a subsequent time.        

 

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            Relevant
            Section of
            Information
Question   Answer   Memorandum
 
               
26
  What happens if the Option Scheme is approved but the Share Scheme is not?   The Option Scheme is conditional on the approval of the Share Scheme, so that if the Share Scheme resolution is not passed both Schemes will fail.     4  
 
               
27
  What happens if the Performance Rights Scheme is approved but the Share Scheme is not?   The Performance Rights Scheme is conditional on the approval of the Share Scheme, so that if the Share Scheme resolution is not passed both Schemes will fail.     4  
 
               
28
  What happens if the Resolution is not approved?   The Schemes are not conditional upon approval of the Resolution. Accordingly, if the required approvals are obtained for the Schemes they will proceed regardless of whether the Resolution is passed at the EGM. If the Resolution is not passed, the 2008 Stock Incentive Plan will not be approved and no grants of incentives will be able to be made under this Plan.     4  
 
               
Voting            
 
               
29
  What am I being asked to vote on?   If you own Shares, you are being asked to vote on the:

    Share Scheme; and


    Resolution at the EGM.
  Your Vote on the Proposed Transaction (p3)
 
               
 
      If you own Options, you are being asked to vote on the Option Scheme.        
 
               
 
      If you own Performance Rights, you are being asked to vote on the Performance Rights Scheme.        
 
               
30
  Am I entitled to vote?   If you are registered as a holder of Shares, Options or Performance Rights as at [   ] am/pm on [   ] 2008 and you are eligible to vote, you will be entitled to vote at the Share Scheme Meeting, the EGM, the Option Scheme Meeting or the Performance Rights Scheme Meeting (as applicable).   Your Vote on the Proposed Transaction (p3)
 
               
31
  Should I vote?   You do not have to vote. However, your Directors believe that the Schemes are in the best interest of Shareholders and Incentive Holders and urge you to read this Information Memorandum carefully and, if eligible, to vote in favour of the Schemes and Resolution in person by attending the relevant Meeting or by proxy, attorney or corporate representative.     3  
 
               

 

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            Relevant
            Section of
            Information
Question   Answer   Memorandum
 
               
32
  What happens if I do not vote, or vote against the Schemes, and the Schemes are approved?   If the necessary approvals for the Proposed Transaction are obtained, Shareholders, Optionholders and Performance Rights Holders will be issued HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units respectively in exchange for their Shares, Options and Performance Rights. This will occur regardless of whether you voted for or against the Schemes or did not vote.     9  
 
               
33
  How do I vote?   You may vote either in person, by proxy attorney or if you are an entity, by a corporate representative of that entity. There are several meetings that will be held in connection with the Proposed Transaction. Your vote is very important. Please see the section entitled “Your vote on the Proposed Transaction” for details as to the procedure for voting at the Meetings.   Your vote on the Proposed Transaction (p3)
 
               
Miscellaneous            
 
               
34
  Who can help answer my questions about the Proposed Transaction?   If you have any questions about the Proposed Transaction please consult your legal, financial or other professional adviser. Additionally, you can call the Company’s enquiry line on:        
 
               
 
      Australia (Toll Free): 1800 707 861        
 
               
 
      Outside Australia: +61 2 8256 3387        
 
               
 
      For additional copies of this Information Memorandum, please visit the Company’s website at
www.heartware.com.au.
       

 

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3   The Proposed Transaction
 
3.1   Overview
 
    The Proposed Transaction is a proposal to re-domicile the HeartWare Group in the US. This will be implemented by the establishment of a new corporate structure under which HeartWare International (a new company incorporated in the US) will become the ultimate parent company of the HeartWare Group and will hold all of the Shares in the Company.
 
    All existing Shares in the Company will be transferred to HeartWare International in exchange for the issue of HeartWare International Shares to Shareholders. Unless you elect otherwise, your HeartWare International Shares will be issued in the form of CDIs to allow you to trade them on ASX.
 
    In conjunction with this share exchange, all existing Options and Performance Rights in the Company will be cancelled in exchange for the issue of HeartWare International Options and HeartWare International Restricted Stock Units (the US equivalent of performance rights) to Optionholders and Performance Rights Holders.
 
    The exchange of the Shares, Options and Performance Rights for new securities in HeartWare International will be effected by way of three concurrent schemes of arrangement.
 
3.2   Share Scheme
 
    A scheme of arrangement under Part 5.1 of the Corporations Act will be proposed to Shareholders under which all existing Shares in the Company will be transferred to HeartWare International. Under this arrangement, unless a Shareholder elects otherwise the HeartWare International Shares will be issued in the form of CDIs to enable them to trade on ASX. Each CDI will be equivalent to an interest in one thirty-fifth of a HeartWare International Share, and accordingly, Shareholders will essentially receive one CDI for each Share held by them on the Scheme Record Date. If you make an election to receive HeartWare International Shares, Shareholders will receive:
      One HeartWare International Share for every 35 Shares held in the Company as at the Scheme Record Date
    HeartWare International Shares will not be immediately tradeable on any public market.
 
    Fractional entitlements to Share Scheme Consideration will be rounded down to nearest whole number of the HeartWare International Shares or nearest multiple of 35 CDIs after aggregating all holdings of the relevant Shareholder.
 
    Further details on how Shareholders may elect to receive HeartWare International Shares rather than CDIs under the Share Scheme is set out in section 9.8 of this Information Memorandum.
    The detailed steps involved in implementing the Share Scheme are set out in Section 9 of this Information Memorandum.

 

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3.3   Option Scheme
 
    A scheme of arrangement under Part 5.1 of the Corporations Act will be proposed to Optionholders under which all existing Options over Shares in the Company will be cancelled. Under this arrangement, Optionholders will receive:
      One HeartWare International Option for every 35 Options held in the Company as at the Scheme Record Date
    The new HeartWare International Options to be issued to Optionholders will be on essentially the same terms as the existing Options, except to the extent necessary or desirable to comply with Delaware and US federal laws and regulations. In particular, the HeartWare International Options will:
    have an equivalent exercise price to the price under the existing Options (but reflecting the 1:35 exchange ratio under the Schemes);
 
    be vested to the same extent as the existing Options are vested; and
 
    be subject to the same performance hurdles (if any) as apply to the existing Options.
    Fractional entitlements to Option Scheme Consideration will be rounded down to the nearest number of HeartWare International Options after aggregating all holdings of the relevant Optionholder.
 
    The detailed steps involved in implementing the Option Scheme are set out in Section 9 of this Information Memorandum.
3.4   Performance Rights Scheme
 
    A scheme of arrangement under Part 5.1 of the Corporations Act will be proposed to Performance Rights Holders under which all existing Performance Rights in the Company will be cancelled. Under this arrangement, Performance Rights Holders will receive:
      One Restricted Stock Unit in HeartWare International for every 35 Performance Rights held in the Company as at the Scheme Record Date
    The new Restricted Stock Units to be issued to Performance Rights Holders will be on essentially the same terms as the existing Performance Rights, except that the rights are structured as restricted stock units and are in a form necessary or desirable to comply with Delaware and US federal laws and regulations. In particular, the Restricted Stock Units will:
    have a nil exercise price as per the existing Performance Rights;
 
    be vested to the same extent as the existing Performance Rights are vested; and
 
    be subject to the same performance hurdles (if any) as apply to the existing Performance Rights.

 

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    Fractional entitlements to Performance Rights Scheme Consideration will be rounded down to the nearest whole number of HeartWare International Restricted Stock Units after aggregating all holdings of the relevant Performance Rights Holder.
 
    The detailed steps involved in implementing the Performance Rights Scheme are set out in Section 9 of this Information Memorandum.
 
3.5   Exchange ratio
 
    The directors of HeartWare International (comprising the current Board) contemplate listing HeartWare International securities on NASDAQ in the future. NASDAQ requires a minimum bid price of US$5 in order to list a class of securities. In addition to this consideration, the directors of HeartWare International believe it is more advantageous for HeartWare International securities to have a higher value per share. Accordingly, the basis of the 35:1 formula used in determining the Scheme Consideration has been applied to effectively consolidate the share capital upon implementation of the Proposed Transaction.
 
3.6   Relationship between the Schemes
 
    The Option Scheme and Performance Rights Scheme are conditional on the Share Scheme becoming Effective. Accordingly, unless Shareholders and the Court approve the Share Scheme, none of the Schemes will proceed.
 
    However, if the Share Scheme is approved, it will proceed regardless of whether the Option Scheme and/or Performance Rights Scheme become Effective. If the Share Scheme becomes Effective but the Option Scheme and/or Performance Rights Scheme are not approved, HeartWare International will consider all options available to it including compulsory acquisition or cancellation of the Options and/or Performance Rights under Chapter 6A of the Corporations Act or by private agreement with Incentive Holders or not taking any action with respect to the Options and/or Performance Rights.
 
    If HeartWare International did not take any action in these circumstances, Optionholders who exercised their Options and Performance Rights Holders who exercised their Performance Rights, in each case after the Scheme Record Date, would receive Shares in the Company. As a result, they would become minority shareholders in the Company which will be de-listed from ASX upon the Share Scheme being implemented and as a result their shareholding would be extremely illiquid.
 
    The Resolution at the EGM for approval of the HeartWare International 2008 Stock Incentive Plan will only be proposed if the Share Scheme is approved by Shareholders.

 

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3.7   Overseas Shareholders
 
    Shareholders who are resident outside Australia, New Zealand and the United States will not receive HeartWare International Shares under the Share Scheme unless, before the Scheme Record Date (and without being obliged to conduct any investigations into the matter), HeartWare International is satisfied that HeartWare International Shares can lawfully be issued to such Shareholders in the jurisdiction in which they reside under the Share Scheme.
 
    Instead, the Ineligible Overseas Shareholders’ CDIs will be issued to a nominee appointed by HeartWare International who will sell those CDIs on ASX. The nominee will then distribute the proceeds received to the Ineligible Overseas Shareholders after deduction of any brokerage, taxes or other costs of sale (such amounts to be paid in A$ and calculated on an averaged basis so that all Ineligible Overseas Shareholders receive the same price per CDI, subject to rounding to the nearest whole cent). Further details of the arrangement with the nominee are detailed in Section 9.10 of this Information Memorandum.
 
3.8   Approvals
 
    In order for all elements of the Proposed Transaction to be implemented, the following approvals are required to be obtained:
  (a)   the Share Scheme must be approved by a majority in number of Shareholders representing at least 75% of the votes cast by Shareholders present and voting (either in person or by proxy, attorney or corporate representative) at the Share Scheme Meeting;
 
  (b)   the Option Scheme must be approved by a majority in number of Optionholders representing at least 75% by value of the Options present and voting (either in person or by proxy, attorney or corporate representative) at the Option Scheme Meeting;
 
  (c)   the Performance Rights Scheme must be approved by a majority in number of Performance Rights Holders representing at least 75% by value of the Performance Rights present and voting (either in person or by proxy, attorney or corporate representative) at the Performance Rights Scheme Meeting; and
 
  (d)   the Resolution must be approved by a majority of votes of Shareholders eligible to vote at the EGM.
    Each of the Schemes must also be approved by the Court.
 
    The required quorum at the Meetings is two Shareholders, two Optionholders or two Performance Rights Holders (as applicable).

 

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3.9   Replacement of Standalone Options
 
    In conjunction with the Schemes, HeartWare International and the Company have agreed with the Standalone Optionholders to cancel their respective Standalone Options in consideration for the grant by HeartWare International of equivalent options in HeartWare International. The Standalone Optionholders will receive one HeartWare International Standalone Option for every 35 Standalone Options held at the Scheme Record Date. Any fractions of Standalone Options will be rounded down to the nearest whole number of HeartWare International Standalone Options. The cancellation of the existing Standalone Options and offer of the HeartWare International Standalone Options will be conditional upon the Share Scheme becoming Effective.
 
3.10   Listing of HeartWare International
 
    An application will be made for the admission of HeartWare International to the official list of ASX and for quotation of the CDIs within seven days of the date of this Information Memorandum. Approval for the listing of HeartWare International and quotation of the CDIs is a condition to implementation of the Schemes.
 
    It is expected that, providing ASX grants approval for the listing and quotation, CDIs will commence trading on a deferred settlement basis on the Effective Date for the Schemes, which is currently expected to be on or around [   ] 2008.
 
3.11   CHESS Depositary Interests (CDIs)
 
    As noted above, the Share Scheme Consideration will be issued to Shareholders (excluding Ineligible Overseas Shareholders) in the form of CDIs, unless Shareholders elect to receive HeartWare International Shares. Such election must be made by notice in writing to the Company’s Share Registry. For further details on how Shareholders may elect to receive HeartWare International Shares is set out in section 9.8 of this Information Memorandum.
 
    CDIs are instruments used to enable securities of foreign companies, such as HeartWare International, to be traded on ASX. The electronic transfer system used on ASX, CHESS, cannot be used to transfer securities of foreign companies therefore depositary instruments known as CDIs are used to facilitate the electronic settlement of such securities.
 
    CDIs will confer the beneficial interest in HeartWare International Shares on Shareholders whilst the legal title to the HeartWare International Shares will be held by a depositary, CHESS Depositary Nominees Pty Limited, which is a subsidiary of ASX. CDI holders will obtain all the economic benefits of actual ownership of HeartWare International Shares.
 
    Appendix 13 to this Information Memorandum provides further description of the CDIs and the rights and entitlements attaching to the CDIs, including in relation to voting.
 
    Shareholders who elect to receive HeartWare International Shares rather than CDIs will not be able to trade the HeartWare International Shares on ASX or any other public exchange unless they subsequently convert their HeartWare International Shares into CDIs or HeartWare International obtains a listing on another exchange in the future. CDIs can be converted into HeartWare International Shares at any time.

 

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4   Important Considerations for Shareholders and Incentive Holders
 
4.1   Introduction
 
    This section sets out the key potential advantages, disadvantages and risks associated with the Proposed Transaction which Shareholders and Incentive Holders should consider when deciding whether to approve the Schemes and the Resolution. Shareholders and Incentive Holders should also have regard to the entire Information Memorandum, particularly the Independent Expert’s Report at Appendix 2 when deciding whether to vote in favour of the Proposed Transaction.
 
4.2   Potential advantages of the Proposed Transaction
 
    The Directors believe that the Proposed Transaction is in the best interests of the Company, Shareholders and Incentive Holders and that it will deliver the following potential key benefits:
    provide HeartWare International with the opportunity to consolidate its operations in the US by allowing for all manufacturing, development, research and clinical efforts to be undertaken within or from the US;
 
    allow the HeartWare Group to align its corporate structure with its operating structure, as all senior management will be located in the US;
 
    enhance HeartWare International’s ability to effectively manage and grow its business in key markets;
 
    enhance HeartWare International’s ability to pursue growth and diversification opportunities in accordance with its strategic plans;
 
    enable HeartWare International to be an Australian-listed publicly owned company as it continues to grow internationally;
 
    facilitate further US-based demand for HeartWare International’s securities. The Directors believe that in excess of 65% of the Company’s Shares are already held by Shareholders who are resident in the US;
 
    removal of the FORUS restriction on the Company’s Shares allowing HeartWare International unfettered access to US investors, which the Directors believe should ultimately result in increased demand for HeartWare International securities;
 
    allow for the adoption of a US corporate structure for the HeartWare Group which will be more digestible and understandable for both US investors and US employees and enhance HeartWare International’s ability to attract and retain employees, especially key management with industry specific knowledge and experience who can enhance the development and commercialisation of the Company’s products;

 

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    provide easier access to capital as certain US investors who were previously prevented from investing in the Company due to it being a non-US based company will now be able to invest in HeartWare International;
 
    reduce compliance costs of the HeartWare Group by eliminating the current requirements to prepare Australian financial statements under Australian equivalents to IFRS in addition to the US GAAP financial statements; and
 
    reduce the resources used and time spent by management of the Company in reconciling and managing the differences between US and Australian law, particularly those differences associated with securities law.
4.3   Potential disadvantages and risks of the Proposed Transaction
 
    As the Company’s business will continue to be run on the same basis, essentially the same risks will apply to an investment in HeartWare International as currently apply with respect to an investment in the Company. If the Proposed Transaction is implemented, however, there will be certain additional risks associated with, or resulting from, the Proposed Transaction which Shareholders and Incentive Holders should take into account when deciding whether to approve the Schemes and the Resolution, as outlined below.
 
    The potential disadvantages and risks of the Proposed Transaction include:
    effect of different legal regimes (please see Appendix 14 for a comparison of the Australian and US legal regimes);
 
    exposure to US estate taxes in certain circumstances;
 
    potential loss of demand for HeartWare International’s shares in the Australian market;
 
    exposure to the more litigious environment of the US;
 
    loss of future dividend franking credit benefits should the Company make a dividend payment in the future (although the Company does not presently make dividend payments nor does it currently contemplate making dividend payments in the foreseeable future)
4.4   Differences between Australian and US corporations and securities laws
 
    The Company is incorporated in Victoria, Australia. HeartWare International is incorporated in Delaware, United States. As a result, if the Proposed Transaction proceeds, different legal regimes will apply with respect to your holdings of HeartWare International Shares, HeartWare International Options or HeartWare International Restricted Stock Units to those that currently apply to the Company. Rights of Shareholders and Incentive Holders after implementation of the Proposed Transaction will be governed by the laws of the State of Delaware, US federal securities law and HeartWare International’s certificate of incorporation and by-laws. HeartWare International will also be bound by the Listing Rules, due to the quotation of CDIs.

 

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    As a foreign entity, HeartWare International 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, in conjunction with HeartWare International’s application for admission to the official list of ASX, HeartWare International will undertake to inform ASX upon becoming aware of:
    any person becoming a substantial holder of HeartWare International within the meaning of section 617B of the Corporations Act, and to disclose any details of the substantial holding of which HeartWare International is aware; and
 
    any subsequent changes in the substantial holdings of which HeartWare International is aware.
    A comparison of the legal regimes in Delaware and Australia and the significance of these differences for Shareholders, Optionholders and Performance Rights Holders is set out in Appendix 14.
 
    As a result of the implementation of the Proposed Transaction:
    the HeartWare Group will no longer prepare Australian financial statements and report under AIFRS;
 
    HeartWare International will hold some of its shareholder meetings in the US;
 
    HeartWare International will have CDIs traded on ASX rather than ordinary shares. Appendix 13 sets out a summary of the rights attaching to CDIs; and
 
    holders of HeartWare International Shares may, in certain circumstances, be subject to US estate taxes.
4.5   Tax implications of the Proposed Transaction
 
    The Proposed Transaction may have taxation implications for Shareholders and Incentive Holders. Shareholders and Incentive Holders are referred to the summary of tax consequences in section 10 of this Information Memorandum, which also includes an analysis of the tax consequences of holding interests in shares, options and restricted stock units in a company incorporated under the laws of the State of Delaware. In addition, Shareholders and Incentive Holders are strongly urged to consult their tax advisers as to the specific tax consequences to them of the Proposed Transaction including the applicability and effect of local and foreign income and other tax laws in their particular circumstances.
 
4.6   Implications if the Proposed Transaction does not proceed
 
    In the event that Shareholders or the Court do not approve the Share Scheme, Shareholders and Incentive Holders will retain their interests in the Company, which will continue to operate as a separate entity and will continue to be listed on ASX.

 

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  (a)   Implications if the Share Scheme does not become Effective
 
      If the Share Scheme does not become Effective, the following key implications will arise for Shareholders:
    the benefits expected to arise from the Proposed Transaction such as improved access to capital markets and reduced compliance costs, as summarised in section 4.2 will not be obtained;
 
    the costs incurred in connection with presenting the Proposed Transaction to Shareholders will be incurred regardless of whether the Proposed Transaction is implemented;
 
    the redomiciling proposal will not be revisited in the foreseeable future; and
 
    the Company, as a reporting company in the US, will be required to incur the time and expense of dual reporting of its financial statements under AIFRS and US GAAP.
  (b)   Implications if the Option Scheme does not become Effective
 
      If both the Share Scheme and Option Scheme do not become Effective, the implications set out in section 4.6(a) above will also apply to Optionholders so far as they relate to the value of the Shares underlying the Options.
 
      However, if the Share Scheme is approved but the Option Scheme is not, the following key implications may arise for Optionholders:
    as the Company will become a wholly owned subsidiary of HeartWare International and will be de-listed from ASX, the Options will be over unlisted securities in a tightly controlled entity. As a result, any unexercised Options would only be able to convert into extremely illiquid Shares in an unlisted company. This would result in value realisation being uncertain for Optionholders;
 
    alternatively, HeartWare International may compulsorily acquire the Options but is not obliged to do so. The right of an Optionholder to continue to hold his or her Options, or Shares issued on exercise of such Options, will be subject to any decision by HeartWare International to compulsorily acquire the Options and Shares issued on exercise of such Options under Chapter 6A of the Corporations Act. HeartWare International has indicated that it may exercise its compulsory acquisition rights if the Option Scheme is not approved. Any such compulsory acquisition must be at fair value for the Options in the opinion of an independent expert approved by ASIC and will be payable in cash, but there is no guarantee that this amount will be equal to or exceed the value of the HeartWare International Options which would have been issued under the Option Scheme; and
 
    finally, HeartWare International may consider discussing the cancellation of the Options with Optionholders by private treaty but is not obliged to do so.

 

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      Optionholders should note that HeartWare International may choose not to compulsorily acquire or cancel the Options in this situation and therefore there is no guaranteed exit or other means of sale for Optionholders in these circumstances.
 
  (c)   Implications if the Performance Rights Scheme does not become Effective
 
      If both the Share Scheme and Performance Rights Scheme do not become Effective, the implications set out in section 4.6(a) above will also apply to Performance Rights Holders so far as they relate to the value of the Shares underlying the Performance Rights.
 
      However, if the Share Scheme is approved but the Performance Rights Scheme is not, the following key implications may arise for Performance Rights Holders:
    as the Company will become a wholly owned subsidiary of HeartWare International and will be de-listed from ASX, the Performance Rights will be over unlisted securities in a tightly controlled entity. As a result, any unvested Performance Rights would only be able to convert into extremely illiquid shares in an unlisted company. This would result in value realisation being uncertain for Performance Rights Holders;
 
    alternatively, HeartWare International may compulsorily acquire the Performance Rights but is not obliged to do so. The right of a Performance Rights Holder to continue to hold his or her Performance Rights, or Shares issued on exercise of such Performance Rights, will be subject to any decision by HeartWare International to compulsorily acquire the Performance Rights and Shares issued on exercise of such Performance Rights under Chapter 6A of the Corporations Act. HeartWare International has indicated that it may exercise its compulsory acquisition rights if the Performance Rights Scheme is not approved. As with the Options, any such compulsory acquisition must be at fair value for the Performance Rights in the opinion of an independent expert approved by ASIC and will be payable in cash, but there is no guarantee that this amount will be equal or exceed the value of the HeartWare International Restricted Stock Units which would have been issued under the Performance Rights Scheme; and
 
    finally, HeartWare International may consider discussing the cancellation of the Performance Rights with Performance Rights Holders by private treaty but it is not obliged to do so.
 
      Performance Rights Holders should note that HeartWare International may choose not to compulsorily acquire or cancel the Performance Rights in this situation and therefore there is no guaranteed exit or other means of sale for Performance Rights Holders in these circumstances.

 

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4.7   Independent Expert’s opinion
 
    The Independent Expert has concluded that the Proposed Transaction and the Schemes are in the best interests of the Shareholders, Optionholders and Performance Rights Holders. The Independent Expert has also stated that on balance, the advantages of the Proposed Transaction outweigh the disadvantages for all Shareholders and Incentive Holders.
 
4.8   Directors’ recommendation
 
    The Directors of the Company believe that the Proposed Transaction is in the best interests of Shareholders, Optionholders and Performance Rights Holders.
 
    Accordingly, the Directors unanimously recommend that Shareholders, Optionholders and Performance Rights Holders vote in favour of each of the resolutions to be proposed at the Scheme Meetings and the EGM to approve the Proposed Transaction. Please see sections 1.1.3 and 4.2 for details of the reasons why the Directors believe that the Proposed Transaction is in the best interests of Shareholders and Incentive Holders of the Company.
 
    The Directors intend to vote all Shares, Options and Performance Rights owned or controlled by them in favour of the Schemes and the Resolution.

 

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5   Information about the Company
5.1   Introduction
 
    This section contains information in relation to the Company.
 
    The Independent Expert’s Report set out in Appendix 2 to this Information Memorandum contains further information about the Company.
 
5.2   Business overview
  (a)   Background and corporate structure of the Company
    The Company is a public limited liability company incorporated in Australia and registered as a reporting entity in the US under the Securities Exchange Act of 1934. The Company is subject to the Corporations Act, Listing Rules and US securities laws.
 
    The Company was incorporated on 26 November 2004 in Victoria, Australia and was subsequently listed on ASX on 31 January 2005 under the ticker symbol ‘HTW’. The Company’s Australian Company Number is 111 970 257 and the Company’s SEC filing number is 000-52595. The Company’s registered office is located at Level 57, MLC Centre, 19-29 Martin Place, Sydney, New South Wales 2000.
 
    The Company’s head office is in the US, located in Framingham, Massachusetts and the Company has its operations and manufacturing facility in Miami Lakes, Florida.
 
    The Company’s operating subsidiary, HeartWare, Inc, is a Delaware corporation which was incorporated on 8 April 2003 under the name Perpetual Medical, Inc, and which changed its name to HeartWare, Inc. on 10 July 2003. Since 10 July 2003, HeartWare, Inc. has operated the business formerly owned and operated by Kriton Medical, Inc, which had been developing the HeartWare LVAD System (described further in Section 5.2(b) below) since approximately 1995.
  (b)   Heart failure
    Heart failure is one of the leading causes of death in the developed world, affecting over 20 million people globally and five million people in the US alone. Heart failure is a cardiovascular disease with both an increasing incidence and death rate. Each year, approximately 550,000 new cases are diagnosed and 300,000 patients die from advanced heart failure in the US.
 
