TSL.L Regulatory News (TSL)

29 July 2022

ThinkSmart Limited

 ("ThinkSmart" or the "Company" which together with its subsidiaries is the "Group")

THINKSMART ENTERS INTO A SCHEME IMPLEMENTATION DEED WITH TUSCAN EQUITY PTY LTD

ThinkSmart Limited (AIM: TSL), a specialist digital payments platform business, is pleased to announce that it has entered into a binding Scheme Implementation Deed with Tuscan Equity Pty Ltd ("Bidco") under which Bidco would acquire the entire issued share capital of ThinkSmart pursuant to a scheme of arrangement under the Australian Corporations Act 2001 (Cth) ("the Scheme").

Bidco is a company limited by shares that was incorporated in Australia for the purposes of the Scheme and is wholly owned and controlled by Ned Montarello, ThinkSmart's Executive Chairman, CEO, founder and current 29.4% shareholder (29.94% on a fully diluted basis including all vested but currently unexercised share options).(1) As such, an Independent Board Committee ("IBC"), comprising all of the directors of ThinkSmart other than Mr Montarello, was established to consider the proposal for the Scheme on behalf of ThinkSmart.

Transaction Summary

Under the Scheme, Bidco will acquire 100% of ThinkSmart's issued shares, including the shares owned and/or controlled by Mr Montarello. In exchange, ThinkSmart shareholders, other than Mr Montarello and entities he controls ("ThinkSmart Independent Shareholders"), will be entitled to receive cash consideration equal to the proceeds realised from the post-Scheme implementation sale on the New York Stock Exchange ("NYSE") of the proportion of the 618,750 shares in Block Inc ("Block") held by ThinkSmart attributable to their shareholding in ThinkSmart (net of their proportion of sale fees, which are expected to be approximately 0.5% of the gross proceeds from the sale of the Block shares held by ThinkSmart and after conversion into Pounds Sterling or Australian dollars (as applicable)).(2) 

Under the Scheme, Bidco will also acquire all of the ThinkSmart shares held by Mr Montarello and entities he controls in exchange for shares in Bidco, or if Mr Montarello so elects, part or all of Mr Montarello's shares in ThinkSmart may be acquired by Bidco for cash consideration, in which case he will receive the same cash consideration as the ThinkSmart Independent Shareholders funded by a proportionate increase in the number of Block shares that will be sold by ThinkSmart post-Scheme implementation.

The cash consideration to be paid under the Scheme will be determined shortly following implementation of the Scheme when the relevant number of Block shares owned by ThinkSmart are sold on the NYSE. The number of Block shares sold will be that percentage of ThinkSmart's 618,750 Block shares that is equal to the percentage of shares in ThinkSmart held by ThinkSmart Independent Shareholders together with any shares Mr Montarello elects to sell to Bidco for cash consideration, rounded to the nearest whole number of Block shares.

The actual cash consideration received by ThinkSmart Independent Shareholders for their ThinkSmart shares (and Mr Montarello for any ThinkSmart shares he owns or controls and which he elects to sell to Bidco for cash consideration) will be determined based on the actual sale price achieved for the relevant number of Block shares sold by ThinkSmart on the day they are sold (net of sale fees and after currency conversion) and will therefore not be known until after the Scheme has been implemented. By way of example, the Block closing share price on the NYSE on 21 July 2022 was US$74.76. If the Block shares were sold for US$74.76 per share and the sale fees equated to 0.5% of the proceeds, ThinkSmart shareholders who receive the Scheme consideration in Pounds Sterling (being holders of depositary interests and holders of ThinkSmart shares who elect to receive Pounds Sterling) would receive approximately 36.01 pence per ThinkSmart share (assuming 1.1992 USD: 1 GBP). This compares to the ThinkSmart closing share price on AIM on 21 July 2022 of 25.00 pence and would represent a 44.0% premium to that closing price of ThinkSmart shares.

Holders of ThinkSmart Depositary Interests will be paid the Scheme consideration in Pounds Sterling, while holders of ThinkSmart shares who do not hold via Depositary Interests will receive the Scheme consideration in Australian dollars but can make an election to receive Pounds Sterling.

