Blue Sky Private Equity EC2010 Fund

Transcription

1 BSPE EC2010 Blue Sky Private Equity EC2010 Fund Blue Sky Private Equity EC2010 Institutional Trust Private Placement Memorandum 1 June 2010 Investment Manager BSPE Pty Ltd ABN Issuer and Trustee Blue Sky Private Equity Limited ABN AFSL

2 Table of Contents Important Notice 3 Introduction 4 Key Points 5 1 Executive Summary The Offer Offer Summary 7 2 About Blue Sky Private Equity History Organisation Structure Investment Management Team Scope and Investment Focus Investment Strategy and Criteria Investment Process The Team 11 3 Summary of Seed Investments 15 4 Blue Sky Private Equity EC2010 Fund Fund Structure Fund Documentation 21 5 Summary of Key Terms 22 6 Risk Factors 27 7 Additional Information 29 8 Glossary 30 Application Guide 31 AML-CTF Checklist 32 Application Form 33 Accountant s Certificate 38 Corporate Directory 39 2

3 BSPE EC2010 Important Notice This Private Placement Memorandum dated 1 June 2010 ( Memorandum ) is issued by Blue Sky Private Equity Limited (ABN , AFSL ) ( Issuer or Trustee ) and is provided on a confidential basis to a limited number of wholesale clients (as defined in the Corporations Act 2001 (Cth) ( Corporations Act )) for the purpose of providing certain information about the proposed Blue Sky Private Equity 2010 Institutional Trust ( Fund or Master Fund ). The Blue Sky Private Equity EC2010 Fund comprises of two Australian unit trusts, the Fund and the Blue Sky Private Equity 2010 Trust ( Feeder Fund ), expected to be established in mid BSPE Pty Ltd (ABN ) will be the investment manager of the Fund ( Manager ). The Manager does not and is not required as at the date of this Memorandum to hold an Australian financial services licence. By accepting this Memorandum you are: n representing that you are a wholesale client (i.e. not a retail client as defined under the Corporations Act); and n agreeing to keep it and its contents confidential and not to circulate it to persons other than your advisers and only then on a confidential basis. This Memorandum is intended only to elicit expressions of interest from prospective investors in Australia. The Memorandum is general in nature and is not to be considered as financial, legal or tax advice. A recipient of this Memorandum should not rely on the contents of this Memorandum and should undertake their own enquiries and seek advice from their financial and other professional advisers before considering whether to apply for an investment in the Fund. The Issuer strongly recommends that recipients of this Memorandum review and satisfy themselves in respect of the risks associated with an investment in the Fund, certain of which are referred to in the section titled Risk Factors in this Memorandum. This Memorandum has been prepared without taking into account the needs, objectives or circumstances of any particular persons. No person other than the Issuer has caused or authorised the issue of this Memorandum nor do they take any responsibility for the preparation of its contents. To the maximum extent permitted by law, none of the Issuer, Manager nor any of their associates make any representations or warranties in relation to the accuracy or completeness of the Memorandum and disclaims all responsibility in relation to the Memorandum. This Memorandum contains a non-exhaustive summary of certain proposed features of the Fund. Fees and costs stated in this Memorandum are exclusive of any applicable GST. All dollars amounts are in respect of Australian dollars unless specified otherwise. The information contained in this Memorandum is subject to change and is subject to the Constituent Documents which prevail to the extent of any inconsistency with this Memorandum. Copies of these documents are available on request from the Issuer. This Memorandum supersedes all previous representations and communications (including Investor presentations) in respect of the Fund. Any information or representations not contained in this Memorandum may not be relied upon as having been authorised by the Fund, Issuer or Manager and should be disregarded. Forward looking statements in this Memorandum (including statements of intention, projections and expectations of investment opportunities) are made only at the date of this Memorandum based on current expectations and beliefs but involve risks, contingencies, uncertainties and other factors beyond the control of the Issuer or Manager which may cause actual outcomes to be materially different. Assumptions underlying such statements involve judgements which may be difficult to accurately predict. Therefore, such forward looking statements included in this Memorandum may prove to be inaccurate and should not be relied upon as indicative of future matters. None of the Issuer, Manager or their officers, employees, advisers, associates or affiliates guarantees any particular rate of return or the performance of the Fund. This Memorandum should not be reproduced, provided or disclosed to others, except in connection with obtaining legal, investment or tax advice with respect to this offering, nor used for any other purpose without the prior written consent of the Issuer. Recipients of this Memorandum who do not proceed with an investment are required to return the Memorandum to the Issuer upon request. 3

4 Introduction Dear Investor, On behalf of the Blue Sky Private Equity Pty Ltd team, it is my pleasure to introduce you to the investment opportunity presented by the ( Fund ). Fund Focus The Fund s focus is to seek out Australian-based small to medium sized enterprises with an enterprise value of $10 million to $30 million, and to provide expansion capital for growth organically or through acquisition. The Fund will typically hold substantial equity stakes of 30% to 50% with the aim to deliver investor exposure to rapidly growing private companies run by high quality entrepreneurs. Investment Rationale We believe expansion capital is an attractive segment of the private equity investment universe that has the potential to deliver alignment between entrepreneurs and investors, and create a partnership mentality at the investee Board level, ensuring funds invested are predominantly spent on growth initiatives. The recent upheaval in global financial markets has highlighted the benefits of investing across multiple sectors, investment types and vintages, and we expect expansion capital to play an increasingly important role in investment portfolios. At the same time, private equity is becoming increasingly attractive to entrepreneurs as a gap emerges between their growth aspirations and their ability to fund that growth through bank credit. Historically, private equity has proven to be most profitable as an investment class following an economic downturn. Whilst future performance is subject to many factors, we expect the investment period of the Fund will prove to be a relatively strong investment vintage for private equity. Blue Sky Private Equity Investing in expansion capital requires a special set of skills and an ability to develop long term relationships based on trust, integrity and discipline. Blue Sky Private Equity seeks to add value to investee companies by working with management to define compelling growth strategies, by providing additional capital for growth as required, and through our operational experience, networks and expertise. Our team has a global perspective combined with extensive local knowledge and networks across a diverse range of industries and geographies. The therefore represents a unique opportunity to invest in private equity at a time when we believe companies are looking to expand with the economic cycle, when capital is scarce, and when investment quality is high. Blue Sky Private Equity will seed the Fund with a number of investments to provide investors with immediate exposure to the private equity space, vintage diversification, as well as some flavour to the types of investments the Fund will target. We are excited by the opportunities that we see in the expansion capital sector and look forward to working with you in the. Yours Sincerely, Tim Wilson Managing Director Blue Sky Private Equity Pty Limited 4

5 BSPE EC2010 Key Points About Blue Sky Private Equity n Depth of talent with team members working across a range of industries, geographies and cultures. n A highly qualified team with strong operational experience combined with extensive academic qualifications from a range of global institutions. n Committed private equity team with alignment of interests with Fund investors through personal investment in the Fund and equity in the Manager. n Additional support from associates across the other Blue Sky alternative asset funds, providing investors with access to a broader range of knowledge, networks and skills. n More than $25m of committed capital under management in the private equity sector, and a proven ability to generate returns during difficult economic conditions*. Expansion Capital as an Investment Class n We believe high quality target companies in the expansion capital space typically display more attractive growth profiles than larger and more mature businesses. n Capital injections to support growth typically involve strong alignment between entrepreneurs and investors. n Expansion capital investments can access a broad range of industries and sectors, providing the potential for strong diversification. n We believe there is less competition in the expansion capital space the Fund is targeting (compared to buy-outs), allowing for relatively attractive pricing entry points. n We believe there is more potential for an operationally-focused private equity manager to add value to portfolio companies. Current Market Opportunity n Emerging economic recovery and increasing business confidence will lead entrepreneurs to accelerate expansion plans, encouraging them to seek outside capital to fund growth. n Recent disruptions to credit markets increase the attractiveness of expansion capital to both entrepreneurs and investors, as tighter lending conditions make equity capital a more attractive source of finance. n Blue Sky Private Equity recognises opportunities to add value strategically and operationally, with our expectation that PE vintages 2010 through to 2012 are likely to outperform recent vintages. * As at 31 May

