The Corrs Guide to Term Sheets - s3.amazonaws.com 25, 2013 · 10107649/1 page 1 The Corrs Guide to Term Sheets or Term Sheets for fun and profit This Guide is a designed as a basic

10107649/1

© Corrs Chambers Westgarth

The Corrs Guide to Term Sheets

Last revised 17 December 2013

10107649/1 page 1

The Corrs Guide to Term Sheets

or

Term Sheets for fun and profit

This Guide is a designed as a basic ‘how to’ manual to help our clients prepare Term

Sheets for a wide variety of transactions. We have built a basic model, a clause bank of

supplemental provisions and some model documents to help you put together a

workable document. In constructing these models we have tried to reduce the amount

of formal language and have worded them in plain, conversational English.

The aim of this Guide is to provide an outline of how a simple Term Sheet can be

structured and the terms and terminology typically used. We have not tried to cover all

forms of documents, especially not the special forms used in banking.

This Guide consists of two worked examples of Term Sheets including notes about the

key terms and what they are designed to achieve. Following these two examples is a

model Term Sheet then a ‘bank’ of terms most often found in Term Sheets.

By showing you how the various terms might be set out in a Term Sheet we hope to

better help you prepare a Term Sheet by understanding the legal and commercial

implications of the terms being used.

We hope you find this product useful and we would welcome any feedback.

Best wishes

Andrew Lumsden

Corrs Chambers Westgarth

17 December 2013

To the maximum extent permitted by law, we will not be liable to any person or entity for any direct, indirect, consequential or other

loss or damage (however caused, including due to negligence) which may arise out of, or in connection with, the use of this Guide or

the use or reliance on information contained on or linked to from this Guide. Further, we do not endorse or accept any liability for the

contents of any website referred to on, or linked to from this Guide or indeed for pretty much anything to do with this Guide.

Especially we take no responsibility for the frequent and gratuitous references to The Hitchhiker's Guide to the Galaxy or any

character from it.

10107649/1 page 2

What is a Term Sheet?

A Term Sheet (and its equivalents such as a Heads of Agreement, Memorandum of

Understanding or Letters of Intent whatever they are called) is a short, relatively informal

document. The importance to a successful deal of a well constructed Term Sheet

cannot be overemphasised. It might seem odd, but we have feared that, a pre-

contractual document even though it has limited legal effect can be as important as the

definitive documents in successfully concluding a range of transactions.

A Term Sheet should not be a substitute for the long form document. You should view it

as a first step, a basis for taking the deal forward which is used to outline the core

commercial terms and focus the parties minds on what is agreed and what needs to be

done.

In most cases, Term Sheets are non-binding. However, even if a Term Sheet is not

binding it is important to get the contents right. The subsequent long form agreement

will reflect the provisions in the Term Sheet and after committing to something (even if

only morally and not legally) it is difficult to justify going back on your word.

Term Sheets may also provide that, while most of the provisions are non-binding, some

of the clauses are intended to be binding. This allows you to walk away if the

subsequent negotiations fail, while providing comfort in certain areas. The clauses that

are intended to bind are usually: confidentiality, obligations to negotiate in good faith,

exclusivity and sometimes cost reimbursement provisions.

A Term Sheet has the potential, if used properly, to be a strategic tool that can help you

shape the pace and structure of the negotiation. It also can help lay a foundation for

obtaining agreement on key terms in the long form agreement. With careful planning

and preparation, you can use a Term Sheet as a significant part of a successful

negotiation strategy.

Why you should bother with a Term Sheet?

Opportunity to reach agreement on the most important issues.

Identify deal breakers early in the negotiations before significant costs are

incurred.

Get commitment before proceeding to the next step.

Establish ground rules: eg for exclusivity, due diligence and the negotiations.

Why not?

Not needed: eg if you only want to deal with confidentiality and exclusivity

maybe a nondisclosure agreement will do?

Will it limit your flexibility?

If you do not understand the key terms in the deal, then you probably are not

ready to sign a Term Sheet.

Will negotiating the Term Sheet distract you from finalising the transaction?

10107649/1 page 3

Are there any adverse tax or stamp duty implications?

Tax issues

Irrespective of whether the Term Sheet purports to be legally binding, you should

consider the tax or stamp duty implications of entering into a Term Sheet. In some

cases, tax liability may be assessed on the basis of the transaction evidence in the Term

Sheet, even if the ultimate transaction is structured on a different basis. The date of the

Term Sheet may also be taken as the date of the transaction for tax or stamp duty

purposes.

Hot tips

Think about the role the Term Sheet will play in negotiations: is it a framework

document for future discussions, an act of trust or a line in the sand? Think

about the terms that are to be included in the Term Sheet as well as those

terms which are not, what is not said can be as important as what is.

Keep it brief and focus on the key commercial issues: avoid negotiating the

definitive agreement twice. Preparing a good Term Sheet needs to be project

managed; too long and everyone suffers ‘deal fatigue’ and the goodwill

between the parties can be consumed. Many deals fall over at this stage

despite most of the hard work having been done. Too short and it serves no

useful function.

Consider costs and time: the time taken and costs involved to agree the Term

Sheet should not be disproportionate to the benefit.

Make it clear: it may be non-binding, but most people do not like to go back on

their word. When that word is clear, there is little room to argue that something

else was intended.

Where possible, include all deal-breakers to tease out consensus on key

commercial terms.

Term Sheets set the parameters for future negotiations: assess all potential

terms and their potential impact on those future negotiations.

Be in a position where you do not need to change key terms after you sign the

Term Sheet.

Be clear which clauses are intended to be binding.

Include a timetable and specifically, a time to sign a definitive agreement.

What terms may be included in a Term Sheet?

Every deal is different and every Term Sheet needs to be crafted to deal with the key

business terms in each deal. Financial components are almost always critical. The

material below is by no means an exhaustive list. The point is to make sure you figure

out what terms really matter in the deal, think those terms through thoroughly and

10107649/1 page 4

express those terms in as much detail as necessary to make sure only one

interpretation is possible.

We have seen plenty of examples where too much detail can creep into a Term Sheet

because each side fears the other will later try to treat any point not raised as implicitly

agreed. In that situation it can be better to leave the discussion until you are ready to

negotiate long form documents and not to ‘blow-up’ the deal because people start to get

fatigued by early stage detail. Better to leave the Term Sheet in broad terms so that the

goodwill between the parties isn’t exhausted. Many deals fall over at this stage despite

most of the hard work having been done. One solution may be a statement that the

Term Sheet is not intended to exhaustively address every issue. This leaves the door

open for the parties to raise subsidiary points at a later stage. It can also be helpful

particularly where one party does not feel it has all the information necessary to agree in

principle to specify the material assumptions on which a particular issue has been

agreed.

The attached templates can be a useful starting point. But there also needs to be a

departure from a standardised one-model-fits-all framework to fit the needs and

constraints of each specific deal.

Parties

The names and ABNs/ACNs for all parties that are involved in the transaction. It is

probably not necessary to clutter the document with lengthy descriptions typically found

in long form documents.