Holders of the 1,679,532 ThinkSmart employee share options, which include Mr Montarello, Mr Halton and another member of ThinkSmart's executive team, will be able to exercise their options prior to the Scheme taking effect (these options all being currently vested and free of any conditions to their exercise). Any shares issued on exercise of share options will also be acquired by Bidco under the Scheme.

Following implementation of the Scheme, ThinkSmart will be controlled by Mr Montarello. Following the subsequent payment of the Scheme consideration by Bidco to satisfy its obligations under the Scheme, Bidco, via its 100 % ownership of ThinkSmart, will hold the remainder of the Block shares that are not sold,(3) as well as ThinkSmart's remaining business operations which comprise ThinkSmart's legacy leasing business, which is undergoing a managed wind down, and the provision of an outsourced call centre customer support service to support the Clearpay business that was previously owned by ThinkSmart.

For clarity, by virtue of ThinkSmart's status as a public company limited by shares incorporated in Australia, the City Code on Takeovers and Mergers does not apply to ThinkSmart and the Scheme is not subject to the jurisdiction of, nor is it being regulated by, the UK Takeover Panel. Rather, the Scheme is being pursued under the Australian takeover laws pursuant to the Australian Corporations Act 2001 (Cth).

IBC Recommendation and Rationale for the Scheme

The IBC unanimously recommends that ThinkSmart shareholders vote in favour of the Scheme, in the absence of a superior proposal and subject to an independent expert opining that the Scheme is in the best interests of ThinkSmart shareholders, for the following reasons:

· Following the A$4.4 million (equivalent to £2.5 million) capital return and dividend payment to shareholders on 15 July 2022, the IBC is of the view that the value of ThinkSmart is wholly represented by the market value of the 618,750 Block shares owned by ThinkSmart and that there is little or no value in ThinkSmart's business operations, comprising the legacy leasing business and provision of an outsourced call centre customer support service to support the Clearpay business.

· ThinkSmart shares have traded at an approximate 30%(4) discount to the market value of its Block shareholding since it received the Block shares on 1 February 2022. Receiving the market value of the Block shares in cash would therefore, if the relevant number of Block shares had been sold on 21 July 2022, have equated to a premium of approximately 44% (after sale fees) based on the closing share price of ThinkSmart shares and Block shares on 21 July 2022 (assuming 1.1992 USD: 1 GBP).

· ThinkSmart shares have historically been relatively illiquid.

· The Scheme allows ThinkSmart shareholders to sell their ThinkSmart shares to achieve a clear exit from ThinkSmart for cash without exposure to the ongoing wind down of ThinkSmart's business operations and likely eventual liquidation. This compares favourably to the timing of any exit for shareholders if the Group were to be liquidated following conclusion of the wind down of ThinkSmart's business operations, noting there may also be significant costs involved in a liquidation scenario as well as the time taken to complete the liquidation process before a final distribution of any remaining cash could be made to shareholders.

· Due to the ongoing wind down of ThinkSmart's business operations, the benefits of maintaining a listing on AIM, such as accessing equity capital markets, are no longer relevant and it is expected that the costs of maintaining ThinkSmart as a listed entity until completion of the wind down would likely exceed the cash generated from the wind down of its business operations.

· Following the A$4.4 million (approximately £2.5 million) capital return and dividend payment on 15 July 2022, the Group cash balance has reduced to approximately £3m and this is expected to continue to reduce during the wind down of the business operations  as a result of ongoing operational and corporate costs exceeding the income expected to be generated from the business operations, and transaction costs relating to the Scheme which together are expected to result in minimal surplus cash remaining in the business to cover the risk and exposures of the wind down and likely eventual liquidation.

Each IBC member has confirmed their intention to vote in favour of the Scheme in respect of ThinkSmart shares they hold or control (representing in aggregate 11.9% of ThinkSmart's existing issued share capital prior to the exercise of any employee share options), again subject to no superior proposal emerging and an independent expert determining that the scheme is in the best interests of ThinkSmart shareholders.

Conditions of the Scheme

Key conditions to the implementation of the Scheme include, amongst others:

· An independent expert concluding that the Scheme is in the best interests of ThinkSmart Independent Shareholders.

· Approval being obtained from the Financial Conduct Authority to the extent necessary under the Financial Services and Markets Act 2000.