6 What Makes Blue Sky Private Equity Different? n Blue Sky Private Equity is one of only a few managers focused primarily on the smaller end of the Australian expansion capital market, providing investors with access to a high quality and proven team in a space where, in Blue Sky Private Equity s view, quality management is hard to find. n We focus on Australian SME expansion capital to businesses, not leveraged buyouts. This requires strong operational and people skills, an ability to create enduring partnerships and broad networks to supplement portfolio company requirements. Blue Sky has a demonstrated track record in delivering these outcomes (see Section 3 Summary of Seed Investments, which provides example case studies). n Blue Sky Private Equity is part of the Blue Sky Funds Management group, specialising in alternative assets in a range of sectors including private equity, water assets, private real estate, and the hedge fund industry. Blue Sky Funds Management s demonstrated expertise in corporate governance, reporting, risk management and compliance will add value to Blue Sky Private Equity investors. n We have unique deal flow through our diverse investor base of private clients and broad network of associates both nationally and globally, providing investors with access to new opportunities. n Blue Sky Private Equity provide investors with access to private equity investments, a focus on greater transparency, a direct relationship with the Manager, and access to the broader Blue Sky network. Overall Investment Strategy of the Fund Initially, the Fund will be seeded with investments (see Section 3 Summary of Seed Investments for more detail) to provide immediate investment exposure for investors in the Fund. The Manager may also make follow on investments into these seed assets. The Manager believes this will assist in smoothing out the J-Curve often seen in private equity returns. The Fund will invest into private equity investments across a wide range of industries (excluding start-ups, real estate, mining and exploration, armaments and gaming) in Australia. The Fund will typically acquire investments with a: n focus on expansion capital investments; n focus on investees with enterprise value of $10 million to $30 million; n view to hold typically non-control positions with minimum of 30% and maximum of 50% investee equity; n commitment of typically $3 million to $10 million to each investment. 6

7 1 BSPE EC2010 Executive Summary 1.1 The Offer This Memorandum provides general information for potential Investors interested in the opportunity to invest in the Fund. The consists of a master-feeder structure, comprising two Australian trusts, Blue Sky Private Equity 2010 Institutional Trust ( the Fund or Master Fund ) and Blue Sky Private Equity 2010 Trust ( Feeder Fund ). Offer Dates* First Closing Date 31 August 2010 Final Closing Date A date determined by the Trustee which is not more than 9 months after the First Closing Date. * The Trustee may change the offer dates, including closing the offer early, without prior written notice, although it will typically notify in writing. 1.2 Offer Summary The offer summary below outlines certain terms of investing in the Master Fund or Fund, unless specifically referred to as being applicable across the whole. Fund Size Maximum size of $50 million in capital commitments. Fund Structure The will utilise a master-feeder structure, comprising of the following Australian unit trusts: (a) Blue Sky Private Equity 2010 Institutional Trust This trust is the Master Fund (referred to as Fund in this Memorandum) that will hold the portfolio of fund investments. Initially the Master Fund will be unregistered but may be registered with ASIC at a later time. Investments in this Trust will be by invitation only to institutional and other wholesale investors; and (b) Blue Sky Private Equity 2010 Trust The Feeder Fund will be registered as a managed investment scheme with ASIC and will feed into the Master Fund. The Feeder Fund may also make direct investments in parallel to the Master Fund in certain situations. Investments in this trust will be made available to primarily self managed superannuation funds and certain other investors. Pre-Tax Target Fund IRR The Fund will target a 30% per annum (pre tax and carry and post other fees and expenses) return. The Fund may not be successful in meeting this target. Investment Period 5 years from the First Closing Date or such other date pursuant to the Master Fund Trust Deed (e.g. Key Person event, Special Resolution passed to extend the Investment Period). Termination Date 5 years after the end of the Investment Period or such other earlier date pursuant to the Master Fund Trust Deed (e.g. Special Resolution passed to terminate the Fund). Fees / Costs Management Fee An amount equal to 1.85% per annum of committed capital (during the Investment Period). Carried Interest 20% (8% hurdle, no Manager catch up ). Establishment Cost Up to $250,000 across the whole. Any amounts exceeding this will be borne by the Trustee and/or Manager. Co-investment by Principals The Principals and its affiliates have agreed to invest into the Master Fund a minimum of $1 million. Minimum Investment by Investors $5 million or as approved by the Trustee. Key Persons Each of Tim Wilson, Alex McNab and Mark Sowerby or any other person approved in accordance with the Trust Deed as a replacement of either of them. Successor Fund Investors in the Fund will be given priority allocation for investments in the next Blue Sky Private Equity fund. Please read Section 5 for a summary of the principal terms relevant to the Master Fund. 7

8 2 About Blue Sky Private Equity 2.1 History 2.2 Organisation Structure Blue Sky Private Equity was established in 2006 to invest expansion capital into Australian small to medium sized enterprises. Investment capital has been sourced from a broad range of investors including family offices, sophisticated clients, high net work individuals, and self managed super funds ( SMSFs ). With $25m of committed capital under management (as at 31 May 2010), Blue Sky Private Equity has built a strong track record in delivering operational outcomes in the expansion capital space (see Section 3 Summary of Seed Investments which provides example case studies). The foundations of Blue Sky are built on strong and enduring relationships, and it is those relationships that drive our future growth and success. Blue Sky Private Equity Pty Limited is the specialist private equity division of Blue Sky Funds Management, an Australian based alternative asset management company with headquarters in Brisbane, QLD and an office in Adelaide, South Australia. The Principals of the business are Mr Tim Wilson (Managing Director), Mr Alex McNab (Strategy Director) and Mr Mark Sowerby (Director). In addition, the company employs a number of investment associates including Mr Ben Rose. Since July 2006 the Blue Sky Funds Management team has grown to 17 team members across two offices, with $130m of committed capital currently under management across a range of asset classes as at 31 May Blue Sky Private Equity Pty Limited ABN: Tim Wilson Managing Director BSPE Portfolio Vintage Viking Rentals Lenard s Group Holdings Paradise Motor Homes Beach Burrito Company $12 million Committed Capital 31 May 2010* PCI Equities Trust Vintage Firewire Limited BioCentral Laboratories Pty Ltd CommStrat Limited $14 million Committed Capital 31 May 2010* EC2010 Fund Proposed Fund Expansion capital into Australian businesses Target Fund Size $50 million * Based on committed capital. 8