    Heart failure means that the heart’s pumping power is weaker than normal. In a healthy person, the left ventricle of the heart pumps oxygenated blood into the aorta (the main artery leading from the heart) and the blood is then circulated throughout the body until it returns through the venous system to the right side of the heart, which then pumps it into the lungs to be re-oxygenated. If the left ventricle is not working properly, the oxygenated blood is not fully cleared from the lungs and the blood is not circulated effectively. If the muscle of the left ventricle is damaged or is not working efficiently, it will tend to work harder in an effort to supply adequate blood flow into the aorta.

 

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    Unfortunately, the increased effort results in dilation, or enlargement, of the left ventricle, rather than increased blood flow. This dilation then makes it harder for the heart to contract effectively which results in even lower blood flow, increased effort and further dilation of the ventricle. This degenerative process generally continues until the patient becomes debilitated and eventually dies from inadequate clearing of the lungs and inadequate flow of oxygenated blood to the organs. The inadequate lung clearance or lung congestion is why the advanced stages of heart failure are called congestive heart failure, or CHF. The symptoms of heart failure can be treated by pharmaceuticals or pacemaker technology but the underlying process is largely irreversible.
  (c)   The Company’s products and technologies
    Strategy
 
    The Company is a medical device company focused on driving innovation in the left ventricular assist device (LVAD) market by developing a family of blood pumps that are significantly smaller than competing products and that are implanted by progressively less invasive surgical techniques. The Company’s pumps are surgically implanted to help augment blood circulation in patients suffering from chronic and end-stage heart failure.
 
    Products
 
    The Directors believe that the:
    unique design;
    smaller size;
    less invasive implant techniques;
    increased durability; and
    reliability
  of the Company’s pumps will enable physicians to treat a wider range of patients.
 
    The Directors also believe that the Company’s blood pumps have the potential to provide significant clinical benefits to patients suffering from advanced heart failure, leading to fewer complications and improved outcomes.
 
    Technology
 
    The Company’s proprietary technology has been in development for over ten years. Key features of its technology and products include:
    small size which allows for routine implantation in the space immediately surrounding the heart, known as the pericardial space, unlike other full-output LVADs that are currently available and which are implanted in the abdomen;

 

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    a hybrid passive magnetic and hydrodynamic impeller suspension system which eliminates the need for mechanical bearings, providing a “wearless mechanism”;
    a wide-bladed impeller which facilitates clear blood flow paths through the pump;
    an integrated inflow cannula which optimises blood flow characteristics and facilitates pericardial placement;
    dual motor stators and related circuitry which enhance system reliability; and
    efficient hydrodynamic coupling with motor design to maximise power efficiency and enable the delivery of up to ten litres of blood flow per minute.
    The Directors believe that the Company’s first LVAD, the HeartWare LVAD System, is the smallest full-output LVAD currently in clinical trials or in the marketplace and is the only centrifugal LVAD designed to be implanted above the diaphragm in all patients. A full output device is an LVAD with the capacity to pump blood at the rate of up to and exceeding eight litres of blood per minute.
 
    The Company’s next generation device, the MVAD, is based on the same technology platform as the HeartWare LVAD System but adopts an axial flow, rather than a centrifugal flow, configuration. The MVAD, which is currently at the prototype stage and undergoing implantation, or cannulation, studies in animals, is approximately one-third of the size of the HeartWare LVAD System and the Directors expect to initiate human clinical trials for the MVAD in 2009. The Directors believe that the MVAD will be implantable by surgical techniques that are even less invasive than those required to implant the HeartWare LVAD System.
 
    In parallel with the Company’s development of the MVAD, the Company has commenced design work on its third generation blood pump, which the Company currently calls the IV VAD. The IV VAD will rely on the same underlying technology platform and will be a smaller version of the MVAD. Unlike the HeartWare LVAD System or the MVAD, the IV VAD is intended to be positioned within the body’s vascular network and implanted by minimally invasive catheter-based techniques. Once the IV VAD is fully developed, the Directors expect the IV VAD to be about one-tenth of the size of the HeartWare LVAD System.
 
    The Company also has a working prototype of a transcutaneous energy transfer (TET) system, that will improve a patient’s quality of life by allowing the Company’s devices to be recharged through skin induction without the need for a separate line that connects the pump to an externally-worn controller and battery pack. The Directors expect development work for the Company’s TET system to continue throughout 2008.
 
    The Company is also continuing to develop enhancements to its existing LVAD System peripheral equipment based upon early clinician and patient feedback and is continuing to develop physiological control algorithms. The objective of these projects is to improve the ease of implantation and use of the LVAD System which the Directors believe will lead to enhancing market acceptance.

 

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    Clinical Trials
 
    The Company is a development stage company and as such has not generated revenue from any of its products. The Company and HeartWare Inc are currently conducting a combined European and Australian human clinical trial for the HeartWare LVAD System. This international trial began in March 2006 and called for the implantation of the Company’s pump in 20 patients with advanced heart failure. The endpoint for the trial is patient survival to the earlier of 180 days or transplantation. On 31 August, 2007, the Company successfully implanted its 20th patient. 18 of the Company’s first 20 patients have reached successful completion of the 180-day primary endpoint.
 
    The Directors have since decided to expand the number of patients in the Company’s international clinical trial to 50. Although there is no requirement to conduct additional implants, the Directors believe that the expansion of the international trial will provide the Company with a good opportunity to maintain its relationships with its European and Australian clinical sites while also providing increased depth of clinical data. On 8 July 2008 St Vincent’s Hospital in Sydney conducted their 9th implant of the LVAD device, bringing the total number of implants in the Company’s international clinical trial to 40. The Company anticipates further implants over the coming months.
 
    The clinical results from these initial patients remain extremely encouraging. Of the total 40 implants, 4 patients have unfortunately died, including 3 patients within 180 days of their implant and one patient beyond the 180 day point. Of the remaining 36 patients, 10 patients have undergone successful heart transplantation (after an average of 275 days on support), 2 patients have had their devices explanted due to recovery of their hearts, and 24 patients remain on LVAD support.
 
    These results are based on a relatively small sample size. However, the apparent patterns of device reliability and high patient survival rates, particularly in light of the seemingly low transplant rates, remain extremely encouraging early indicators.
 
    The Company remains on track to receive CE Mark prior to the end of 2008. The two key components of the CE Mark requirements are firstly the submission of a “Technical Dossier” which includes, among other information, a detailed clinical report and secondly the accreditation of the Company’s manufacturing facility following an independent audit of the Company’s processes and quality systems.
 
    Compilation of the Technical Dossier documentation will be completed during the third quarter of 2008. The Company is also actively preparing for an ISO audit of its new facility at Miami Lakes and remains on track for being awarded CE Mark in the fourth quarter of 2008, which will trigger the start of commercial sales in Europe. The Company has also recently engaged a director of Marketing based in Europe who, with some 6 months lead time, has been charged with establishing the necessary commercial infrastructure to facilitate a product rollout across multiple European sites beginning early in 2009.

 

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    The Company’s European and Australian clinical trial results will be compiled into a single data set and submitted for European regulatory approval. The Directors also plan to seek regulatory approval in Australia after receiving regulatory approval in Europe.
 
    The data from the Company’s European and Australian initial clinical trial was also used to support the Company’s application for approval by the US Food and Drug Administration (FDA) for a bridge-to-transplant study in the United States. On 5 May 2008 the Company received conditional approval from the FDA of an Investigational Device Exemption (IDE) for the HeartWare LVAD, which enables the Company to immediately commence its US clinical trial for the HeartWare LVAD System for use as a bridge to cardiac transplant in patients suffering from end-stage heart failure. Over the intervening period the Company has allocated significant resources towards addressing the few remaining conditions. The Company’s amendment was submitted to the FDA on 3 July 2008 and the Company is currently awaiting their response. The Company is hopeful that the FDA will confirm either a further reduction in the few outstanding conditions or, potentially, a full approval of the trial.
 
    The Company is currently working through the training requirements and the clinical trial contractual arrangements with its lead centres and expects its first centres to begin implanting this quarter.
 
5.3   Market opportunity and competition
  (a)   Classification of heart failure
    The traditional method for categorising the stages of heart failure is the New York Heart Association (NYHA) functional classification system, which identifies four levels of heart failure in a steady progression of the disease by relating patient symptoms to everyday activities and the patient’s quality of life and overall functional limitations. These classes are:
     
Class   Patient Symptoms
   
 
Class I
(Mild)
 
No limitation of physical activity. Ordinary physical activity does not cause undue fatigue, palpitation or dyspnoea (shortness of breath).
   
 
Class II
(Mild)
 
Slight limitation of physical activity. Comfortable at rest, but ordinary physical activity results in fatigue, palpitation or dyspnoea.
   
 
Class III (Moderate)  
Marked limitation of physical activity. Comfortable at rest, but less than ordinary activity causes fatigue, palpitation or dyspnoea.
   
 
Class IV (Severe)  
Unable to carry out any physical activity without discomfort. Symptoms of cardiac insufficiency at rest. If any physical activity is undertaken, discomfort is increased.

 

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    More recently, the American Heart Association and American College of Cardiology developed the “Stages of Heart Failure” which provides a different scale to that provided by the NYHA functional classifications referred to above. The Stages of Heart Failure emphasise the evolution and progression of heart failure and are described below:
     
Stage   Definition
   
 
Stage A  
Those patients who are at risk of developing heart failure.
   
 
Stage B  
Those patients who have known heart failure, more commonly referred to as a “structural abnormality of the heart”, but have never had heart failure. This includes patients diagnosed with “systolic” heart failure which occurs when the heart muscle does not contract with enough force, so there is not enough oxygenated blood being pumped throughout the body.
   
 
Stage C  
Those patients who have a structural abnormality of the heart and current or previous symptoms of heart failure.
   
 
Stage D  
Those patients who have late, fully developed symptoms of heart failure that is not readily yielding to medical treatment.
    While not constituting an exact match, the Directors believe that Stage C and D are broadly equivalent to NYHA Class III and IV.
  (b)   The Company’s Target Markets—Class III and Class IV Patients
    The Company’s devices will be primarily targeted at Class III and Class IV heart failure patients and their physicians. The Company estimates that the number of Class III or Class IV heart failure patients worldwide is approximately seven million and that approximately 20% of these patients could be assisted by a circulatory assist device. The Directors believe that there is a significant market opportunity for LVADs which are smaller, easier to use and more reliable than the devices that are currently available.
 
    The Company estimates that there are approximately five million Class III heart failure patients worldwide. Of these five million patients, the Company estimates that approximately one million patients are severely impacted by CHF but are not yet nearing the end stages of the disease. While these patients suffer on a daily basis, they do not need the same full support as the later-stage Class IV patients and may be less willing to undergo the open chest procedure required for the placement of the HeartWare LVAD System or other LVADs. The Company believes that up to one-third of these one million patients would be candidates for a less invasive surgical approach such as the one the Company is developing with the MVAD. The Company believes that this less invasive surgical approach should make more patients and their physicians comfortable with the benefits of the implant because of the potential for reduced surgical risk and shorter post-operative recovery periods.
 
    The Company expects the IV VAD to address the clinical needs of the balance of these one million Class III patients. The IV VAD will be a catheter-delivered implantable pump, requiring minimal surgery and convalescence time. The pump will be aimed at treating Class III patients whose quality of life is impacted by their condition but whose illness does not yet warrant the implantation of a full-output pump.

 

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  (c)   Competition
    The environment in which the Company operates is one in which a number of companies operating in the medical technology sector compete for a limited pool of investment funds. With the recent downturn in Australian economic activity, many public companies in the Australian life science sector have been particularly adversely impacted. The main challenge for the Company will be to retain investor interest and to continue to generate support from investors.
 
    Competition in the LVAD industry is expected to increase as better devices become available. In the long run, the Directors believe that only smaller, less invasive, reliable and durable devices will remain as viable alternatives for the treatment of CHF.
 
    The Company’s principal competitors include Thoratec Corporation, World Heart Corporation, Circulite, Jarvik Heart, MicroMed Technology, Inc, Ventracor Limited, Berlin Heart AG, Abiomed, Inc, Terumo Heart, Inc. and a range of other smaller, specialised medical device companies with devices at varying stages of development. The Company is not aware of whether any of these competitors are currently developing a new full-output pump that is equivalent or lesser in size to the HeartWare LVAD System, which is designed to be implanted by minimally invasive techniques, including implantation above the diaphragm in all patients. In addition, there may be companies unknown to the Company which are developing competitive pumps of lesser or similar output levels or other competitive products, and the Directors can offer no assurance that the above competitors or these other parties will not be successful in their efforts. Further, there are a number of companies working to develop devices other than pumps to manage or reverse heart failure.
 
    In addition to competition from medical device companies, pharmaceutical companies are pursuing compounds to better treat heart failure and several companies are also exploring potential stem cell based treatments.
 
    The Directors believe that the key features of the Company’s technology that provide it with a competitive advantage over competitor’s products include:
    its small device size which allows for routine implantation in the space immediately surrounding the heart, known as the pericardial space, unlike other full-output LVADs that are currently available;
    a hybrid passive magnetic and hydrodynamic impeller suspension system which eliminates the need for mechanical bearings, providing a “wearless mechanism”; and
    a design that includes a wide-bladed impeller which facilitates clear blood flow paths through the pump and an integrated inflow cannula which optimises blood flow characteristics.

 

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    Although the Directors believe that the Company’s technology provides it with advantages over its competitors’ products, the Directors note that:
    the Company’s products are in the early stages of development, it has limited implantation experience, and the Company’s success is dependent on its further international clinical trials backing up the safety and efficacy of its products;
    a number of the Company’s competitors have significantly greater financial and human resources than the Company and have established reputations, as well as worldwide distribution channels, sales and marketing capabilities which are larger and more established than the Company’s; and
    the Company’s market is an emerging market and is reliant upon acceptance of LVAD technology.
5.4   The Company’s strategy
 
    The Company’s goal is to be at the forefront of innovation in the LVAD sector by maintaining a proprietary technology platform which enables the development of a pipeline of ever-smaller heart pumps. These will reduce procedural invasiveness and simultaneously increase the number of patients who can benefit from the Company’s products.
 
    The Directors believe that the Company’s technology provides it with a significant competitive advantage in the LVAD market. To capitalise on that advantage, the Company’s strategy is to obtain regulatory approval for the Company’s initial product, the HeartWare LVAD System, and begin commercial sales of this system. The Company’s strategy and key developments include:
    Finalising European and Australian Clinical Trials — the Company has completed its initial enrolment of 20 patients in its combined European and Australian clinical trial and have recently decided to expand the international trial to 50 patients. This international clinical trial is aimed at achieving European and Australian regulatory approval for the HeartWare LVAD System. As at 31 July 2008, the Company had implanted 40 of the maximum 50 patients.
    Obtaining regulatory approval and commercially launching the HeartWare LVAD System — the Company’s main priority is to obtain regulatory approval in Europe, the US and Australia for the HeartWare LVAD System and to launch the HeartWare LVAD System commercially.
    US IDE approval — on 5 May 2008 the Company received conditional approval from the FDA, which enables the Company to immediately commence its US clinical trial for the HeartWare LVAD System for use as a bridge-to-cardiac transplant in patients suffering from end-stage heart failure. As at 31 July 2008, the Company had not yet commenced its US clinical trials.

 

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    Commencing sales and marketing activities — once the Company obtains regulatory approval to sell its product commercially, the Company intends to further develop a network of training centres at the sites where the clinical trials are being conducted. The Company intend to work with a broad spectrum of physicians to promote the clinical benefits of the HeartWare LVAD System. The Company also plans to recruit and train a direct sales force to market the Company’s product in the US, Australia and some European countries and eventually engage distributors elsewhere.
    Focusing on continuous product development — in parallel with the clinical development of the HeartWare LVAD System, the Directors plan to advance the development of the Company’s next generation products, such as the MVAD and IV VAD. The Company’s first MVAD animal trials began in August 2005. In 2007, the Company began focusing on cannulation techniques for its MVAD via additional animal studies, and this work is expected to continue throughout 2008.
    Partnering with leading professionals in the fields of cardiovascular surgery and cardiology and heart centres around the world — the Company’s Medical Advisory Board is composed of leading professionals in the fields of cardiovascular surgery and cardiology. The Company has established relationships with several leading heart centres around the world and continues to expand this network. The Directors believe that these relationships are key to the Company’s growth as they help to drive clinical awareness of the Company’s products.
The Company is currently negotiating a new supply arrangement with Minnetronix, Inc. Whilst the Company expects these negotiations to result in the agreement of a revised arrangement with Minnetronix, inc, there is no guarantee that this will be achieved and failure to do so could adversely impact the timetable for the Company attaining the above goals.
The Company is also heavily dependent on two main suppliers. Should either of those companies cease to supply the Company this would cause delays for the Company’s business plan. However, the Company has no reason to believe that this will occur.
5.5   The Company’s issued securities
  (a)   Summary of the Company’s issued securities
    As at the date of this Information Memorandum, the issued securities of the Company comprise:
    310,356,839 Shares;
    19,326,464 Options;
    2,750,000 Performance Rights; and
    1,850,000 Standalone Options.

 

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    The Company is under no obligation to issue further Shares, Options, Performance Rights or Standalone Options before the commencement of the Scheme Meetings, other than Shares issued upon exercise of certain Options, Standalone Options or Performance Rights. Further details of the securities on issue in the Company are set out below.
  (b)   Options
    Details of the Options on issue in the Company as at the date of this Information Memorandum are set out below.
                     
Number of Options     Exercise Price     Expiry Date
 
                   
4,273,804
    $ 0.20     24 January 2010
 
                   
191,051
    $ 0.60     24 January 2010
 
                   
191,051
    $ 0.75     24 January 2010
 
                   
191,051
    $ 1.00     24 January 2010
 
                   
191,051
    $ 1.50     24 January 2010
 
                   
191,051
    $ 0.60     27 April 2010
 
                   
191,051
    $ 0.75     27 April 2010
 
                   
191,051
    $ 1.00     27 April 2010
 
                   
191,051
    $ 1.50     27 April 2010
 
                   
944,204
    $ 0.50     27 April 2010
 
                   
764,204
    $ 0.50     30 November 2012
 
                   
2,334,580
    $ 1.10     25 July 2016
 
                   
5,581,264
    $ 1.10     27 September 2016
 
                   
500,000
    $ 1.10     28 October 2016
 
                   
150,000
    $ 1.10     2 January 2017
 
                   
200,000
    $ 0.75     26 July 2017
 
                   
2,850,000
    $ 0.75     16 November 2017
 
                   
200,000
    $ 0.60     11 July 2018

 

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  (c)   Performance Rights
    Details of the Performance Rights on issue in the Company as at the date of this Information Memorandum are set out below.
     
Number of Performance Rights   Expiry Date
 
     
1,650,000
  16 November 2017
 
     
1,100,000
  9 May 2018
  (d)   Standalone Options
    Details of the Standalone Options on issue in the Company are set out below.
                     
    Number of            
    Standalone            
Name   Options     Expiry Date   Exercise Price  
 
                   
Robert Thomas
    200,000     24 January 2010   $ 0.60  
 
                   
 
    200,000     24 January 2010   $ 1.00  
 
                   
 
    100,000     24 January 2010   $ 1.50  
 
                   
Dr. Christine Bennett
    100,000     24 January 2010   $ 0.60  
 
                   
 
    100,000     24 January 2010   $ 1.00  
 
                   
 
    50,000     24 January 2010   $ 1.50  
 
                   
Dr. Denis Wade AM
    100,000     24 January 2010   $ 0.60  
 
                   
 
    100,000     24 January 2010   $ 1.00  
 
                   
 
    50,000     24 January 2010   $ 1.50  
 
                   
Dr. Bud Frazier
    250,000     16 November 2017   $ 0.75  
 
                   
Dr. Steven Boyce
    100,000     16 November 2017   $ 0.75  
 
                   
Inteq Limited
    200,000     24 January 2010   $ 0.60  
 
                   
 
    200,000     24 January 2010   $ 1.00  
 
                   
 
    100,000     24 January 2010   $ 1.50  
5.6   Recent developments
Placement
On 11 July 2008, the Company completed a private placement of 62,256,562 Shares to institutional and sophisticated investors in Australia and the US at AU$0.50 per Share to the value of AU$31,128,281 million.
The proceeds raised from the private placement will be used primarily to fund the clinical development and commercialisation of the HeartWare LVAD System. The funds will be applied secondarily to the acceleration of HeartWare’s pipeline technologies, including the MVAD miniaturised pump and HeartWare’s Transcutaneous Energy Transfer (TET) System, which, as described above, are both currently in pre-clinical development.

 

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Redemption of Convertible Note
The Company issued a convertible note to Apple Tree on December 2004 with a face value of $1,420,000. Under the Convertible Note, Apple Tree was entitled to convert all or any portion of the face value and accrued interest into Shares at a conversion price of $1.00 per Share by giving 14 days written notice to the Company.
Under the terms of the Convertible Note, the principal and any accrued interest owing under the Convertible Note became due and payable on the second anniversary date of the issue of the Convertible Note, being 15 December 2006.
After that date the Convertible Note became redeemable at the option of Apple Tree at any time on 30 days notice (and subject to ASX escrow requirements).
On 25 July 2008, Apple Tree served a notice on the Company to redeem the Convertible Note in full for the aggregate amount of A$1,420,000 plus accrued interest.
5.7   The Company’s Directors and management structure
Details of the Company’s directors and executive officers are set out below:
             
Name   Age   Position
 
           
Directors
           
 
           
Robert Thomas
    63     Chairman, Non-Executive Director
Dr. Seth Harrison
    48     Deputy Chairman, Non-Executive Director
Douglas Godshall
    44     Executive Director, Chief Executive Officer
Dr. Christine Bennett
    52     Non-Executive Director
Dr. Denis Wade, AM
    71     Non-Executive Director
Robert Stockman
    55     Non-Executive Director
Timothy Barberich
    61     Non-Executive Director
 
           
Executives
           
 
           
Douglas Godshall
    44     Managing Director, Chief Executive Officer
David McIntyre
    38     Chief Financial Officer, Company Secretary
Jeffrey LaRose
    47     Chief Scientific Officer
David Hathaway
    61     Chief Medical Officer
James Schuermann
    40     Vice President, Sales and Marketing
Barry Yomtov
    53     Vice President, Product Development
Ramon Paz
    51     Vice President, Quality Assurance
Brief biographies of each of the Directors are set out below.
Robert Thomas, Chairman, Non-Executive Director
Date of appointment: 26 November 2004
Other positions: Chairman of the Nomination & Remuneration Committee and member of the Audit & Compliance Committee
Background: Mr Thomas has been a Director and Non-Executive Chairman since November 2004. Since October 2004, Mr Thomas has been a consultant to Citigroup Corporate and Investment Bank, and is also currently a director of a number of Australian public companies, including Virgin Blue Holdings Limited and Tower Australia Limited.
Between March 2003 and September 2004, Mr Thomas was the Chairman, Global Corporate and Investment Bank, Australia and New Zealand of Citigroup Global Markets Australia Pty Limited. Prior to that, Mr Thomas was the CEO of Citigroup’s (formerly known as Salomon Smith Barney) Corporate and Investment Bank, Australia and New Zealand from October 1999 until February 2003. Mr Thomas holds a Bachelor of Economics from Monash University, Australia, is a Master Stockbroker and has also been a member of the Securities Institute of Australia for almost four decades and a Fellow for a decade.

 

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Dr Seth Harrison, Deputy Chairman, Non-Executive Director
Date of appointment: 26 November 2004
Other positions: Member of the Nomination & Remuneration Committee
Background: Dr Harrison has been a director, deputy chairman and non-executive director since November 2004 and was Chief Executive Officer of HeartWare, Inc. from July 2003 through November 2004. Since September 1999, Dr Harrison has been Managing General Partner of Apple Tree Partners I, L.P., an early stage life sciences venture capital firm, which is the Company’s largest shareholder. Prior to September 1999, he held senior executive positions with Oak Investment Partners, Sevin Rosen Funds and Nazem & Company. Dr Harrison received a Bachelor of Arts from Princeton University. He received his medical degree and a Masters of Business Administration from Columbia University and completed a surgery internship at Columbia Presbyterian Hospital in New York. He serves on the board of and chairs the Finance Committee of the International Partnership for Microbicides, a Rockefeller Foundation/Gates Foundation-sponsored public-private partnership engaged in the development of anti-HIV microbicides. Dr Harrison is also a member of the Board of Trustees of the New York Studio School for Drawing, Painting and Sculpture.
Douglas Godshall, Executive Director, Chief Executive Officer, Managing Director
Date of appointment: 28 October 2006
Other positions: N/A
Background: Mr Godshall has been Chief Executive Officer since September 2006 and became a director in October 2006. Prior to joining the Company, Mr. Godshall served in various executive and managerial positions at Boston Scientific Corporation, where he had been employed since 1990, including as a member of Boston Scientific’s Operating Committee and since January 2005, as President, Vascular Surgery. Prior to this, Mr Godshall spent five years as Vice President, Business Development, at Boston Scientific, where he focused on acquisition strategies for the cardiology, electrophysiology, neuroradiology and vascular surgery divisions. Mr Godshall has a Bachelor of Arts in Business from Lafayette College and Masters of Business Administration from Northeastern University in Boston, Massachusetts.
Robert Stockman, Non-Executive Director
Date of appointment: 11 December 2006
Other positions: Member of the Audit and Compliance Committee
Background: Mr Stockman has been a director since December 2006. Since 1999, Mr Stockman has been the President and CEO of Group Outcome LLC, a US based merchant banking firm which deploys its capital and that of its financial partners in private equity and venture capital investments in medical technology companies. Mr Stockman is also the co-founder and Chairman of REVA Medical, Inc, an interventional coronary medical device company. Prior to establishing Group Outcome LLC, Mr Stockman spent18 years with Johnston Associates and Narragansett Capital Corporation, where he focused on venture capital investments in healthcare. Mr Stockman holds a Bachelors Degree from Harvard College and a Master in Business Administration from The Tuck School at Dartmouth College.