· ThinkSmart Independent Shareholders approving the Scheme by the requisite majorities at the Scheme meeting (requiring approval of a simple majority in number of the ThinkSmart Independent Shareholders voting and approval of the ThinkSmart Independent Shareholders who represent at least 75% of the total votes cast at the Scheme meeting).(5) 

· Court approval in relation to the Scheme.

· No prescribed occurrences or regulated events (each as defined in the Scheme Implementation Deed) occurring in relation to ThinkSmart.

The Scheme Implementation Deed also includes certain exclusivity arrangements in respect of ThinkSmart, which are subject to customary fiduciary exceptions.

It is intended that dealings in ThinkSmart Shares will be suspended shortly prior to the Effective Date of the Scheme, with ThinkSmart's admission to trading on the AIM Market intended to be cancelled on or shortly after the Effective Date. In addition, entitlements held within the CREST system to the ThinkSmart Shares are intended to be cancelled on the first Business Day following the Effective Date.

Full details of the terms and conditions of the Scheme are set out in the Scheme Implementation Deed, a copy of which is available on ThinkSmart's website at www.thinksmartworld.com. A summary of the Scheme Implementation Deed has been included as an appendix to this announcement.

Background

In August 2018, the Group sold 90% of Clearpay Finance Ltd ("Clearpay") to Afterpay Ltd ("Afterpay") for £10.5 million, delivering a profit on sale of £7.9 million. Following the announcement of the intended takeover of Afterpay by Block (at the time named Square, Inc.) in November 2021, which would have entitled Afterpay to exercise its call option to buy the remaining shares in Clearpay held by ThinkSmart in cash at any time following the change of control, the Group agreed with Afterpay to sell its remaining 10% shareholding in Clearpay to Afterpay in exchange for 1.65 million shares in Afterpay, subject to ThinkSmart shareholder approval, which was given on 14 January 2022. These Afterpay shares were subsequently exchanged for 618,750 shares in Block, following the completion of the takeover of Afterpay by Block, on 1 February 2022. On 1 February 2022 Block shares had a closing share price on the NYSE of US$127.61 which, by 26 July 2022, had reduced to US$66.39 in line with the reduction in share prices seen by global technology stocks in particular.

Since receiving the Block shares, ThinkSmart's shares have typically traded at an approximate 30%(4) discount to the market value of its Block shareholding and have continued to do so after the 1 July 2022 record date for the A$4.4 million (£2.5 million equivalent) capital return and dividend payment which was paid to ThinkSmart shareholders on 15 July 2022. This July 2022 payment to shareholders takes the total capital return and dividend payments by ThinkSmart to its shareholders, since the sale of 90% of Clearpay in August 2018, to A$30.5 million (£16.7 million equivalent).

ThinkSmart's business operations comprise the legacy leasing business and provision of an outsourced call centre customer support service to support the Clearpay business which can be terminated at any time with 3 months notice. ThinkSmart's business operations are in managed wind down following the cessation of new leasing volumes origination in February 2021 and, at 30 June 2022, the Group's finance lease receivables had a gross receivable balance of £0.7 million and an average term outstanding of 7 months (with a maximum term outstanding of 28 months). To date, the managed wind down has yielded positive cashflows however the Board expects the ongoing wind down will not generate sufficient cash to cover the ongoing costs of maintaining ThinkSmart as a listed entity. Following the A$4.4 million (£2.5 million equivalent) capital return and dividend payment on 15 July 2022, the Group's current cash balance is approximately £3 million and it is expected that this balance will continue to reduce as a result of ongoing operational and corporate costs exceeding its income, transaction costs relating to the Scheme and the eventual costs of liquidating the Group.

As announced on 13 May 2022, ThinkSmart has been undertaking a strategic review of its Block shareholding and has considered a number of options to maximise shareholder value (which included reviewing Bidco's proposal to acquire all the shares in ThinkSmart as described above). The proposed Scheme is the culmination of that review.

(1) ThinkSmart currently has 106,587,814 ordinary shares on issue as well as 1,679,532 employee share options.