Proposed transaction

The Term Sheet should clearly describe the nature of the transaction, for example

whether the transaction is a share purchase, asset purchase (and if so which liabilities

are to be acquired), a subscription/shareholders agreement. The transaction definition

will be especially important in clauses like confidentiality and exclusivity.

Price

This is the total amount of consideration to be paid to the seller. Consider if there

should be a statement that the stated price may change, depending upon information

uncovered during the due diligence process. You should also think about any

tolerances to change in the stated price. For example a material adverse change of 5%

discovered as part of the due diligence may not impact on the purchase price. You may

also want to identify key assumptions which are the basis for the price.

Exclusivity

A Term Sheet may also include a term preventing the seller from negotiating with

another potential buyer during the negotiation period. This restriction gives the buyer

time to complete due diligence and negotiate the agreement without having to worry that

a competing purchaser will steal the deal away from it. From a seller’s point of view,

while an exclusivity clause can be a necessary evil, the exclusivity period should be as

short as possible, so that it can start discussions with another purchaser quickly if

negotiations with the proposed purchaser stall. Think about if it should include other

parties eg shareholders, lenders etc.

10107649/1 page 5

Confidentiality

If a confidentiality agreement has not already been entered into, a Term Sheet usually

will include provisions dealing with the disclosure, use and return of confidential

information. Access to this information (especially client details) should also be covered.

You should also think about any laws which may impact on the sharing of information.

For example under the Privacy Act firms cannot share personal information about

employees. It may also be that certain information of a firm cannot be shared with a

competitor as this may raise competition law issues. Thinking about how to manage the

process of information sharing within these constraints can be useful at this stage. For

example, will the establishment of ‘clean teams’ allow for the sharing of information?

We recommend a practical approach to negotiating confidentiality provisions. There is

little point spending considerable time and goodwill negotiating the content of

confidentiality obligations particularly when they are standard form in any event and the

usefulness of a confidentiality provision in the context of enforcement is questionable.

On the whole confidentiality provisions should be considered more as a means of

focusing the parties’ minds to the sensitive nature of the information rather than as a

reliable remedy. The upshot, if the information you have is equivalent for your business

to the recipe for Coca Cola – don’t share it, put it in a vault.

Binding or non-binding?

In a Term Sheet, it is common to say that some, but not all terms are intended to be

binding. For example, if the parties have agreed to an exclusive negotiating period, that

term will be confirmed as binding on the parties, even though other terms (such as the

proposed commercial terms) are not binding. Accordingly, an ‘agreement status’ clause

is included specifying what aspects of the Term Sheet are intended to be binding.

For a Term Sheet to be binding it must be clear that the parties intend for the document

to be binding and the key terms of the transaction must be clearly set out. It will be rare

that a Term Sheet will be sufficiently definitive to be able to be a binding agreement to

effect the transaction. However, if the Term Sheet contains a clear desire to be bound

and a high degree of detail across almost all aspects of the transaction, then courts

have forced parties to proceed to consummate the deal.

Timetable

It is always useful to include a timetable to negotiate and conclude the transaction,

conduct any necessary diligence etc. It can also indicate which party will prepare the

first draft and the expectations for the time periods for review and comment on drafts. It

can include a timetable for signing a definitive agreement, including an outline of the

approval process.

Obligation of good faith

Do not include a good faith obligation unless you are prepared to:

negotiate honestly and sincerely: this may require you to put forward your

genuine negotiation position and not engage in any unfair tactics (eg

prolonging negotiations to achieve an ulterior purpose, or making exaggerated

10107649/1 page 6

or false claims);

negotiate rationally in your commercial self interest: but not engage in any

vindictive or capricious behaviour;

cooperate with the other parties: this may require disclosure of relevant

information; and

make proposals and counterproposals: this includes giving serious

consideration to the proposals received.

In Australia, there is also no one definition of good faith. But it is probably fair to say that

'good faith' embraces three obligations:

to act honestly and with loyalty to the bargain;

not to act dishonestly and not to act to undermine the bargain entered or the

substance of the Term Sheet; and

to act reasonably and with fair dealing having regard to the interests of the

parties (which will, inevitably, at times conflict) and to the provisions, aims and

objectively, purposes of the Term Sheet.

In the context of the language in a Term Sheet the provision usually requires that the

parties negotiate the terms of the final documents within the ‘objective expectations of

reasonable parties in their positions at the time’ (Peden 2003) when the Term Sheet was

negotiated. That means having regard to the interests of the other party, without

excluding their own interests but not acting arbitrarily or capriciously; or with an intention

to cause harm; and acting with due respect for the intent of arrangement as a matter of

substance not form. The obligation carries with it an honest and genuine commitment to

the bargain and to the process of the negotiation for resolving the final form of the long

form agreements (United Rail Services [2009] and Macquarie International Health Clinic

Pty Ltd [2010]). Indeed, in certain situations, a duty for parties to cooperate may require

a party to disclose information to the other including any information which may differ

from what they expected.

If a good faith obligation is included in your Term Sheet be sure to include a standard

against which the good faith negotiations may be judged objectively. For example

consider setting out a process to be followed and include timeframes for the reaching of

agreement.

Warranties

Usually a Term Sheet will not include all the warranties that will be included in a

definitive agreement. It may be desirable for the seller to set out in the Term Sheet key

warranties, especially those that are specific to the particular transaction to give the

seller a sense of the scope of the warranties that will be required.

http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1267&context=blr

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2009/177.html?stem=0&synonyms=0&query=%22United%20Group%20Rail%20Services%22

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2010/268.html?stem=0&synonyms=0&query=%22Macquarie%20International%20Health%20Clinic%22

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2010/268.html?stem=0&synonyms=0&query=%22Macquarie%20International%20Health%20Clinic%22

10107649/1 page 7

Conditions precedent

Conditions precedent are the requirements that must be satisfied before the transaction

will be completed. They are not usually designed to affect the obligations under the

Term Sheet. Examples of conditions precedent are: satisfactory due diligence,

regulatory approvals.

Due diligence

Due diligence will usually be designed to allow access to the investor to confirm the

investment decision. Some organisations complete business diligence before they offer

a Term Sheet (see generally: Due diligence is a fact of life for fund managers but how

many use it to drive value?) Other organisations use Term Sheets before they complete

business diligence because they want to lock out the competition while they evaluate the

opportunity. Sometimes due diligence will be staged to allow a preliminary review and a

final more thorough review latter in the process. It's worth noting that although the term

due diligence originated in securities law, diligence in private equity, mergers and

acquisitions, initial public offerings and other investment transactions comes in all

shapes and sizes: business, technical, financial, customer, accounting, security,

regulatory, legal etc.

To focus the parties about the nature of any due diligence to be undertaken it can be

helpful to attach a due diligence list to any Term Sheet which sets out the areas of focus

and the key issues.

The model attached at schedule 1 of Example 1 is designed as a basic suggestion of

those items a product purchaser would find of interest.

Announcements

Either party may feel that it would be damaging to announce the Term Sheet to the

general public or news media, so this clause states that doing so must have the prior

approval of both parties. It is also useful to clarify if any party feels the Term Sheet

might give rise to any ASX or other regulatory disclosure issues.