9 BSPE EC Investment Management Team BSPE Pty Ltd will act as the manager of the Fund and is owned by Tim Wilson, Alex McNab and Mark Sowerby, aligning the interests of the principals with Fund investors through their personal investment in the Fund and therefore ensuring the long term commitment of the private equity team. The members of the Blue Sky Private Equity team have been selected on the basis of their strong operational experience and different, yet complimentary, skill sets and perspectives. Blue Sky Private Equity believes its operational experience is a strength that places it in a different sector of the market than managers more reliant on financial engineering and leverage to generate sufficient returns. We have completed projects in retail, agribusiness, manufacturing, and industrial services and have a pipeline of new projects across various industries. 2.4 Scope and Investment Focus The Fund s focus is to seek out Australian-based small to medium sized enterprises with an enterprise value of $10 million to $30 million, and provide expansion capital for growth organically or through acquisition. Private equity plays an important role in the Australian investment landscape, delivering capital to growing businesses and providing investors with diversification outside the usual listed equity and property markets. Historically, private equity has generally been one of the more profitable investment classes following an economic downturn and, while there are no guarantees of future performance, we expect that 2010 and 2011 will prove to be relatively strong investment vintages for private equity. Blue Sky Private Equity s focus on expansion capital is underpinned by a number of our beliefs about the attractiveness of the segment: n High quality target companies in the expansion capital space typically display more attractive growth profiles than larger and more mature businesses; n Capital injections to support growth typically involve strong alignment between entrepreneurs and investors; n Expansion capital investments usually feature low levels of leverage recent disruptions to credit markets increase the attractiveness of expansion capital to both entrepreneurs and investors; n Exposure to expansion capital investments has the potential to create diversification of sectors and investment types within private equity portfolios; n In our experience there is less competition in the expansion capital space (compared to buy-outs), allowing for relatively attractive pricing entry points; n There is often good potential for an operationallyfocused private equity manager to add value to portfolio companies. 2.5 Investment Strategy and Criteria Blue Sky Private Equity will seek to build a focused portfolio of high quality SMEs typically featuring most or all of the following characteristics. Business Parameters n High growth potential. n Established, profitable operations. n Exceptional entrepreneurial owners or management teams. n Opportunities for BSPE to add value. n Enterprise value of $10 million to 30 million. n Favourable exit potential. Transaction Parameters n Significant equity stake (30-50%). n Board representation and appropriate shareholder protections. n Exit alignment with existing owners and managers. 9

10 2.6 Investment Process Deal Origination Blue Sky Private Equity has a network of relationships in the marketplace which it considers will help to facilitate high quality, proprietary deal flow. These relationships include: n Small, mid-tier and large accounting and financialplanning firms; n Existing or potential investors (~500 largely entrepreneurial contacts who can refer leads to BSPE); n Portfolio company shareholders/management; n Personal networks (e.g. banks, former clients, London Business School / INSEAD / Harvard / UQ alumni, school, sporting, charities, etc). Through these networks, Blue Sky Private Equity has typically seen over 200 opportunities each year. Investment Appraisal and Execution Through the collective private equity, investment banking and consulting experience of its principals, Blue Sky Private Equity believes it has deep expertise in market, competitive and business analysis, as well as deal structuring and execution. Blue Sky Private Equity conducts its own due diligence (supported by external advisers where appropriate), applying a comprehensive and thorough due diligence process to yield an informed proprietary insight into investee companies. Ownership Period Immediately after investing, Blue Sky Private Equity typically works with management and other shareholders in the investee companies to develop a 100-day plan which identifies the 3-5 most important value creation initiatives for the company, an explicit blueprint supporting these initiatives (e.g. actions, timelines and accountabilities) and an agreed measurement framework to track success. Throughout the ownership period, Blue Sky Private Equity expects to take at least one board seat and a very active role in the investee companies, adding value through strategic direction, introductions across the BSPE network (including to external industry leaders), strategic advice and execution support (e.g. on mergers and acquisitions or balance sheet restructuring) and, upon thorough review, implements improved reporting/ corporate governance policies, procedures and frameworks. Blue Sky Private Equity has in the past demonstrated deep involvement across its existing portfolio investee companies (eg. operations, finance, management), and this hands-on management approach will be a key feature of the BSPE EC2010 Fund. Exit Blue Sky Private Equity invests in businesses with clearly formulated exit routes (such as IPOs, third party acquisitions or secondary buy-outs), and looks for exit alignment with existing owners and managers. Blue Sky Private Equity believes that it is able to add value through the exit process by helping to prepare investee companies for exits, including by actively seeking out potential trade buyers and by working with advisers in capital markets to prepare for IPOs where appropriate. 10

11 2.7 The Team Tim Wilson Managing Director Blue Sky Private Equity Tim Wilson joined Blue Sky Private Equity in July 2009 as Managing Director. Tim has worked in the private equity industry for the last twelve years through various investment banking roles in London, Sydney and Brisbane. Tim has completed a Bachelor of Commerce and Bachelor of Laws at the University of Queensland, a Graduate Diploma of Applied Finance and Investment, and a Master of Science in Finance from the London Business School. Tim began his career as a lawyer in Brisbane with Minter Ellison where he worked for 4 years as a commercial lawyer. He then moved to London to study before joining Paribas in their pan-european leveraged finance team. Tim then spent four years with Credit Suisse First Boston as a Vice President in Investment Banking, working in leveraged finance for private equity and a period in Mergers & Acquisitions generating opportunities for private equity firms. After nearly seven years in London, Tim returned to Sydney to join Babcock & Brown s Corporate Principal Finance team for two years. From there, home beckoned, and Tim returned to Brisbane, initially with Westpac Institutional Bank. Most recently Tim spent four years running Investec s Growth & Acquisition Finance business in Queensland. This entailed sourcing and providing funding to growing private companies with enterprise values of $10 million $50 million. This funding was typically in the form of mezzanine debt with an equity component. With this background Tim brings a mixture of local on the ground experience in sourcing opportunities to finance growing SMEs in Queensland, together with extensive leveraged finance structuring experience built up working alongside the major US / European and Australian private equity houses and a useful legal background in the area of commercial law. Education 1997 Master of Science in Finance (Graduating in the top quartile) London Business School 1995 Graduate Diploma in Applied Finance and Investment Securities Institute of Australia, Brisbane 1992 Bachelor of Laws (1992) Bachelor of Commerce (1990) University of Queensland, Brisbane Career Background Growth & Acquisition Finance Investec Associate Director Westpac Institutional Bank, Brisbane Corporate Principal Finance Babcock & Brown, Sydney Vice President Leveraged Finance Origination / Financial Sponsor Coverage Credit Suisse First Boston, London Associate Leveraged Finance Paribas, London Solicitor Commercial Law Minter Ellison, Brisbane 11

12 Alex McNab Strategy Director Blue Sky Private Equity Alex joined Blue Sky Private Equity from Bain & Company, a global strategy consulting firm. During his time at Bain, Alex worked in numerous locations including Sydney, Melbourne, Singapore and San Francisco, and was a Manager when he left Bain. Having completed 8 years with one of the most highly regarded global consulting firms, Alex has developed a broad skill set including the formulation of corporate and business unit strategies, leading performance improvement projects, and influencing management teams to drive results. Alex was exposed to a large number of projects such as designing the customer strategy for a major Australian bank, realignment of the retail footprint of a large Australian specialty retailer, and a new capability sourcing strategy for a major services client. He has a proven ability to analyse new businesses, identify productivity and profitability opportunities, and design and implement programmes to deliver on those opportunities. As an employee at Bain & Company, Alex was recognized with a number of awards including Employee of the Year in the Australian practice in 2005 and Mentor/Coach of the Year in 2004 and Alex brings with him a wealth of global experience and skills well suited to private equity investment. His experience stretches across a broad range of sectors with financial services, telecommunications, retail, consumer products, and technology being areas of particular interest. Alex will manage the ongoing strategic development and performance monitoring of Blue Sky investee companies, and will play an active role building strong relationships with key personnel in those companies. In addition, Alex will be actively involved in evaluating potential investments. As a partner in Blue Sky Private Equity, Alex is well equipped to deliver strong operational improvements and prepare our portfolio businesses for exit Alex has a Masters of Business Administration (Distinction) from INSEAD, as well as a Bachelor of Economics (University Medal) and a Bachelor of Laws from the University of Queensland. Alex is a graduate of the Royal Military College of Australia (Duntroon), where he completed Army Reserve Officer Training. Education 2006 Master of Business Administration INSEAD, Fontainebleau, France 2001 Bachelor of Economics (University Medal) Bachelor of Laws University of Queensland, Brisbane, Australia 1998 Army Reserve Office Training Royal Military College of Australia, Duntroon Career Background Manager Bain & Company 12