(2) Depositary interest holders will receive the Scheme consideration in Pounds Sterling and holders of ThinkSmart shares that do not hold via depositary interests will receive the Scheme consideration in Australian dollars unless they elect to receive the Scheme consideration in Pounds Sterling. ThinkSmart shareholders will be bearing all risks associated with any currency conversions required in connection with the sale of the Block shares and the payment of the Scheme consideration to them.

(3) The remaining number of Block shares to be held by Bidco (via its ownership of ThinkSmart) following implementation of the Scheme and payment of the Scheme consideration to Scheme shareholders in accordance with Bidco's obligations under the Scheme is expected to be 29.94% of the 618,750 Block shares currently held (being the proportion referable to Mr Montarello's 29.94% fully diluted shareholding in ThinkSmart on the assumption that all employee share options are exercised), or a lower number of Block shares if Mr Montarello elects to sell part of his approximate 29.94% shareholding to Bidco under the Scheme for cash consideration, rounded to the nearest whole number. If Mr Montarello so elects, he will receive the same cash consideration for such shares as the ThinkSmart Independent Shareholders funded by a proportionate increase in the number of Block shares sold post-Scheme implementation.

(4) From 1 February 2022 to 25 July 2022, ThinkSmart's share price has averaged 30.05 pence per share (based on daily closing price). Over the same period, the Block share price has averaged US$96.73 per share which, based on an average exchange rate of 1.2836 USD: 1 GBP with ThinkSmart owning 618,750 shares in Block and having 106,587,814 shares in issue, equates to 43.75 pence per ThinkSmart share.

(5) As the shareholdings in ThinkSmart of Mr Montarello and his controlled entities will also be acquired by Bidco pursuant to the Scheme (in exchange for shares in Bidco or cash at his election), it is expected that as a technical requirement the approval of Mr Montarello and those entities as shareholders of ThinkSmart will also be required in order for the Scheme to become effective. Mr Montarello will not be entitled to cast any votes in respect of the ThinkSmart shares that he controls at the general Scheme Meeting (of Independent Shareholders) but will instead vote in a separate class at a separate Scheme meeting to the ThinkSmart Independent Shareholders to be held immediately following the general Scheme meeting. Mr Montarello has confirmed he intends to vote in favour of the Scheme in respect of ThinkSmart shares he holds or controls (representing in aggregate 29.4% of ThinkSmart's existing issued share capital prior to the exercise of any employee share options by him or any other holders).

Indicative Timetable and Next Steps

ThinkSmart shareholders do not need to take any action at the present time.

Further details about the Scheme will be contained in a Scheme Booklet that will be sent to shareholders in due course. Release of the Scheme Booklet is expected to be preceded by the release of ThinkSmart's financial results for the year ended 30 June 2022 in mid-September 2022 and the Scheme Booklet will set out important information for ThinkSmart shareholders, including a detailed timetable, information about Bidco, the key reasons why the IBC believes that ThinkSmart shareholders should vote in favour of the Scheme, and how the voting process will occur. The Scheme Booklet will also include a full copy of the independent expert's report that will be prepared in connection with the Scheme.

ThinkSmart shareholders will be given the opportunity to vote on the Scheme at a Scheme Meeting, which is currently expected to be held in October 2022 with implementation expected to occur in October or November 2022 subject to the Scheme being approved. An indicative timetable for the Scheme is set out below:

These dates are indicative, subject to change and conditional on (among other things) regulatory approval, and shareholder approval at the Scheme Meeting.

Commenting on the transaction, David Adams, Senior Independent Non-Executive Director and Chair of the IBC, said:

"The Independent Board Committee is unanimous in its belief that this transaction represents the best outcome for all of ThinkSmart's shareholders by creating a liquidity event in cash at the market value of ThinkSmart's Block shareholding rather than the 30% discount that ThinkSmart's shares have recently traded at. ThinkSmart has consistently highlighted that its legacy leasing business is in managed wind down and has returned significant excess capital to shareholders as this process generated surplus cash. The operating business has now reached a position whereby it is sub-scale and we do not believe future cash generated will exceed the costs of ThinkSmart maintaining its public listing on AIM - therefore, as a listed entity, cash would deteriorate.

"The remaining inherent value within ThinkSmart - its shareholding in Block - would be realised at market value by the proposed transaction and paid to shareholders in cash" 

"As a result, the IBC believes that this proposed transaction represents the best value for ThinkSmart's shareholders and I would like to thank my colleagues on the IBC for their rigour and support as we have undergone our assessments."