No shop provision

The seller agrees not to shop the price given in the Term Sheet to other prospective

bidders in an effort to find a higher price. For public companies there are a range of

considerations that need to be considered all of which are quite well summed up in the

Takeovers Panel Guidance Note 7: Lock-up devices. This clause should be clearly

described in the Term Sheet as binding.

Working capital adjustment

This provision provides that any changes in the price that will be triggered if, say, the

seller’s working capital varies from a certain predetermined amount as of the balance

date.

Drag along

This protects all shareholders from, say, one small, stubborn shareholder refusing to sell

their shares in an acquisition offer and blocking a deal everyone else wants to see

happen.

https://www.corrs.com.au/thinking/insights/due-diligence-is-a-fact-of-life-for-fund-managers-but-how-many-use-it-to-drive-value/

https://www.corrs.com.au/thinking/insights/due-diligence-is-a-fact-of-life-for-fund-managers-but-how-many-use-it-to-drive-value/

http://www.takeovers.gov.au/content/DisplayDoc.aspx?doc=guidance_notes/current/007.htm

10107649/1 page 8

Anti-dilution

This doesn’t mean shareholders have to put more money in, but if they want to and are

able to, they have that right to maintain their ownership in any future funding round.

Best endeavours

The phrase ‘best’, ‘reasonable’ and ‘all reasonable’ endeavours in Term Sheets are very

usual. A best endeavours clause prescribes a standard of endeavour which is

measured by what is reasonable in the circumstances, having regard to the nature,

capacity, qualification and responsibilities of the person on who the duty falls viewed in

the light of the particular contract.

The interpretation of ‘reasonable endeavours’ clauses in Australia has been strikingly

similar to the interpretation given to ‘best endeavour’ clauses. Based on Waters Lane

[2007] it seems fair to say that that there is no relevant difference between the standard

constituted by the expression ‘all reasonable endeavours’ and that constituted by the

expression ‘best endeavours’. The key issue is to draft the overall terms to provide

some context for the parties about what is expected.

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2007/200.html?stem=0&synonyms=0&query=title(Waters%20Lane

10107649/1

Example 1

Draft No 1

25 December 2013

Term Sheet

Project Forty Two

Arthur Arthur Dent Limited, ACN 123 456 789

Ford Ford Prefect

http://en.wikipedia.org/wiki/File:HHGG_UKLP_covers.jpg

10107649/1

Proposed transaction 1 Arthur and Ford have been negotiating for some months regarding the possibility of Arthur acquiring the towel business

(Business) operated by Ford (Transaction).

2 Arthur wishes to undertake due diligence to confirm several matters related to the Business being the information

categorised as stage 1 of the due diligence process in the list set out in schedule 1 of this document (Stage 1 Due

Diligence).

3 On completion of the Stage 1 Due Diligence Arthur intends to enter into an agreement to acquire all of the shares in

Slartibartfast Pty Limited ACN 424 242 123 (Slartibartfast or the Company) from Ford.

Purchase price 4 $19,790,000

Adjustments to purchase price

5 We will adjust the purchase price to account for changes to the Company’s balance sheet between 28 November 2013

(Effective Date) and the Completion Date. The purchase price is based on the assumptions that:

(a) as at the Effective Date there was no deficiency in net assets (excluding deferred tax assets and deferred tax

liabilities) of the Company;

(b) the working capital will be not less than $420,000; and

(c) no dividends are paid after the Effective Date.1

6 If any of these assumptions are incorrect, then an adjustment is to be made to the purchase price.

7 The exact mechanics of the adjustment mechanism are not intended to be exhaustively addressed by this clause. We don’t have sufficient information to agree the final terms. The language in paragraphs 5 to 7 is designed to do no more than set out the material assumptions for the determination of the purchase price adjustment.

Exclusivity 8 From 25 December 2013 to 29 January 2014 (Exclusivity Period), Ford must deal exclusively with Arthur in relation to

the Transaction or any investment, sale, or acquisition or any other transaction analogous to the Transaction and must not

directly or indirectly solicit, or participate in, any discussions or negotiations with any third party in relation to a possible

investment, sale, or acquisition or any other transaction analogous to the Transaction by, or involving that third party or

anyone they may represent.

Withdrawal right 9 Ford may terminate its obligations to proceed with the Transaction if any person acquires a relevant interest in 50% of the

Arthur shares and the offer is or has become unconditional.

Matching right 10 This proposal is transformational for Arthur and if there is a Superior Proposal2 then Arthur may terminate its obligations to

proceed with the Transaction.

1 25 December 2013

2 Superior Proposal means any bona fide, unsolicited, written proposal made after the date of this document and not obtained in violation of this Term Sheet by a person who is an arm’s

length third party that relates to the acquisition of 50% or more of Arthur shares (other than shares owned by the person making the Superior Proposal) or all, or substantially all, of the assets

of Arthur and its subsidiaries and:

10107649/1

11 Arthur must notify Ford of any potentially Superior Proposal as soon as it becomes aware of such an offer including all the

material terms of the offer.

12 Ford may within two business days following receipt of a notice from Arthur of a potentially Superior Proposal amend the

terms of the Transaction including increasing the purchase price or proposing any other form of transaction.

13 If Ford does make such a counter proposal, then Arthur must review the proposal in good faith.

14 If a majority of the Arthur directors determine that the counter proposal would be as favourable to Arthur shareholders as

the Superior Proposal then we will, as soon as practicable, enter into the necessary documentation to give effect to the

revised offer from Ford.

Conditions precedent – for

final documents

15 Stage 2 Due Diligence: the Stage 2 Due Diligence Information3 being provided by Ford within one week of signing and

not disclosing any matter that is materially adverse to the prospects of the Business that was not disclosed in the Stage 1

Due Diligence;

16 No material adverse change: since 30 June 2013 there has not been any material adverse change in the business,

operations, properties, prospects, assets or condition of the Company and no event has occurred or circumstances exist

that may result in such material adverse effect;

17 Shareholder approval: Arthur shareholder approval.

Shareholder’s intentions 18 Ford requires the unanimous support of the Arthur board and key shareholders for the Transaction.

19 Key shareholders of Arthur (Trillian and Marvin) to publicly state their intention to vote in favour of the Arthur proposal (in

the absence of a Superior Proposal) either directly or via a release from Arthur.

Confidentiality and public

disclosure

20 This document and any related documents are confidential and must not be divulged to any third party except where

required by law or by the rules of any competent regulatory body.

21 No public announcement is to be made without each of us consenting in writing to its release.

(i) that the Arthur board has determined in good faith is reasonably capable of being completed without undue delay, taking into account all financial, legal, regulatory and other

aspects of such proposal and the person making such proposal;

(ii) that is not subject to a due diligence condition;

(iii) which is fully financed; and

(iv) in respect of which the Arthur board determines, in its good faith judgment, after receiving the advice of its outside legal advisors, that:

(a) failure to recommend such a proposal to the Arthur shareholders would be inconsistent with its fiduciary duties under applicable law; and

(b) having regard for all of its terms and the person making the proposal, such proposal would, if consummated in accordance with its terms (but not assuming away any risk of

non-completion), result in a transaction more favourable to the Arthur shareholders from a financial point of view than the Transaction, after taking into account any change to

the Transaction proposed by Ford in accordance with its right to match any such proposal. 3 Stage 2 Due Diligence Information is all the information categorised as stage 2 of the due diligence process in the list set out in schedule 1 of this document.