 

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Timothy J. Barberich, Non-Executive Director
Date of appointment: 29 April 2008
Other positions: Member of the Nomination and Remuneration Committee
Background: Mr Barberich has been a director since April 2008. Mr Barberich has served as chairman of the board of directors since 1990 of Sepracor Inc., a publicly traded pharmaceutical company. Mr Barberich founded Sepracor in 1984 and served as its president from 1984 to 1990 and chief executive officer from 1984 until May 2007. Prior to founding Sepracor, Mr Barberich spent 10 years as a senior executive at Bedford, a company that provides separations products to the life science research, pharmaceutical, biotechnology and electronic markets. In May 2007, Mr Barberich became the Company’s Executive Chairman. Mr Barberich serves as a director of BioSphere Medical, Inc., Gemin X Biotechnologies, Resolvyx pharmaceuticals, Inc., Bionevia Pharmaceuticals, Inc. and Boston Medical Centre.
Dr Denis Wade AM, Non-Executive Director
Date of appointment: 15 December 2004
Other positions: Member of the Nomination & Remuneration Committee and member of the Audit & Compliance Committee
Background: Dr Wade has been a director since December 2004. From 1998 until his retirement in 2003, Dr Wade was Managing Director of Johnson & Johnson Research Pty Ltd, a research arm of Johnson & Johnson. Dr Wade is also the former Foundation Professor of Clinical Pharmacology at the University of New South Wales in Australia. Dr Wade serves on industry bodies in Australia, is a former President of the Australian Society of Clinical and Experimental Pharmacology and has held senior positions in the International Union of Pharmacology, serving as Chairman of the Clinical Pharmacology Section. Dr Wade holds a Bachelor degree in Medicine and Surgery from the University of New South Wales (Australia) and a Doctorate in Philosophy from Oxford (in the United Kingdom). He was awarded an Honorary Doctorate in Science from the University of New South Wales. He is a Fellow of the Royal Australasian College of Physicians, the Australian Institute of Company Directors and the Australian Academy of Technological Sciences and Engineering. Mr Wade has also been awarded an Order of Australia.
Dr Christine Bennett, Non-Executive Director
Date of appointment: 15 December 2004
Other positions: Member of the Nomination & Remuneration Committee and Chairman of the Audit & Compliance Committee
Background: Dr Bennett has been a director since December 2004. In June 2008, Dr Bennett was appointed as Chief Medical Officer of Bupa Australia Pty Ltd, Australia’s second largest national health insurer. Prior to this Dr Bennett was appointed as Group Executive, Health and Financial Solutions and Chief Medical Officer of MBF Australia Limited from May 2006 to June 2008. Previously Dr Bennett held the position of Chief Executive Officer and Managing Director of Research Australia, a national body of Australian organisations and companies that are committed to making health and medical research a higher national priority in Australia and globally, from September 2002 to May 2006. Dr Bennett has also been the Chief Executive Officer and Managing Director of Total Healthcare Enterprises Limited from September 2001 to August 2002, a partner of KPMG Australia in the health and life sciences area from May 2000 to September 2001 and Chief Executive Officer of Westmead Hospital and Health Service in Sydney from May 1997 to May 2000. Dr Bennett has over 20 years experience in the Australian health sector in senior executive, strategic and clinical roles. Specifically, Dr Bennett brings substantial experience as a specialist clinician, strategist and planner and chief executive in both the public and private sectors and currently serves as the Chairman of the National Health and Hospital Reform Commission. Dr Bennett holds a Bachelor of Medicine and Surgery (from the University of Sydney, Australia), Master of Paediatrics (from the University of New South Wales, Australia) and is a Fellow of the Royal Australasian College of Physicians.

 

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5.8   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 Listing Rules. The Company is required to notify 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, HeartWare International will be subject to the reporting and disclosure obligations under the Listing Rules by virtue of its listing on ASX.
The Company is also subject to the reporting requirements of the Exchange Act and is required to file annual, quarterly and current reports, proxy statements and other information with the SEC. Upon implementation of the Share Scheme, HeartWare International will become a successor to the Company’s registration under the 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 ASX are available on ASX website at www.asx.com.au.
Further announcements concerning developments relating to the Company and the HeartWare Group will continue to be made available on ASX website after the date of this Information Memorandum. Continuous disclosure documents and reports lodged in relation to the Company can also be obtained from ASIC.
In addition, you may read and copy any document that the Company files with the SEC at the public reference room of the SEC at 100 F Street, N.E., Washington, DC 20549. You may obtain information regarding the operation of the public reference room by calling +1-800-SEC-0330. Finally, the Company’s SEC filings which are filed electronically with the SEC are publicly available through the SEC website at www.sec.gov.

 

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6   Information about HeartWare International
 
6.1   Corporate overview
 
    HeartWare International was incorporated in the US under the laws of the State of Delaware on 29 July 2008. HeartWare International is currently a wholly owned subsidiary of the Company. The rights of HeartWare International security holders are governed by the Delaware General Corporation Law, US federal securities laws and HeartWare International’s certificate of incorporation and by-laws.
 
    The Company incorporated HeartWare International for the sole purpose of re-domiciling the HeartWare Group in the US under the Proposed Transaction. As a result, prior to implementation of the Proposed Transaction, HeartWare International has not conducted and will not conduct any business other than entering into the agreements and performing the acts which are detailed in this Information Memorandum.
 
    If the Proposed Transaction is implemented, HeartWare International’s business will consist entirely of the business of the Company, which will become a wholly owned subsidiary of HeartWare International.
 
    In order to be able to carry on business in Australia and be listed on ASX, HeartWare International has been registered as a foreign company in Australia under the Corporations Act. HeartWare International’s registration number is [insert details].
 
    The Company was appointed as the local agent of HeartWare International on 5 August 2008. The Company will continue to maintain its registered office at Level 57, MLC Centre, 19-29 Martin Place, Sydney, NSW 2000, Australia.
 
    Being registered as a foreign company in Australia requires that HeartWare International file its annual accounts with ASIC and comply with various other notification requirements (for example, notifying ASIC of the appointment and resignation of directors or changes to constituent documents). In addition, as HeartWare International will be a disclosing entity for the purposes of the Corporations Act, HeartWare International will be required to comply with the continuous disclosure provisions contained in the Corporations Act and the Listing Rules in addition to SEC and other applicable disclosure requirements in the US.
 
6.2   Choice of jurisdiction
 
    The Company considers that the State of Delaware is an appropriate jurisdiction for the domicile of HeartWare International. Over 50% of all US publicly listed companies are incorporated in Delaware and it is often chosen due to well developed corporations law and efficient incorporation and administration processes.
 
    As the Company’s aim is to redomicile in the US and obtain the advantages of being a US company (as described in section 4.2), it has adopted a standard form of by-laws for a Delaware Corporation, which would also be appropriate for a NASDAQ listed company, rather than amending the by-laws to provide Australian style protections for Shareholders. A description of some of the key differences between the Australian and Delaware legal regimes and their implications for shareholders of HeartWare International is set out in Appendix 14.

 

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6.3   HeartWare International’s issued securities
  (a)   HeartWare International Shares
 
      At the date of this Information Memorandum, HeartWare International has on issue one share of common stock which was issued on incorporation to the Company. Following implementation of the Share Scheme, HeartWare International will buy back the share currently held by the Company.
 
      HeartWare International has not raised any capital in the three months prior to the date of this Information Memorandum.
 
      Under the Share Scheme, Shareholders will receive HeartWare International Shares. There are differences between the rights attaching to the Shares and to HeartWare International Shares. In addition, there are a number of significant differences between US/Delaware law and Australian law. A summary of these differences is set out in Appendix 14 of this Information Memorandum.
 
  (b)   HeartWare International Options
 
      HeartWare International has adopted the HeartWare International Employee Stock Option Plan under which HeartWare International will issue HeartWare International Options under the Option Scheme.
 
      Each Optionholder will receive HeartWare International Options under the HeartWare International Employee Stock Option Plan in exchange for the cancellation of Options held by the Optionholder under the Option Scheme.
 
      HeartWare International Options will be issued on essentially the same terms (except to the extent changes are required to comply with Delaware law) and with an exercise period equal to the unexpired exercise period of the Options they replace, except that HeartWare International Options will:
    be issued on a one for 35 basis, meaning that an Optionholder will receive one option to subscribe for a HeartWare International Share for every 35 Options held by them on the Scheme Record Date; and
 
    have an exercise price equal to 35 times the exercise price of the Options it replaces.
      A copy of the HeartWare International Employee Stock Option Plan is set out in Appendix 9 of this Information Memorandum.

 

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  (c)   Restricted Stock Units
 
      HeartWare International has adopted the HeartWare International Restricted Stock Unit Plan under which HeartWare International will issue Restricted Stock Units under the Performance Rights Scheme.
 
      Each Performance Rights Holder will receive HeartWare International Restricted Stock Units under the HeartWare International Restricted Stock Unit Plan in exchange for the cancellation of the Performance Rights held by them under the Performance Rights Scheme.
 
      Restricted Stock Units will be issued on essentially the same terms (except to the extent changes are required to comply with Delaware law) and with equivalent vesting conditions to the Performance Rights they replace, except that Restricted Stock Units will be issued on a one for 35 basis, meaning that a Performance Rights Holder will receive one Restricted Stock Unit for every 35 Performance Rights held by them on the Scheme Record Date.
 
      A copy of the HeartWare International Restricted Stock Unit Plan is set out in Appendix 10 of this Information Memorandum.
6.4   Directors and management structure
 
    The directors of HeartWare International are currently Rob Thomas (the current Chairman of the Company), Doug Godshall (the current Chief Executive Officer of the Company) and Denis Wade (currently a non-executive director of the Company).
 
    Upon the Share Scheme becoming Effective, the remaining directors of the Company will also be appointed to HeartWare International as detailed in section 5.7 of this Information Memorandum so that the board of HeartWare International will be the same as the board of the Company.
 
6.5   Intentions if the Schemes become Effective
 
    In the event that the Share Scheme becomes Effective, HeartWare International will own all of the Shares in the Company and HeartWare International will operate the business of the HeartWare Group in a manner consistent with past practice and in accordance with the strategy set out in section 5 of this Information Memorandum.
 
    If the Option Scheme and Performance Rights Scheme become Effective, HeartWare International will issue HeartWare International Options and HeartWare International Restricted Stock Units in accordance with the requirements of the Option Scheme and Performance Rights Scheme (as applicable).
 
    If the Option Scheme and Performance Rights Scheme do not become Effective, HeartWare International will consider all options available to it with respect to the Options and/or Performance Rights (as applicable) as further detailed in section 4 of this Information Memorandum.

 

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6.6   New 2008 Stock Incentive Plan
 
    The Company is also proposing to adopt a new employee incentive plan, the HeartWare International 2008 Stock Incentive Plan which will be in a form typical for US public companies and which provides important US tax benefits for the Company that are not provided in the Company’s existing incentive plans.
 
    The HeartWare International 2008 Stock Incentive Plan will provide HeartWare International with the flexibility to issue a range of incentives to employees, officers, directors and other individuals who provide services to HeartWare International or any Affiliate of HeartWare International, including:
    stock options;
    stock appreciation rights;
    stock based incentives; and
    performance incentives.
    A summary of the key terms of the HeartWare International 2008 Stock Option Plan is set out in Appendix 11 of this Information Memorandum.
 
    Following the approval of the Proposed Transaction the HeartWare International 2008 Stock Incentive Plan will be the only plan used by HeartWare International for all future grants of incentives to employees of the HeartWare Group. The Board believes that a new employee incentive plan is an important tool to attract, motivate and retain key employees of the HeartWare Group. At the EGM, Shareholders of the Company will be asked to vote on the approval of the HeartWare International 2008 Stock Incentive Plan. Further details on the resolution to be proposed at the EGM are set out in section 8 of this Information Memorandum.
 
6.7   Differences between the rights attaching to the Shares and the HeartWare International Shares
 
    For information on the differences between the rights attaching to the Shares and HeartWare International Shares please see Appendix 14 of this Information Memorandum.
 
    In addition, there are also restrictions on the ability of Affiliates of HeartWare International to resell HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units in a public market. Further details on these restrictions are contained on page 11 of this Information Memorandum under the heading “Notice to Shareholders, Optionholders and Performance Rights Holders resident in the US”.
 
6.8   Conversion of the Company to a proprietary company limited by shares
 
    Following implementation of the Proposed Transaction, HeartWare International will pass a special resolution to convert the Company from a public company to a proprietary company limited by shares and lodge all necessary documentation with ASIC to effect such conversion and for US federal tax purposes an election will be made to treat the Company as an entity disregarded from its owner.

 

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6.9   Group Restructuring
 
    Following the implementation of the Proposed Transaction, the HeartWare Group will consider restructuring the group to align its operational activities and its corporate structure within the US, which may include the separation of operational aspects of the business of the HeartWare Group from the holding of its intellectual property. This may be achieved by establishing an additional wholly owned subsidiary in the US (HeartWare Operations, Inc) to which HeartWare, Inc will transfer all of its assets (excluding its intellectual property) and its employees.
 
    In addition, the Company may also consider transferring its ownership of HeartWare, Inc and HeartWare Operations, Inc to HeartWare International which will enable the eventual liquidation of the Company and removal of the Company from the HeartWare Group.

 

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7   Investigating Accountant’s Report

 

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(GRANTTHORNTON LOGO)
     
Board of Directors
HeartWare Limited
Level 57, MLC Centre
19-29 Martin Place
SYDNEY NSW 2000
AUSTRALIA

Board of Directors
HeartWare International Inc
14000 NW 57th Court
Miami Lakes
Florida 33014
United States of America

5 August 2008
  Grant Thornton Corporate Finance Pty Ltd
ABN 59 003 265 987
AFSL 247140

Level 17, 383 Kent Street
Sydney NSW 2000
PO Locked Bag Q800
QVB Post Office
Sydney NSW 1230

T +61 2 8297 2400
F +61 2 9299 4445
E info@gtnsw.com.au
W www.grantthornton.com.au
Dear Directors
INVESTIGATING ACCOUNTANT’S REPORT
Introduction
Grant Thornton Corporate Finance Pty Ltd (“Grant Thornton”) has been engaged by the Company to provide an Investigating Accountant’s Report (“IAR”) in connection with the proposed transaction, as a result of which the HeartWare Group will re-domicile in the United States of America, whilst maintaining a listing on the Australian Securities Exchange (“Proposed Transaction”). The Proposed Transaction will be implemented by the establishment of a new corporate structure under which HeartWare International Inc (a new company incorporated in the US) will become the parent company of the HeartWare Group and will hold all of the shares in the Company. The Proposed Transaction will take place under Australian law and will be implemented by way of three separate schemes of arrangement in relation to the Shares, Options and Performance Rights of the Company. This report is being issued for inclusion in the Information Memorandum dated on or about 5 August 2008 which is to be sent to the Company’s Shareholders and Incentive Holders.
Expressions used in the Information Memorandum have the same meaning in this report.
Financial Information
Grant Thornton has been requested to prepare a report covering the unaudited historical consolidated balance sheet and pro forma consolidated balance sheet as described below and set out in Appendix 1 of this report.
Holder of Australian Financial Services License No. 247140
Grant Thornton is a trademark owned by Grant Thornton International Ltd (UK) and used under licence by independent firms and entities throughout the world. Grant Thornton member firms in Australia are businesses trading independently under the name Grant Thornton. Grant Thornton Australia Ltd has been incorporated to conduct those businesses as a single national entity, and public notification will be given upon commencement. Liability limited by a scheme approved under Professional Standards legislation.
Liability limited by a scheme approved under Professional Standards Legislation

 

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(GRANTTHORNTON LOGO)
Unaudited Historical Consolidated Balance Sheet
The unaudited historical consolidated balance sheet of the HeartWare Group as at 31 March 2008 is set out in Appendix 1 of this report. It has been extracted from the HeartWare Group’s unaudited management report and translated from Australian Dollars (“A$”) to United States Dollars (“US$”) in accordance with the foreign currency translation requirements of Australian Accounting Standards and other mandatory professional reporting requirements in Australia (“Australian GAAP”), which ensure compliance with International Financial Reporting Standards (“IFRS”). The translated unaudited historical consolidated balance sheet has then been converted from Australian GAAP/IFRS to United States Generally Accepted Accounting Principles (“US GAAP”). Reconciling adjustments between Australian GAAP/IFRS and US GAAP are included in the Notes to Appendix 1. The 31 March 2008 consolidated balance sheet prepared under US GAAP in US$ was included in a filing with the United States Securities and Exchange Commission (“SEC”) (Form 10-Q) on 12 May 2008. A comparison between the audited consolidated balance sheet at 31 December 2007 and the unaudited consolidated balance sheet at 31 March 2008, with associated commentary on the movements, is included at Appendix 2.
The Directors of the Company are responsible for the preparation and presentation of the unaudited historical consolidated balance sheet which has been prepared in accordance with Australian GAAP/IFRS and US GAAP including the translation of the unaudited historical consolidated balance sheet from A$ to US$.
The unaudited historical consolidated balance sheet in the Information Memorandum is presented in an abbreviated form as it does not include all the disclosures required under Australian GAAP/IFRS or US GAAP applicable to annual financial reports.
Pro Forma Consolidated Balance Sheet
The pro forma consolidated balance sheet of the HeartWare Group as at 31 March 2008 is set out in Appendix 1 of this report.
The Directors of the Company are responsible for the preparation and presentation of the pro forma consolidated balance sheet which has been prepared in accordance with US GAAP.
The pro forma consolidated balance sheet in the Information Memorandum is presented in an abbreviated form as it does not include all the disclosures required by US GAAP applicable to annual financial reports.

 

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(GRANTTHORNTON LOGO)
Scope
Review of the Unaudited Historical Consolidated Balance Sheet
We have reviewed the unaudited historical consolidated balance sheet displayed under both A$ and US$ in order to report whether anything has come to our attention which causes us to believe that the unaudited historical consolidated balance sheet of the HeartWare Group, as set out in Appendix 1 of this report, does not present fairly the financial position of the HeartWare Group as at 31 March 2008, in accordance with the recognition and measurement principles prescribed by Australian Accounting Standards and other mandatory professional reporting requirements in Australia, and accounting policies adopted by the HeartWare Group and disclosed in the HeartWare Group’s annual report for the year ended 31 December 2007.
We have reviewed the unaudited historical consolidated balance sheet prepared under US GAAP, including the related reconciling adjustments from Australian GAAP/IFRS shown in the Notes to Appendix 1, in order to report whether anything has come to our attention which causes us to believe that the unaudited historical consolidated balance sheet of the HeartWare Group prepared under US GAAP, as set out in Appendix 1 of this report, does not present fairly the financial position of the HeartWare Group as at 31 March 2008, in accordance with US GAAP and other mandatory professional reporting requirements in the US, and accounting policies adopted by the HeartWare Group and disclosed in the HeartWare Group’s 31 December 2007 financial statements included in a filing with the SEC (Form 10-K) on 28 February 2008.
We have conducted our review of the unaudited historical consolidated balance sheet in accordance with the Australian Auditing and Assurance Standard AUS 902 “Review of Financial Reports”. We made such enquiries and performed such procedures as we, in our professional judgement, considered reasonable in the circumstances including:
  a review of the reconciling adjustments from Australian GAAP/IFRS to US GAAP included in the Notes to Appendix 1;
 
  a review of work papers, accounting records of the HeartWare Group and other documents and reports;
 
  a comparison of the consistency in application of the applicable Accounting Standards and other mandatory professional reporting requirements in Australia, and the accounting policies adopted by the HeartWare Group disclosed in the HeartWare Group’s annual report for the year ended 31 December 2007; and
 
  enquiry of Directors, management and other employees of the HeartWare Group.
These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

 

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(GRANTTHORNTON LOGO)
Review of the Pro Forma Consolidated Balance Sheet
We have reviewed the pro forma consolidated balance sheet in order to report whether anything has come to our attention which causes us to believe that the pro forma consolidated balance sheet of the HeartWare Group, as set out in Appendix 1 of this report, does not present fairly the pro forma historical consolidated financial position of the HeartWare Group as at 31 March 2008, on the basis of the pro forma transactions and adjustments described in Appendix 1 — Note 2 of this report, and is in accordance with US GAAP, and accounting policies adopted by the HeartWare Group disclosed in the HeartWare Group’s 31 December 2007 financial statements included in a filing with the SEC (Form 10-K) on 28 February 2008.
We have conducted our review of the pro forma balance sheet in accordance with the Australian Auditing and Assurance Standard AUS 902 “Review of Financial Reports”. We made such enquiries and performed such procedures as we, in our professional judgement, considered reasonable in the circumstances including:
  a review of the pro forma transactions and adjustments;
 
  a review of work papers, accounting records of the HeartWare Group and other documents and reports;
 
  a comparison of the consistency in application of the recognition and measurement principles in Accounting Standards and other mandatory professional reporting requirements in the US, and the accounting policies adopted by the HeartWare Group disclosed in the HeartWare Group’s annual report for the year ended 31 December 2007; and
 
  enquiry of Directors, management and other employees of the HeartWare Group.
These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.
Conclusion
Review Statement on the Unaudited Historical Consolidated Balance Sheet
Based on our review, which is not an audit, nothing has come to our attention which causes us to believe that the unaudited historical consolidated balance sheet displayed under A$ and US$, as set out in Appendix 1 of this report, does not present fairly the unaudited historical consolidated financial position of the HeartWare Group as at 31 March 2008, in accordance with the recognition and measurement principles prescribed in Australian Accounting Standards and other mandatory professional reporting requirements in Australia and also in accordance with International Financial Reporting Standards, and accounting policies adopted by the HeartWare Group and disclosed in the HeartWare Group’s annual report for the year ended 31 December 2007.

 

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(GRANTTHORNTON LOGO)
Based on our review, which is not an audit, nothing has come to our attention which causes us to believe that the unaudited historical consolidated balance sheet prepared under US GAAP, as set out in Appendix 1 of this report, does not present fairly the unaudited historical consolidated financial position of the HeartWare Group as at 31 March 2008, in accordance with US GAAP, and accounting policies adopted by the HeartWare Group and disclosed in the HeartWare Group’s 31 December 2007 financial statements included in a filing with the SEC (Form 10-K) on 28 February 2008.
Review Statement on the Pro forma Consolidated Balance Sheet
Based on our review, which is not an audit, nothing has come to our attention which causes us to believe that the pro forma consolidated balance sheet of the HeartWare Group, as set out in Appendix 1 of this report, does not present fairly the pro forma consolidated financial position of the HeartWare Group as at 31 March 2008, on the basis of the pro forma transactions and adjustments described in Appendix 1 — Note 2 of this report, and in accordance with US GAAP, and accounting policies adopted by the HeartWare Group and disclosed in the HeartWare Group’s 31 December 2007 financial statements included in a filing with the SEC (Form 10-K) on 28 February 2008.
Subsequent events
On 5 May 2008, the HeartWare Group received conditional approval of an Investigational Device Exemption (IDE) from the US Food and Drug Administration. The IDE enables the HeartWare Group to commence a bridge-to-transplant clinical trial in the US with up to 150 patients in a maximum of 28 clinical sites.
On 11 July 2008, 62,256,562 fully paid ordinary shares were issued by way of a placement at US$0.48 (A$0.50) each resulting in gross proceeds of approximately US$29,664,007 (A$31,128,281).
Apart from the above and the matters dealt with in this report, and having regard to the scope of our report, to the best of our knowledge and belief no material transactions or events outside of the ordinary business of the HeartWare Group have come to our attention that would require comment on, or adjustment to, the information referred to in our report or that would cause such information to be misleading or deceptive.
Responsibility
Grant Thornton has consented to the inclusion of this Investigating Accountant’s Report in the Information Memorandum in the form and context in which it is included, but has not authorised the issue of the Information Memorandum. Accordingly, Grant Thornton makes no representation regarding, and takes no responsibility for, any other statements, or material in, or omissions from, the Information Memorandum.
Independence
Grant Thornton does not have any interest in the outcome of the Proposed Transaction other than in connection with the preparation of this report and participation in due diligence procedures (in an advisory capacity only) for which normal professional fees will be received.

 

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(GRANTTHORNTON LOGO)
General Advice Warning
This report has been prepared, and included in the Information Memorandum, to provide investors with general information only and does not take into account the objectives, financial situation or needs of any specific investor. It is not intended to take the place of professional advice and investors should not make specific investment decisions in reliance on the information contained in this report. Before acting or relying on any information, an investor should consider whether it is appropriate for their circumstances having regard to their own objectives, financial situation or needs.
Yours faithfully
GRANT THORNTON CORPORATE FINANCE PTY LTD
     
-s- Neil Cooke
  -s- Matt Adam-Smith
NEIL COOKE
  MATT ADAM-SMITH
Director
  Director

 

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(GRANTTHORNTON LOGO)
Appendix 1
Pro Forma Consolidated Balance Sheet
                                     
        Unaudited as at     Unaudited as at              
        31 March 2008     31 March 2008     Unaudited as at     Pro forma as at  
        (Australian     (Australian     31 March 2008     31 March 2008  
        GAAP/IFRS) (1)     GAAP/IFRS) (2)     (US GAAP) (3)     (US GAAP) (4)  
    Note   A$’000     US$’000     US$’000     US$’000  
CURRENT ASSETS
                                   
Cash and cash equivalents
  3     24,923       22,880       22,880       49,610  
Trade and other receivables and other current assets
        793       729       729       729  
 
                           
TOTAL CURRENT ASSETS
        25,716       23,609       23,609       50,339  
 
                           
NON-CURRENT ASSETS
                                   
Property, plant and equipment
        3,528       3,239       3,239       3,239  
Intangible assets
  4     2,203       2,022       358       358  
 
                           
TOTAL NON-CURRENT ASSETS
        5,731       5,261       3,597       3,597  
 
                           
TOTAL ASSETS
        31,447       28,870       27,206       53,936  
 
                           
 
                                   
CURRENT LIABILITIES
                                   
Trade and other payables
        (2,218 )     (2,037 )     (2,037 )     (2,037 )
Convertible notes
  5     (1,513 )     (1,389 )     (1,389 )      
 
                           
TOTAL LIABILITIES
        (3,731 )     (3,426 )     (3,426 )     (2,037 )
 
                           
 
                                   
NET ASSETS
        27,716       25,444       23,780       51,899  
 
                           
 
                                   
EQUITY
                                   
Issued capital
  6     94,647       76,757       76,757       105,614  
Share based payments reserve
  7     7,008       5,624       5,460       5,460  
Foreign currency translation reserve
        (1,074 )     1,602       1,602       1,602  
Accumulated losses
  8     (72,865 )     (58,539 )     (60,039 )     (60,777 )
 
                           
TOTAL EQUITY
        27,716       25,444       23,780       51,899  
 
                           
     
(1)   The unaudited balance sheet has been extracted from the unaudited management report of the HeartWare Group as at 31 March 2008 which was used as the basis for the consolidated balance sheet included in a filing with the SEC (Form 10-Q) on 12 May 2008.
 