Commenting on the transaction on behalf of Tuscan Equity Pty Ltd, Ned Montarello said:

"I am pleased to propose this scheme of arrangement which offers shareholders the opportunity to realise the market value of their share of ThinkSmart's Block shareholding. Given the listing on AIM is no longer efficient due to the current scale and wind down status of ThinkSmart's operating business, I proposed this transaction in order for all shareholders to fully benefit from the true capital value of ThinkSmart's shareholding in Block, as the Company's share price has traded at a material discount to the value of the Company's shareholding in Block since ThinkSmart received its shares in Block. This transaction enables that value to be recognised and delivered to ThinkSmart's shareholders in cash with no discount, while also enabling the ThinkSmart business to continue to wind down its operations without the additional requirements imposed on listed companies."

For further information please contact:

Prior to publication the information communicated in this announcement was deemed by the Company to constitute inside information for the purposes of article 7 of the Market Abuse Regulations (EU) No 596/2014 as amended by regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations No 2019/310 ('MAR'). With the publication of this announcement, this information is now considered to be in the public domain.

Notes to Editors

About ThinkSmart Limited

ThinkSmart's roots are as a specialist digital payments platform business. Following the sale of its remaining 10% shareholding in Clearpay in January 2022, the Group holds shares in NYSE listed Block, Inc (NYSE: SQ). The Group also provides an outsourced call centre customer service and support service to Clearpay and is managing the wind-down of its leasing business.

Further information

This announcement is for information purposes only and is not intended to and does not constitute, or form part of, an offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities, or the solicitation of any vote or approval in any jurisdiction, pursuant to the Scheme or otherwise, nor shall there be any sale, issuance or transfer of securities of ThinkSmart in any jurisdiction in contravention of applicable law. The Scheme will be implemented in accordance with the Scheme Implementation Deed and the Scheme Booklet, which will contain the full terms and conditions of the Scheme including details of how to vote in respect of the Scheme. Any vote in respect of the Scheme or other response in relation to the Scheme should be made on the basis of the information contained in the Scheme Booklet. This announcement does not constitute a prospectus, prospectus equivalent document or an exempted document.

If you are in any doubt about the contents of this announcement or the action you should take, you are recommended to seek your own independent financial advice immediately from your stockbroker, bank manager, solicitor, accountant or independent financial adviser.

Overseas shareholders

The release, publication or distribution of this announcement in or into jurisdictions other than Australia or the UK may be restricted by law and therefore any persons who are subject to the law of any jurisdiction other than Australia or the UK should inform themselves of, and observe, any applicable legal or regulatory requirements. Any failure to comply with such requirements may constitute a violation of the securities laws of any such jurisdiction. To the fullest extent permitted by applicable law, the companies and persons involved in the Scheme disclaim any responsibility or liability for the violation of such restrictions by any person. This announcement has been prepared in accordance and for the purpose of complying with Australian law, English law, the AIM Rules, the Market Abuse Regulation and the Disclosure Guidance and Transparency Rules and information disclosed may not be the same as that which would have been prepared in accordance with the laws of jurisdictions outside Australia or England.

The availability of the Scheme to ThinkSmart Shareholders who are not resident in and citizens of Australia or the UK may be affected by the laws of the relevant jurisdictions in which they are located or of which they are citizens. Persons who are not resident in Australia or the UK should inform themselves of, and observe, any applicable legal or regulatory requirements of their jurisdictions. In particular, the ability of persons who are not resident in Australia or the UK to vote their ThinkSmart Shares with respect to the Scheme at the Scheme Meeting, or to appoint another person as proxy to vote at the Scheme Meeting on their behalf, may be affected by the laws of the relevant jurisdictions in which they are located. Any failure to comply with the applicable restrictions may constitute a violation of the securities laws of any such jurisdiction. To the fullest extent permitted by applicable law, the companies and persons involved in the Scheme disclaim any responsibility or liability for the violation of such restrictions by any person.