10107649/1

Formal documentation 22 Arthur will instruct Corrs Chambers Westgarth to prepare the definitive agreements to reflect the terms set out in this

document on usual and reasonable commercial terms.

Timetable Stage Date

Data room to be made available to Arthur including provision of financial models 25 December 2013

Final negotiations on key terms of Sale Agreement 31 December 2013r

Final draft of material to go to Arthur shareholders 31 December 2013

Final Arthur and Ford Board meetings 2 January 2014

Dispatch material to Arthur shareholders 3 January 2014

Meeting of Arthur shareholders 6 February 2014

Completion of the sale of shares in Ford 8 February 2014

Costs 23 We will each pay our own costs in relation to the negotiation and preparation of the definitive agreements referred to in

this document.

Legal status – non-binding 24 The provisions of this document, other than the sections titled:

(a) ‘Exclusivity’;

(b) ‘Confidentiality and public disclosure’;

(c) ‘Legal status’;

(d) ‘Break fee’; and

(e) ‘Governing law and jurisdiction’,

are not intended to be binding on us. Nothing in this document obliges us to proceed with the proposed transaction until

definitive agreements have been executed by each of us.

25 The structure contemplated by this document may be appropriately revised by us to achieve the optimal commercial

outcome for each of us, provided that this does not adversely affect the other rights under this document.

26 Each of us must use our best endeavours to:

(a) implement this document effectively, efficiently and as soon as practicable;

(b) negotiate reasonably on all embellishments or amendments which need to be embodied into any definitive

agreements; and

(c) replace this document by the necessary definitive agreements as expeditiously as possible.

10107649/1

27 Each of us must negotiate reasonably in relation to the finalisation of the terms of any necessary documentation.

28 The matters contemplated by this document are confidential, non-binding, indicative and incomplete.

29 Each of us and our legal advisers do not consider the provision of this document and its subject matter to be disclosable

to the Australian Securities Exchange.

Fiduciary duties exception: 30 Despite any restrictions contained in this document Arthur may withdraw from this Transaction if proceeding with the

Transaction would in Arthur directors’ reasonable opinion be likely to constitute a breach of directors’ fiduciary or statutory

obligations, having received written advice from external legal advisers to that effect.

Break fee 31 A break fee of $420,000 is payable to Ford if after the execution of this document:

(a) A Superior Proposal is recommended by the board of Arthur;

(b) Control of Arthur changes (ie if a person obtains voting power of >50% ownership or control over more than 50% of

the issued Arthur shares); and

(c) Arthur changes its board recommendation (ie, there is no longer a unanimous or majority board recommendation for

the Transaction) other than where it is required to do so to meet its fiduciary obligations and duties as would be

required in assessing a Superior Proposal.

Governing law and

jurisdiction

32 New South Wales

Dated 25 December 2013

Signed on behalf of Arthur

…………………………………………

Signed on behalf of Ford

…………………………………………

10107649/1

Schedule 1 - Due diligence list

1. Financial information Due Diligence Stage

Comments

1.1 Copies of detailed profit and loss statements for:

(a) FY13YTD on a monthly basis, including last year comparisons; and

(b) FY11 and FY12 Detail by department should show at least sales, gross profit, labour and preferably should result in a contribution by department.

1

1.2 Please detail any expenses included in the profit and loss statements that may be specific to the vendor that won’t be incurred by the purchaser.

1

1.3 Please detail the break-up of any wage costs not shown against a specific department. 1

1.4 Please provide a copy of a fixed assets listing showing the current written down value of each item. 1

1.5 Details of the corporate structure including entities in the seller group that may have an interest in the Properties.

1

2. Employee information Due Diligence Stage

Comments

2.1 Please provide a list of all employees, showing:

(a) location employed;

(b) name of employee;

(c) status of employee (eg permanent, casual, part-time, etc);

(d) position;

(e) rate of pay;

(f) length of service; and

(g) current annual leave and long service leave entitlements.

1 2 1 1 1 1 1

2.2 Please indicate the basis upon which employees are employed (agreement/award). 1

2.3 Where there are employee agreements in place please provide copies of such agreements. 1

2.4 Please provide a workcover claims history summary, including a summary of any incidents pending resolution.

1

3. Property information Due Diligence Stage

Comments

3.1 Please indicate the size of the land. 1

3.2 Please provide scale site plans for each location. 1

3.3 Please provide scale plans for the buildings. 1

3.4 Please provide copies of any valid leases. 1

3.5 Please provide details regarding the following:

(a) when the lease commenced;

(b) the term of the lease;

(c) details of any options;

(d) details of any arrangements that might alter the terms of the lease;

(e) when the lease terminates;

(f) details of current rent paid;

1

10107649/1

(g) copies of any correspondence with the landlord in relation to disputes or rent reviews;

(h) occupancy certificates/certificates of classification;

(i) zoning certificates;

(j) details of any outgoings paid;

(k) the current annual rent period; and

(l) the name of the landlord.

3.6 Details of any correspondence relating to the leases from any regulatory authority including matters related to zoning and approvals to operate.

1

Business operations information Due Diligence Stage

Comments

3.7 Description and documentation for significant operating and management systems, including stock-control, financial, employee communication etc.

1

3.8 Copies of operating manuals, instructions, ‘mission statements’ etc which establish ground rules for staff and business relationships.

1

3.9 Descriptions of all sole-source and other major supplier relationships (including licensors, transport, marketing etc), together with related information/documentation.

2

3.10 End-customer-related information of any useful kind, including demographic and quantitative research results.

2

3.11 If available, market information relating to competitors’ operations, including strategy and margins. 2

3.12 Details of any formal or informal marketing, sales and distribution strategy, including: (a) discussion of positioning and products; (b) marketing opportunities/risk; (c) description of marketing programs and examples of recent marketing/product/public relations/media information.

2

3.13 Copies/samples of internal (ie staff) and external (ie marketing) communications materials and related policies.

2

3.14 Any other relevant operating information, such as community service involvement. 1

4. Financial performance and projections (in respect of entity to be sold) Due Diligence Stage

Comments

4.1 Accounts for the previous three years (final form, audited or otherwise reported upon, if available) and/or management accounts (monthly) and related reconciliations.

1

4.2 ‘Normalised’ profit and loss statements for the previous three years, with accurate reconciliation to the year-end management accounts.

1

4.3 All unaudited interim financial statements of the company prepared since the date of the most recent audited financial statements.

1

4.4 Management financial reports to the directors, or any committee of directors, of the Company prepared during the past five years.

1

4.5 Any auditors (internal and external) letters and reports to management for the past five years (and management’s responses thereto).

2

4.6 Letters to auditors from outside counsel. 2

4.7 Name of accountants and length of relationship with accountants; indicate whether the accountants own any interest in or hold any position with the Company or its subsidiaries.

1

4.8 Correspondence with the Company’s accountants prepared or received during the past five years, including all management letters from accountants.