(2)   The translation adjustments are set out in Appendix 1 — Note 1.
 
(3)   The reconciling adjustments between Australian GAAP/IFRS and US GAAP are included in the Notes to this Appendix.
 
(4)   The pro forma consolidated balance sheet reflects the pro forma adjustments as described in Note 2.
The consolidated balance sheet should be read in conjunction with the notes set out in the following section.

 

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Notes to the Pro Forma Consolidated Balance Sheet
Note 1 — Translation of the unaudited historical consolidated balance sheet
from A$ to US$
                             
        Unaudited as at             Unaudited as at  
        31 March 2008             31 March 2008  
        A$’000             US$’000  
    Rate used   (Australian     Translation     (Australian  
    (1)   GAAP/IFRS)     adjustments     GAAP/IFRS)  
CURRENT ASSETS
                           
Cash and cash equivalents
  Spot     24,923       (2,043 )     22,880  
Trade and other receivables and other current assets
  Spot     793       (64 )     729  
 
                     
TOTAL CURRENT ASSETS
        25,716       (2,107 )     23,609  
 
                     
NON-CURRENT ASSETS
                           
Property, plant and equipment
  Spot     3,528       (289 )     3,239  
Intangible assets
  Spot     2,203       (181 )     2,022  
 
                     
TOTAL NON-CURRENT ASSETS
        5,731       (470 )     5,261  
 
                     
TOTAL ASSETS
        31,447       (2,577 )     28,870  
 
                     
 
                           
CURRENT LIABILITIES
                           
Trade and other payables
  Spot     (2,218 )     181       (2,037 )
Convertible notes
  Spot     (1,513 )     124       (1,389 )
 
                     
TOTAL LIABILITIES
        (3,731 )     305       (3,426 )
 
                     
 
                           
NET ASSETS
        27,716       (2,272 )     25,444  
 
                     
 
                           
EQUITY
                           
Issued capital
  Historical     94,647       (17,890 )     76,757  
Share based payments reserve
  Historical     7,008       (1,384 )     5,624  
Foreign currency translation reserve (2)
  n/a     (1,074 )     2,676       1,602  
Accumulated losses
  Historical     (72,865 )     14,326       (58,539 )
 
                     
TOTAL EQUITY
        27,716       (2,272 )     25,444  
 
                     
     
(1)   Under Australian GAAP/IFRS assets and liabilities are translated at the spot rate ruling on the balance sheet date. Equity items are translated at the historical rate on the date the transaction occurred (an average rate is permitted for revenue and expense items in certain circumstances). There are no material applicable differences between the Australian GAAP/IFRS treatment of the above foreign currency translation and the treatment under US GAAP.
 
(2)   The foreign currency translation reserve represents the cumulative differences resulting from the translation of balance sheet items at differing exchange rates.

 

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Note 2 — Pro forma adjustments
The pro forma consolidated balance sheet of the HeartWare Group assumes implementation of the Proposed Transaction and is based on the assumption that the following transactions and events contemplated in the Information Memorandum, referred to as the pro forma adjustments, which are to take place on or before the completion of the Proposed Transaction, had occurred on or before 31 March 2008:
  issue of 62,256,562 fully paid ordinary shares by way of a placement on 11 July 2008 at US$0.48 (A$0.50) each resulting in gross proceeds of approximately US$29,664,007 (A$31,128,281);
 
  expenses associated with the placement of shares amounting to US$807,000 (A$846,000);
 
  share consolidation as part of the Proposed Transaction in the ratio of approximately 1 share in HeartWare International Inc for every 35 Shares held in the Company;
 
  expenses associated with the Proposed Transaction of US$738,000 (A$775,000); and
 
  redemption of the convertible notes for cash at their carrying value on 31 March 2008 of $1,389,000.

 

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Note 3 — Cash and cash equivalents
         
    US$’000  
Unaudited cash and cash equivalents at 31 March 2008 under Australian GAAP/IFRS
(translation to US$ is shown in Note 1)
    22,880  
 
       
Reconciling adjustments to US GAAP:
       
None
     
 
     
 
       
Unaudited cash and cash equivalents at 31 March 2008 under US GAAP
    22,880  
 
     
 
       
Pro forma transactions:
       
Proceeds from shares issued
    29,664  
Expenses associated with issue of shares
    (807 )
Expenses associated with the Proposed Transaction
    (738 )
Redemption of convertible notes
    (1,389 )
 
     
 
       
Pro forma cash and cash equivalents under US GAAP
    49,610  
 
     
Note 4 — Intangible assets
         
    US$’000  
Unaudited intangible assets at 31 March 2008 under Australian GAAP/IFRS
(translation to US$ is shown in Note 1)
    2,022  
 
       
Reconciling adjustments to US GAAP:
       
Research and development costs capitalised under Australian GAAP/IFRS and expensed under US GAAP
    (1,664 )
 
     
 
       
Unaudited intangible assets at 31 March 2008 under US GAAP
    358  
 
     
 
       
Pro forma transactions:
       
None
     
 
     
 
       
Pro forma intangible assets under US GAAP
    358  
 
     

 

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Note 5 — Convertible notes
         
    US$’000  
Unaudited convertible notes at 31 March 2008 under Australian GAAP/IFRS
(translation to US$ is shown in Note 1)
    1,389  
 
       
Reconciling adjustments to US GAAP:
       
None
     
 
     
 
       
Unaudited convertible notes at 31 March 2008 under US GAAP
    1,389  
 
     
 
       
Pro forma transactions:
       
Redemption of the convertible notes for cash at their carrying value on 31 March 2008
    (1,389 )
 
     
 
       
Pro forma convertible notes under US GAAP
     
 
     

 

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Note 6 — Issued capital
         
    US$’000  
Unaudited issued capital at 31 March 2008 under Australian GAAP/IFRS
(translation to US$ is shown in Note 1)
    76,757  
 
       
Reconciling adjustments to US GAAP:
       
None
     
 
     
 
       
Unaudited issued capital at 31 March 2008 under US GAAP
    76,757  
 
     
 
       
Pro forma transactions:
       
Issue of shares
    29,664  
Issue costs directly attributable to new share issue
    (807 )
 
     
 
       
Pro forma issued capital under US GAAP
    105,614  
 
     
         
    No. of shares  
Unaudited number of shares issued at 31 March 2008 under Australian GAAP/IFRS
    248,100,277  
 
       
Reconciling adjustments to US GAAP:
       
None
     
 
     
 
       
Unaudited number of shares issued at 31 March 2008 under US GAAP
    248,100,277  
 
     
 
       
Pro forma transactions:
       
Shares issued under the placement
    62,256,562  
Reduction in number of shares at approximately 1 share per original 35 shares held*
    (301,489,501 )
 
     
 
       
Pro forma number of shares issued under US GAAP
    8,867,338  
 
     
     
*   As many individual shareholdings will not be exact multiples of 35 this figure cannot be determined accurately prior to the share reduction due to rounding. The figure shown will not be materially different from the ultimate total number of ordinary shares on issue.

 

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Note 6 — Issued capital (continued)
As the Proposed Transaction, for accounting purposes, is an exchange of equity interests among entities under common control, the transaction is accounted for at the historical cost of the assets and liabilities acquired from the HeartWare Group.
The resulting group consists of the historical cost of the assets and liabilities of the Company and its controlled entities (excluding HeartWare International Inc) at the time of the Proposed Transaction and the historical cost assets and liabilities of HeartWare International Inc. The latter consists only of $1 of cash and $1 of share capital.
As the pro forma balance sheet is reported in thousands of dollars, the introduction of HeartWare International Inc’s balance sheet into the HeartWare Group does not result in a visible change to the pro forma balance sheet.
Note 7 — Share based payments reserve
         
    US$’000  
Unaudited share based payments reserve at 31 March 2008 under Australian GAAP/IFRS
(translation to US$ is shown in Note 1)
    5,624  
 
       
Reconciling adjustments to US GAAP:
       
Share option awards expensed and credited to this reserve under Australian GAAP/IFRS but not under US GAAP (due to different recognition criteria)
    (164 )
 
     
 
       
Unaudited share based payments reserve at 31 March 2008 under US GAAP
    5,460  
 
     
 
       
Pro forma transactions:
       
None
     
 
     
 
       
Pro forma share based payments reserve under US GAAP
    5,460  
 
     

 

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Note 8 — Accumulated losses
         
    US$’000  
Unaudited accumulated losses at 31 March 2008 under Australian GAAP/IFRS
(translation to US$ is shown in Note 1)
    (58,539 )
 
       
Reconciling adjustments to US GAAP:
       
Share option awards expensed under Australian GAAP/IFRS but not under US GAAP (due to different recognition criteria)
    164  
Research and development costs capitalised under Australian GAAP/IFRS and expensed under US GAAP
    (1,664 )
 
     
 
       
Unaudited accumulated losses at 31 March 2008 under US GAAP
    (60,039 )
 
     
 
       
Pro forma transactions:
       
Expenses associated with the Proposed Transaction
    (738 )
 
     
 
       
Pro forma accumulated losses under US GAAP
    (60,777 )
 
     

 

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Appendix 2
Comparison to most recent audited consolidated balance sheet
Set out below is a comparison between the audited consolidated balance sheet of the HeartWare Group as at 31 December 2007 and the unaudited consolidated balance sheet at 31 March 2008. Both balance sheets are prepared under US GAAP in US$ and management’s commentary on the movement is included below. The balance sheet of the Company at 31 December 2007 was derived from HeartWare Group’s audited financial statements included in a filing with the SEC (Form 10-K) on 28 February 2008.
                         
    Audited as at     Unaudited as at     Movement from  
    31 December 2007     31 March 2008     31 December 2008  
    (US GAAP)     (US GAAP)     to 31 March 2008  
    US$’000     US$’000     US$’000  
CURRENT ASSETS
                       
Cash and cash equivalents
    28,276       22,880       (5,396 )
Trade and other receivables
    783       729       (54 )
 
                 
TOTAL CURRENT ASSETS
    29,059       23,609       (5,450 )
 
                 
NON-CURRENT ASSETS
                       
Property, plant and equipment
    2,978       3,239       261  
Intangible assets
    318       358       40  
 
                 
TOTAL NON-CURRENT ASSETS
    3,296       3,597       301  
 
                 
TOTAL ASSETS
    32,355       27,206       (5,149 )
 
                 
 
                       
CURRENT LIABILITIES
                       
Trade and other payables
    (1,756 )     (2,037 )     (281 )
Convertible notes
    (1,327 )     (1,389 )     (62 )
 
                 
TOTAL LIABILITIES
    (3,083 )     (3,426 )     (343 )
 
                 
 
                       
NET ASSETS
    29,272       23,780       (5,492 )
 
                 
 
                       
EQUITY
                       
Issued capital
    76,757       76,757        
Share based payments reserve
    5,102       5,460       358  
Foreign currency translation reserve
    612       1,602       990  
Accumulated losses
    (53,199 )     (60,039 )     (6,840 )
 
                 
TOTAL EQUITY
    29,272       23,780       (5,492 )
 
                 

 

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Commentary on material movements in the consolidated balance sheet
This commentary is included for information only based on discussion with the HeartWare Group’s management.
Cash and cash equivalents
Cash balances have decreased by $5.4 million from 31 December 2007 to 31 March 2008, primarily as a result of additions to property, plant and equipment and the loss from operations, both of which are addressed below.
Additions of property plant and equipment
The increase of $0.3 million in the carrying value of property, plant and equipment was primarily a result of $0.4 million in additions offset by $0.1 million in depreciation.
The impact on cash was a reduction of $0.4 million.
Loss from operations
Of the $5.4 million cash decrease, $0.4 million relates to additions to property, plant and equipment, leaving an additional $5.0 million as relating primarily to operational cash outflows.
There was a net loss for the 2007 financial year of $21.9 million. Two components of this loss were share based payments of $2.3 million and depreciation of $0.5 million. There were immaterial working capital movements, and therefore the operational cash outflows were approximately $19.1 million for the year. This represents a quarterly cash outflow of $4.8 million and is not materially different to the $5.0 million of operating cash outflows for the 3 months ended 31 March 2008.

 

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8   Explanatory Statement for the EGM
Set out below is the explanatory statement which has been prepared for the information of Shareholders in connection with the business to be conducted at the EGM of the Company to be held at [insert time] on [    ] 2008 at [insert location]. Further information regarding the business of the EGM which is required to be provided to Shareholders to comply with US law is set out at Appendix 15.
This information is important. You should read the information relating to the EGM carefully, and if necessary seek your own independent advice.
The Directors unanimously recommend that Shareholders vote in favour of the Resolution, which seeks approval of the HeartWare International 2008 Stock Incentive Plan.
The Chairman of the Board intends to vote undirected proxies in favour of the Resolution at the EGM.
Approval of the HeartWare International 2008 Stock Incentive Plan
HeartWare International’s board of directors has approved and adopted the HeartWare International 2008 Stock Incentive Plan, subject to approval of the Shareholders of the Company.
Approval of the HeartWare International 2008 Stock Incentive Plan by Shareholders of the Company will be considered approval of the HeartWare International 2008 Stock Incentive Plan for the purposes of section 162(m) and 422 of the US Internal Revenue Code 1986, as amended.
Provided that the Share Scheme becomes Effective, it is expected that no further Options will be offered under the Company’s current Employee Share Option Plan, irrespective of whether the HeartWare International 2008 Stock Incentive Plan is approved.
The HeartWare International 2008 Stock Incentive Plan will provide HeartWare International with the flexibility to issue a range of incentives to employees, officers, directors and other individuals who provide services to HeartWare International or any Affiliate of HeartWare International, including:
  stock options;
  stock appreciation rights;
  stock based incentives; and
  performance incentives.
A summary of the key terms of the HeartWare International 2008 Stock Incentive Plan is set out in Appendix 11 of this Information Memorandum. A copy of the HeartWare International 2008 Stock Incentive Plan is set out in Appendix 12 of this Information Memorandum. Copies of the HeartWare International 2008 Stock Incentive Plan will be made available on ASX’s website prior to the EGM and will also be available from the Company’s registered office for inspection or by written request to the Company Secretary.

 

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9   Implementation of the Proposed Transaction
9.1   Steps for implementing the Schemes
 
    To implement the Schemes, the steps set out below have been, or must be taken:
  (a)   the Company and HeartWare International entered into the Implementation Agreement on 5 August 2008 under which they have agreed to implement the Schemes. A copy of the Implementation Agreement is included in Appendix 1;
  (b)   on [insert date], HeartWare International executed the Deeds Poll in favour of each Scheme Participant. Under the Deeds Poll, HeartWare International undertakes to perform certain obligations under the Implementation Agreement and the Schemes, including covenanting to provide the Scheme Consideration. Copies of the Deeds Poll are included in Appendices 6 to 8;
 
  (c)   on [insert date], the Court ordered that the Company convene:
    the Share Scheme Meeting on [insert date] for the purpose of considering and, if thought fit, approving the Share Scheme;
    the Option Scheme Meeting on [insert date] for the purpose of considering and, if thought fit, approving the Option Scheme; and
    the Performance Rights Scheme Meeting on [insert date] for the purpose of considering and, if thought fit, approving the Performance Rights Scheme;
  (d)   the Company has also convened an EGM on [insert date] at which it will seek approval for the Resolution contained in section 8 of the Information Memorandum;
 
  (e)   if:
    the Share Scheme is approved by the requisite majorities (see section 9.5 below) of Shareholders voting at the Share Scheme Meeting;
    the Option Scheme is approved by the requisite majorities (see section 9.5 below) of Optionholders voting at the Option Scheme Meeting;
    the Performance Rights Scheme is approved by the requisite majorities (see section 9.5 below) of Performance Rights Holders voting at the Performance Rights Scheme Meeting;

 

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    all of the conditions contained in clause 2 of the Implementation Agreement (other than approval by the Court) are satisfied, or where possible, waived; and
    the Implementation Agreement has not been terminated,
      on or before the dates specified for such steps under the Implementation Agreement, then the Company will apply to the Court for orders approving the Schemes. The Court has discretion to refuse to grant the orders approving the Schemes, or any of them, even if the Schemes are approved by the requisite majorities of eligible Shareholders and Incentive Holders. If the Court orders referred to above are obtained, then the Company and HeartWare International will take or procure the taking of steps required to implement the Schemes, namely:
    the Company will lodge with ASIC an office copy of the Court orders under section 411 of the Corporations Act, approving the Schemes, upon which the Schemes will become Effective; and
    on the Implementation Date:
  (i)   in consideration for the transfer of Shares to HeartWare International, HeartWare International will issue the Share Scheme Consideration to each Scheme Shareholder (or to the Nominee on behalf of any Ineligible Overseas Shareholder (as to which, see section 9.10 below)) in accordance with the provisions of the Share Scheme;
  (ii)   all Options will be cancelled and HeartWare International will issue the Option Scheme Consideration to each Scheme Optionholder in accordance with the provisions of the Option Scheme; and
  (iii)   all Performance Rights will be cancelled and HeartWare International will issue the Performance Rights Scheme Consideration to such Scheme Performance Rights Holders in accordance with the provisions of the Performance Rights Scheme.
    The Schemes are also subject to certain other conditions, which are described at Section 9.2 below.
 
9.2   Conditions precedent
 
    The obligations of the Company and HeartWare International to implement the Schemes are subject to the following conditions being satisfied or, where applicable, waived in accordance with the terms of the Implementation Agreement.
  (a)   Conditions precedent to implementation of the Share Scheme
    No Prohibitive Orders - prior to 8.00am on the Second Court Hearing Date, no judicial authority or entity and no Government Agency taking and not withdrawing any action, or imposing any legal restraint or prohibition, to prevent the implementation of the Proposed Transaction (or any transaction contemplated by the Proposed Transaction);

 

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    Regulatory Consents - all approvals, consents or waivers which the parties agree are required to implement the Proposed Transaction (other than the approval by the Court of the Share Scheme under section 411(4)(b) of the Corporations Act) having been obtained or deemed to be obtained by 5.00pm on the Business Day immediately prior to the Second Court Date including ASIC and ASX providing all consents, approvals and waivers and doing other acts which are necessary or reasonably desirable to implement the Proposed Transaction on terms that are unconditional or subject only to conditions which are acceptable to the Company;
    Shareholder approval - Shareholders approving the Share Scheme at the Share Scheme Meeting (or any adjournment or postponement of it at which the Share Scheme is voted on) by the requisite majorities under the Corporations Act;
    Court approval of Share Scheme - the Court approving the Share Scheme in accordance with section 411(4)(b) of the Corporations Act either unconditionally or on conditions that are customary or usual;
    ASX Listing - ASX approving:
  (i)   HeartWare International for admission to the official list of ASX;
 
  (ii)   the CDIs for official quotation by ASX,
      in each case conditional only on the Share Scheme becoming Effective and HeartWare International providing the information required by the ASX approval or by the Listing Rules and satisfying any conditions in the ASX approval with regard to the deferred trading of the CDIs;
    Depository - before 5.00pm on the Business Day prior to the Second Court Date, HeartWare International having appointed a Depositary and the Depositary agreeing to the allotment to it of HeartWare International Shares under the Share Scheme;
    Nominee - before 5.00pm on the Business Day prior to the Second Court Date, HeartWare International having appointed a Nominee and the Nominee agreeing to sell the CDIs in respect of the entitlements of Ineligible Overseas Shareholders under the Share Scheme; and
    Ability to issue CDIs - before 5.00pm on the Business Day prior to the Second Court Date, HeartWare International having done everything necessary under the ASTC Settlement Rules to enable it to issue CDIs other than the allotment to the Depositary of HeartWare International Shares under the Share Scheme.

 

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  (b)   Conditions precedent to implementation of the Option Scheme
    Share Scheme Conditions satisfied - each of the conditions precedent to the Share Scheme as described in section 9.2(a) having been satisfied or waived;
    Optionholder Approval - Optionholders approving the Option Scheme at the Option Scheme Meeting (or any adjournment or postponement of it at which the Option Scheme is voted on) by the requisite majorities under the Corporations Act;
    Court Approval of Option Scheme - the Court approving the Option Scheme in accordance with section 411(4)(b) of the Corporations Act either unconditionally or on conditions that are customary or usual;
  (c)   Conditions precedent to the implementation of the Performance Rights Scheme
    Share Scheme Conditions satisfied - each of the conditions precedent to the Share Scheme as described in section 9.2(a) having been satisfied or waived;
    Performance Rights Holder Approval - Performance Rights Holders approving the Performance Rights Scheme at the Performance Rights Scheme Meeting (or any adjournment or postponement of it at which the Performance Rights Scheme is voted on) by the requisite majorities under the Corporations Act; and
    Court Approval of Performance Rights Scheme - The Court approving the Performance Rights Scheme in accordance with section 411(4)(b) of the Corporations Act either unconditionally or on conditions that are customary or usual.
9.3   No Encumbrances on Shares
 
    Shareholders should be aware that clause 7 of the Share Scheme provides that each Scheme Shareholder is deemed to have warranted to HeartWare International that:
  (a)   all of his or her Shares (including any rights and entitlements attaching to those Shares) transferred to HeartWare International under the Share Scheme will, on the Implementation Date, be fully paid and free from all mortgages, charges, liens, encumbrances, pledges, security interests and other third-party interests of any kind, whether legal or otherwise; and
  (b)   he or she has full power and capacity to transfer his or her Shares (including any rights and entitlements attaching to those Shares).

 

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9.4   Termination
 
    The Implementation Agreement may be terminated by the Company, by giving written notice to the other party, at any time prior to 8.00am on the Second Court Date if:
  (a)   the other party is in material breach of any of the terms of the Implementation Agreement and:
    the party wishing to terminate has given the other party a written notice:
  (i)   setting out the details of the breach; and
 
  (ii)   stating its intention to terminate, and
    the breach continues to exist 5 Business Days (or any shorter period ending at 5.00pm on the day before the Second Court Date) from the date the notice is given; or
  (b)   the Board of the Company withdraws its recommendation of the Schemes.
    All of the obligations in the Implementation Agreement with respect to a Scheme will terminate automatically without the need for action by any party in the event that:
  (a)   the Independent Expert opines that such Scheme is not fair and reasonable and in the best interests of the Shareholders, Optionholders or Performance Rights Holders (as relevant); or
  (b)   the Company’s Shareholders or Incentive Holders (as relevant) fail to approve such Scheme by the necessary majorities at the relevant Scheme Meeting; or
  (c)   the Court refuses to grant an order convening any required Scheme Meeting or approving such Scheme and either the parties agree not to conduct an appeal or the parties agree to conduct an appeal but the appeal is unsuccessful; or
  (d)   such Scheme is not approved by the Court under section 411(4)(b) of the Corporations Act on or before the Sunset Date.

 

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9.5   Voting majorities required to approve Schemes
 
    For the Schemes to become Effective, the resolutions proposed at the Scheme Meetings must be approved:
  (a)   in the case of a resolution approving the Share Scheme:
    by a majority in number of Shareholders present and voting at the Share Scheme Meeting (either in person or by proxy, attorney or corporate representative); and
    by Shareholders holding at least 75% of the votes cast on the resolution;
  (b)   in the case of a resolution approving the Option Scheme:
    by a majority in number of Optionholders present and voting at the Option Scheme Meeting (either in person or by proxy, attorney or corporate representative);
    being a majority whose Options in aggregate represent at least 75% by value of the total Options held by the Optionholders present and voting (either in person or by proxy, attorney or corporate representative) at the Meeting; and
  (c)   in the case of a resolution approving the Performance Rights Scheme:
    by a majority in number of Performance Rights Holders present and voting at the Performance Rights Scheme Meeting (either in person or by proxy, attorney or corporate representative);
    being a majority whose Performance Rights in aggregate represent at least 75% by value of the total Performance Rights held by the Performance Rights Holders present and voting (either in person or by proxy, attorney or corporate representative) at the Meeting.
9.6   Key dates for the Implementation of the Schemes
 
    The key dates with regard to the implementation of the Schemes include:
  (a)   Effective Date - the date on which the Court order approving the Schemes takes effect, being the date it is lodged with ASIC;
  (b)   Scheme Record Date - the date on which the Share Register, the Option Register and the Performance Rights Register (as relevant) is examined to determine who is entitled to participate in the Schemes;
  (c)   Implementation Date - the date on which:
    the Shares held by the Scheme Shareholders will be transferred to HeartWare International and HeartWare International Shares will be issued to Scheme Shareholders as consideration;
    the Options held by the Scheme Optionholders will be cancelled and HeartWare International Options will be issued to Scheme Optionholders as consideration; and
    the Performance Rights held by Scheme Performance Rights Holders will be cancelled and HeartWare International Restricted Stock Units will be issued to Scheme Performance Rights Holders as consideration.
    An indicative timetable including each of the above dates is set out on page 1 of this Information Memorandum.

 

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9.7   Determination of entitlements under the Share Scheme
 
    For the purposes of determining which Shareholders are eligible to participate in the Share Scheme, dealings in the Shares will only be recognised if:
    in the case of dealings of the type to be effected using CHESS, the transferee is registered in the Share Register as the holder of the relevant Shares by the Scheme Record Date; and
    in all other cases, registrable transmission applications or transfers in respect of those dealings are received on or before the Scheme Record Date at the place where the Share Register is kept.
    The Company must register registrable transmission applications or transfers in respect of those dealings that are received on or before the Scheme Record Date at the place where the Share Register is kept, provided that nothing in this section 9.7 requires the Company to register a transfer that would result in a Shareholder holding a parcel of Shares that is less than a marketable parcel.
 