13 Mark Sowerby Director Blue Sky Funds Management As the founder of Blue Sky Private Equity, Mark is responsible for the strategic direction of the company and plays an active role in sourcing investment opportunities, negotiating deal terms and building relationships across the investment portfolio. Mark is involved in numerous projects covering a range of sectors including retail, manufacturing, services and agribusiness, and represents Blue Sky Private Equity investors on a number of boards. Mark s work experience began with a large US based commodity merchant, working and travelling in the US, Mexico, Central America, Asia and India. This exposure allowed Mark to develop a strong practical understanding of a wide variety of export markets and their business cultures, and an appreciation of foreign currency trading, futures markets, and derivatives as a risk management tool. Seeking to broaden his experience following completion of his MBA, Mark became CEO of an Adelaide-based farmer co-operative undergoing a substantial restructure. As a producer and exporter of plant genetics to over 65 countries, Mark developed strong networks across the research and development sectors in Australia and overseas, and delivered a new model for commercialisation partnerships between private and public entities. Further export market development in Africa, Western Europe and South America complemented his previous work and provided a strong foundation of international experience across vastly different products. Relationships developed during this time resulted in the formation of a number of new opportunities for Blue Sky in the water and carbon sectors, and remain an important source of deal flow for the private equity team. Mark s experience has primarily been building businesses through identification and implementation of a clearly defined strategy, and it is these characteristics which have allowed Blue Sky to grow and prosper since inception in Mark has a strong academic foundation having completed a Master of Business Administration at the University of Queensland, a Graduate Diploma in Applied Finance and Investment at the Securities Institute of Australia in Sydney and a Bachelor of Agricultural Science. Mark has completed the Private Equity and Venture Capital course at Harvard Business School, Boston, USA. Mark is a member of the Australian Institute of Company Directors (AICD) and the Financial Services Institute of Australasia (Finsia). Education 2007 Private Equity and Venture Capital Harvard Business School. Boston, USA 2003 Master of Business Administration University of Queensland, Brisbane, Australia 1998 Graduate Diploma in Applied Finance & Investment (Treasury Stream) Securities Institute of Australia, Sydney, Australia 1993 Bachelor of Agricultural Science University of Queensland, Brisbane, Australia Career Background July 2006 Managing Director, Blue Sky Funds Management Established Blue Sky Private Equity Ltd 2003 July 2006 Chief Executive Officer Seed Technology & Marketing Pty. Ltd General Manager Weil Brothers Cotton (Australia) Pty. Ltd Management Trainee Weil Brothers Cotton, Inc., Alabama USA Professional Organisations Member Financial Services Institute of Australasia (Finsia) Member Australian Institute of Company Directors (AICD) 13

14 Ben Rose Consultant Blue Sky Private Equity Since joining the Blue Sky Private Equity team in 2009 as a consultant, Ben Rose has performed the role of Acting Financial Controller at Paradise Motor Homes, and has led strategic and operational reviews at a number of Blue Sky Private Equity investee companies, including CommStrat, Balance Carbon and BioCentral Laboratories. Ben has broad operational and financial experience in manufacturing and retail industries. During over four years employment at the Riviera Group, a global marine company based on the Gold Coast, Ben headed the R Marine dealer network and held leadership roles in sales, manufacturing, finance, and dealer relations. Prior to Riviera, Ben was a Chartered Accountant with Johnston Rorke in Brisbane. Ben brings strong operational expertise to Blue Sky Private Equity, including experience in sales management and distribution, production planning and efficiencies, strategic planning, profitability analysis, pricing, financial reporting and cost management. Upon successful closing of the BSPE EC 2010 Fund, Ben will continue to be focused on operational improvement within the Blue Sky Private Equity portfolio. Ben has a Bachelor of Commerce from the University of Queensland and is a Chartered Accountant. Education 2006 CA Professional Qualification Institute of Chartered Accountants 2002 Bachelor of Commerce University of Queensland, Brisbane, Australia Career Background 2010 Acting Financial Controller Paradise Motor Homes Various roles including: Manager Global Sales Manager R Marine Manufacturing Team Leader Financial Analyst Riviera Group Senior Accountant Johnston Rorke Chartered Accountants 14

15 3 BSPE EC2010 Summary of Seed Investments Seed Investments Viking Rentals To provide investors with immediate investment exposure to high quality private equity investments, the Manager has agreed to transfer the following investments to the Master Fund upon Final Closing Date at a combined value of approximately $15 million, consisting of: n 42.2% of total shares in Viking Rentals; and n 35.0% of total shares in Lenard s Group Holdings. The seed investments will be transferred at valuations conducted by an independent valuer. The seed investments are currently held by unit trusts managed by Blue Sky Private Equity. Valuations Ernst & Young have been appointed as the independent valuer of the seed investments. Valuations of the seed investments will be conducted post 30 June so as to ensure that valuations accurately reflect the current market values of those investments. Ernst & Young will also prepare a valuation report, a summary of which will be available upon request to the Manager. There is the risk the seed investments may have valuations which differ from their true and actual realisable value. Further, Ernst & Young (or any third parties relied upon by Ernst & Young), may rely upon valuations and information which may be based on interim or estimated valuations. The Manager is entitled to receive performance fees from the unit trusts that currently hold the seed investments. These fees may be triggered or become more likely to be payable to the Manager upon the sale of the seed investments to the Fund. The Manager will however re-invest any such performance fees initially received (net of any tax payable) into the Fund as well as contributing additional monies to make up any short fall so that the Manager and its Principals in aggregate contribute a total of $1 million into the Fund. The following is a high level, non-exhaustive, overview of the proposed seed investments for the. Further details can be requested from BSPE. Business Overview In the four years since it was established, Viking Rentals has become one of Australia s largest toilet hire businesses with a fleet of almost 3,000 toilets. Ownership of the Segment through a Superior Model Viking s differentiated high-service model has captured significant market share and customer loyalty, supporting high network densities, reducing servicing costs and allowing Viking to price competitively. Scalable and Differentiated Business Model Portable toilet hire is a scalable business due to the ability to manage stock utilization and investment. As each stock unit is deployed and new customers are obtained, Viking Rentals has the capacity to grow through ongoing marketing and investment at a sustained and consistent rate. Growth by acquisition provides larger scalability opportunities through the addition of existing customers and stock and converting them to the Viking Rentals model. Compatible Event Hire Opportunity Viking recently acquired Elite Portables, an event hire business that generates business on weekends and across summer to service the ever growing market for music festivals. This balances the construction sector s working week utilization and the construction slowdown over summer, and further enhances utilization and investment management across the toilet fleet. 15

16 Performance Highlights Since Investment n Increase in rental fleet from 250 portables in FY 07 to 2,900 in FY 10. n Successful integration of multiple acquisitions, including Grove Toilets, Bell Toilets and Elite Portables. n Successful organic entry into Melbourne market, with strong EBITDA margins. Awards Viking Rentals has received numerous business awards. Growth Opportunities Blue Sky Private Equity sees significant growth potential in Viking Rentals, in three key areas: Geographical Expansion in Construction Hire Viking Rentals recent success in Melbourne indicates that its superior service-oriented rental model is appealing beyond South East Queensland. Viking Rentals will grow its construction hire business organically (as has been demonstrated in Melbourne); in addition, Viking Rentals has a strong track record of acquiring and integrating complementary portable toilet businesses. Expanding Events Hire Business Viking Rentals initial focus was on the residential construction sector, and this will continue to be Viking Rentals core business. However, Viking Rentals successful acquisition and integration of Elite Portables demonstrates the potential in the event hire sector and the benefits of participating in both segments of the market (from improved staff and fleet utilization). Related Services to the Construction Sector While Viking Rentals began as a pure play portaloo rental business it has developed a small and profitable business providing rental power poles to builders, and more recently temporary fencing sales. There is potential opportunity to expand these product lines in Viking Rentals existing, loyal customer base. 16