2

4.9 Brief description of depreciation policy. 1

4.10 Current business plan and any related financial projections, clearly marked as to whether they have been adopted by management or are draft/speculation.

1

10107649/1

4.11 Copies of profit and loss projections to 2013, including details of assumptions underlying the projections. 1

4.12 Details of all projected and committed expenditure in regard to each of the properties. 1

5. Financial status information (in respect of entity to be sold) Due Diligence Stage

Comments

5.1 Balance sheets for the previous three years and projections. 1

5.2 Asset register and other information to allow a check for accuracy/completeness. 1

5.3 Copies of professional and/or Director’s valuations of any included assets. 1

5.4 Schedule of bank and other debt facilities available to the business (including payment schedules etc.), together with information on guarantees, cross-guarantees etc.

2

5.5 Details/copies of all bank guarantees, cash deposits or other security given by the Company. 2

5.6 Inventory valuation, including turnover rates and statistics, gross profit percentages and obsolescence analysis including inventory of each product.

1

5.7 Full insurance details, including insurance brokers’ advice etc if available. 1

5.8 Copy of accounting policies; brief description of any change in accounting policies or procedures during the past five years.

1

6. Human resources information not covered by Section 2 (in respect of entity to be sold) Due Diligence Stage

Comments

6.1 Staff schedules showing number, seniority and length of service of employees. Please identify casual employees and provide information on regularity of work and length of service.

1

6.2 Employee handbook (or similar) describing business approach and employee expectations/rights/benefits/etc.

1

6.3 Job description manuals/sheets etc. 1

6.4 Information about bonus/profit participation schèmes. 1

6.5 Award idea schemes and participation levels. 1

6.6 Long service and holiday entitlements, both days and monetary liability. 1

6.7 Employee performance evaluation procedures/manuals and examples. 1

6.8 Superannuation arrangements, including choices, staff participation and fund performance. 1

6.9 Information about levels of sick-leave, absenteeism. 1

6.10 Information on injuries and workers compensation etc. 1

6.11 Details of any employee disputes, legal or otherwise and financial implications estimates. 1

6.12 Details of unions represented and membership numbers. 1

7. Legal information (in respect of entity to be sold) Due Diligence Stage

Comments

7.1 Description (ideally in the form of a lawyer’s letter etc) of all outstanding, pending or threatened legal action. 1

7.2 Confirmation of whether there are any facts or circumstances likely to give rise to any litigation, prosecutions, arbitrations, disputes or claims.

1

7.3 Copies of all material contracts (eg property management agreements, licenses, permits, supply agreements, employee agreements, etc).

1

7.4 Contracts relating to material business relationships, including: (a) any current service, operation or maintenance contracts; (b) any current contracts with customers; (c) any current contracts for the purchase of fixed assets; and (d) any distributor or agency contracts.

1

7.5 Management, service or support agreements, or any power of attorney with respect to any material assets or operations.

1

7.6 Copies of all supply agreements and a description of any supply arrangements. 2

7.7 Copies of all contracts relating to marketing and advertising. 2

10107649/1

7.8 Copies of all agreements related to the development or acquisition of technology. 1

7.9 Copies of all agreements outside the ordinary course of business. 2

7.10 Copies of all warranties offered with respect to products or services. 1

7.11 Describe any circumstance where the Company has been or may be accused of violating any law or failing to possess any material license, permit or other authorization. List all citations and notices from governmental or regulatory authorities.

1

7.12 Schedule of the latest dates of inspection of the relevant leasehold facilities by each regulatory authority that has inspected such facilities.

1

7.13 Copies of any information requests from, correspondence with, reports of or to, filings with or other material information with respect to any regulatory bodies which regulate a material portion of the leaseholds’ business. Limit response to the last five years unless an older document has a continuing impact.

1

7.14 Any correspondence with or complaints from third parties relating to marketing, sales or promotion practices. 1

7.15 List of significant vendor and service providers (if any) who, for whatever reason, expressly decline to do business.

1

7.16 Samples of all forms, including purchase orders, invoices, supply agreements, etc. 1

7.17 Copies of all insurance and indemnity policies (including for products, business risk, casualty and workers compensation). A description of any self-insurance or premium plan or policy, together with its costs for the last give years. A summary of all material claims for the last five years as well as aggregate claims experience data and studies.

1

8. Reports (in respect of entity to be sold) Due Diligence Stage

Comments

8.1 Copies of any studies, appraisals, reports, analyses or memoranda within the last three years relating to the Company (ie competition, products, pricing, technological developments, software developments, etc).

1

8.2 Copies of any analyst or other market reports concerning the Company known to have been issued within the last three years.

1

8.3 Copies of any studies prepared by the Company regarding the Company’s insurance currently in effect and self-insurance program (if any), together with information on the claim and loss experience.

1

9. Environmental matters (in respect of entity to be sold) Due Diligence Stage

Comments

9.1 Reports or environmental audits or site assessments, including any Phase I or Phase II assessments or asbestos surveys, relating to any such facilities or properties.

1

9.2 Copies of any inspection reports prepared by any governmental agency or insurance carrier in connection with environmental or workplace safety and health regulations relating to any such facilities.

1

9.3 Copies of all environmental and workplace safety and health notices of violations, complaints, consent decrees, and other documents indicating noncompliance with environmental or workplace safety and health laws or regulations, received from local, state, or federal governmental authorities. If available, include documentation indicating how such situations were resolved.

1

9.4 Copies of any private party complaints, claims, lawsuits or other documents relating to potential environmental liability to private parties.

1

9.5 Copies of any written analyses conducted relating to future environmental activities (ie equipment upgrades, improvement in waste disposal practices, etc) for which expenditure of funds greater than $10,000 is either certain or reasonably anticipated within the next five years and an estimate of the costs associated with such activities.

1

9.6 Description of the workplace safety and health programs currently in place. 1

10107649/1

10. Tax matters (in respect of entity to be sold) Due Diligence Stage

Comments

10.1 Copies of returns for the three prior closed tax years and all open tax years (including all federal and state consolidated returns).

1

10.2 Audit and revenue agent’s reports; audit adjustments proposed by the ATO for any audited tax year or by any other taxing authority; or protests filed.

1

10.3 Settlement documents and correspondence for the last six years. 1

10.4 Agreements waiving statue of limitations or extending time. 1

10.5 Description of accrued federal, state and local withholding taxes. 1

10107649/1

Example 2

Draft No 1

25 December 2013

Term Sheet

Project Deep Thought

Arthur Arthur Dent Limited, ACN 123 456 789

Ford Ford Prefect Limited ACN 901 112 134

http://en.wikipedia.org/wiki/File:HHGG_UKLP_covers.jpg

10107649/1

Proposed transaction 1 Arthur and Ford have been negotiating for some months regarding the possibility of Arthur investing in

Magrathea Pty Limited ABN 424 242 424 (Magrathea or the Company).

2 Arthur proposes to invest $42,000 in the Company on the terms set out in this document (Transaction).

Subscription details

Shareholder name Subscription price No. of shares4 Percentage to be held

Arthur $42,000 21 50%

Ford N/A 21 50%

Totals $42,000 42 100%

her name

Anti-dilution 3 We each have the right but not the obligation to invest in future financing to avoid being diluted.