    For the purposes of determining entitlements under the Share Scheme, the Company will not accept registration or recognise for any purpose, any transmission, application or transfer in respect of Shares received after the Scheme Record Date. The Company will use its Share Register in the manner described above to determine the entitlements of Scheme Shareholders under the Share Scheme.
 
9.8   Election for HeartWare International Shares rather than CDIs
 
    A Scheme Shareholder may make an election to receive HeartWare International Shares rather than CDIs under the Share Scheme however, HeartWare International Shares will not be tradable on any public market. If a Scheme Shareholder does not make an election, they will receive CDIs under the Share Scheme.
 
    A Scheme Shareholder election must be made by notice in writing to the Company’s Share Registry which must be received by the Share Registry by 5.00pm on the Scheme Record Date (or such other date as agreed by the Company and HeartWare International). Shareholders who provide the necessary notice will be issued HeartWare International Shares instead of CDIs in respect of those Shares. HeartWare International Shares will be exchangeable for CDIs following implementation of the Proposed Transaction at any time subject to compliance with US securities laws.

 

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9.9   Effect of the Schemes
  (a)   Share Scheme
If the Share Scheme becomes Effective then:
    on the Implementation Date:
    the Shares that are held by Scheme Shareholders will be transferred to HeartWare International without the need for any further action by Scheme Shareholders;
    save as set out at 9.10 below with respect to Ineligible Overseas Shareholders, HeartWare International will issue, or cause to be issued:
(i) one CDI for every one Share held by Scheme Shareholders on the Scheme Record Date, where the Scheme Shareholder has not made an election in accordance with section 9.8 above; or
(ii) one HeartWare International Share for every 35 Shares held by the Scheme Shareholder on the Scheme Record Date, where the Scheme Shareholder has made an election in accordance with section 9.8 above; and
    within five Business Days of the Implementation Date, HeartWare International will:
(i) issue holding statements, certificates or transmittal letters (as the case may be) for such CDIs or HeartWare International Shares in the name of such persons; and
(ii) procure the dispatch of such holding statements, certificates or transmittal letters to the address shown in the Share Register for such persons.
  (b)   Option Scheme
If the Option Scheme becomes Effective then:,
    on the Implementation Date:
  i.   the Options held by each Scheme Optionholder will be cancelled without the need for any further action by Scheme Optionholders;
  ii.   HeartWare International will issue one HeartWare International Option to each Scheme Optionholder for every 35 Options held by such Scheme Optionholder as at the Scheme Record Date; and

 

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    within five Business Days of the Implementation Date, HeartWare International will:
  i.   issue certificates for such HeartWare International Options in the name of such persons; and
  ii.   procure the dispatch of such certificates to the address shown in the Option Register for such persons.
  (c)   Performance Rights Scheme
If the Performance Rights Scheme becomes Effective then:
    on the Implementation Date:
  i.   the Performance Rights held by each Scheme Performance Rights Holder will be cancelled without the need for any further input by Scheme Performance Rights Holders;
  ii.   HeartWare International will issue one Restricted Stock Unit to each Scheme Performance Rights Holder for every 35 Performance Rights held by such Scheme Performance Rights Holder as at the Scheme Record Date;
    within five Business Days of the Implementation Date, HeartWare International will:
  i.   issue certificates for such HeartWare International Restricted Stock Units in the name of such persons; and
  ii.   procure the dispatch of such certificates to the address shown in the Restricted Stock Unit Holder Register for such persons.
9.10   Ineligible Overseas Shareholders
All Shareholders whose addresses, as shown in the Share Register on the Scheme Record Date, are in a place outside of Australia and its external territories, New Zealand or the US, have been classified as Ineligible Overseas Shareholders.
The issue of HeartWare International Shares to such Shareholders may be prohibited by the laws of the jurisdictions in which they reside or may require compliance with conditions or legal requirements which HeartWare International regards as onerous. Unless HeartWare International is satisfied that the laws of an Ineligible Overseas Shareholder’s place of residence or registered address, as shown in the Share Register, do not prevent the issue or allotment of HeartWare International Shares (without being obliged to conduct any investigation into the matter) and if HeartWare International considers that the compliance requirements are not too onerous, HeartWare International will not issue HeartWare International Shares to Ineligible Overseas Shareholders.

 

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HeartWare International will instead issue and allot CDIs in respect of such Ineligible Overseas Shareholder’s entitlements to a nominee appointed by HeartWare International. The Nominee will:
    as soon as reasonably practicable (at the risk of the Ineligible Overseas Shareholder) sell the CDIs issued to it; and
    account to each Ineligible Overseas Shareholder for the net proceeds of the sale of the CDIs allotted in respect of that Ineligible Overseas Shareholder (calculated on an averaged basis so that all Ineligible Overseas Shareholders receive the same price per CDI (subject to rounding to the nearest cent) and after deduction of any applicable brokerage and other taxes and charges),
in full satisfaction of that Ineligible Overseas Shareholder’s rights to Share Scheme Consideration. The Nominee will have a discretion to determine the price at which the CDIs issued to it may be sold and the manner of any such sale. Neither HeartWare International or the Nominee will be subject to any liability for failure to sell such CDIs at any particular price.
9.11   Trading CDIs
If the Court approves the Share Scheme, the Company will notify ASX of the Court approval on the date of that approval.
Suspension of trading in the Shares on ASX will occur from the close of trading on the date on which the Company lodges the Court order approving the Share Scheme with ASIC.
Deferred settlement trading of CDIs, representing HeartWare International Shares, will commence on ASX after the trading of the Shares is suspended. CDIs are expected to commence trading on ASX on a normal T+3 settlement basis on [ ] 2008, being the Business Day following the dispatch of holding statements. Should you wish to trade your CDIs before the issue of holding statements, you will do so at your own risk. The proceeds from the sale of securities sold on a deferred delivery basis will not be received until after the deferred delivery period has ended.
The Company will apply for termination of the official quotation of the Shares on ASX after the Implementation Date.
Unless and until HeartWare International Shares are listed for trading on NASDAQ or another exchange, there will be no US public market for HeartWare International Shares.

 

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9.12   Cancellation of Standalone Options
In conjunction with the Schemes, the Standalone Options granted in the Company will be cancelled and, in consideration of the cancellation, HeartWare International will issue to the Standalone Optionholders one HeartWare International Standalone Option for every 35 Standalone Options held by the Standalone Optionholders. Any fractions of HeartWare International Standalone Options will be rounded down to the nearest whole number of HeartWare International Standalone Options.
The cancellation of the Standalone Options in the Company and the offer of HeartWare International Standalone Options is conditional on:
    the Share Scheme becoming Effective; and
    all ASX waivers which the parties agree are required to effect the cancellation of the Standalone Options in the Company and issue the HeartWare International Standalone Options being obtained on terms that are unconditional or subject only to conditions which are acceptable to the Company.
The HeartWare International Standalone Options will be issued on essentially the same terms as the existing Standalone Options (except to the extent that changes are required to comply with Delaware law).
9.13   Compulsory acquisition of Options and Performance Rights
If the Share Scheme is approved but the Option Scheme and/or Performance Rights Scheme is not, HeartWare International may compulsorily acquire the Options and/or Performance Rights using the general statutory rights of compulsory acquisition under the Corporations Act.
If HeartWare International proceeds to compulsorily acquire Options and/or Performance Rights (or the Shares issued on exercise of such Options or Performance Rights) under the Corporations Act, HeartWare International may only acquire Options, Performance Rights and/or Shares for a cash sum and must pay the same amount for each of the Options and/or Performance Rights and/or Shares acquired. The procedures for compulsorily acquiring Options, Performance Rights and/or Shares requires HeartWare International to provide Incentive Holders or Shareholders (as applicable) with the following:
    a compulsory acquisition notice (which, amongst other things, specifies a period in which Incentive Holders or Shareholders may object to the acquisition);
    an expert’s report prepared by an expert nominated by ASIC, which states whether, in the expert’s opinion, the terms proposed in the compulsory acquisition notice give a fair value for the Options, Performance Rights or Shares (as applicable); and
    an objection form.

 

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HeartWare International can only proceed with the compulsory acquisition if:
    the Optionholders, Performance Rights Holders and/or Shareholders (as applicable) who objected to the compulsory acquisition together hold less than 10% by value of the remaining Options and/or Performance Rights Holders by the end of the objection period, which must be at least one month; or
    the Court approves the compulsory acquisition.
If Optionholders, Performance Rights Holders or Shareholders (as applicable) who hold at least 10% of the Options, Performance Rights or Shares covered by the compulsory acquisition notice object to the acquisition before the end of the objection period, HeartWare International must give everyone to whom the compulsory acquisition notice was sent, notice that the proposed compulsory acquisition will not occur or a notice that HeartWare International has applied to the Court for approval of the compulsory acquisition.
If HeartWare International elects to apply to the Court for approval of the compulsory acquisition of Options, Performance Rights and/or Shares, the burden of proof is on HeartWare International to establish to the Court’s satisfaction that the terms set out in the compulsory acquisition notice give a fair value for the Options, Performance Rights and/or Shares. HeartWare International will bear the costs that a person incurs on legal proceedings in relation to the compulsory acquisition, unless the Court is satisfied that the person acted improperly, vexatiously or otherwise unreasonably.

 

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10   Taxation implications for Shareholders and Incentive Holders
The tax discussion set out in sections 10.1 and 10.2 of this Information Memorandum was prepared by and is the responsibility of PwC Australia. The tax discussion set out in section 10.3 of this Information Memorandum was prepared by the Company but was reviewed by and is the responsibility of PwC LLP.
10.1   Australian tax implications
This section, prepared by PricewaterhouseCoopers, comments on the general Australian taxation position of individual and corporate resident and non-resident Shareholders and Incentive Holders of the Company in relation to the “disposal” of their shares, options and performance rights in exchange for shares, options and restricted stock units in HeartWare International pursuant to three Schemes of Arrangements under Part 5.1 of the Corporations Act. In providing this opinion PricewaterhouseCoopers has relied upon certain facts, set out in this Information Memorandum and in the Implementation Agreement, which have not been independently reviewed or verified by PricewaterhouseCoopers.
The summary contained in this section regarding the Australian tax considerations does not purport to be a complete analysis of the potential tax consequences of the Proposed Transaction, and is intended as a general guide to the Australian tax implications only. It should not be a substitute for specific advice from an appropriate professional adviser and all Shareholders and Incentive Holders are strongly advised to obtain their own professional advice on the tax implications based on their own specific circumstances.
The comments are based on the law and understanding of the practice of the tax authorities in Australia as at the date of this document. These are subject to change periodically as is their interpretation by the courts.
Note that we have not addressed in this section, the non-Australian tax position of Shareholders and Incentive Holders.
To persons receiving this document in Australia we note the information contained in this document does not constitute “financial product advice” within the meaning of the Corporations Act 2001 (Cth) (“Corporations Act”). The PricewaterhouseCoopers partnership which is providing this advice is not licensed to provide financial product advice under the Corporations Act. To the extent that this document contains any information about a “financial product” within the meaning of the Corporations Act, taxation is only one of the matters that must be considered when making a decision about the relevant financial product. This material has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, you should, before acting on this material, consider taking advice from a person who is licensed to provide financial product advice under the Corporations Act. Before acting on this material, you should also consider the appropriateness of this material having regard to your objectives, financial situation and needs and consider obtaining independent financial advice.

 

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1.   Australian tax considerations
       
Category of taxpayer   Relevant section
Australian resident individual
    2
Australian resident company
    3
Australian resident complying superannuation fund
    4
Australian resident trust (not taxed as a company)
    5
Non-resident Shareholder
    6
Optionholder
    7
Performance Rights Holder
    8
Where relevant to the particular category of taxpayer, each of the Sections referred to above contains information relating to the tax implications of:
    the transfer of the Shares of the Company to HeartWare, and the cancellation of all Options and Performance Rights and the reissue of replacement options and restricted stock units in HeartWare under the Schemes;
    the future disposal of the HeartWare shares, options or restricted stock units that you receive under the Schemes; and
    the receipt of future dividends from HeartWare. In this regard we note that the Company has not paid any dividends to its shareholders in the past, and we understand it is uncertain whether HeartWare will pay dividends to its shareholders in the future.
We also provide similar comments in relation to the cancellation and reissue of Standalone Options under the cancellation deed.
As outlined in the Information Memorandum, Shareholders will receive the HeartWare International Shares to which they are entitled in the form of CDIs (unless you elect otherwise). Therefore, references in Sections 2 to 7 below to HeartWare shares should also be read as a reference to CDIs in respect of such HeartWare shares.
Please also refer to Section 9 which outlines the stamp duty and goods and services tax (“GST”) consequences, and Section 10 which details the potential application of the foreign investment fund (“FIF”) rules.

 

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2.   Australian tax consequences of the Share Scheme for Australian resident individuals
  (a)   Transfer of Shares held on capital account
The Australian tax implications of the Share Scheme when you hold your Shares on capital account (eg you are not in the business of trading shares), will depend on whether you acquired your Shares before 20 September 1985 (ie the shares are pre-Capital Gains Tax (“CGT”)) or on or after 20 September 1985 (ie the shares are post-CGT).
As the Company was established in 2004 and listed on the ASX in January 2005, we understand all Company shares will be post-CGT Company shares.
Under the Share Scheme, you will be issued with one HeartWare share CDI for every one Share, or you can elect to be issued with one share of HeartWare Common Stock, for every thirty five Shares held. Subject to our comments below on the application of scrip-for-scrip rollover relief, this will be a CGT event in respect of your Shares.
If the capital proceeds (ie the market value of the HeartWare shares received pursuant to the Share Scheme) exceed the cost base of the Shares, a capital gain will arise. The cost base of your Shares will depend on your individual circumstances. Where the market value of the HeartWare shares received is less than the reduced cost base of the Shares, a capital loss will arise.
In preparing your Australian income tax return, you total your individual capital gains and capital losses in a year of income to ascertain whether you have a net capital gain for the year of income. Subject to your eligibility for the discount concession (considered below), any net capital gain is included in your assessable income and is subject to income tax at your marginal tax rate. A net capital loss may be carried forward to offset against capital gains derived in future income years.
Where you would otherwise realise a capital gain from the disposal of your Shares, you can choose to claim scrip-for-scrip rollover relief. Where you are eligible for and choose to claim scrip-for-scrip rollover relief, no tax liability will arise as a result of the transfer. The Schemes have been formulated so as to meet the requirements for scrip-for-scrip tax rollover with the result that shareholders should not have to pay any Australian tax with respect to the replacement of their shares in the Company share scheme. A Class Ruling application has been lodged with the Australian Taxation Office. This Class Ruling seeks to confirm that the conditions for scrip-for-scrip rollover relief are satisfied and that rollover relief is available in relation to the transfer of Shares for HeartWare shares under the Share Scheme. After the ruling has been issued by the ATO, Shareholders will be advised of the outcome. In this regard we note our understanding that receipt of a Class Ruling from the Australian Taxation Office is not a condition required to be met prior to implementation of the Schemes.
If you make a capital loss from the disposal of your Shares, you cannot claim scrip-for-scrip rollover relief. However, no tax liability will arise in respect of the transfer.

 

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CGT rollover relief chosen
As noted above, no capital gain arises where CGT rollover relief is chosen. Taxation of the potential capital gain is deferred until the HeartWare shares received as consideration under the Share Scheme for the transfer of the Shares are disposed of. This issue is considered further below at Section 2(d).
You must generally make the choice to obtain CGT rollover relief before the lodgement of your income tax return, which will be for the year ending 30 June 2009.
No notice seeking to claim the rollover relief needs to be lodged with the Australian Taxation Office. Rather, the way you prepare your tax return will be sufficient evidence of the making of this choice – ie you do not include any capital gain on the disposal of your Shares in your assessable income in your tax return if you claim the rollover relief.
CGT rollover relief not chosen or not applicable
Where you do not choose for the scrip-for-scrip rollover provisions to apply, or where scrip-for-scrip rollover is not available, any capital gain arising from the transfer of Shares may be reduced as discussed below.
Where you have held the Shares for at least twelve months prior to disposal, you may be eligible for the CGT discount which is 50% for individuals. Where the CGT discount applies, only half of any net capital gain arising from the transfer of the Shares is included as an assessable capital gain in your income tax return.
  (b)   Transfer of Shares held on revenue account
Any gain or loss that arises on the disposal of your Shares where you hold your Shares on revenue account (eg where you are in the business of trading shares) will be taxable as ordinary income.
The difference between the market value of the HeartWare shares received pursuant to the Share Scheme, and the purchase price of your Shares (or the tax value at the beginning of the tax year where you hold the Shares as trading stock), will be an assessable gain (or a deductible loss) to you.
The CGT scrip-for-scrip rollover concession and the 50% CGT discount (considered above) will not be available to you.
  (c)   Tax on future dividends from HeartWare
The Company has not paid any dividends to date and there can be no assurance that any dividends will be paid in the future. However, if any dividend is paid to you in the future, HeartWare may be required to withhold and remit a percentage of the gross dividend to the United States taxation authorities. You will, therefore, receive the dividend net of this amount (which is called withholding tax).

 

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You will need to include the gross amount of the dividend in your Australian assessable income (ie the dividend before withholding tax has been deducted). However, the Australian tax payable by you on the dividend can generally be reduced by the amount of withholding tax deducted and remitted in the US. This offset is called a “foreign income tax offset”.
Broadly, from 1 July 2008, the amount of the foreign income tax offset that you can claim to offset against your Australian tax payable on the dividend is calculated as the greater of:
    $1,000; or
    the Australian tax payable on the net income on which foreign income tax is paid.
To the extent that the amount of withholding tax deducted from your foreign income (eg dividend) exceeds the foreign income tax offset that you can claim in an income year applying the above principles, the excess is lost and cannot be carried forward.
  (d)   Tax on a future disposal of HeartWare shares held on capital account
The Australian tax implications on the future disposal of HeartWare shares will generally be the same as described above in Section 2(a) for the Shares where scrip-for-scrip rollover relief is not elected.
However, the application of the Australian CGT provisions will differ slightly depending on whether you claimed scrip-for-scrip rollover relief on the original transfer of your Shares for HeartWare shares under the Share Scheme.
CGT rollover relief chosen
Where CGT rollover relief was chosen on the original transfer, the cost base of the HeartWare shares you were issued under the Share Scheme will be equal to the cost base of the shares in the Company transferred. For the purpose of determining whether you have held the HeartWare shares for at least twelve months prior to disposal when seeking to apply the CGT discount, you will be deemed to have acquired your HeartWare shares at the time you originally acquired your Shares.
CGT rollover relief not chosen or not applicable
Where CGT rollover relief was not chosen on the original transfer or was not available, the CGT cost base of the HeartWare shares you receive under the Share Scheme is equal to the market value of the Shares transferred as part of the Share Scheme. For the purpose of determining whether you have held the HeartWare shares for at least twelve months prior to disposal when seeking to apply the CGT discount, the acquisition date of the HeartWare shares is the Implementation Date for the Share Scheme.
  (e)   Tax on a future disposal of HeartWare shares held on revenue account
The Australian tax implications of any gain or loss that you make upon the future disposal of HeartWare shares are the same as that described above in Section 2(b) for the Shares.

 

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3.   Australian tax consequences of the Share Scheme for Australian resident companies
  (a)   Transfer of Shares
The Australian tax implications of the share transfer are essentially the same as for an Australian resident individual (outlined in Sections 2(a) and (b) above). However, the CGT discount is not available where the shares are held on capital account.
  (b)   Tax on future dividends from HeartWare
Australian company (together with any associates) that holds less than 10% of voting interests in HeartWare after the implementation of the Share Scheme
The Australian tax implications of receiving dividends from HeartWare will be the same as for an Australian resident individual, as discussed in Section 2(c) above.
Australian company (together with any associates) that holds 10% or more of voting interests in HeartWare after the implementation of the Share Scheme
For Australian tax purposes the dividend will be exempt income to you and no tax will be payable if you hold 10% or more of the voting interests in HeartWare. No foreign tax credit for US dividend withholding tax will be available.
  (c)   Tax on future disposal of HeartWare shares
Subject to our comments below, the Australian tax implications of the future disposal of your HeartWare shares are the same as described in Sections 2(d) and 2(e) above.
However, we note that:
    Where the shares are held on capital account, if you hold a direct voting interest of 10% or more in HeartWare, throughout a 12 month period within the 24 months prior to the disposal of HeartWare shares, the capital gain or capital loss may be reduced to the extent that HeartWare has “active foreign business assets”. The calculation of this reduction is complex, and will depend on the mix of assets held by HeartWare at that time. We recommend that you seek independent professional advice with respect to this issue before a future disposal of HeartWare shares;
    The CGT discount is not available.

 

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4.   Australian tax consequences of the Share Scheme for Australian resident complying superannuation funds
  (a)   Transfer of Shares
The Australian tax consequences of the Scheme should broadly be as outlined above in Sections 2(a) and 2(b) for Australian resident individuals. However, the CGT discount applicable to shares held for greater than twelve months for resident complying superannuation funds is 331/3%, as compared to 50% for individuals.
  (b)   Tax on future dividends from HeartWare
The Australian tax implications for you of receiving dividends from HeartWare will be the same as for an Australian resident individual as outlined in Section 2(c) above.
  (c)   Tax on future disposal of HeartWare shares
The Australian tax implications of any gain or loss that you make upon the disposal of your HeartWare shares are the same as described in Sections 2(d) and 2(e) above. However, as outlined above, the CGT discount will be 331/3% (and not 50%).
5.   Australian tax consequences of the Share Scheme for Australian resident trusts that are not taxed as companies
Where Shares are held by a trust (and the trust is not taxed as a company for Australian tax purposes) and gains are distributed to individual beneficiaries, the CGT consequences described for Australian resident individuals above in Sections 2(a) and 2(b) will also be relevant. This includes the CGT discount of 50%.
However, the tax consequences which arise where trusts hold shares will vary depending upon the nature of the trust. These tax consequences have not been considered. Shareholders in these circumstances should seek their own advice.
6.   Australian tax consequences of the Share Scheme for non-resident Shareholders
If you are a Shareholder who is not a resident of Australia for tax purposes, you should seek separate independent advice in relation to the tax implications of the Share Scheme under the laws of your country of residence. This Section merely provides a brief overview of the Australian income tax implications under the Share Scheme for non-resident Shareholders.
  (a)   Transfer of Shares held on capital account
You will not be liable for Australian income tax on any capital gain arising upon the disposal of your Shares where they are held on capital account, unless the share is taxable Australian property. Similarly, if a capital loss would arise on disposal of the Shares, you will not be able to claim this capital loss in Australia unless your Shares are taxable Australian property.

 

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Generally, Shares will only be taxable Australian property if:
    you, together with your associates, own at least 10% of the shares in the Company (either at the time of the transfer, or throughout a 12 month period within the previous 24 months), and the market value of the Company’s Australian real property assets is more than 50% of the market value of its total assets; or
    you hold the share in connection with the conduct of a business through a permanent establishment in Australia.
The Company has confirmed that the Company currently has limited Australian real property assets and therefore your shares will not currently be taxable Australian property. Accordingly, unless you hold your shares in connection with the conduct of a business through a permanent establishment in Australia, you should not be subject to tax in Australia on disposal.
A Double Tax Agreement between Australia and your country of residence may also provide taxation relief or modify your tax position. This will depend on the terms of the particular Double Tax Agreement between Australia and your country of residence, and is also dependant on your individual circumstances. You should seek independent professional advice in relation to this matter.
  (b)   Transfer of Shares held on revenue account
You may be liable to Australian income tax in respect of a profit arising upon the disposal of the Shares if you are a non-resident Shareholder who holds your Shares on revenue account.
The position will, however, be dependent upon whether you hold the shares as part of carrying on a business through a permanent establishment in Australia, the source of the profit on the disposal, and whether you are a resident of a country with which Australia has entered into a Double Tax Agreement.
Again, you should seek your own independent advice in these circumstances.
  (c)   Tax on future dividends from HeartWare
There will be no Australian tax on any dividends paid by HeartWare if you are not an Australian resident for tax purposes.
For shareholders who are not US tax residents, upon payment of a dividend to you, HeartWare will generally withhold dividend withholding tax.
  (d)   Tax on future disposal of HeartWare shares held on capital account
You will not be subject to Australian tax upon any gain arising from the disposal of your HeartWare shares where they are held on capital account, unless the share is taxable Australian property. To this extent, the commentary set out at Section 6(a) will be applicable.

 

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  (e)   Tax on future disposal of HeartWare shares held on revenue account
You will not be subject to Australian tax upon any gain arising from the disposal of your HeartWare shares where you hold your shares on revenue account.
7.   Australian tax consequences of the Option Scheme for Optionholders and cancellation deed for Standalone Optionholders
Under the Option Scheme, each option issued under the Employee Share Option Plan of the Company will be cancelled, and in consideration for the cancellation you will receive one HeartWare option under the HeartWare Employee Stock Option Plan for every thirty five options held in the Company. Further, in conjunction with the Schemes, the holders of standalone options will have such options cancelled and will receive one HeartWare standalone option for every thirty five standalone options held in the Company.
These options and standalone options granted in relation to services or employment will be effectively classified as either “qualifying” or “non-qualifying” options under the Australian tax provisions dealing with employee share schemes. This classification depends on your prior individual tax circumstances at the date of receipt of the options. However, both the “qualifying” and “non-qualifying” options are eligible for tax rollover, respectively under either the employee share scheme tax rollover provisions, or under the capital gains tax rollover provisions (as discussed below).
Implications for Optionholders holding options under the Employee Share Option Plan of the Company
  (a)   Cancellation of options under Option Scheme
The cancellation of the options may give rise to a taxing event for Australian resident Optionholders.
To the extent the options are not “qualifying” options issued under an Employee Share Scheme, or where they are “qualifying” options issued under an Employee Share Scheme but you have elected to be taxed on the discount received on issue of the options in the year of income in which the options were granted, the Australian CGT implications for Australian resident Optionholders are broadly the same as for Australian resident Shareholders (see discussion regarding shares in Section 2(a) above).

