Atlassian anticipates that it would acquire the Company through a reverse triangular merger (the “Proposed Transaction”).
Atlassian and its legal counsel would be the primary drafter of the definitive agreement (“Definitive Agreement”) and other legal documents for the Proposed Transaction (collectively, with the Definitive Agreement, the “Deal Documents”). The Definitive Agreement would contain representations and warranties, covenants, closing conditions, indemnities and other typical provisions for a transaction of this nature.
The Closing of the Proposed Transaction (“Closing”) would take place after all closing conditions in the Definitive Agreement are satisfied or waived. In no event would the Closing occur during the last month of any Atlassian financial quarter.
As soon as possible after the date this Term Sheet is executed (the “Term Sheet Date”), the Company would provide Atlassian and its representatives with access to the Company (and its representatives, personnel, subsidiaries, assets, properties, documents, and other information) so Atlassian can conduct a thorough diligence investigation.
Proposed Purchase Price:
The aggregate purchase price to be paid by Atlassian for all of the Company’s outstanding equity securities, whether vested or unvested, would be $[__________] (the “Purchase Price”). For the avoidance of doubt, cash on the Company’s balance sheet would be factored into the Purchase Price and the associated valuation. On a dollar-for-dollar basis, the Purchase Price would be adjusted as follows:
(i) increased by the aggregate exercise price of all of the Company’s vested equity awards as of the Closing, and
(ii) reduced by (x) the Company’s indebtedness (including accrued interest) at Closing, (y) the aggregate amount of Transaction Expenses and Change of Control Payments (each defined below), in each case whether paid or unpaid, and (z) the R&W Insurance Expenses (defined below).
The Purchase Price would be paid in cash, except that (i) certain unvested equity awards would be substituted for Substitute Awards (defined below), and (ii) the Core Employees (defined below) would be issued Holdback Shares (defined below), each as described below.
Outstanding Equity Awards, and Other Equity Rights:
All vested Company equity awards (other than the Holdback Amount described below) would be cashed out at Closing, net of any exercise price and subject to any applicable tax withholding and Escrow Amount (defined below) obligations. All unvested equity awards held by Company employees who accept their Atlassian offer letters would be substituted for Atlassian equity awards (the “Substitute Awards”). All other outstanding rights to acquire equity securities of the Company that have not been exercised as of Closing would terminate.
In lieu of receiving cash for [__]% of the consideration otherwise payable to each of [Name] and [Name] (the “Core Employees”) in the Proposed Transaction (the “Holdback Amount), these Core Employees would each be issued a number of Atlassian Class A ordinary shares equal to their Holdback Amount divided by the volume weighted average price of Atlassian Class A ordinary shares for the 10 trading days ending on the last trading day preceding the signing date of the Definitive Agreement (the “Holdback Shares”). The Holdback Shares would be issued pursuant to registration exemptions under U.S. and other securities laws, and would be subject to any resale and other trading restrictions that apply.
Each Core Employee’s Holdback Shares would vest over [__] months as follows: (i) [__]% of such Holdback Shares would vest on the first anniversary of the Closing, and (ii) [__] of such Holdback Shares would vest on a quarterly basis thereafter until all Holdback Shares have vested, subject to such Core Employee being employed by Atlassian on each vesting date.
A Core Employee’s unvested Holdback Shares would accelerate in full if they are terminated without “Cause” or terminate their employment for “Good Reason,” or due to death or “Permanent Disability” (as such terms are defined in the Deal Documents), effective as of the date of such termination.
Employment Offer Letters and Non-Competes:
Concurrently with the signing of the Definitive Agreement:
(i) Each of the Core Employees and other key employees of the Company to be identified by Atlassian in consultation with the CEO of the Company during diligence would enter into: (a) employment offer letters with Atlassian (“Offer Letters”); and (b) Atlassian’s standard form of employee confidential information and invention assignment agreement (an “IP Assignment”), each to become effective at the Closing; and
(ii) Each Core Employee would enter into a [___]-year non-competition and non-solicitation agreement in favor of Atlassian (a “Non-Compete”), to become effective at the Closing.
The following would be conditions to Closing:
(i) At least [__]% of the Company’s employees who receive Offer Letters accept their Offer Letters and enter into an IP Assignment; and
(ii) The Offer Letters, IP Assignments and Non-Competes remain effective as of the Closing.
Atlassian would evaluate, on a case-by-case basis, whether to require Company employees to waive their vesting acceleration rights, change-in-control payments, severance compensation, or other payments that might be triggered by the Proposed Transaction.
Employee Retention Pool:
Atlassian would allocate an additional $[__] in Atlassian equity awards to some or all employees of the Company, in consultation with the CEO of the Company.
Indemnification, Escrow and Insurance:
The Definitive Agreement would require all shareholders of the Company and all holders of vested equity securities that are cashed out at the Closing (collectively, the “Sellers”) to indemnify Atlassian against any damages arising out of or resulting from:
(i) breaches of the Company’s representations and warranties;
(ii) breaches of the Company’s covenants set forth in the Definitive Agreement (“Covenants”);
(iii) tax-related matters, capitalization matters, purchase price allocation matters, third-party claims, exercise of dissenters’, appraisal or other similar rights, and other matters set forth in the Definitive Agreement (“Other Indemnities”); or
Escrow and Insurance
As partial security for Atlassian’s post-Closing indemnification rights, an amount equal to 1% of the Purchase Price (the “Escrow Amount”) would be held in a third party escrow fund for 15 months after the Closing.
Atlassian would obtain a representations and warranties insurance policy (“R&W Insurance”) in connection with the Proposed Transaction. The premium, taxes, commissions and any other fees and expenses payable in connection with obtaining R&W Insurance coverage for a policy limit of 4% of the Purchase Price (the “R&W Insurance Expenses”) would be paid for by the Sellers.
Limitations on Indemnification Obligations
The Sellers’ indemnification obligations would be limited as set forth in Schedule I.
R&W Insurance Expenses, Transaction Expenses, Change of Control Payments:
The Sellers would be solely responsible for:
(i) All R&W Insurance Expenses;
(ii) All expenses (including all legal, accounting, financial advisory, consulting, regulatory and other fees, the cost of any D&O tail insurance policy, and the employer portion of any payroll taxes related to payments made in connection with the Proposed Transaction) incurred by or on behalf of the Company in connection with this Term Sheet, the Deal Documents, and the completion of the Proposed Transaction (“Transaction Expenses”); and
(iii) All bonuses, severance payments and other similar cash benefits that are payable in connection with, or are triggered by, the Proposed Transaction, any payments required to obtain third-party consents, waivers or approvals under any of the Company's contracts in connection with the Proposed Transaction, and all termination, balloon or similar payments resulting from the early termination of any contract, or the repayment of outstanding indebtedness, in connection with the Proposed Transaction, if any (collectively, “Change of Control Payments”).