Pre-emption rights 4 If any of us wants to sell their shares to someone else, then we each have the option to buy those shares on the

same terms or to sell our own shares, again on the same terms.

Drag along 5 If a shareholder owning 50% or more of the shares in the Company want to sell their shares (typically to accept

an acquisition offer) then, as long as the board and a majority of the investors approve it, all other shareholders

must also sell their shares.

Warranties 6 Ford and the Company must warrant the usual matters including:

(a) share capital; (e) financial statements;

(b) assets; (f) liabilities; and

(c) material contracts; (g) employees.

(d) litigation;

4 Fully paid ordinary shares in the Company issued at $1.00 per share.

10107649/1

Consent rights 7 Both of us must consent on any matter related to:

(a) changes to share capital; (e) mergers and acquisitions;

(b) sale or purchase of major assets; (f) liquidation; and

(c) incurring material debts; (g) appointing key members of the

management team.

(d) materially changing the Company’s

business plan;

Directors 8 We are each entitled to appoint a director. Ford will appoint the chair.

Exclusivity 9 From 25 December 2013 to 29 January 2014 (Exclusivity Period), Ford must deal exclusively with Arthur in

relation to the Transaction or any investment, sale, or acquisition or any other transaction analogous to the

Transaction and will not directly or indirectly solicit, or participate in, any discussions or negotiations with any

third party in relation to a possible investment, sale, or acquisition or any other transaction analogous to the

Transaction by, or involving that third party or anyone they may represent.

Conditions precedent –

for final documents

10 Execution of a Shareholders Agreement.

11 Satisfactory final due diligence by Arthur of current trading and forecasts.

12 Ford signing a satisfactory employment agreement with Magrathea.

Exit 13 We will endeavour to achieve an appropriate listing or trade sale of the Company within five years. If such an

exit is not achieved then we will explore how we could each withdraw our investment.

Confidentiality and

public disclosure

14 This document and any related documents are confidential and must not be divulged to any third party except

where required by law or by the rules of any competent regulatory body.


10107649/1

Timetable Stage Date for delivery

of first draft

Responsibility for

drafting

Date for signing

Execute Term Sheet 25 December 2013

Subscription Agreement 13 January 2014 Corrs 3 February 2013

Shareholders Agreement 15 January 2014 Corrs 3 February 2013

Constitution 20 January 2014 Corrs 3 February 2013

Employment Agreement 26 January 2014 Douglas, Noel &

Adams

3 February 2013

Costs 16 We will pay our own costs in relation to the negotiation and preparation of the definitive agreements referred to

in this document.

Legal status - binding 17 This document is intended to be binding in accordance with its terms, despite the fact we may have not reached

final agreement as to the specific form of the definitive agreements.

18 The structure contemplated by this document may be appropriately revised by us to achieve the optimal

commercial outcome for each of us, provided that this does not adversely affect the other rights under this

document.

19 If there is any dispute as to the terms of the definitive agreements between us then we will jointly refer the

matter to a senior commercial barrister to definitively settle the terms of such a document based on what are

usual and reasonable commercial terms. Counsel’s decision is to be final and binding.



(b) negotiate reasonably on all embellishments or amendments which need to be embodied into any

definitive agreements; and


21 Each of us must negotiate reasonably in relation to the finalisation of the terms of any necessary

10107649/1

documentation.

Formal documentation 22 Arthur will instruct Corrs Chambers Westgarth to prepare the definitive agreements to reflect the terms set out

in this document on usual and reasonable commercial terms.

Governing law and

jurisdiction

23 Victoria.

Dated 25 December 2013

Signed on behalf of Arthur

…………………………………………

Signed on behalf of Ford

…………………………………………

Page 1

10107649/1

Project [insert project name]

Term Sheet

Draft No 1

[Date]

Term Sheet

[Insert project name]

[Insert party description] [insert full name, ACN/ABN]



Page 2

10107649/1


Term Sheet

Proposed transaction 1 [Insert description of the proposed transaction]

2

3

4 (Transaction)

Purchase price 5 [Specify the purchase price]

Adjustments to purchase

price

6 [Specify any purchase price adjustment procedure]

Exclusivity 7 From *** to *** (Exclusivity Period), *** must deal exclusively with *** in relation to the Transaction or any investment,

sale, or acquisition or any other transaction analogous to the Transaction and will not directly or indirectly solicit, or

participate in, any discussions or negotiations with any third party in relation to a possible investment, sale, or acquisition

or any other transaction analogous to the Transaction by, or involving that third party or anyone they may represent.


final documents

8 [Set out any conditions precedent for the proposed transaction]


disclosure




Formal documentation 11 [Specify who will be providing instructions] will instruct [Corrs Chambers Westgarth] to prepare the definitive agreements

to reflect the terms set out in this document on usual and reasonable commercial terms.

Timetable 12 [Set out a timetable of key stages and dates for the proposed transaction, for example exchange, satisfaction of

conditions precedent, completion]

Costs 13 We will pay our own costs in relation to the negotiation and preparation of the definitive agreements referred to in this

document. [Specify who will pay any stamp duty payable in relation to the proposed transaction]

Legal status – non-binding 14 The provisions of this document, other than the sections titled:


(b) ‘Confidentiality and public disclosure’;

(c) ‘Legal status’; and

(d) ‘Governing law and jurisdiction’,


Page 3

10107649/1


Term Sheet




Check with your Tax adviser before including the above paragraph to ensure that it does not give rise to any tax avoidance

concerns.




agreements; and




19 Each of us and our legal advisers do not consider the provision of this document and its subject matter to be disclosable

to the Australian Securities Exchange.

Governing law and

jurisdiction

20 New South Wales.

Dated 20

Signed on behalf of [insert name]

…………………………………………


…………………………………………


……..……………………………….…

Page 1

10107649/1


Term Sheet

Draft No 1

[Date]

Term Sheet - sample clauses

[Insert project name]

Seller Sample description if transaction is purchase of a business

[insert full name, ACN/ABN]

Buyer Sample description if transaction is purchase of a business


Guarantor Sample description if transaction is purchase of a business


Investor Sample description if transaction is subscription for shares

[insert full name, ACN/ABN of the first investor]

Page 2

10107649/1


Term Sheet

Investor Sample description if transaction is subscription for shares

[insert full name, ACN/ABN of the second investor]

[Insert details of any other parties (eg other investors or managers) in new rows]

Company Sample description if transaction is subscription for shares in a new company

[insert full name, ACN/ABN of the newly incorporated company]

Page 3

10107649/1


Term Sheet

Proposed transaction Sample if transaction is purchase of a business

1 The Seller is the owner of the [describe the Business Assets] (Business Assets) and carries on the [describe the

Business] (Business).

2 It is proposed that the Seller sell and the Buyer purchase the Business as a going concern and the Business Assets on

the terms set out in this document [subject to the execution of definitive agreements by each of us].

Proposed transaction Sample if transaction is subscription for shares

3 The Company [has entered/proposes to enter] into a sale and purchase agreement (Sale and Purchase Agreement)

under which it [will/has agreed to] purchase all of the [assets/shares] of [name of target company] (Target).