 

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Where the options are “qualifying” options and you have not elected to be taxed on the discount received on issue of the options in the year of income in which the options were granted, you will be entitled to a roll-over if upon receipt of the HeartWare Employee Stock Options:
    the value of the options over the HeartWare shares can reasonably be regarded as matching the value of the options over the Shares;
    you are an employee of HeartWare, the Company or another company in the HeartWare wholly-owned group;
    you do not hold a legal or beneficial interest in more than 5% of the shares in HeartWare; and
    you are not in a position to cast, or control the casting of, more than 5% of the maximum number of votes that may be cast at a general meeting of HeartWare.
A Class Ruling application has been lodged with the Australian Taxation Office. This Class Ruling seeks to confirm that Optionholders with “qualifying options” who did not elect to be taxed on the discount received in the year the options were granted, will be entitled to treat the HeartWare Employee Stock Options as a continuation of the rights (ie. entitled to a roll-over) on cancellation of the options. Again we note our understanding that receipt of a Class Ruling from the Australian Taxation Office is not a condition required to be met prior to implementation of the Schemes.
The Australian income tax implications for non-resident Optionholders are complex and depend on your individual circumstances. You should seek your own professional advice if you fall into this category.
  (b)   Tax on future dividends from HeartWare
No Australian tax liability will arise, as Optionholders will not be entitled to receive dividends from HeartWare.
  (c)   Tax on future exercise of options
Any future exercise of HeartWare Employee Stock Options under the HeartWare Employee Stock Option Plan may be subject to Australian tax. This will depend on application of the employee share and options tax provisions. You should seek specific advice on this before choosing to exercise the options. However, we note that implementation of the Option Scheme, of itself, will not change the Australian tax position on a future exercise of the HeartWare Employee Stock Options.
Implications for Optionholders holding standalone options
  (a)   Cancellation of standalone options
The cancellation of the standalone options may give rise to a taxing event for Australian resident Optionholders.

 

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To the extent the standalone options are not “qualifying” options issued under an Employee Share Scheme, or where they are “qualifying” options issued under an Employee Share Scheme but you have elected to be taxed on the discount received on issue of the standalone options in the year of income in which the standalone options were granted, the Australian CGT implications for Australian resident Optionholders are broadly the same as for Australian resident Shareholders (see discussion regarding shares in Section 2(a) above).
Where the standalone options are “qualifying” options and you have not elected to be taxed on the discount received on issue of the standalone options in the year of income in which the standalone options were granted, you will be entitled to a roll-over if upon receipt of the HeartWare standalone options:
    the value of the standalone options over the HeartWare shares can reasonably be regarded as matching the value of the standalone options over the Shares;
    you are an employee of HeartWare, the Company or another company in the HeartWare wholly-owned group;
    you do not hold a legal or beneficial interest in more than 5% of the shares in HeartWare; and
    you are not in a position to cast, or control the casting of, more than 5% of the maximum number of votes that may be cast at a general meeting of HeartWare.
A Class Ruling application has been lodged with the Australian Taxation Office. This Class Ruling seeks to confirm that Optionholders with “qualifying options” who did not elect to be taxed on the discount received in the year the standalone options were granted, will be entitled to treat the HeartWare standalone options as a continuation of the rights (ie. entitled to a roll-over) on cancellation of the standalone options.
The Australian income tax implications for non-resident Optionholders are complex and depend on your individual circumstances. You should seek your own professional advice if you fall into this category.
  (b)   Tax on future dividends from HeartWare
No Australian tax liability will arise, as Optionholders will not be entitled to receive dividends from HeartWare.
  (c)   Tax on future exercise of standalone options
Any future exercise of HeartWare standalone options may be subject to Australian tax. This will depend on application of the employee share and options tax provisions. You should seek specific advice on this before choosing to exercise the standalone options. However, we note that cancellation and reissue of the standalone options, of itself, will not change the Australian tax position on a future exercise of the HeartWare standalone options.

 

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8.   Australian tax consequences of the Performance Rights Scheme for Performance Right Holders
Under the Performance Rights Scheme, each performance right issued under the Performance Rights Plan of the Company will be cancelled, and in consideration for the cancellation, you will receive one HeartWare restricted stock unit for every thirty five performance rights held in the Company.
Again, we note these performance rights granted in relation to services or employment will be effectively classified as either “qualifying” or “non-qualifying” rights under the Australian tax provisions dealing with employee share schemes. This classification depends on your prior individual tax circumstances at the date of receipt of the performance rights. However, both the “qualifying” and “non-qualifying” rights are eligible for tax rollover, respectively under either the employee share scheme tax rollover provisions, or under the capital gains tax rollover provisions (as discussed below).
  (a)   Cancellation of performance rights
The cancellation of the performance rights may give rise to a taxing event for Australian resident Performance Right Holders.
To the extent the performance rights are not “qualifying” rights issued under an Employee Share Scheme, or where they are “qualifying” rights issued under an Employee Share Scheme but you have elected to be taxed on the discount received on issue of the performance rights in the year of income in which the performance rights were granted, the Australian CGT implications for Australian resident Performance Right Holders are broadly the same as for Australian resident Shareholders (see discussion regarding shares in Section 2(a) above).
Where the performance rights are “qualifying” rights and you have not elected to be taxed on the discount received on issue of the performance rights in the year of income in which the performance rights were granted, you will be entitled to a roll-over if upon receipt of the HeartWare restricted stock units:
    the value of the HeartWare restricted stock units can reasonably be regarded as matching the value of the performance rights over the Shares;
    you are an employee of HeartWare, the Company or another company in the HeartWare wholly-owned group;
    you do not hold a legal or beneficial interest in more than 5% of the shares in HeartWare; and
    you are not in a position to cast, or control the casting of, more than 5% of the maximum number of votes that may be cast at a general meeting of HeartWare.

 

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A Class Ruling application has been lodged with the Australian Taxation Office. This Class Ruling seeks to confirm that Performance Right Holders with “qualifying rights” who did not elect to be taxed on the discount received in the year the performance rights were granted, will be entitled to treat the HeartWare restricted stock units as a continuation of the rights (ie. entitled to a roll-over) on cancellation of the performance rights.
The Australian income tax implications for non-resident Performance Right Holders are complex and depend on your individual circumstances. You should seek your own professional advice if you fall into this category.
  (b)   Tax on future dividends from HeartWare
No Australian tax liability will arise, as Performance Right Holders will not be entitled to receive dividends from HeartWare.
  (c)   Tax on future exercise of restricted stock units
Any future exercise of HeartWare restricted stock units may be subject to Australian tax. This will depend on application of the employee share and rights tax provisions. You should seek specific advice on this before choosing to exercise the restricted stock units. However, we note that implementation of the Performance Rights Scheme, of itself, will not change the Australian tax position of performance rights holders on a future exercise of the HeartWare restricted stock units.
9.   Stamp duty/ GST consequences
Shareholders will not be required to pay any stamp duty or GST on the transfer of their shares in the Company to HeartWare, or on the issue of HeartWare share CDIs or shares of HeartWare common stock to them.
Company optionholders (including Standalone Optionholders) will not be subject to any stamp duty or GST on the cancellation of their Company options, or on the issue of HeartWare Options.
Company performance right holders will not be subject to any stamp duty or GST on the cancellation of their Company performance rights, or on the issue of HeartWare Restricted Stock Units.
We note that, while no GST is payable on the transfer, cancellation or issue of shares, options or restricted stock units, Shareholders, optionholders and performance right holders registered or required to be registered for GST in Australia will need to determine the extent, if any, to which GST paid by them on acquisitions relating to those events should be denied.

 

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10.   Application of the Foreign Investment Fund (“FIF”) rules
On completion of the Schemes, Australian resident Shareholders, Optionholders and Performance Right Holders in HeartWare will have an interest in a foreign company that may be subject to Australia’s FIF rules. These rules may operate to include income in respect of the FIF into an Australian taxpayer’s assessable income on an accruals basis, subject to any available exemptions or reductions.
We note that the FIF rules are complex, and will need to be considered by each shareholder, optionholder and performance right holder in light of their particular circumstances. However we note that:
    optionholders receiving “qualifying” options who are employees and who did not elect to pay tax on the market value of their options in the year the options were granted to them will not be taxed under the FIF rules; and
    whilst HeartWare remains listed on the ASX (or another approved stock exchange – eg NASDAQ), and the relevant stock exchange designates HeartWare to be engaging in eligible activities (eg the ASX currently classifies the Company as engaging in the Health Care Equipment and Services sector which is eligible), an exemption will apply to ensure that Australian resident taxpayers will not be required to include attributed FIF income in their Australian assessable income.

 

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10.2   US Estate Taxes Implications under the Proposed Transaction
This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding US federal, state or local tax penalties.
Following implementation of the Proposed Transaction, certain HeartWare International Shareholders, Optionholders, Standalone Optionholders and Restricted Stock Unit Holders may be subject to US Estate Taxes.
Essentially individuals who are not residents or citizens of the US for US Estate Taxes purposes1 may be subject to US Estate Taxes on those assets that are situated (or deemed to be situated) in the US. For these purposes, shares, options and rights in a US corporation are considered to be US situs assets. Accordingly, the HeartWare International Shares, HeartWare International Options, and HeartWare International Restricted Stock Units which Scheme Participants will receive under the Schemes and HeartWare International Standalone Optionholders will receive under the Proposed Transaction may be deemed to be situated in the US for US Estate Tax purposes.
Under current law, individuals who are not residents or citizens of the US are subject to US Estate Taxes upon their death where the value of their US situs assets exceeds US$60,000. Any amounts in excess of this limit are taxed at progressive rates ranging from 18% to 45%. The US has estate tax treaties with a number of countries which may result in a lower US estate tax liability (discussed below).
US citizens and residents on the other hand are subject to US Estate Taxes upon death on their worldwide assets and the exclusion amounts vary. The table below sets out the current applicable tax rates, exclusions and tax credits.
                                         
    US                             Highest  
Calendar   Residents             NRNC*             Estate Tax  
Year   Exclusion     Credit     Exclusion     Credit     Rates  
2008
  $2 million   $ 780,800     $ 60,000     $ 13,000       45 %
2009
  $3.5 million   $ 1,455,800     $ 60,000     $ 13,000       45 %
2010
  N/A (taxes repealed)     N/A     N/A (taxes repealed)     N/A       0 %
2011 and thereafter
  $1 million   $ 345,800     $ 60,000     $ 13,000       55 %
 
     
1   This discussion does not address US gift tax matters.
 
*   Persons who are not residents or citizens of the US.

 

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For example, where the US-Australia estate tax treaty applies, an Australian resident can claim a tax credit equal to the highest credit available to US residents multiplied by the ratio of the US assets to his/her total worldwide assets at the time of the death of the Australian resident.
The following example illustrates the calculation of the US Estate Tax exemption allowable in the 2008 year under the US-Australia estate tax treaty for a resident of Australia (who is not also a resident or citizen of the US for estate tax purposes).
Worldwide estate = US$3.5 million
The estate includes US$350,000 (10%) of US situs assets:
         
 
  Tax on US$350,000:   US$104,800
 
       
 
  Allowable Credit:   US$78,080
 
  (10% of 780,800)    
 
       
 
  Net estate tax payable:   US$26,720
You should seek professional advice in relation to US Estate Taxes matters, as the laws may apply differently in each individual situation.
10.3   US Tax Implications
TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, THE INFORMATION MEMORANDUM WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING US TAX PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER. THIS INFORMATION MEMORANDUM WAS PREPARED IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY THE COMPANY AND HEARTWARE INTERNATIONAL TO PERSONS OTHER THAN THE COMPANY AND HEARTWARE INTERNATIONAL OF THE PROPOSED TRANSACTION ADDRESSED IN IT. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON THE TAXPAYER’S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR, NOT ASSOCIATED WITH THE PROPOSED TRANSACTION.
Section 10.3 of this Information Memorandum summarise the material US federal income tax consequences of the Proposed Transaction that are generally applicable to US Participants and Non-US Participants (as defined below), as well as certain US federal income tax consequences of the Share Scheme to the Company and HeartWare International. Section 10.3 does not purport to deal with all aspects of US federal income taxation that may affect particular persons in light of their individual circumstances or that may affect Share Scheme Participants, Option Scheme Participants, Standalone Optionholders or Performance Rights Scheme Participants subject to special treatment under federal income tax law, including, without limitation:
    a tax-exempt organisation;
    an S corporation or other pass-through entity;
    an insurance company;

 

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    a financial institution;
    a mutual fund;
    a dealer in stock and securities or foreign currencies;
    a trader in securities who elects the mark-to-market method of accounting for your securities;
    a US holder or non-US holder of Shares subject to the alternative minimum tax provisions of the Code;
    a US holder or non-US holder of Shares who received his or her Shares through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan;
    certain expatriates or a person that has a functional currency other than the US dollar;
    persons that do not hold their Shares, Options or Performance Rights as capital assets;
    a regulated investment company;
    a real estate investment trust;
    a controlled foreign corporation;
    a passive foreign investment company;
    holders of Options or Standalone Options that were not issued as compensatory options;
    Shareholders who actually or constructively have owned, owns or is deemed to own five percent or more, by voting power or value, of the Company’s issued Shares, either at any time during the five-year period up to and including the date of the Proposed Transaction or at anytime after the Proposed Transaction; or
    a holder of Shares who holds such Shares as part of a hedge against currency risk, a straddle or a constructive sale or a conversion transaction.
In the case of a partnership that holds Shares, the US tax consequences may apply at the partner level, as a partnership is transparent for US tax purposes.
In addition, section 10.3 does not consider the effect of any applicable US estate, US state and local, or foreign tax laws, nor does it consider the tax consequences of other transactions effectuated before, after or concurrently with the Proposed Transaction (whether or not any such transaction is undertaken in connection with the Proposed Transaction) (see section 10.2 for a discussion of certain estate tax matters). The discussion in section 10.3 also does not apply to any person who receives HeartWare International Shares other than in exchange for Shares pursuant to the Share Scheme (for example, in exchange for services or upon the exercise of Options).
This discussion is based on the Internal Revenue Code of 1986, as amended (Code), US Treasury Regulations promulgated thereunder, and judicial and administrative decisions and rulings, all as in effect as of the Effective Date and all of which are subject to change, possibly with retroactive effect. The Company has not obtained, nor does it intend to obtain, a ruling from the US Internal Revenue Service (IRS) with respect to the tax consequences of the Proposed Transaction. Therefore, this discussion is not binding on the IRS or the courts, and there can be no assurance that the IRS or the courts will not take a contrary view. This discussion is also premised on the accuracy of certain representations made by the Company.

 

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YOU ARE URGED TO CONSULT WITH YOUR TAX ADVISER AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE RESTRUCTURE IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL (INCLUDING US ESTATE), STATE, LOCAL, FOREIGN, AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
For the purposes of this section, a US Person is:
    a US citizen or resident as determined under the Code;
    a corporation, or other entity taxable as a corporation for US federal income tax purposes, created or organised under the laws of the United States, any state or the District of Columbia;
    an estate, the income of which is subject to US federal income taxation regardless of its source; or
    a trust, if (i) a court within the United States is able to exercise primary supervision over its administration and at least one US Person is authorised to control all substantial decisions of the trust or (ii) it has validly elected to be treated as a US Person.
A Non-US Person is any person that is not a US Person.
  (a)   US tax consequences of the Share Scheme for US Participants
For the purposes hereof, a US Participant is a Share Scheme Participant that is a US Person.
For US federal income tax purposes, the Company intends to treat the Share Scheme as a non-taxable transaction. The Company intends to treat the acquisition by HeartWare International in exchange for the issue of HeartWare International Shares (or CDIs), of all of the Shares in the Shares, followed by a conversion of the Company into a proprietary company limited by shares (for which an election will be made to treat it as a disregarded entity for US federal tax purposes) as a reorganisation under Section 368(a) of the Code. If the Share Scheme was, contrary to the Company’s position, treated as a taxable transaction, US Participants generally would be subject to taxation pursuant to the tax treatment described in section 10.3(a)(iii) or (v) below with respect to the sale or other taxable disposition of Shares. However, if treated as a non-taxable transaction, the material US federal income tax consequences to a US Participant that will generally result from treatment of the Share Scheme should be as follows:
(i) Non-recognition of gain
A US Participant should not recognise a gain or loss as a result of the Share Scheme (except to the extent cash is received as a result of the US Participant being an Ineligible Overseas Shareholder) if the US Participant makes certain elections for US federal income tax purposes as set forth below in section 10.3(a)(iv). If the elections set forth in section 10.3(a)(iv) are not made by any US Participant, such US Participant would generally be subject to taxation pursuant to the tax treatment described in section 10.3(a)(v) below.

 

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(ii) Tax basis and holding period of HeartWare International Shares
The aggregate tax basis of the HeartWare International Shares or CDIs received by US Participants pursuant to the Share Scheme should be equal to the aggregate tax basis of the Shares surrendered in exchange therefor. The holding period of the HeartWare International Shares or CDIs received by each US Participant pursuant to the Share Scheme should include the period for which such US Participant held the Shares surrendered in exchange therefor.
(iii) Holding HeartWare International Shares following the Share Scheme
After implementation of the Share Scheme, a US Participant will own International Shares or CDIs in lieu of Shares in the Company. Although HeartWare International does not currently anticipate paying cash distributions on HeartWare International Shares in the foreseeable future, if distributions are made on International Shares, such distributions generally will constitute dividends for US federal income tax purposes to the extent paid from current or accumulated earnings and profits, as determined under US federal income tax principles.
For individuals, dividends generally are taxed at a maximum rate of 35%. Certain dividends paid before 2011 to non-corporate US Participants should be eligible for a reduced rate of tax. Any dividends paid on HeartWare International Shares that are not eligible for the preferential rate will be taxed as ordinary income to a non-corporate US Participant. Dividends paid on HeartWare International Shares to corporate US Participants may be eligible for the dividends received deduction. If a distribution exceeds the current and accumulated earnings and profits of HeartWare International, the excess will be treated as a tax-free return of the US Participant’s investment, up to the amount of such holder’s adjusted tax basis in HeartWare International Shares (reducing, but not below zero, such basis in the amount of such tax-free return). Any remaining excess will be treated as capital gain, subject to the tax treatment described below. For foreign tax credit purposes, the portion treated as a dividend will constitute US source income and any gain will generally be sourced to the residence of the stockholder.
Upon the sale or other taxable disposition of HeartWare International Shares, the US Participant will recognise capital gain or loss in an amount equal to the difference between the amount realised on the disposition and such US Participant’s adjusted tax basis in the HeartWare International Shares. Such gain or loss will be long-term capital gain or loss if such US Participant’s holding period in the HeartWare International Shares is more than one year (which, as described above, will include such US Participant’s holding period in the Shares exchanged therefor pursuant to the Share Scheme) if the Company’s intended treatment of the Proposed Transaction as non-taxable is respected for US federal income tax purposes and US Participants comply with the requirements set forth below in section 10.3(a)(iv). Long-term capital gain is subject to preferential rates for individuals and certain other non-corporate taxpayers. Any gain or loss will generally be treated as arising from US sources.

 

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(iv) US federal income tax elections required by US Participants in order to treat the exchange pursuant to the Share Scheme as non-taxable
IMPORTANT NOTICE TO US PARTICIPANTS
In order to avoid recognising a gain or loss on the Proposed Transaction if you are a US Participant you may have to:
    File a Section 367(b) Notice with your US federal tax return;
    File notification of the election with HeartWare International (if you hold less than 10% of the Company);
    File an election under US Treasury Regulation section 1.367(b) — 3(c)(3);
    File an election to treat the Company as a qualifying electing fund;
    File a deemed dividend election or deemed sale election.
Further details of each of these requirements are set out below.
In order to avail themselves of tax-free treatment, US Participants must make elections under the passive foreign investment company provisions of the Code and certain reporting requirements under section 367(b) of the Code. Furthermore, US Participants holding less than 10 percent of the Company’s voting shares at the time of the Proposed Transaction must also make an election under section 367(b) of the Code. These elections are discussed below in sections 10.3(a)(iv)(1) and (2).
  1.   Required notices and elections under section 367(b) of the Code
A “Section 367(b) Notice” must be filed by a US Participant seeking to treat the transaction as non-taxable for US federal income tax purposes. The Section 367(b) Notice must be filed by attaching it to a timely filed U.S. federal tax return (including extensions) for the US Person’s taxable year in which income is realised in the section 367(b) exchange.
In the case of a US Participant who holds less than 10 percent of the Company’s voting stock at the time of the Proposed Transaction, notification of such election must be sent to HeartWare International on or before the date the Section 367(b) Notice is filed.
US Participants holding less than 10 percent of the Company’s voting stock at the time of the Proposed Transaction must also make an election under US Treasury Regulation section 1.367(b)-3(c)(3) to include their pro rata share of the Company’s earnings and profits in income. Based on the Company’s representation that it has no net positive earnings and profits, this election should not result in an actual inclusion of income to a US Participant making this election.

 

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US Participants holding more than 10 percent of the Company’s voting stock will be required to include their pro rata share of the Company’s earnings and profits in income. Based on the Company’s representation that it has no net positive earnings and profits, this requirement should not result in an actual inclusion of income to such US Participants.
THE REQUIREMENTS OF SECTION 376(b) OF THE CODE ARE EXTREMELY COMPLEX. US PARTICIPANTS SHOULD CONSULT THEIR TAX ADVISERS REGARDING THE NOTICE AND ELECTION REQUIREMENTS DISCUSSED ABOVE AND DETERMINE THE AVAILABILITY OF AND PROCEDURES FOR MAKING SUCH NOTICES AND/OR ELECTIONS UNDER THE CODE AND US TREASURY REGULATIONS.
  2.   Elections under the PFIC Regime
In the Company’s 2007 audited financial statements, the Company reported the following risk factor in relation to holding Shares:
‘“We are currently classified as a passive foreign investment company, or PFIC, for US federal income tax purposes because substantially all of our revenue is currently derived from interest on our cash balances. As a result, for so long as we remain a PFIC, US holders of our ordinary shares could be subject to substantially increased US tax liability, including an interest charge upon the sale or other disposition of their ordinary shares or upon the receipt of “excess distributions” from us. These investors may be able to avoid some of their increased tax liability by electing to treat the Company as a qualified electing fund, or QEF. However, in order for US investors to be able to make such an election, we would be required, among other things, to provide certain information to them on an annual basis regarding the US shareholder’s pro rata share of capital gain and ordinary income for the year and the amount of cash and property distributed to the shareholder. Due to the time and expense required to provide such information, we do not currently intend to provide it. US investors should consult their own tax advisors concerning the US federal income tax consequences that would apply to their investment in our ordinary shares.”
PwC has not independently reviewed the Company’s status as a PFIC. Generally, US holders disposing of shares of a PFIC are taxed on any gain in the PFIC shares as ordinary income rather than as capital gains subject to preferential capital gain rates, and the tax is calculated in such a manner as to take into account “tax deferral” under the PFIC regime. In particular:
    any gain recognised on the disposition is spread over the shareholder’s holding period for such shares (i.e. if the shareholder held the shares for exactly 3 calendar years, the gain would be divided over the 3-year period evenly) to determine the annual gain amount;
    the annual gain amounts are subject to the highest US tax rate in effect for the respective year to calculate an annual tax amount; and
    each annual tax amount is subject to an interest charge that begins accruing at the time beginning on the due date for tax payments each year and ending on the due date for the taxable year in which the disposition occurs.

 

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Certain exceptions exist whereby a US holder of PFIC shares will not be subject to the tax consequences described above upon a disposition of PFIC shares. One such exception is if the US holder of PFIC shares has made an election to treat the PFIC as a qualifying electing fund (QEF) for each of the taxable years for which the US holder has held such PFIC shares.
Based upon the Company’s disclosure set forth above, no US Share Participant would have been able to make a QEF election in the past because the Company has not previously provided the information required for a shareholder to make such election. However, the Company is now willing to provide such information to Shareholders wishing to make a QEF election.
For US Participants who have held Shares since before 2008, such holders must also make either a deemed dividend election or deemed sale election under the PFIC regime to restart their holding period under section 1291 of the Code in order to avail themselves of tax-free treatment.
A deemed dividend election is generally only available to US holders of PFIC shares if the PFIC is also a controlled foreign corporation for US federal income tax purposes for the year of the election. The Company believes it has been a controlled foreign corporation for a portion of 2008 and therefore this deemed dividend election should be available to US Participants wishing to make such election. The deemed dividend election should not result in any taxable income to US Participants making such election, based on the Company’s representation that it has no net positive earnings and profits for US federal income tax purposes.
Alternatively, a US Participant may make a deemed sale election. The determination of the US federal income tax consequences of making such an election is specific to the individual’s tax basis in the Shares.
THE PFIC PROVISIONS ARE EXTREMELY COMPLEX. US PARTICIPANTS SHOULD CONSULT THEIR TAX ADVISERS REGARDING THE APPLICATION OF THE PFIC REGIME, INCLUDING THE IMPACT OF MAKING A QEF ELECTION AND/OR OTHER ELECTION UNDER THE PFIC PROVISIONS AND THE AVAILABILITY OF AND PROCEDURES FOR MAKING SUCH ELECTIONS UNDER THE CODE AND US TREASURY REGULATIONS.
(v) US tax consequences to US Participants who do not make the elections and Notice set forth in Section 10.2(a)(iv)
US Participants holding less than 10 percent of the Company’s voting stock at the time of the proposed transaction who do not make the election to include in income their pro rata share of the Company’s earnings and profits under US Treasury Regulation section 1.367(b)-3(c)(3) and/or US Participants who do not comply with the Section 367(b) Notice requirements may be treated as disposing of their Shares in a fully taxable transaction and may have taxable gain as a result. The calculation of gain is dependent upon each individual shareholder’s tax basis in the Shares.