17 BSPE EC2010 Investment Risks The investment in Viking Rentals is subject to a number of investment risks including the following: Competition The introduction of new competitors or a more aggressive competitive response from existing participants may affect the operating performance of Viking Rentals. There is no assurance that Viking Rentals will be able to compete successfully in its marketplace and any increase in competition could adversely affect the earnings of Viking Rentals. Economic Conditions There is a risk of a change in economic conditions such as interest rates, fiscal and monetary policy, currency fluctuations, inflation or employment levels and this may have an impact on the marketability of the business. Economic conditions may also be impacted by other local or international events such as major share market fluctuations and terrorist acts. Government Legislation There is a possibility that adverse consequences may arise for Investors because of amendments to statutes and regulations affecting the operations of the business which may have a materially adverse effect. Key Personnel and Management The success of the business will, to a large extent, be dependent on the ability and experience of its directors, executive management and key employees. Viking Rentals has put in place strategies that it feels will allow it to effectively lock in key personnel for at least the next several years. Refinancing of Convertible Notes In 2008 Viking Rentals issued convertible notes. The ability to refinance the redemption of the convertible notes at expiry is subject to prevailing credit conditions and the financial strength of Viking Rentals. No assurance is given that Viking Rentals will be able to refinance the convertible notes at expiry. Refer to Section 6 Risk Factors for general risks in relation to investing in the Fund. Rationale for Inclusion in the Fund The investment in Viking Rentals will be included in the Fund for a number of reasons, some of which include: n Providing immediate investor exposure to what BSPE believes is a high quality private equity investment with an attractive growth profile; n Vintage diversification (Viking Rentals equity investments were made in 2007 and 2008); and n Viking Rentals rapid growth potential creates the opportunity for follow-on expansion capital investments for the Fund. Detailed financial projections and valuation calculations for Viking Rentals can be found in the independent valuer s report. This is not a complete summary of the investment and more information is available upon request from the Manager. Unforeseen Expenditure Risk Expenditure may need to be incurred by Viking Rentals that has not been taken into account in the preparation of this Memorandum. Although Blue Sky Private Equity is not aware of any such additional expenditure requirements, if such expenditure is subsequently incurred, this may adversely affect the earnings of Viking Rentals. 17

18 Lenard s Chicken Performance Highlights Since Investment n Increased store numbers from 179 (July 2008) to over 200 (forecast July 2010) through higher retention and improved recruitment. n Successful buy back of the Lenard s Master Franchises, increasing the revenue and profitability of Lenard s Group Holdings. Business Overview Lenard s is an established, profitable food retailer specialising in the delivery of value-added poultry products to consumers. The Lenard s franchise network now comprises >190 stores, an annual system turnover of more than $150 million and an estimated market share of 10-12% of retail chicken consumption. Lenard s has historically sold more than 20 million chickens each year and serves 200,000 customers every week. BSPE invested in Lenard s in order to fund the purchase of Master Franchise Licenses of the Lenard s business in Victoria and South Australia, completing a nationwide buyback of all Master Franchise Licenses. This structural change allowed Lenard s to purchase back existing royalty streams, delivering stronger cash flows to the Lenard s business. In addition, it allowed Lenard s to achieve direct line of sight to their franchisees, more aggressively rollout expansion plans across the network, and improve delivery of marketing and product initiatives. n Successful execution of an alliance with Metcash (placing Lenard s stores within IGA outlets). n Increase in franchisee gross margins (from 48% in July 2008 to 53% today). Growth Opportunities Blue Sky Private Equity sees significant growth potential in Lenard s in four key areas: Expanding the Franchise Network Lenard s continues to grow the franchise network, with new additions and low levels of franchisee churn. In addition, Lenard s has signed an agreement with Metcash, which will result in a significant number of stores-in-stores in the IGA network. Pre-packaged Branded Food Lenard s is exploring opportunities to distribute branded, packaged Lenard s food across the entire IGA network. A successful roll-out would form a platform to expand overseas into other supermarket chains. Increased Profitability There is significant EBIT upside potential through increasing franchise fees to industry benchmarks and increasing supplier rebates. Growth through Acquisition Options for further growth include acquisitions of complimentary domestic franchise networks, to pushing a version of the Metcash / IGA store-in-store concept across Asia and/or the US. 18

19 BSPE EC2010 Awards Lenard s has received numerous business awards. Key Personnel and Management The success of Lenard s, will to a large extent, be dependent on the ability and experience of its directors, executive management and key employees. Lenard s has put in place strategies that it feels will allow it to effectively lock in key personnel for at least the next several years. Unforeseen Expenditure Risk Expenditure may need to be incurred by Lenard s that has not been taken into account in the preparation of this Memorandum. Although Blue Sky Private Equity is not aware of any such additional expenditure requirements, if such expenditure is subsequently incurred, this may adversely affect the earnings of Lenard s. Investment Risks The investment in Lenard s is subject to a number of investment risks including the following: Operational Risks Lenard s may not perform to the levels expected, which could temporarily affect the viability of the business. Competition The introduction of new competitors or a more aggressive competitive response from existing participants may affect the operating performance of Lenard s. There is no assurance that Lenard s will be able to compete successfully in its marketplace and any increase in competition could adversely affect the earnings of Lenard s. Economic Conditions There is a risk of a change in economic conditions such as interest rates, government legislation, fiscal and monetary policy, currency fluctuations, inflation or employment levels and this may have an impact on the marketability of Lenard s. Economic conditions may also be impacted by other local or international events such as major share market fluctuations and terrorist acts. Government Legislation There is a possibility that adverse consequences may arise for Investors because of amendments to statutes and regulations affecting the operations of the business which may have a materially adverse effect. Refer to Section 6 Risk Factors for general risks in relation to investing in the Fund. Rationale for Inclusion in the Fund The investment in Lenard s will be included in the Fund for a number of reasons, some of which include: n Providing immediate investor exposure to what BSPE believes is a high quality private equity investment with an attractive growth profile; n Vintage diversification (Lenard s investments were made in 2008 and 2010); and n Due to its strong performance, recent corporate activity in the franchising industry and its prominent retail brand, Lenard s provides the Fund with a potential exit opportunity relatively early in the Fund s term, introducing diversification in exit timelines. Detailed financial projections and valuation calculations for Lenard s can be found in the independent valuer s report. This is not a complete summary of the investment and more information is available upon request from the Manager. 19