Forward looking statements

This announcement (including information incorporated by reference in this announcement), oral statements made regarding the Scheme, and other information published by Bidco or ThinkSmart may contain statements which are, or may be deemed to be, "forward-looking statements". Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of the management of Bidco and ThinkSmart about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements.

The forward-looking statements contained in this announcement include statements relating to the expected effects of the Scheme on Bidco and ThinkSmart (including their future prospects, developments and strategies), the expected timing and scope of the Scheme and other statements other than historical facts. Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as "plans", "expects", "estimates", "forecasts", "intends" or "anticipates", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. Although Bidco and ThinkSmart believe that the expectations reflected in such forward-looking statements are reasonable, Bidco and ThinkSmart can give no assurance that such expectations will prove to be correct. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements.

These factors include, but are not limited to: the ability to complete the Scheme; the ability to obtain requisite regulatory and shareholder approvals and the satisfaction of other conditions on the proposed terms and timetable; changes in general economic and business conditions; the behaviour of other market participants; the anticipated benefits from the proposed transaction not being realised as a result of changes in general economic and market conditions; weak, volatile or illiquid capital and/or credit markets; changes in tax rates, interest rate and currency value fluctuations; the degree of competition in the geographic and business areas in which ThinkSmart operates and changes in laws or in supervisory expectations or requirements. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements. Such forward-looking statements should therefore be construed in the light of such factors. Neither Bidco nor ThinkSmart, nor any of their respective associates or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur. You are cautioned not to place any reliance on these forward-looking statements. Other than in accordance with their legal or regulatory obligations, neither Bidco nor ThinkSmart is under any obligation, and Bidco and ThinkSmart expressly disclaim any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

APPENDIX - SUMMARY OF SCHEME IMPLEMENTATION DEED (SID)

Note that the following is a non-exhaustive summary only of the key terms of the SID. The full SID is available at ThinkSmart's website www.thinksmartworld.com and readers should refer to the full terms.

Conditions Precedent

The Scheme is conditional on:

· regulatory approvals: receipt of all necessary approvals from the Financial Conduct Authority, the Australian Securities and Investments Commission ("ASIC") and other applicable regulators;

· shareholder approval: ThinkSmart Independent Shareholders approving the Scheme by the requisite majorities, being approval of a majority in number of ThinkSmart shareholders voting and approval of ThinkSmart shareholders who represent at least 75% of the total votes cast;

· court approval: the court approving the Scheme;

· expert: the independent expert concluding (and continuing to conclude) in the independent expert's report that the Scheme is in the best interest of ThinkSmart shareholders (other than Mr Montarello and entities he controls);

· no restraints or prescribed events: the parties not being restrained from conducting the Scheme, and there being no 'Target Prescribed Occurrence' or 'Target Regulated Event' (each as defined in Schedule 1 of the SID);

· broker: a broker being appointed prior to the first Court hearing to sell the Block shares on the New York Stock Exchange; and

· sale of Block shares: ThinkSmart not dealing with (including selling) the Block shares (other than in accordance with the Scheme).

If a condition precedent cannot be satisfied, the parties must consult in good faith to:

· determine whether the transaction may proceed by an alternative method;

· defer the application to the court to approve the Scheme; or

· extend the timing of satisfying that condition precedent or the 'end date' (being the last date for satisfying all conditions, being six months from the date of the SID).

If the parties are still unable to reach agreement and the condition has not (or cannot) be waived, then either party may terminate the SID.

Consideration

The Scheme consideration will be funded through the post-Scheme implementation sale of the number of ThinkSmart's shares in Block that is equal to the percentage of shares in ThinkSmart held by ThinkSmart shareholders other than Mr Montarello and his controlled entities (together with any shares in ThinkSmart Mr Montarello and his controlled entities elect to sell to Bidco for cash consideration - see below) at the record date for the Scheme.

Under the Scheme, Bidco will acquire all of the ThinkSmart shares held by Mr Montarello and his controlled entities in exchange for shares in Bidco, or if Mr Montarello (and his controlled entities) so elect, part of Mr Montarello and his controlled entities' ThinkSmart shares may be acquired by Bidco for cash consideration, in which case they will receive the same cash consideration as the ThinkSmart Independent Shareholders funded by a proportionate increase in the number of Block shares that will be sold post-Scheme implementation.