 

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US Participants who do not make the required PFIC elections may be treated as disposing their Shares in a taxable transaction and may have taxable gain as a result. The calculation of gain is dependent upon each individual shareholder’s tax basis in the Shares. If a US participant has a gain on the PFIC shares, such gain amount is subject to the PFIC provisions and will be taxed as follows:
    any gain recognised on the disposition is spread over the shareholder’s holding period for such shares (i.e., if the shareholder held the shares for exactly 3 calendar years, the gain would be divided over the 3-year period evenly) to determine the annual gain amount;
    the annual gain amounts are subject to the highest US tax rate in effect for the respective year to calculate an annual tax amount; and
    each annual tax amount would be subject to an interest charge that begins accruing at the time beginning on the due date for tax payments each year and ending on the due date for the taxable year in which the disposition occurs.
US PARTICIPANTS SHOULD CONSULT THEIR TAX ADVISERS TO DETERMINE IF THE US PARTICIPANT IS SUBJECT TO GAIN INCLUSION UNDER EITHER SECTION 367(b) OF THE CODE OR THE PFIC REGIME AND TO DETERMINE THE AMOUNT OF SUCH GAIN.
(vi) Information reporting and backup withholding
Generally, the amount of any dividend on HeartWare International Shares paid to a US Participant, such US Participant’s name and address, and the amount of backup withholding tax withheld, if any, with respect to such distributions, will be reported annually to the IRS. A similar report is generally sent to such US Participant. These information reporting requirements apply even if backup withholding is not required.
Dividends ordinarily will not be subject to withholding of US federal income tax. However, backup withholding tax (currently 28%) will apply to dividends paid on HeartWare International Shares held by a US Participant unless such US Participant:
(1) provides to HeartWare International or the nominee holding the HeartWare International Shares on the US Participant’s behalf (typically the US Participant’s broker) a properly executed IRS Form W-9 with such US Participant’s taxpayer identification number (which for an individual is its Social Security number), and certifies that such number is correct and that the US Participant is not subject to backup withholding; or
(2) is otherwise exempt from backup withholding;
Information reporting will generally apply to the disposition of HeartWare International Shares by a US Participant. Backup withholding may also apply to a disposition of HeartWare International Shares unless proper certification is provided to the payor on IRS Form W-9 or the US Participant is otherwise exempt from backup withholding. Backup withholding is not an additional tax. Any amount withheld under the backup withholding rules is allowable as a credit against a US Participant’s US federal income tax liability, if any, and a refund may be obtained if the amount withheld exceeds the US Participant’s actual US federal income tax liability and the US Participant timely files with the IRS an appropriate claim.

 

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  (b)   US tax consequences of the Share Scheme for Non-US Participants
(i) Share Scheme
The Share Scheme will generally not have any US federal income tax consequences to a Non-US Participant. For purposes hereof, a Non-US Participant is a Share Scheme Participant that is not a US Participant.
(ii) Holding HeartWare International Shares following the Share Scheme
As a result of exchanging Shares for HeartWare International Shares, a Non-US Participant will hold HeartWare International Shares after the Share Scheme. Although HeartWare International does not currently expect to pay dividends or make other distributions with respect to its stock in the foreseeable future, if distributions are made on HeartWare International Shares, such distributions generally will constitute dividends for US federal income tax purposes to the extent paid from current or accumulated earnings and profits, as determined under US federal income tax principles.
A Non-US Participant will be subject to US withholding tax on any dividends paid with respect to such Non-US Participant’s HeartWare International Shares. Such tax is imposed at a rate of 30% of the gross amount of the dividend, or such lower rate as may be specified under an applicable income tax treaty if the recipient is eligible for benefits thereunder.
A Non-US Participant, who is an individual, eligible for the benefits of the Australia-US income tax treaty and holding less than 10% of the voting power of HeartWare International should be subject to US withholding at a reduced rate of 15%. A Non-US Participant that is a company eligible for the benefits of the Australia-US income tax treaty and that holds directly at least 10% of the voting power in HeartWare International should be subject to US withholding at a reduced rate of 5%. A Non-US Participant who wishes to claim the benefit of an applicable income tax treaty is required to provide a withholding certificate to the withholding agent (generally the broker where the shares are held) on the appropriate IRS Form W-8, but should not be required to obtain or provide a US taxpayer identification number as long as HeartWare International Shares are traded on an established financial market.

 

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Upon the sale, exchange or other taxable disposition of HeartWare International Shares, a Non-US Participant generally will not be subject to US federal income tax or withholding tax unless:
  (1)   the gain is effectively connected with a US trade or business of the Non-US Participant (or, if a treaty applies, attributable to a permanent establishment in the United States of such Non-US Participant);
  (2)   in the case of a Non-US Participant who is an individual, such Non-US Participant is present in the United States for a period or periods aggregating 183 days or more during the taxable year of the disposition, and either (a) such Non-US Participant has a “tax home” (as such term is defined in Section 911 of the Code) in the United States or (b) the disposition is attributable to an office or other fixed place of business maintained by such Non-US Participant in the United States; or
  (3)   HeartWare International is characterised as a United States real property holding corporation for United States federal income tax purposes. HeartWare International does not believe it is currently, and does not anticipate becoming, a United States real property holding corporation. However, because the determination of whether HeartWare International is a United States real property holding corporation depends on the fair market value of its United States real property interests relative to the fair market value of its other business assets, there can be no assurance that HeartWare International will not become a United States real property holding corporation in the future.
A Non-US Participant will be taxed in the same manner as a US Participant on dividends or gains on the sale or exchange of HeartWare International Shares, to the extent that such dividends or gains are effectively connected with the conduct of a US trade or business by the Non-US Participant (or, if a treaty applies, attributable to a permanent establishment in the United States of such Non-US Participant). If such Non-US Participant is a foreign corporation, it may be subject to an additional tax, the US branch profits tax, on such income at a 30% rate, or such lower rate as may be specified under an applicable income tax treaty. Even though such effectively connected dividends are subject to income tax and may be subject to the branch profits tax, they will not be subject to US federal withholding tax if the holder delivers a properly executed IRS Form W-8ECI (or successor form) to the payor or the payor’s agent.
(iii) Information reporting and backup withholding
Generally, the gross amount of the distributions on HeartWare International Shares paid to a Non-US Participant, such Non-US Participant’s name and address, and the tax withheld, if any, with respect to such distributions will be reported annually to the IRS. A similar report generally is sent to such Non-US Participant. These information reporting requirements apply even if withholding was not required.

 

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Payments of dividends made to a Non-US Participant will not be subject to backup withholding if such Non-US Participant establishes an exemption from backup withholding, for example, by properly certifying its status as a Non-US Participant on an IRS Form W-8BEN or another appropriate version of IRS Form W-8. Information reporting and backup withholding generally will apply to the proceeds of a disposition of HeartWare International Shares by a Non-US Participant effected by or through the US office of any foreign broker or any office of a US broker, unless the person certifies its status as a Non-US Participant and satisfies certain other requirements, or otherwise establishes an exemption.
Generally, information reporting and backup withholding will not apply to a payment of disposition proceeds to a Non-US Participant where the transaction is effected outside the US through a non-US office of a non-US broker and the sales proceeds are paid to such holder outside the US. However, for information reporting purposes, certain non-US brokers with specified connections with the US will be treated in a manner similar to US brokers.
Under the provisions of an applicable income tax treaty or agreement, copies of information returns may be made available to the tax authorities of the country in which the Non-US Participant resides or is incorporated. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a Non-US Participant generally can be refunded or credited against the Non-US Participant’s US federal income tax liability, if any, provided that an appropriate claim is timely filed with the IRS.
NON-US PARTICIPANTS SHOULD CONSULT THEIR TAX ADVISERS REGARDING THE APPLICATION OF THE INFORMATION REPORTING AND BACKUP WITHHOLDING RULES TO THEM AND THE AVAILABILITY AND PROCEDURE FOR OBTAINING AN EXEMPTION FROM BACKUP WITHHOLDING UNDER CURRENT US TREASURY REGULATIONS.
  (c)   US tax consequences of the Share Scheme for the Company and HeartWare International
Following the Share Scheme, HeartWare International, a US corporation, will become the parent corporation of the Company. As a US corporation, HeartWare International is subject to the general principles of US federal income taxation discussed in this section. A US corporation is taxed on its worldwide income.
Therefore, a US corporation is potentially subject to double-taxation on income earned outside the United States. Double taxation may be mitigated to the extent the US corporation qualifies for a credit for non-US income taxes paid or accrued.

 

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The earnings of foreign corporations owned by US shareholders generally are not subject to US federal income tax until such earnings are distributed to US shareholders as dividends or other gains constituting currently taxable income. This generally results in the deferral of US income tax on such earnings. However, the US imposes current tax on US shareholders of foreign corporations under complex anti-deferral regimes. Certain income of foreign corporations controlled by US shareholders is subject to this rule of current US taxation. Such income includes, for example, passive income (e.g., dividends, interest, rents and royalties) and certain investments in the US by the foreign corporation, such as loans to the US shareholder. Also, a US shareholder is denied the benefits of deferral related to certain non-US corporations a large portion of whose income or assets is passive. One or more of such anti-deferral regimes may operate to deny a US shareholder the benefit of deferral with respect to income of foreign corporations. As noted, regardless of whether deferral is available, such income may subject a US shareholder to double-taxation to the extent not offset by a foreign tax credit. A US corporation may qualify for a credit against its US tax liability for non-US income taxes paid or accrued by the US corporation or certain of its foreign subsidiaries.
However, due to a complex set of limitations, the amount of the deemed paid credit may not be sufficient to offset all of the non-US taxes paid or accrued by the US corporation. To the extent not wholly offset by this credit, the foreign earnings of a US corporation may be subject to double-taxation.
THE UNITED STATES HAS A VERY COMPLEX FEDERAL TAX REGIME GOVERNING A US PARENT CORPORATION THAT OWNS US AND FOREIGN SUBSIDIARIES AND INTERESTS IN OTHER FOREIGN CORPORATIONS. AS A RESULT OF THIS REGIME, THE GLOBAL GROUP HEADED BY HEARTWARE INTERNATIONAL MAY BE SUBJECT TO A HIGHER OVERALL TAX BURDEN AFTER THE SHARE SCHEME.
  (d)   US tax consequences of the Option Scheme and Standalone Option Cancellation in exchange for HeartWare International Standalone Options (the “Standalone Exchange”)
For the purposes of this Section 10.3(d), US Option Participant is an Option Scheme Participant or a Standalone Option Holder that is a US Person. A Non-US Option Participant is an Option Participant that is not a US Person.
  (i)   Option Scheme and Standalone Exchange
    The exchange of Options and Standalone Options for HeartWare International Options or HeartWare International Standalone Options, respectively, should not cause any US federal income tax to be paid by Non-US Option Participants.
    For US Option Participants, it is more likely than not that the exchange of Options and Standalone Options for HeartWare International Options and HeartWare International Standalone Options (as relevant) under the Option Scheme and Standalone Exchange should not cause any US federal income tax to be paid by US Option Participants.

 

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  (ii)   Tax on future dividends from HeartWare International
 
      Although HeartWare International does not currently expect to pay dividends or make other distributions with respect to its stock in the foreseeable future, holders of HeartWare International Options and HeartWare International Standalone Options will not be entitled to receive dividends from HeartWare International and, therefore, will not be subject to a resulting tax liability.
  (iii)   Holding HeartWare International Options and HeartWare International Standalone Options following the Option Scheme and the Standalone Exchange
As a result of exchanging Options for HeartWare International Options and Standalone Options for HeartWare International Standalone Options, an Option Scheme Participant and Standalone Optionholder will hold HeartWare International Options after the Option Scheme or Standalone Exchange.
A US Option Participant will be taxed on the receipt of vested shares upon the exercise of a HeartWare International Option in an amount equal to the fair market value of the HeartWare International Shares received upon exercise less the amount paid for such stock. Upon exercise, an Option Participant will receive a HeartWare International Share with a tax basis equalling its cost basis under section 1012, generally its fair market value. A Non-US Option Participant may be subject to US tax upon the exercise of a HeartWare International Stock Option. As a holder of HeartWare International Common Stock, US Persons and Non-US Persons will be subject to the tax consequences described in section 10.3(a) and 10.3(b) respectively.
Option Participants should consult with their own tax adviser as to the specific tax consequences of the Option Scheme and Stand Alone Option Exchange in light of such participant’s particular circumstances.
  (e)   US tax consequences of the Performance Rights Scheme
For the purposes of this Section 10.3(e), a US Performance Rights Holder is a Performance Rights Scheme Participant that is a US Person. A Non-US Performance Rights Holder is a Performance Rights Scheme Participant that is not a US Person.
(i) Performance Rights Scheme
The receipt of the Performance Rights Scheme Consideration by a US Performance Rights Holder more likely than not should not cause any US federal income tax to be paid by such US Performance Rights Holder, the Company or HeartWare International. This conclusion is premised on the assumption that the US Performance Rights Holder does not have a vested interest in Performance Rights at the time of the Proposed Transaction and does not receive vested HeartWare International Restricted Stock Units as a result of the Proposed Transaction. The receipt of the Performance Rights Scheme Consideration by a Non-US Performance Rights Holder should not have any US federal income tax consequences to such Performance Scheme Participant, the Company or HeartWare International.

 

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(ii) Tax on future dividends from HeartWare International
Although HeartWare International does not currently expect to pay dividends or make other distributions with respect to its stock in the foreseeable future, holders of HeartWare International Restricted Stock Units will not be entitled to receive dividends from HeartWare International and, therefore, will not be subject to a resulting tax liability.
(iii) Holding HeartWare International Restricted Stock Units following the Proposed Transaction
As a result of exchanging Performance Rights for HeartWare International Restricted Stock Units, a Performance Rights Holder will hold HeartWare International Restricted Stock Units after the Proposed Transaction. A US Performance Rights Holder will be taxed upon the vesting of a HeartWare International Restricted Stock Unit by reference to the fair market value of the HeartWare International Shares. For Non-US Performance Rights Holders, any future vesting of HeartWare International Restricted Stock Units under the HeartWare International Restricted Stock Plan may be subject to US federal income taxes. Holders of HeartWare International Restricted Stock Units should consult with their own tax adviser as to the specific tax consequences of such vesting in light of such holder’s particular circumstances. Upon vesting for US Performance Rights Holders and exercise and vesting for Non-US Performance Rights Holders, the holder of a HeartWare International Restricted Stock Unit will receive a share of HeartWare International Share. As a holder of HeartWare International Shares, US Persons and Non-US Persons will be subject to the tax consequences described in sections 10.3(a) and 10.3(b), respectively.
Performance Rights Holders should consult with their own tax adviser as to the specific tax consequences applicable to such holders in light of such holder’s particular circumstances.

 

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11   Additional Information
11.1   ASX listing of the Company and HeartWare International
Within seven days of the date of this Information Memorandum, HeartWare International will apply to ASX for admission to ASX’s official list and for quotation of the CDIs conditional upon the Share Scheme becoming Effective. The listing of HeartWare International and the quotation of the CDIs is a condition to implementation of the Share Scheme.
The fact that ASX may admit HeartWare International to its official list is not in any way an indication of the merits of HeartWare International. The ASX does not take any responsibility for the contents of this Information Memorandum.
It is expected that suspension of trading in the Company’s Shares on ASX will occur from the date on which the Company lodges the Court order approving the Share Scheme with ASIC. The Company will then apply for termination of the official quotation of its Shares on ASX after the Implementation Date.
11.2   Interests of Directors
  (a)   Directors Interests in the Company
Each of the Directors’ interests in Shares, Options and Performance Rights of the Company as at the date of this Information Memorandum, are set out in the table below.
                                 
                    Performance     Standalone  
Director   Shares     Options     Rights     Options  
Robert Thomas
    2,808,000 1     764,204             500,000  
Dr Seth Harrison
    91,588,782 2                  
Douglas Godshall
    100,305       5,581,264       1,100,000        
Bob Stockman
    500,000       200,000              
Dr Christine Bennett
    100,000                   250,000  
Dr Denis Wade, AM
    1,451,333 3                 250,000  
Timothy J. Barberich
    200,000       200,000              
     
1   Includes 2,150,000 shares held in trust.
 
2   Represents Shares held by Apple Tree Partners I, L.P., the Company’s largest shareholder. Dr. Harrison is Managing General Partner in Apple Tree Partners I, L.P. Dr. Harrison disclaims beneficial ownership of such Shares, except to the extent of his pecuniary interest therein.
 
3   Represents 1,451,333 shares held in trust.

 

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As at the date of this Information Memorandum and except as stated above , no Director holds a beneficial interest in any other Shares, Options, Performance Rights or Standalone Options of the Company.
In addition, the Directors will not receive any consideration under the Proposed Transaction, other than as Shareholders or Incentive Holders under the Schemes and on the replacement of Standalone Options as set out in section 9.12. It is proposed that all of the Directors (who will be appointed as directors of HeartWare International following implementation of the Share Scheme) will have a basis of remuneration equivalent to their existing remuneration arrangements with the Company.
  (b)   Directors’ Interests in HeartWare International
Prior to the Proposed Transaction, none of the Directors hold any interests in HeartWare International.
The following table sets out the relevant interests of each HeartWare International director in securities of HeartWare International upon implementation of the Proposed Transaction, assuming that the Directors do not exercise any of their Options prior to the Scheme Record Date.
                                 
                    HeartWare     HeartWare  
    HeartWare     HeartWare     International     International  
    International     International     Restricted     Standalone  
Director   Shares     Options     Stock Units     Options  
Robert Thomas
    80,228 1     21,834             14,285  
Seth Harrison MD
    2,616,822                    
Douglas Godshall
    2,865       159,464       31,428        
Bob Stockman
    14,285       5,714              
Dr Christine Bennett
    2,857                   7,142  
Dr Denis Wade, AM
    41,466 2                 7,142  
Timothy J. Barberich
    5,714       5,714              
 
     
1   Includes 61,428 shares held in trust.
 
2   Represents 41,466 shares held in trust.

 

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11.3   Payments or other benefits to Directors, secretaries or executive officers
Other than as set out in this Information Memorandum, no payment or other benefit is proposed to be made or given to any Director, secretary or executive officer of the Company or of its Related Bodies Corporate as compensation for loss of, or as consideration for or in connection with their retirement from, office with the Company or any Related Body Corporate or as a result of the Schemes becoming Effective.
11.4   Other payments and benefits
Except as disclosed elsewhere in this Information Memorandum, no Director or HeartWare International director has any other interest, whether as a director, member or creditor of the Company or otherwise, which is material to the Proposed Transaction.
Except as disclosed elsewhere in this Information Memorandum, during the period of four months prior to the date of this Information Memorandum, neither the Company, HeartWare International nor any of their respective directors has given, or offered or agreed to give, a benefit to another person where the benefit was likely to induce the other person to vote in favour of the Schemes, where that benefit has not been offered to all Shareholders or Incentive Holders (as the case requires).
11.5   Agreements or arrangements with Directors
No Director or HeartWare International director as at the date of this Information Memorandum, being the latest practicable date prior to the date of this Information Memorandum, has entered into an agreement or arrangement with another person in connection with or conditional on the outcome of the Schemes.
11.6   Interests in Contracts
Each non-Executive Director of the Company (other than Seth Harrison) has entered into standard appointment letters with the Company which reflect their appointment as director and set out the terms of their responsibilities as a director of the Company.
For details of the executive services agreements entered into between the Company and its executive officers please refer to Appendix 15 of this Information Memorandum.
Each of the Directors that will be appointed to the board of HeartWare International will be appointed by way of board resolution of HeartWare International and on similar terms to their current appointment with the Company,
In December 2004 , the Company issued a Convertible Note to Apple Tree Partners which was redeemed for A$1,420,000.00 on 25 July 2008. Dr. Seth Harrison, the Company’s deputy chairman and non-executive director, is Managing General Partner of Apple Tree Partners. Please refer to section 5.6 of this Information Memorandum for further details. Save as set out above, no Director or HeartWare International director as at the date of this Information Memorandum, has any interest in any contract entered into by the Company or HeartWare International.

 

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11.7   Regulatory relief
  (a)   ASIC Relief
ASIC has granted the Company and HeartWare International exemptions, modifications and consents from the following provisions of the Corporations Act:
    consent to omit from this Information Memorandum the list of Incentive Holders and other matters which would otherwise be required by paragraphs 8201(a), 8201(b), 8201(c), 8201(d), 8201(e), 8203(a) and 8203(b) of Part 2 of Schedule 8 to the Corporations Regulations to be set out in this Information Memorandum;
    an exemption pursuant to section 259C(2) of the Corporations Act in connection with the transfer of the Shares to HeartWare International pursuant to the Share Scheme;
    a declaration under subsection 741(1)(b) modifying subsection 708A(5) so that section 708A applies to an offer for sale of HeartWare International Shares in the three months following the listing of HeartWare International on ASX, but without requiring HeartWare International Shares to have been quoted on a prescribed financial market throughout the three month period prior to the date of issue of HeartWare International Shares the subject of the sale offer;
    a declaration under subsection 741(1)(b) modifying subsection 707(3) and (4) so that the modified form of those subsections as set out in Class Order 04/671 applies to HeartWare International Shares issued following the exercise of HeartWare International Options granted under the Option Scheme and HeartWare International Restricted Stock Units issued under the Performance Rights Scheme; and
    an exemption under subsection 741(1)(a) to provide relief from Chapters 6D and 7 on a similar basis to Class Order 03/184 in respect of offers of HeartWare International Options and HeartWare International Restricted Stock Units under the HeartWare International 2008 Incentive Plan in the 12 months following the listing of HeartWare International on ASX, but without requiring HeartWare International Shares to have been quoted on a relevant financial market throughout the 12 month period prior to the offer of HeartWare International Options and Restricted Stock Units.

 

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  (b)   ASX Listing Rules
ASX has granted the Company and HeartWare International the following confirmations and waivers from certain Listing Rules:
    a waiver from Listing Rule 6.23 so that shareholder approval for the purpose of that Rule is not required in respect of the cancellation of the Options and Performance Rights.
ASX has also given the Company ‘in principle’ advice that ASX is likely to provide the confirmations and waivers described below upon HeartWare International applying for admission to the official list of the ASX:
    confirmation that HeartWare International may use the Information Memorandum as an information memorandum for the purposes of its application to list on ASX and that HeartWare International is not required to make the statement in paragraph 108 of Appendix 1A of the ASX Listing Rules (which requires prospectus equivalent information to be included);
    a waiver from paragraph 42 of Appendix 1A of the ASX Listing Rules to the extent necessary to permit the Information Memorandum not to include a brief history of HeartWare International;
    a waiver from paragraphs 87, 87A, 87B and 87C of Appendix 1A of the ASX Listing Rules to the extent necessary to permit HeartWare International not to provide the financial statements referred to in those paragraphs;
    a waiver from paragraph 106 of Appendix 1A of the ASX Listing Rules to permit the Information Memorandum not to include details of HeartWare International’s existing and proposed activities and level of operations, or a statement of its main business;
    a waiver from paragraph 110 of Appendix 1A of the ASX Listing Rules to permit this Information Memorandum not to specify the date on which it was signed;
    a waiver from paragraph 116 of Appendix 1A of the ASX Listing Rules to permit HeartWare International not to include a statement in the Information Memorandum that HeartWare International will not need to raise capital in the three months after the date of issue of this Information Memorandum;
    a waiver from paragraph 117 of Appendix 1A of the ASX Listing Rules to permit HeartWare International not to include a statement in the Information Memorandum that a supplementary information memorandum will be issued if HeartWare International becomes aware of certain matters occurring between the issue of this Information Memorandum and the date HeartWare, International’s securities are quoted, on condition that any such matters are announced to the market by the Company;
    a waiver from condition 8 of Listing Rule 1.1 to the extent necessary to permit HeartWare International not to comply with Listing Rules 1.2 or 1.3 on condition that the Company satisfies Listing Rules 12.1 and 12.2 at the time of admission of HeartWare International;
    confirmation that the terms that apply to the securities of HeartWare International including HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units, are appropriate and equitable for the purposes of Listing Rule 6.1;

 

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    a waiver of Listing Rule 6.23.2 in respect of HeartWare International Options and HeartWare International Restricted Stock Units, on the basis that an alternative mechanism equivalent to that contained in those Rules will apply under the rules of an alternate regulatory regime;
    a waiver from Listing Rules 7.1 to permit HeartWare International to issue Standalone Options to Standalone Optionholders without the approval of Shareholders of HeartWare International;
    confirmation that Exception 9, paragraph (a) of Listing Rule 7.2 will apply to the HeartWare International Options and HeartWare International Restricted Stock Units to be issued by HeartWare International, on the condition that the relevant HeartWare International Options and HeartWare International Restricted Stock Units are issued pursuant to a relevant employee stock plan established before HeartWare International is listed and the relevant terms are disclosed in this Information Memorandum;
    confirmation that Listing Rule 9.1 will not apply to any HeartWare International Shares, HeartWare International Options or HeartWare International Restricted Stock Units issued to HeartWare International Shareholders and Incentive Holders under the Schemes;
    a waiver from Listing Rule 10.11 to permit HeartWare International to issue, without Shareholder approval, replacement equity securities to related parties pursuant to their participation in the Schemes on the condition that it does so on the same basis as securities that are issued to all holders in the same classes and otherwise in accordance with the relevant Schemes;
    a waiver from Listing Rule 10.14 to permit HeartWare International to issue, without Shareholder approval, replacement HeartWare International Options and HeartWare International Restricted Stock Units pursuant to an employee stock plan to its directors and their associates in consideration for the cancellation of their Options and Performance Rights;
    confirmation that HeartWare International may accept nominations for the election of directors in accordance with the timetable set out in HeartWare International’s by-laws for the purposes of Listing Rule 14.3;
    a waiver from Listing Rule 15.12 to the extent necessary to permit HeartWare International’s certificate of incorporation and by-laws not to contain the provisions required by Listing Rules 15.12.1 to 15.12.3 inclusive; and
    confirmation that HeartWare International may prepare its accounts in US GAAP and will not be required to provide a statement reconciling its accounts to Australian accounting standards or international accounting standards.