20 20

21 4 BSPE EC2010 Blue Sky Private Equity EC2010 Fund 4.1 Fund Structure The will utilise a master-feeder structure, comprising of the following Australian unit trusts: n Blue Sky Private Equity 2010 Institutional Trust The Master Fund will hold the portfolio of fund investments. The Master Fund is not initially expected to be registered with ASIC as a managed investment scheme but will be in registrable form. Should the Fund wish to capture any proposed Managed Investment Trust tax benefits, the Trustee may register the Fund. Investments in the Master Fund will be by invitation only and to institutional and other wholesale investors only; and n Blue Sky Private Equity 2010 Trust This Feeder Fund will be registered as a managed investment scheme with ASIC and will feed into the Master Fund. The Feeder Fund may also make direct investments in parallel to the Master Fund in certain situations. Investments in this Feeder Fund will be made available primarily to self managed superannuation funds and certain other investors. The terms of the Feeder Fund will be different from the Master Fund to accommodate the different investor base, the registered status of the Fund and the nature of the fund being a feeder fund. BSPE Pty Ltd will act as the Manager, and Blue Sky Private Equity Limited will act as trustee of each Trust (and responsible entity of the relevant Trust, in the event it is registered). 4.2 Fund Documentation Each of the Master Fund and Feeder Fund will be governed by the respective Trust Deed. Each Investor will agree to be bound by the Trust Deed by executing an Application Form. Applications may be refused by the Trustee in its absolute discretion. The minimum subscription amount to invest is set out in the offer summary on page 7. A copy of the Constituent Documents are available upon request from the Manager. The Fund can be diagrammatically summarized as shown below: Blue Sky Private Equity EC2010 Fund Blue Sky Private Equity 2010 Trust (Feeder Fund) n SMSFs n Certain Retail Investors Cash and Cash-like Investments Blue Sky Private Equity 2010 Institutional Trust (Master Fund) n Cornerstone Investors n Certain Institutional and Wholesale Investors n Principals of Blue Sky and their Associates Investment Portfolio 21

22 5 Summary of Key Terms Set out below is a non-exhaustive summary of key terms of the Master Fund, which are subject to change. Refer to the Constituent Documents for the complete terms, which will supersede and prevail to the extent of any inconsistencies with this Memorandum. Manager BSPE Pty Ltd is the Manager and will operate as an authorised representative of the trustee (no ) under its Australian financial services license (no ). Blue Sky Private Equity Limited is the trustee (or responsible entity in the event the Master Fund is registered). Refer Section 2 for further details about the Manager. Investment Plan Initially, the Fund will be seeded with investments (see Section 3 Summary of Seed Investments for more detail) to provide immediate investment exposure to investors in the Funds. The Manager may make further investments into these seed assets. The Master Fund will seek to invest into private equity type investments across a wide range of industries (excluding start-ups, real estate, mining and exploration, armaments and gaming) in Australia. Investments may also include unlisted securities, derivatives (primarily for hedging purposes) and debt instruments (e.g. convertible notes). The Master Fund typically will acquire investments with a: n focus on expansion capital investments; n focus on investee companies with enterprise values of $10 million to $30 million; n view to hold typically non-control positions with minimum of 30% and maximum of 50% investee equity. A board seat will generally be required and control transactions are expected to be limited (if at all); n commitment of typically $3 million to $10 million to each investment. Investment Parameters n No single investment cost is to be greater than 20% of the total Committed Capital to the overall Fund. n The Master Fund may not borrow an amount greater than 10% of total Fund commitments and then only on the basis that the borrowings are short term. n No use of derivatives other than for hedging purposes or where the investment into private equity is structured as a derivative (e.g. option or warrant). n The Master Fund may make loans (excluding for example, convertible notes) in connection with investments so long as such loans are repaid within 12 months and the aggregate amount of such loans from time to time does not exceed 25% of the Fund s Committed Capital. n No investment into other funds, investment pools or mandates (other than the Feeder Fund investing into the Master Fund). Seed Investments The Manager will transfer the following seed investments at a combined value of approximately $15 million upon Final Closing Date of the Master Fund: n Viking Rentals; n Lenard s. Refer Section 3 for details. Target IRR The Fund will target a 30% per annum (pre tax and carry and post other fees and expenses) internal rate of return. The Fund may not be successful in meeting this target. Co-Investment by Principals Blue Sky and its affiliates have agreed to invest a minimum of $1 million into the Fund. Investors The Offer is open only to certain institutional and other wholesale clients (as defined under the Corporations Act) in Australia, approved by the Trustee. Minimum Committed Capital of an Investor $5 million unless otherwise approved by the Trustee. Capital Structure of Units Partly-paid Units. 22

23 BSPE EC2010 Investment Period The Investment Period commences on the First Closing Date and expires on the fifth anniversary thereafter unless terminated earlier in accordance with the Master Fund Trust Deed (e.g. Key Person event, Special Resolution passed to extend the Investment Period). Termination Date The date 5 years after the end of the Investment Period or such other earlier date pursuant to the Master Fund Trust Deed (e.g. Special Resolution passed to terminate the Fund). Fund Size Maximum $50 million of capital commitments across whole. First close minimum of $30 million. Limited window offer strictly no oversubscriptions. First Closing Date 31 August 2010.* * The Trustee may change this date, including closing the offer early, without notice. Final Closing Date A date determined by the Trustee which is not more than 9 months after the First Closing Date. Late Capital Investors admitted on a closing date after the first close of the Fund will contribute the proportion of their Committed Capital that they would have paid had they been admitted on the First Closing Date plus an amount equal to such drawn capital multiplied by the RBA Cash Rate plus 3% per annum applied from the First Closing Date until the later closing date. This amount is paid to Investors admitted prior to the first close. Late Investors will upon their admission to the Master Fund also bear a proportionate share of any of the Master Fund s costs and fees that would have been incurred by them if admitted on the First Closing Date including the Management Fee that the Investor would have borne had it been admitted on the First Closing Date instead of the later closing date. This Management Fee is paid to the Manager. This is to ensure all Investors are treated equally. Organisational Costs Up to $250,000 across the whole. Any amounts exceeding this will be borne by the Trustee and/or Manager. Management Fee An amount equal to 1.85% (ex GST) per annum of: n the total Committed Capital until the earlier of the end of the Investment Period and the first close of a Successor Fund; and n thereafter, of Adjusted Committed Capital (Committed Capital less cost value of investments that have been realised and distributed or written down to zero), payable and calculated on the First Closing Date and the beginning of each calendar quarter thereafter. Distributions Distributions from the Master Fund may be made at any time at the discretion of the Trustee provided that surplus cash must be promptly distributed. Distributions will be made to Investors pro rata to their Committed Capital and will be paid in the following order of priority: (A) Capital Return and Preferred Return Firstly, 100% of distributions will be returned to Investors until they have received (including tax credits) their total draw down Committed Capital plus a preferred return of 8% pa on such draw downs. (B) Split Once the amounts distributed under paragraph A have been paid, any remaining distribution proceeds will be applied as follows: n 80% to Investors (considered together); and n 20% to the Trustee or Manager (if applicable, considered together) by way of Performance Fee (ie carry). As distinct from many other private equity funds, and to the benefit of Investors, the Manager does not have a carry catch up. Distributions In-specie Distributions of other than cash and franking credits are not permitted unless approved by Special Resolution and the consent of the recipient Investors. 23