Prior to the first Court hearing, a broker must be appointed to sell the Block shares on the New York Stock Exchange as soon as practicable within three trading days after the Scheme is implemented. The sale proceeds will be distributed to shareholders who are entitled to receive the cash consideration under the Scheme pro rata to their respective ThinkSmart shareholdings and net of any sale fees or other applicable amounts as referred to in the SID.

Conduct of business and ThinkSmart information

Between the date of the SID and the date the Scheme is implemented, ThinkSmart must carry on its business in the ordinary course and must use reasonable endeavours to:

· maintain the value of its business and assets;

· keep available the services of the directors, officers, and employees of ThinkSmart; and

· maintain and preserve its relationships with government agencies and other material business relationships.

There are various exclusions to these obligations, including where required by law, regulation or a contract entered into prior to the SID, or where such matter has been publicly disclosed either to AIM or ASIC before the date of the SID.

ThinkSmart is also required to keep Bidco informed of any material developments concerning the conduct of its business and afford Bidco reasonable access to information requested by Bidco for certain permitted purposes, subject to certain exceptions.

Representations and warranties

Various representations and warranties are given by each of ThinkSmart and Bidco, as set out in Schedules 2 and 3 of the SID. The warranties given by ThinkSmart are qualified by matters which have been fairly disclosed to AIM or that have been lodged in a publicly available document with ASIC prior to the date of the SID. Each party indemnifies the other against any claims or losses arising from a breach of a representation or warranty.

Exclusivity

The SID imposes exclusivity obligations that restrict ThinkSmart's ability to engage with other potential bidders. These restrictions are common in Australian public M&A transactions.

No talk and no shop

· ThinkSmart must not solicit or encourage new bids. There is no exception.

· ThinkSmart must not engage with potential bidders or negotiate or provide information in relation to a competing proposal. This does not apply where the IBC determines that (and has received legal advice to the effect that) complying with this restraint would be likely to involve a breach of any of their fiduciary/statutory duties.

Notification of approaches

ThinkSmart must notify Bidco within 48 hours of any approach from a rival bidder. The fiduciary exception noted above also applies to this obligation.

Matching right

The IBC directors cannot accept or recommend a competing transaction unless:

· in acting in good faith and in satisfaction of their fiduciary duties, they determine that the competing proposal is a superior proposal;

· ThinkSmart has provided the material terms of the competing proposal to Bidco; and

· ThinkSmart has given Bidco at least 3 business days to provide a matching or superior counterproposal.

If the IBC considers Bidco's counterproposal to be a matching or superior proposal, then ThinkSmart and Bidco must use their best endeavours to agree amendments to the SID to implement the counterproposal.

Reimbursement fee

ThinkSmart must reimburse Bidco of its actual out-of-pocket costs in pursuing the transaction, up to a maximum of $200,000, where:

· one or more IBC directors withdraws or changes their recommendation, or recommends that ThinkSmart shareholders accept or vote in favour of a competing proposal, in each case unless:

o  the independent expert considers that the Scheme is not in the best interests of ThinkSmart shareholders (other than because of a competing proposal);

o  the change is the result of a government agency or Court requirement; or

o  ThinkSmart is entitled to terminate the SID for a Bidco breach;

· a competing proposal is announced and completed within 12 months of the announcement; or

· Bidco has terminated the SID for ThinkSmart's breach and the Scheme is not implemented.

The reimbursement fee is a cap on ThinkSmart's aggregate liability under the SID, except where a claim arises in connection with ThinkSmart's wilful misconduct, wilful concealment or fraud.

Termination

The SID can be terminated in the following circumstances:

· by either party if:

o  the other party is in material breach of the SID and has not remedied the breach within five business days;

o  the Scheme is restrained by a court or government agency;

o  a condition precedent fails (see above); or

o  ThinkSmart shareholders do not approve the Scheme;

· by Bidco if an IBC director changes or withdraws their recommendation, recommends a competing proposal or makes a public statement indicating a change of position, in each case unless this results from a requirement of a court or government agency;

· by ThinkSmart if the IBC changes or withdraws its recommendation (in circumstances where it is permitted to do so), provided ThinkSmart pays the reimbursement fee if required; and

· where otherwise agreed in writing by the parties.