 

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11.8   Foreign Regulatory Matters
  (a)   United States
The initial issue of HeartWare International Shares, HeartWare International Options and HeartWare International Restricted Stock Units pursuant to the Schemes will qualify for a registration exemption under Section 3(a)(10) of the US Securities Act, provided that Court approval is obtained for the Schemes. Prior to the Second Court Date, the Company will advise the Court of the existence of Section 3(a)(10) of the Securities Exchange Act of 1934.
In accordance with applicable US law requirements, only one Information Memorandum is being delivered to two or more Shareholders who share an address, unless the Company receives contrary instructions from one or more of the Shareholders at that shared address. Upon receipt of an oral or written request for multiple copies of the Information Memorandum, the Company will promptly deliver such multiple copies.
To request that multiple copies of the Information Memorandum be delivered, Shareholders may write to the Company Secretary, HeartWare Limited, Level 57, MLC Centre, 19-29 Martin Place Sydney NSW 2000, Australia, or contact the Company by telephone at (02) 9258-2064. Shareholders may also contact the Company at the above address and telephone number if they have received multiple copies of the Information Memorandum and would prefer to receive instead a single copy of Company mailings in the future.
  (b)   New Zealand
Clause 6 of the Securities Act (Overseas Companies) Exemption Notice 2002 (Exemption Notice) relieves HeartWare International from the prospectus and investment statement requirements and various other requirements of the New Zealand Securities Act 1978 and the Securities Regulations 1983 in respect of HeartWare International Shares which are being offered to New Zealand resident Shareholders, as HeartWare International will at the time of the offer have complied with the requirements of clauses 6 and 7 of the Exemption Notice, being:
    the HeartWare International Shares being offered under the Share Scheme are securities for which an application for quotation on ASX will be made and HeartWare International will at the time of the offer of HeartWare International Shares to New Zealand resident Shareholders, have complied with the requirements of the ASX that are applicable at that time;
    the HeartWare International Shares are offered as consideration for the cancellation of the Shares of the Company;
    the Company’s Shares are quoted on the ASX; and
    the offer by HeartWare International of HeartWare International Shares under the Share Scheme to New Zealand resident Shareholders complies with the laws of Australia and any code, rules or other requirements relating to the offer that applies in Australia.

 

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  (c)   Other jurisdictions
Neither this Information Memorandum or the Schemes constitute, or are intended to constitute, an offer of securities in any place in which, or to any person to whom, the making of such an offer would not be lawful under the laws of the jurisdiction outside Australia and its external territories, New Zealand and the US and shall not form the basis of any contract with such persons.
Ineligible Overseas Shareholders will not receive HeartWare International Shares under the Share Scheme, but will have their entitlement sold by a nominee on ASX after HeartWare International CDIs commence trading on ASX with the proceeds of the sale remitted to them as further described in section 9 of this Information Memorandum.
11.9   Share Register
Under the Corporations Act, any Shareholder has a right to inspect and to ask for a copy of the Share Register which contains details of the name and address of each Shareholder and other details regarding the terms of the Shares.
A copy of the Share Register will be made available to a Shareholder who requests a copy on payment of the prescribed fee under the Corporations Act.
11.10   Option Register
Under the Corporations Act, any Optionholder has a right to inspect and to ask for a copy of the Option Register which contains details of the name and address of each Optionholder and other details regarding the terms of the Options.
A copy of the Option Register will be made available to an Optionholder who requests a copy on payment of the prescribed fee under the Corporations Act.
11.11   Performance Rights Register
Under the Corporations Act, any Performance Rights Holder has a right to inspect and to ask for a copy of the Performance Rights Register which contains details of the name and address of each Performance Rights Holder and other details regarding the terms of the Performance Rights.
A copy of the Performance Rights Register will be made available to a Performance Rights Holder who requests a copy on payment of the prescribed fee under the Corporations Act.
11.12   Other Material Information
Other than as contained in this Information Memorandum, there is no information material to the making of a decision in relation to the Schemes or the Resolution (being information that is within the knowledge of any Director of the Company or a related company, acting in that capacity) that has not previously been disclosed to Shareholders or Incentive Holders (as appropriate).

 

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11.13   Material changes in the financial position of the Company
A summary statement of financial position of the Company is set out in section 7 of this Information Memorandum for the financial year ended 31 December 2007 and for the financial quarter ended 31 March 2008.
The latest published financial statements of the Company are the unaudited financial statements for the half year ended 30 June 2008 that were released to ASX and filed with the SEC on [   ] 2008.
To the best of the knowledge and belief of the Directors, except as disclosed in this Information Memorandum, there has been no material change to the financial position of the Company since 18 April 2008, except as disclosed in announcements to ASX. Copies of these announcements are available to any Shareholder or Incentive Holder on ASX’s website (ww.asx.com.au) or free of charge by contacting:
Company Secretary
HeartWare Limited
Level 57, MLC Centre,
19-29 Martin Place
Sydney NSW 2000, Australia
Fax: +61 2 9238 2063
Email: enquiries@heartware.com.au
11.14   Effect on creditors
The intentions of HeartWare International in respect of its business following completion of the Proposed Transaction and the Schemes becoming Effective is set out in section 6.4 of this Information Memorandum.
To the best of the Directors’ knowledge, the Proposed Transaction will not materially affect the interests of creditors of the Company and no material liability will be incurred by the Company under or by reason of the Proposed Transaction other than the costs associated with implementing the Proposed Transaction.
11.15   Disclosure of fees and benefits received by certain persons
The persons named in this Information Memorandum as performing a function in a professional, advisory or other capacity in connection with the preparation and distribution of this Information Memorandum are:
    BDO Kendalls as the Independent Expert;
    DLA Phillips Fox as the Australian legal adviser to the Company and HeartWare International;
    DLA Piper US LLP as the US legal adviser to the Company and HeartWare International.
    Grant Thornton NSW as the Australian auditor to the Company;

 

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    Grant Thornton Corporate Finance Pty Limited as investigating accountant to the Company;
    PwC Australia as the Australian tax adviser to the Company and HeartWare International;
    PwC LLP as the US tax adviser to the Company and HeartWare International; and
    Computershare as the share registry of the Company and HeartWare International.
Each of them will be entitled to receive professional fees charged in accordance with their normal basis of charging.
In addition, the independent non-executive Directors of the Company receive director’s fees on commercial market terms during their tenure as a Director of the Company.
11.16   Consents
  (a)   Consent to be named
The following parties have given and have not, before the time of registration of this Information Memorandum by ASIC, withdrawn their written consent to be named in this Information Memorandum in the form and context in which they appear:
    BDO Kendalls as the Independent Expert;
    DLA Phillips Fox as the Australian legal adviser to the Company and HeartWare International;
    DLA Piper US LLP as the US legal adviser to the Company and HeartWare International.
    Grant Thornton NSW as the Australian auditor to the Company;
    Grant Thornton Corporate Finance Pty Limited as investigating accountant to the Company;
    Grant Thornton LLP as the US auditor to the Company and HeartWare International;
    PwC Australia as the Australian tax adviser to the Company and HeartWare International;
    PwC LLP as the US tax adviser to the Company and HeartWare International; and
    Computershare as the Australian share and option registry of the Company and HeartWare International.

 

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  (b)   Consent to the inclusion of information
The following parties have given and have not, before the date of this Information Memorandum by ASIC, withdrawn their written consent to the inclusion of the following information in this Information Memorandum in the form and context in which it is included and to all references in this Information Memorandum to that information in the form and context in which they appear:
    BDO Kendalls in respect of the Independent Expert’s Report in Appendix ;
    Grant Thornton Corporate Finance Pty Limited in respect of the financial information included in section 7;
    PwC Australia in respect of the information in section 10.1 and 10.2; and
    PwC LLP in respect of the information in Section 10.3.
11.17   Deadline for Submitting Shareholder Proposal
Shareholders may give notice to the Company of a resolution that they propose to move at a general meeting provided that such Shareholders hold at least 5% of the votes that may be cast on the resolution or at least 100 Shareholders who are entitled to vote at a general meeting propose the resolution.
The notice must be in writing, set out the wording of the proposed resolution and be signed by the Shareholders proposing to move the resolution. In accordance with the Corporations Act, if the Company receives notice of a resolution from Shareholders (in accordance with the procedure set out above), the resolution will be considered at the next general meeting that occurs more than two months after the notice is given.
11.18   Disclaimers
Each person referred to in section 11.16 above:
    does not make, or purport to make, any statement in this Information Memorandum other than those statements made in the capacity and to the extent the person has provided its consent as referred to in section 11.16 above; and
    to the maximum extent permitted under law, expressly disclaim and takes no responsibility for any part of this Information Memorandum other than as described in section 11.6 with the person’s consent.
11.19   Lodgement of this Information Memorandum
This Information Memorandum was given to ASIC on [          ] 2008 pursuant to section 411(2)(b) of the Corporations Act.

 

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11.20   Consent to lodgement
  (a)   The Directors of the Company
Each Director of the Company has given, and not withdrawn, his or her consent to the lodgement of this Information Memorandum as an information memorandum for listing with ASX and an explanatory statement in relation to the Schemes with ASIC.
BY ORDER OF THE BOARD OF HEARTWARE LIMITED
Robert Thomas
Chairman
  (b)   The Directors of HeartWare International
Each director of HeartWare International has given, and not withdraw, his or her consent to the lodgement of this Information Memorandum as an information memorandum for listing with ASX and an explanatory statement in relation to the Schemes with ASIC.
BY ORDER OF THE BOARD OF HeartWare International
Robert Thomas
Chairman

 

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12   Glossary
 
12.1   Definitions
 
    A$ means Australian currency.
 
    Affiliate has the meaning given in the Exchange Act being a person controlled, controlling or under common control with HeartWare International and is likely to include:
    the directors of HeartWare International and the Company;
    the executive officers of HeartWare International and potentially the Company; and
    significant shareholders of HeartWare International (i.e. those shareholders holding at least 10% of the issued shares of HeartWare International).
    AIFRS means the Australian equivalent to International Financial Reporting Standards applying in Australia.
    Apple Tree Partners means Apple Tree Partners I, LP.
    ASIC means the Australian Securities and Investments Commission.
    ASIC relief means the modifications or exemptions set out in section 11.8(a) of this Information Memorandum.
    Associate means that term as defined in section 12 of the Corporations Act.
    ASTC means the Australian Settlement and Transfer Corporation Pty Limited.
    ASTC Settlement Rules means the Settlement Rules of ASTC.
    ASX means ASX Limited (ACN 008 624 691) or the securities market it operates as the context requires.
    ASX Waivers means the waivers to the Listing Rules described in section 11.8(b) of this Information Memorandum.
    BDO Kendalls means BDO Kendalls Corporate Finance (QLD) Limited.
    Board means the board of directors of the Company.
    Business Day means a day that is not a Saturday, Sunday or a public holiday or bank holiday in Sydney, Australia or New York, United States.
    CDI means a CHESS Depository Interest over HeartWare International Shares.
    CE Mark means the mandatory conformity mark placed on products offered on the single market in the European Economic Area.

 

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    CEO means Chief Executive Officer.
    Chairman means the Chairman of the Board.
    CHESS means the Clearing House Electronic Sub-Register System of Share transfers operated by the ASX Settlement and Transfer Corporation.
    CHESS Depositary Interest has the meaning given to that term in the ASTC Settlement Rules.
    CHF means Congestive Heart Failure.
    Company means HeartWare Limited ABN 34 11 970257.
    Convertible Note means the convertible note issued by the Company to Apple Tree Partners.
    Corporations Act means the Corporations Act 2001 (Cth).
    Corporations Regulations means the Corporations Regulations 2001 (Cth).
    Court means the Federal Court of Australia or any other court of competent jurisdiction under the Corporations Act agreed in writing by the Company and HeartWare International.
    Deed Poll means the Deed Poll dated [   ] 2008 executed by HeartWare International in favour of Shareholders, Optionholders and Performance Rights Holders covenanting to provide the Scheme Consideration as set out in Appendices 6,7 and 8.
    Depositary has the meaning given to it in the ASTC Settlement Rules.
    Directors means the directors of the Company as at the date of this Information Memorandum.
    Effective means, when used in relation to a Scheme, the coming into effect, under section 411(10) of the Corporations Act, of the Court order made under section 411(4)(b) of the Corporations Act in relation to that Scheme.
    Effective Date means the date on which the Schemes (or such of them as are approved by Shareholders, Optionholders or Performance Rights Holders (as applicable) and the Court) become Effective.
    EGM means the Extraordinary General Meeting of the Company to be held on [ ] 2008 for the purpose of considering the Resolution.
    Employee Share Option Plan means the HeartWare Limited Employee Share Option Plan.
    EU means the European Union.
    Exchange Act means the US Securities Exchange Act of 1934, as amended.

 

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    First Court Date means the date the Court hears the application to order the convening of the Scheme Meetings under section 411(1) of the Corporations Act.
    First Court Hearing means the hearing at which the Court ordered the convening of the Scheme Meetings pursuant to section 411 of the Corporations Act.
    FDA means the Food and Drug Administration Board (US).
    Grant Thornton means Grant Thornton Corporate Finance Pty Ltd.
    HeartWare Group means the Company and HeartWare International and any of their Subsidiaries.
    HeartWare Inc means HeartWare, Inc, a corporation incorporated under the laws of the state of Delaware, United States of America.
    HeartWare International means HeartWare International, Inc, a corporation incorporated under the laws of the state of Delaware, United States.
    HeartWare International Directors means the directors of HeartWare International as at the date of this Information Memorandum.
    HeartWare International Employee Stock Option Plan means the HeartWare International Employee Stock Option Plan, which is set out in Appendix 9.
    HeartWare International 2008 Stock Incentive Plan means the HeartWare International 2008 Stock Incentive Plan which is set out in Appendix 11.
    HeartWare International Option means options to subscribe for HeartWare International Shares under the HeartWare International Employee Stock Option Plan.
    HeartWare International Restricted Stock Unit Plan means the HeartWare International Restricted Stock Unit Plan which is set out in Appendix 10.
    HeartWare International Restricted Stock Units means restricted stock units to be issued by HeartWare International under the HeartWare International Restricted Stock Unit Plan.
    HeartWare International Shares means the common stock in HeartWare International to be issued by HeartWare International in connection with the Share Scheme (which Shareholders can elect to receive in the form of common stock or CDIs).
    HeartWare International Standalone Option means an option granted by HeartWare International to the Standalone Optionholders outside the HeartWare International Employee Stock Option Plan.
    HeartWare LVAD System means the Company’s LVAD system, as described in Section 5.
    IDE means an Investigational Device Exemption granted by the FDA.

 

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    Implementation Agreement means the Implementation Agreement dated 5 August 2008 between the Company and HeartWare International in relation to the Schemes as set out in Appendix 1.
    Implementation Date means the third Business Day following the Scheme Record Date.
    Implementation Orders means the orders pursuant to section 411(4)(b) of the Corporations Act in relation to the Schemes.
    Incentive Holders means Optionholders and Performance Rights Holders.
    Independent Expert means the independent expert appointed by the Company to consider whether the Schemes are in the best interests of Shareholders, Optionholders and Performance Rights Holders, being BDO Kendalls.
    Independent Expert’s Report means the report prepared by the Independent Expert stating whether the Schemes are in the best interests of Shareholders, Optionholders and Performance Rights Holders set out in Appendix 2.
    Ineligible Overseas Shareholders means a Scheme Shareholder who is registered in the Share Register with an address outside Australia and its external territories, New Zealand and the United States or such other country agreed to by the Company and HeartWare International.
    Information Memorandum means this booklet, providing information to assist Shareholders, Optionholders and Performance Rights Holders in deciding how to vote on the EGM, Share Scheme, Option Scheme and Performance Rights Scheme and comprising an information memorandum for the purposes of the listing of HeartWare International on ASX.
    IV VAD means the third generation blood pump which the Company has commenced design work on in parallel with the development of the MVAD.
    Listing means the admission of HeartWare International to the official list of ASX and for the quotation of CDIs.
    Listing Rules means the official listing rules of ASX as amended from time to time.
    LVAD means Left Ventricular Assist Device.
    LVAS means Left Ventricular Assist System.
    Marketable Securities has the meaning given to that term in the Corporations Act.
    Medical Advisory Board means the group of pre-eminent cardiac surgeons and cardiologists that has been appointed by the Company to guide its clinical and product development strategies.
    Meetings means the Scheme Meetings and the EGM.
    MVAD means Miniaturised Ventricular Assist Device.

 

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    NASDAQ means the NASDAQ Global Market.
    Nominee means the nominee selected by HeartWare International to sell CDIs on behalf of Ineligible Overseas Shareholders for the purposes of clause 3.8 of the Implementation Agreement.
    Notices of Meeting means the Notice of Share Scheme Meeting, Notice of Option Scheme Meeting, Notice of Performance Rights Scheme Meeting and Notice of EGM set out at Appendices 15 to 18 of this Information Memorandum.
    NYHA means the New York Heart Association.
    Option Scheme means the proposed scheme of arrangement between the Company and its Optionholders, substantially in the form set out in Appendix 4, under Part 5.1 of the Corporations Act subject to any alterations or conditions made or required by the Court and approved in writing by the Company and HeartWare International.
    Option Scheme Consideration means consideration to be provided by HeartWare International for the cancellation of each Option under the Option Scheme as set out in clause 4 of the Option Scheme.
    Option Scheme Deed Poll means the deed poll to be executed by HeartWare International substantially in the form of Appendix 7, under which HeartWare International covenants in favour of Scheme Optionholders to perform its obligations under the Implementation Agreement and the Option Scheme, with such amendments as are approved by the Court or as the Company and HeartWare International may otherwise agree.
    Option Scheme Meeting means the meeting of Optionholders ordered by the Court to be convened pursuant to section 411(1) of the Corporations Act to consider the Option Scheme.
    Option Register means the register of Optionholders maintained in accordance with the Corporations Act.
    Optionholder means a person registered in the Company’s Option Register as a holder of Options.
    Options means options entitling holders to subscribe for Shares issued under the Employee Share Option Plan.
    Performance Rights means rights to acquire Shares issued under the Company’s Performance Rights Plan.
    Performance Rights Holder means a person registered in the Company’s Performance Rights Register as the holder of Performance Rights.
    Performance Rights Plan means the HeartWare Limited Performance Rights Plan.
    Performance Rights Scheme means the scheme of arrangement, between the Company and its Performance Rights Holders, substantially in the form set out in Appendix 5, under Part 5.1 of the Corporations Act subject to any alterations or conditions made or required by the Court and approved in writing by the Company and HeartWare International.

 

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    Performance Rights Scheme Consideration means the consideration to be provided to Performance Rights Holders under the Performance Rights Scheme as set out in clause 4 of the Performance Rights Scheme.
    Performance Rights Scheme Deed Poll means the deed poll to be executed by HeartWare International substantially in the form of Appendix 8, under which HeartWare International covenants in favour of Scheme Performance Rights Holders to perform its obligations under the Implementation Agreement and the Performance Rights Scheme, with such amendments as are approved by the Court or as the Company and HeartWare International may otherwise agree.
    Performance Rights Scheme Meeting means the meeting of Performance Rights Holders ordered by the Court to be convened pursuant to section 411(1) of the Corporations Act to consider the Performance Rights Scheme.
    Performance Rights Register means the Company’s register of Performance Rights Holders.
    Proposed Transaction means the re-domiciling of the HeartWare Group which is to be effected on the Implementation Date, under which:
    HeartWare International will acquire all of the Shares under the Share Scheme;
    the Company will cancel all of the Options under the Option Scheme;
    the Company will cancel all of the Performance Rights under the Performance Rights Scheme;
    the Company will cancel all of the Standalone Options; and
    the existing securityholders of the Company will receive HeartWare International Shares, HeartWare International Options, HeartWare International Restricted Stock Units and HeartWare International Standalone Options (as relevant),
    as described in this Information Memorandum.
    PwC means PricewaterhouseCoopers Australia and PricewaterhouseCoopers LLP.
    PwC Australia means PricewaterhouseCoopers Australia.
    PwC LLP means PricewaterhouseCoopers LLP.
    Registers means the Share Register, Option Register and Performance Rights Register.
    Related Bodies Corporate has the meaning given to that term in the Corporations Act.

 

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    Resolution means the resolution to be considered at the EGM as set out in the Notice of EGM at Appendix 19.
    Restricted Stock Unit Holder means a person registered in HeartWare International’s Restricted Stock Units Holder Register as a holder of Restricted Stock Units.
    Restricted Stock Unit Holder Register means the register of Restricted Stock Unit Holders maintained by HeartWare International.
    Restricted Stock Unit Plan means the HeartWare International Restricted Stock Unit Plan to be adopted by the Board of HeartWare International prior to implementation of the Schemes.
    Restricted Stock Units means units of restricted stock in the capital of HeartWare International to be issued under the HeartWare International Restricted Stock Unit Plan pursuant to the Performance Rights Scheme.
    Scheme Consideration means the consideration provided under the Schemes.
    Scheme Meetings means the Share Scheme Meeting, the Option Scheme Meeting and the Performance Rights Scheme Meeting.
    Scheme Optionholder means an Optionholder as at the Scheme Record Date.
    Scheme Participant means the Scheme Shareholders, Scheme Optionholders and Scheme Performance Rights Holders.
    Scheme Performance Rights Holder means a Performance Rights Holder as at the Scheme Record Date.
    Scheme Record Date means 7.00pm on the fifth Business Day after the Effective Date as defined in the Implementation Agreement or any other date agreed with ASX to be the record date for the Schemes to determine entitlements to receive consideration pursuant to the Schemes.
    Schemes means the Share Scheme, the Option Scheme and the Performance Rights Scheme.
    Scheme Shareholder means a Shareholder as at the Scheme Record Date.
    Second Court Date means the first day on which an application to the Court for orders under section 411(4)(b) of the Corporations Act approving the Schemes is heard.
    Second Court Hearing means the hearing at which the Court is asked to approve the Schemes pursuant to section 411(4)(b) of the Corporations Act.
    Securities and Exchange Commission (SEC) means the body established by the US government that has the function of overseeing US securities laws.

 

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    Shareholder means each person who is registered in the Share Register as a holder of Shares.
    Shares means fully paid ordinary shares in the Company.
    Share Scheme means the scheme of arrangement, between the Company and its Shareholders, substantially in the form set out in Appendix 3, under Part 5.1 of the Corporations Act subject to any alterations or conditions made or required by the Court and approved in writing by the Company and HeartWare International.
    Share Scheme Consideration means the consideration provided to Shareholders under the Share Scheme as set out in clause 4 of the Share Scheme.
    Share Scheme Deed Poll means the deed poll to be executed by HeartWare International substantially in the form of Appendix 6, under which HeartWare International covenants in favour of Scheme Shareholders to perform its obligations under the Implementation Agreement and the Share Scheme, with such amendments as are approved by the Court or as the Company and HeartWare International may otherwise agree.
    Share Scheme Meeting means the Shareholders’ meeting ordered by the Court to be convened under section 411(1) of the Corporations Act to consider the Share Scheme.
    Scheme Shareholders means each person who is a Shareholder as at the Scheme Record Date.
    Share Register means the register of Shareholders maintained in accordance with the Corporations Act.
    Standalone Options means the options granted by the Company to the Standalone Optionholders outside the HeartWare Limited Employee Share Plan.
    Standalone Optionholders means Dr Christine Bennett, Dr Denis Wade, Robert Thomas, Dr Bud Frazier, Dr Steven Boyce and Inteq Limited.
    Stock Incentive Plan means the HeartWare International 2008 Stock Incentive Plan.
    Subsidiary has the meaning given to that term in section 46 of the Corporations Act.
    TET means transcutaneous energy transfer.
    US$ means US dollars.
    US or United States means the United States of America.
    US GAAP means the generally accepted accounting principles applying in the US.
    US Tax Code means the US Internal Revenue Code of 1986, as amended.

 

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Appendix 1
Implementation Agreement

 

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Implementation Agreement
HeartWare Limited
HeartWare International, Inc

 

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Parties
HeartWare Limited ABN 34 111 970 257 of Level 57, MLC Centre, 19-29 Martin Place, Sydney, NSW 2000 (Company)
HeartWare International, Inc a company incorporated in Delaware, USA, of 14000 — 14050 NW 57th Court, Miami Lakes, FL USA 33014 (HeartWare International)
Background
A   The parties have agreed that the Company will seek to implement a reorganisation pursuant to which:
  (a)   HeartWare International would acquire all of the issued Shares of the Company in exchange for HeartWare International Shares or CDIs by means of a scheme of arrangement under Part 5.1 of the Corporations Act (Share Scheme);
  (b)   the existing Options would be cancelled in exchange for HeartWare International Options in HeartWare International by means of a scheme of arrangement under Part 5.1 of the Corporations Act (Option Scheme); and
  (c)   the existing Performance Rights would be cancelled in exchange for Restricted Stock Units in HeartWare International by means of a scheme of arrangement under Part 5.1 of the Corporations Act (Performance Rights Scheme)
B   The parties will implement the Schemes in good faith on the terms and conditions of this Agreement.
 
C   In conjunction with the Schemes, the parties will seek to replace the existing Standalone Options with new options in HeartWare International.
 
D   Following implementation of the Schemes, HeartWare International will:
  (a)   buy back the HeartWare International Shares issued to the Company on incorporation of HeartWare International for the nominal consideration of $1.00; and
  (b)   convert the Company from a public company to a proprietary company limited by shares.

 

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Operative provisions
13   Implementation of the Proposed Transaction
13.1   The Company will propose and the parties will seek to implement the Proposed Transaction in accordance with this Agreement.
14   Conditions
Conditions precedent to implementation of the Share Scheme
14.1   The transfer of the Scheme Shares and HeartWare International’s obligations under clause 15.3 are subject to each of the following conditions being satisfied or waived in accordance with this clause 14:
  14.1.1   (No prohibitive orders) Prior to 8.00am on the Second Court Hearing Date no judicial authority or entity and no Government Agency taking and not withdrawing any action, or imposing any legal restraint or prohibition, to prevent the implementation of the Proposed Transaction (or any transaction contemplated by the Proposed Transaction).