24 Redraws The Trustee may recall amounts distributed to an Investor in connection with a particular investment where amounts are required to be repaid to that investment by the Trustee, provided that the Trustee provided Investors with notice of the extent of the amount to be recalled and the reasons. Calls n The Committed Capital of an Investor is to be paid by way of calls/installments. n Part or all Committed Capital is payable on 10 Business Days notice, at any time prior to the termination of the Investment Period. n Upon termination of the Investment Period, Investors will not be required to pay further calls except for the purposes that include: n making an investment that the Master Fund was bound to make prior to the end of the Investment Period; n transactions approved by Special Resolution; n making follow-on investments in existing Master Fund investments; and n meeting an expense or liability of the Master Fund (including Management Fees, carry and to indemnify the Trustee and Manager, as required). n Calls are subject to typical moratoriums (e.g. Key Person event and change of control of Blue Sky). Advisory Committee The Trustee will establish an advisory committee ( Advisory Committee ) comprising representatives of Investors as follows: n Each Investor who holds 10% or more of the total value of the Master Fund will be entitled to nominate one representative to be a member of the Advisory Committee. Members may also include other Investor representatives invited by the Manager; n Maximum of one member nomination per Investor; n Responsible for a range of matters in relation to the operation of the Master Fund including conflicts of interest between the Trustee and the Master Fund, variations to the Investment Plan and reviewing investment and management methodologies, calculations of fees, carry and the value of investments; and n To be convened as required under the Trust Deed including that the Trustee must convene a meeting of the Advisory Committee if directed to do so by any of its members, or as otherwise required by the Trustee. Investment Committee The Trustee or Manager (as applicable) will establish an Investment Committee as follows: n Membership of at least the Key Persons and may include external independent industry experts and other representatives of the Manager; n Responsible for agreeing all material investment decisions of the Fund. Key Persons Each of Tim Wilson, Alex McNab and Mark Sowerby or any other person approved as a replacement of any of them in accordance with the Trust Deed. Borrowings The whole Fund may not at any time borrow money greater than 10% of aggregate Committed Capital for the Fund and then only on the basis that the borrowings are not long term (such as to cover the default of an Investor pay its calls). Bridge finance The Master Fund may make loans in connection with investments so long as such loans are repaid within 12 months and the aggregate amount of such loans from time to time does not exceed 25% of the aggregate Committed Capital in the overall Fund. 24

25 BSPE EC2010 Clawback On termination of the Fund, the Trustee and Manager (as applicable) must refund the excess (if any) of fees and carry that they have received having regard to the investment performance of the Fund since the First Closing Date. Valuations The Master Fund s investments will generally be valued quarterly in accordance with the International Private Equity and Venture Capital Guidelines. Redemptions None as the Fund is a closed ended fund. Reports The Trustee or Manager (as applicable) will provide to Investors the following reports: Annual (30 June) Accounts for the Financial Year which have been audited by the Auditor. Quarterly Unaudited quarterly valuation accounts and a narrative statement about the general performance of the Master Fund and its activities (including current and potential investments). Monthly Unaudited statements of the net asset value of the Master Fund at the end of the specified month. Amendments Amendments to the Master Fund Trust Deed may generally only be made by: n Special Resolution; n the Trustee if no adverse affect on Investors and has consulted Advisory Committee; and n the Trustee if required because of a change in material law or tax regime. Transfers An Investor may only transfer their Units with the consent of the Trustee and/or Manager (which may be withheld in its/their absolute discretion). Certain exceptions apply to the requirement for this consent such as transfers where there is no change in beneficial interest. Defaults In the event an Investor does not pay a call on its Committed Capital or other amount due to the Master Fund when required, the Trustee will have the right to: n seek payment of the due amount plus interest, expenses and costs; n apply any amount payable from the Master Fund to the relevant Investor to unpaid amount plus any accrued interest, expenses and costs; and n forfeit and/or sell the Investor s Units. Rights attaching to the Units of a defaulting Investor will be suspended while it continues to be a defaulting Investor. Compulsory Withdrawal The Trustee may in its absolute discretion and at any time, upon notice to an Investor, compulsorily withdraw all or a portion of the Units held by that Investor in its absolute discretion including where the Manager believes the: n Units are held in breach of prohibitions contained in the Trust Deed; n Units are held in circumstances which might result in a violation of an applicable law or regulation (including by the Fund or Manager), or subject the Fund or Manager to taxation or otherwise adversely affect them in any material respect; n Investor made a misrepresentation in acquiring its Units; or n Continued participation of the Investor might cause the Fund or Manager or any Investor to violate any law or if any litigation is commenced or threatened against the Fund or Manager or any Investor arising out of the participation by the Investor in the Fund. The Fund may charge an Investor any legal, accounting, administrative or other amounts associated with a compulsory withdrawal. 25

26 Termination of Trustee The Trustee must retire, among other situations, if required to do so by: n Special Resolution; or n Ordinary Resolution if it is in material breach of the Master Fund Trust Deed or law, pursuant to the Master Fund Trust Deed. Investor Meetings Investors holding 20% or more of Capital Commitments in the Master Fund may, by notice in writing, require the Trustee to convene a meeting of Investors. Expenses The Master Fund must pay and indemnify the Trustee and Manager for all expenses and other outgoings related to and properly incurred in their respective roles other than overhead costs of the Trustee or Manager. Establishment Costs Up to $250,000 across the whole Fund. Any amounts exceeding this will be borne by the Trustee and/or Manager. Outside Fees Investor Requirements The Trustee and Manager may (but are under no obligation to) enter into arrangements with Investors to meet their specific requirements such as reporting and permitted transfers of Units. The Trustee and Manager may in their discretion also enter into arrangements to rebate fees and carry (or pay amounts from their own resources) to Investors. Indemnities and Liability The Constituent Documents provide for the indemnification and limitation of liability of a number persons including the Trustee (subject to them acting without misconduct and negligence) and Advisory Committee members. Custodian Australian Executor Trustees. Legal Advisor Minter Ellison Lawyers. The above summary of the terms of the Master Fund is not exhaustive and terms of the Master Fund are subject to change. Refer to the Constituent Documents, which prevail to the extent of any inconsistency with the Memorandum, for greater detail. The Manager may charge and receive transaction and other fees (e.g. director fees) in respect of investments of the Master Fund. These amounts will be offset against the Management Fee. Successor Funds The Trustee and its affiliates may not establish another fund with a similar investment plan to the Fund ( Successor Fund ) until the earlier of the end of the Investment Period and 75% of Committed Capital has been invested or is committed to future investment. A successor fund does not include any existing funds or funds established by other business divisions of Blue Sky. 26

27 6 BSPE EC2010 Risk Factors The value of an investment in the Fund may fall or rise depending on economic factors, regulation, political events and other factors which are outside the control of the Manager. An investment in the Fund is speculative and requires long-term commitment, with no certainty of return and Investors may not be repaid the total amounts previously drawn down. Neither the Manager, Trustee nor any of their associates guarantee any level of return to Investors, the future performance of the Fund, nor gives an assurance that the Fund will achieve its return objectives. Potential Investors should also be aware that an investment in the Fund may carry risks additional to those generally associated with investing. Investors must have a long term investment horizon as capital must be committed for the entire term. The type of investments Blue Sky Private Equity proposes to make may be illiquid, difficult to value, and with no right of redemption. The Manager may not be able to realise the Fund s portfolio at a satisfactory price and/or at the optimum time or there may be not be a market for these investments at the time. Further, certain investments may not be successful at all which may lead to a loss of capital for Investors. Investors are advised to obtain independent advice before investing and it is imperative that all prospective Investors make an individual assessment of the risks that have the ability to influence the potential returns of the Fund. Set out below is a non-exhaustive summary of certain risks that should be considered prior to any investment: Lack of Ability to Exit An investment in the Fund will be illiquid and there can be no assurance that the Manager will be able to realise investments in a timely manner nor at a suitable price. The realisation of investments may be subject to a number of factors such as general economic and market conditions. Sourcing Investments Sourcing favourable investments may be difficult and the Fund may not be able to fully invest its committed capital at acceptable prices. These factors may affect the Manager s ability to implement the Fund s investment plan. Impact of a Rise in Interest Rates and the Cost of Borrowing The use of leverage in a Fund s portfolio (including where the Fund acquires a company that employs leverage) increases its exposure to rising interest rates, refinance risk, economic downturns and other costs associated with borrowing. Leverage may also exacerbate losses. Investee Companies Failure Where one or more investee companies acquired by the Fund fail, the Fund s portfolio may suffer financial difficulties and/or fail and result in a loss of capital to Investors. Follow on funding may also be required that may dilute the Fund s interest in an investment. The Manager may not be successful in implementing operational improvements in businesses that the Fund has acquired as such improvements are contingent upon a number of factors, some of which may be beyond the reasonable control of the Manager, such as the availability of suitable management personnel, labour and input costs. Carry Incentive The carried interest and distribution to the Manager are performance based and therefore the Manager may focus on higher return investments which carry a higher risk of capital loss. This is somewhat mitigated by the Principals contributing $1 million to the Fund, which effectively aligns the interests of the Manager with those of the Investors. First and Subsequent Closes Investors admitted at subsequent closings will participate in existing investments of the Fund, diluting the interest of existing Investors. Dilution may not be fully offset by the premium payable by Investors admitted at subsequent closings. Compulsory Redemption Units may be subject to compulsory redemption and sale by the Trustee, for example, in the event of failure by Investors to meet a capital call. Economy and Market Realisation of investments and returns will be subject to economic conditions of the markets and this may affect both the value of investments and future performances of the investee companies and consequently of the Fund. Regulatory Changes in government and monetary policy, taxation and other laws may all have an impact on investee companies or on the ultimate return achieved by Investors. 27