4 It is proposed that each of us as investors will subscribe for shares in the Company under a subscription and

shareholders’ deed (SSD).

5 The subscription proceeds [together with the proceeds of loans made by the financiers under the Finance Documents

(defined below)] will be used to fund the purchase by the Company of all of the [assets/shares] of the Target on the terms

of the Share and Purchase Agreement.

6 This document sets out the key terms on which each of us agree to subscribe for shares in the Company under the SSD

and the terms and conditions of our investment in the Company.

Purchase price Sample if transaction is purchase of a business

7 [Specify the purchase price or set out a formula for determining it]

Adjustments to purchase

price Sample if transaction is purchase of a business

8 We will adjust the purchase price to account for changes to the Company’s balance sheet between *** and *** (Effective

Date) and the Completion Date. The purchase price is based on the assumptions that:

(a) as at the Effective Date there was no deficiency in net assets (excluding deferred tax assets and deferred tax

liabilities) of the Company;

(b) the working capital will be not less than $***; and

(c) no dividends are paid after the Effective Date.

9 If any of these assumptions are incorrect, then an adjustment is to be made to the purchase price.

10 The exact mechanics of the adjustment mechanism are not intended to be exhaustively addressed by this clause. We

don’t have sufficient information to agree the final terms. The language in paragraphs 5 to 10 is designed to do no more

than set out the material assumptions for the determination of the purchase price adjustment.

Subscription details [Shareholder name] [Subscription price] [No. of shares] [Percentage to be held]

Sample if transaction is subscription for shares

[name] $[price] [number] [percentage]%

Page 4

10107649/1


Term Sheet

[name] $[price] [number] [percentage]%

Totals $[total price] [total number] 100%

Anti-dilution Sample if transaction is subscription for shares

11 We each have the right but not the obligation to invest in future financing to avoid being diluted.

Pre-emption rights Sample if transaction is subscription for shares

12 If any of us wants to sell their shares to someone else, then we each have the option to buy those shares on the same

terms or to sell our own shares, again on the same terms.

Drag along Sample if transaction is subscription for shares

13 If a shareholder owning 50% or more of the shares in the Company wants to sell their shares (typically to accept an

acquisition offer) then, as long as the board and a majority of the investors approve it, all other shareholders must also sell

their shares.

Warranties Sample if transaction is subscription for shares

14 *** and the Company must warrant the usual matters including:

(a) share capital; (e) financial statements;

(b) assets; (f) liabilities; and

(c) material contracts; (g) employees.

(d) litigation;

Consent rights Sample if transaction is subscription for shares

15 Both of us must consent on any matter related to:

(a) changes to share capital; (e) mergers and acquisitions;

(b) sale or purchase of major assets; (f) liquidation; and

(c) incurring material debts; (g) appointing key members of the

management team.

(d) materially changing the Company’s

business plan;

Directors Sample if transaction is subscription for shares

16 We are each entitled to appoint a director. *** will appoint the chair.

Exclusivity 17 From *** to *** (Exclusivity Period), *** must deal exclusively with *** in relation to the Transaction or any investment,

Page 5

10107649/1


Term Sheet

Sample if transaction is purchase of a business or subscription for shares

sale, or acquisition or any other transaction analogous to the Transaction and must not directly or indirectly solicit, or

participate in, any discussions or negotiations with any third party in relation to a possible investment, sale, or acquisition

or any other transaction analogous to the Transaction by, or involving that third party or anyone they may represent.

Exclusivity Longer form


18 During the Exclusivity Period, *** will deal exclusively with *** in relation to the Transaction or any investment, sale, or

acquisition or any other transaction analogous to the Transaction and must not directly or indirectly solicit, or participate in,

any discussions or negotiations with any third party in relation to a possible investment, sale, or acquisition or any other

transaction analogous to the Transaction by, or involving that third party or anyone they may represent.

19 During the Exclusivity Period, the Company must:

(a) (No-shop): ensure that neither it nor any of its representatives take any action with a view to obtaining any

expression of interest or proposal from any person in relation to any of the Properties;

(b) (No-due diligence or Information): not permit due diligence investigations on any of the Properties, or make

available to any other person any Information relating to the Properties, other than in the ordinary course of the

Company’s operating business;

(c) (No-talk): ensure that neither it nor any of its representatives negotiates or enters into any negotiations or

discussions with any person regarding a Competing Transaction involving any of the Properties even if the

Competing Transaction was not directly or indirectly solicited or encouraged by the Company; and

(d) (Cease discussions): cease all and any discussions ongoing with any party in relation to an expression of interest

or potential acquisition or transaction regarding any of the Properties,

other than with or to **** (as the case may be).

20 Fiduciary Duties Exception: Despite the restrictions above, the Company may respond to any Competing Transaction1

(which is not solicited by the Company or a Related Body Corporate of the Company) where failing to respond would in

the Company’s reasonable opinion be likely to constitute a breach of directors’ fiduciary or statutory obligations, having

received written advice from external legal advisers to that effect.

21 Notification requirements: If the Company or its advisers are approached by a third party wishing to enter into

discussions regarding a Competing Transaction and the Fiduciary Duties Exception applies (as described above) then

that party must immediately notify the Recipient and provide details of the approach or, if the discussions are current at

the date of this agreement, the Company must immediately cease the discussions and notify the Recipient of the fact of

and provide details of the discussions.

1 Competing Transaction means any proposal or arrangements under which, if ultimately completed, a person or their associates would directly or indirectly acquire an interest in or

become the holder of the whole or a substantial part of the Assets], but excludes any proposal or arrangement involving *** or its Related Bodies Corporate;

Page 6

10107649/1


Term Sheet

Withdrawal right Sample if transaction is purchase of a business

22 The Seller may terminate its obligations to proceed with the Transaction if any person acquires a relevant interest in 50%

of the Buyer’s shares and the offer is or has become unconditional.

Matching right Sample if transaction is purchase of a business

23 This proposal is transformational for the Buyer and if there is a Superior Proposal2 then the Buyer may terminate its

obligations to proceed with the Transaction.

24 The Buyer must notify the Seller of any potentially Superior Proposal as soon as it becomes aware of such an offer

including all the material terms of the offer.

25 The Seller may within two business days following receipt of a notice from the Buyer of a potentially Superior Proposal

amend the terms of the Transaction including increasing the purchase price or proposing any other form of transaction.

26 If the Seller does make such a counter proposal, then the Buyer must review the proposal in good faith.

27 If a majority of the Buyer directors determine that the counter proposal would be as favourable to the Buyer shareholders

as the Superior Proposal then we will, as soon as practicable, enter into the necessary documentation to give effect to the

revised offer from the Seller.

Deposit Sample if transaction is purchase of a business

28 A deposit of [set out amount or percentage of the purchase price] is to be paid upon exchange of contracts.

29 The deposit is to remain refundable until [describe relevant condition if applicable] and the contracts become

unconditional.

30 All interest accrued from the investment of the deposit will be for the benefit of the Buyer.

2 Superior Proposal means any bona fide, unsolicited, written proposal made after the date of this document and not obtained in violation of this Term Sheet by a person who is an arm’s

length third party that relates to the acquisition of 50% or more of the Buyer’s shares (other than shares owned by the person making the Superior Proposal) or all, or substantially all, of the assets of the Buyer and its subsidiaries and:

(i) that the Buyer board has determined in good faith is reasonably capable of being completed without undue delay, taking into account all financial, legal, regulatory and other

aspects of such proposal and the person making such proposal;

(ii) that is not subject to a due diligence condition;

(iii) which is fully financed; and

(iv) in respect of which the Buyer’s board determines, in its good faith judgment, after receiving the advice of its outside legal advisors, that:

(a) failure to recommend such a proposal to the Buyer’s shareholders would be inconsistent with its fiduciary duties under applicable law; and

(b) having regard for all of its terms and the person making the proposal, such proposal would, if consummated in accordance with its terms (but not assuming away any risk of

non-completion), result in a transaction more favourable to the Buyer’s shareholders from a financial point of view than the Transaction, after taking into account any change

to the Transaction proposed by the Seller in accordance with its right to match any such proposal.

Page 7

10107649/1


Term Sheet

Timetable Stage Proposed Date


[Set out key stages and dates for the proposed transaction, for example

exchange, satisfaction of conditions precedent, completion]


final documents Sample if transaction is purchase of a business

31 Due diligence: The [Due Diligence Information] being supplied by the Seller within one week of signing and not disclosing

any matter that is materially adverse to the prospects of the Business that was not previously disclosed in writing to the

Buyer.

32 No material adverse change: Since *** there has not been any material adverse change in the business, operations,

properties, prospects, assets or condition of the Company and no event has occurred or circumstances exist that may

result in such material adverse effect;

33 Shareholder approval: The Buyer’s shareholder approval.

Shareholder’s intentions Sample if transaction is purchase of a business

34 The Seller requires the unanimous support of the Buyer’s board and key shareholders for the Transaction.

35 Key shareholders of the Buyer’s board are to publicly state their intention to vote in favour of the Buyer’s proposal (in the

absence of a Superior Proposal) either directly or via a release from the Buyer.


final documents Sample if transaction is subscription for shares

36 Our subscription is subject to:

(a) Execution of the Sale and Purchase Agreement by the parties to that agreement;

(b) All of the conditions to the completion of the Sale and Purchase Agreement having been fulfilled or waived (other

than conditions relating to the subscription for shares under the SSD);

(c) Execution of any loan documents and related security documents required (together with the subscription proceeds)

to fund the acquisition by the Company of all of the [assets/shares] of the Target (Finance Documents);

(d) [insert any other].

Exit Sample if transaction is subscription for shares

37 We will endeavour to achieve an appropriate listing or trade sale of the Company within five years. If such an exit is not

achieved then we will explore how we could each withdraw our investment.


disclosure Sample where no prior agreement signed





disclosure

40 Each of us will continue to abide by the terms of the confidentiality agreement signed by us on [insert date] including

keeping the existence of this document and the status of negotiations confidential.

Page 8

10107649/1


Term Sheet

Sample where a prior agreement has been signed

Documents Sample if transaction is purchase of a business or subscription for shares

41 The following table sets out the documents which will be required to effect the terms set out in this document in respect of

the [Company/Business] and an indicative timetable:

Task Date for completion Comment

Key terms

Sample if transaction is subscription for shares

42 The key terms of the proposed SSA are set out in annexure A.

Formal documentation Sample if transaction is purchase of a business or subscription for shares

43 [Specify who will be providing instructions] will instruct [Corrs Chambers Westgarth] to prepare the definitive agreements to

reflect the terms set out in this document on usual and reasonable commercial terms.

Costs Sample if transaction is purchase of a business

44 Each of us will pay our own costs in relation to the negotiation and preparation of the definitive agreements referred to in

this document.

45 The Buyer will be liable for and must pay all duty (including any fine, interest or penalty except where it arises from default

by the other party) on or relating to this document, any document executed under it or any dutiable transaction evidenced

or effected by it. If a party other than the Buyer pays any duty (including any fine, interest or penalty) on or relating to this

document, any document executed under it or any dutiable transaction evidenced or effected by it, the Buyer must pay

that amount to the paying party on demand.

Costs Sample if transaction is subscription for shares

46 Each of us will pay our own costs in relation to the negotiation and preparation of the definitive agreements referred to in

this document.

Legal status Sample for non-binging Term Sheet

47 The provisions of this document, other than the sections titled:


(b) ’Confidentiality and public disclosure’;

(c) ‘Legal status’

(d) [‘Break fee’]; and

Page 9

10107649/1


Term Sheet

(e) ’Governing law and jurisdiction’,





Check with your Tax adviser before including the above paragraph to ensure that it does not give rise to any tax avoidance

concerns.




agreements; and




52 Each of us and our legal advisers do not consider the provision of this document and its subject matter to be disclosable to

the Australian Securities Exchange.

Page 10

10107649/1


Term Sheet

Legal status Sample clause for binding Term Sheet

53 This document is intended to be binding in accordance with its terms, despite the fact we may have not reached final

agreement as to the specific form of the definitive agreements.






agreements; and



57 Each of us and our legal advisers do not consider the provision of this document and its subject matter to be disclosable to

the Australian Securities Exchange.

Fiduciary duties exception Sample if transaction is purchase of a business

58 Despite any restrictions contained in this document the Buyer may withdraw from this Transaction if proceeding with the

Transaction would in the Buyer’s directors’ reasonable opinion be likely to constitute a breach of directors’ fiduciary or

statutory obligations, having received written advice from external legal advisers to that effect.

Break fee Sample if transaction is purchase of a business

59 A break fee of $*** is payable to the Seller if after the execution of this document:

(a) a Superior Proposal is recommended by the Board of the Buyer;

(b) control of the Buyer changes (if a person obtains voting power of >50% ownership or control over more than 50% of

the issued Buyer shares); and

(c) the Buyer changes its board recommendation (ie, there is no longer a unanimous or majority board recommendation

for the Transaction) other than where it is required to do so to meet its fiduciary obligations and duties as would be

required in assessing a Superior Proposal.

Governing law and

jurisdiction Long form

60 This document [and any related documents] will be governed by and construed in accordance with the laws applicable in

[insert relevant jurisdiction eg New South Wales] and each of us submits to the non-exclusive jurisdiction of the courts

exercising jurisdiction in [repeat relevant jurisdiction eg New South Wales] and any courts which have jurisdiction to hear

appeals from any of those courts and waives any right to object to any proceedings being brought in those courts.

Page 11

10107649/1


Term Sheet

Other Sample if transaction is purchase of a business or subscription for shares

61 This document and any related document:

(a) must not be construed as creating a partnership or joint venture between us; and

(b) may not be modified, amended, added to or otherwise varied except by a document in writing signed by each of us.

62 This document may be executed in any number of counterparts and all counterparts will be taken together to constitute

one document.

63 A party must not assign or deal with any right under this document without the prior written consent of the other parties.

Any purported dealing in breach of this clause is of no effect.

64 Each person signing this document warrants that he or she is duly authorised to bind the party on whose behalf they are

signing this document.

Dated 20


…………………………………………


…………………………………………


……..……………………………….…