28 Taxation Risk Changes to tax laws, interpretation or practice could adversely affect the tax treatments of an investment in the Fund (including the tax treatment of the Fund s investments). Investors should obtain their own tax advice in relation to an investment in the Fund. Manager Risk The Manager may not be successful in implementing its investment strategy and may not be able to effect improvements to investee company performance. Further, there is a risk that key personnel of the Manager may depart (see Key Person Risk below) or the Manager may be removed as Manager of the Fund for a number of reasons. In the case a suitable successor Manager is not appointed, the Fund could ultimately be wound up. Key Person Risk The departure of key team members may impact the ability of the Manager to implement its investment strategy. There is a key person clause for Messrs Wilson, McNab and Sowerby or any other person approved as a replacement Key Person for either of them in accordance with the Trust Deed. Control Risk The Fund will generally not have controlling positions in Fund s investments which may inhibit the ability of the Trustee and Manager to influence the investment. Valuations The investments of the Fund may be difficult to value and may not have readily ascertainable values. The payment of fees to the Manager and Trustee may occur on the basis of these valuations which may in turn be based on estimates and information from third parties which may differ from their true and actual realisable values. The above risks are not exhaustive of all risks of investing in the Fund. Investors should rely on their own enquires and assessments in relation to the Fund. 28

29 7 BSPE EC2010 Additional Information Privacy Anti-money Laundering The Application Form requires potential Investors to provide their personal information. The Trustee and Manager may collect, hold and use Investors personal information in order to assess their application, service their needs as a client or Investor, provide facilities and services to them and for other purposes permitted under the Privacy Act 1988 (Cth) ( Privacy Act ). Taxation and company law also require some of the information to be collected in connection with potential Investors applications. Access to information may also be provided to our associates, related bodies corporate, agents and service providers on the basis that they deal with such information in accordance with the Privacy Act. If Investors do not provide the information requested, their application may not be processed. Investors personal information may also be used or disclosed from time to time for the purposes of notifying them about products or services that the Trustee or Manager thinks may be of interest to them. Personal information will not be used for this purpose, if the Trustee is so directed by the Investor. Under the Privacy Act, Investors may request a copy of their personal information held by or on behalf of the Fund by contacting the Trustee. The Trustee is required to comply with the Anti-Money Laundering and Counter Terrorism Financing Act 2006 (Cth) ( AML/CTF Law ). This means that the Trustee may need to obtain additional identification information when prospective Investors apply for Units and when undertaking transactions in relation to their investments. The Trustee may need to identify: (a) an Investor or Prospective Investor (including underlying Investors, if any) applying for an investment in the Fund. The Trustee will not issue Units until all relevant information has been received and the identity of the Investor has been satisfactorily verified. (b) an Investor s estate. If an Investor dies whilst the owner of Units, the Trustee may need to identify the Investor s legal personal representative prior to withdrawing or transferring ownership. (c) anyone acting on the Investor s behalf, including their power of attorney or nominee. In some circumstances, the Trustee may need to re-verify this information. The Issuer may decide to delay or refuse any request or transaction, including by suspending the application or withdrawal of Units, if the Trustee is concerned that the request or transaction may breach any obligation of, or cause the Trustee to commit or participate in an offence under any AML/CTF Law, and the Trustee will incur no liability to Investors if it does so. 29

30 8 Glossary Advisory Committee Means the Investor representative committee referred to in Section 5 Summary of Key Terms. Adjusted Committed Capital Means the aggregate Committed Capital (as adjusted in accordance with the Constituent Documents) less the cost of all investments which have been sold, redeemed or otherwise realised and distributed in cash or in-specie to Investors (including as redemption proceeds) or written off to zero. Application Form Means the Application Form annexed to this Memorandum pursuant to which Investors subscribe for Units. ASIC Means the Australian Securities and Investments Commission. Blue Sky Means the Trustee, Manager and/or any other of their affiliates. Blue Sky Private Equity Means the Trustee. Means the Blue Sky Private Equity EC2010 Fund, comprised of both the Master Fund and Feeder Fund. Committed Capital Means the aggregate committed capital of Investors. Constituent Documents Means the Application Form and the Master Fund Trust Deed. Feeder Fund Means Blue Sky Private Equity 2010 Trust. Fund or Master Fund Means Blue Sky Private Equity 2010 Institutional Trust. Investment Committee Means the committee referred to in Section 5 Summary of Key Terms. IRR Means the discount rate, expressed as an annual percentage rate, which, when applied to a series of pre-tax cash flows (including the value of any non-cash distribution), results in a net present value of zero, as at the date of the calculation. Key Person Means each of Tim Wilson, Alex McNab and Mark Sowerby or any other person as a replacement of any of them in accordance with the relevant Trust Deed. Manager Means BSPE Pty Ltd (ABN ). Ordinary Resolution Means a resolution passed by at least 50% of the votes cast by Investors entitled to vote on the resolution. Principals Means Tim Wilson, Alex McNab and Mark Sowerby. Special Resolution Means a resolution passed by at least 75% of the votes cast by Investors entitled to vote on the resolution. Trust (as applicable) Means either of Blue Sky Private Equity 2010 Institutional Trust and Blue Sky Private Equity 2010 Trust as applicable. Trust Deed Means the trust deed for the Fund. Trustee Means Blue Sky Private Equity Limited (ABN , AFSL ). Units Mean units in a Trust. Investor Means a person who invests in the Fund and thereby becomes a holder of units in a Trust. 30

31 Blue Sky Private Equity EC2010 Fund Application Guide 31

32 AML-CTF Checklist Please provide appropriate identification documents below, in conjunction with your application form. AML-CTF Identification Table Type of Prospective Investor Individual or Joint Applicants Company Partnership Trust and Superannuation Fund Power of Attorney Identification Required At least one of the following ID documents in relation to each applicant: n Current passport issued by the Australian Commonwealth (or current within the preceding two years provided not cancelled); n Current passport or similar document issued to the purpose of international travel that contains a photograph and signature of the person and is issued by a foreign government, UN or UN Agency (accompanied where relevant by English language translation by an accredited translator); n Driver s Licence (Australian State or Territory), or foreign country equivalent containing a photograph and signature of the holder (accompanied, where relevant, by English language translation by an accredited translator). Certified copies of these documents will suffice. A certified copy or certified extract means a document that has been certified as a true copy of an original of that document. Where unable to provide at least one of these documents please contact Blue Sky to discuss alternative verification procedures permitted by law. n A current full company search of ASIC databases showing: the full name of the company; the ABN/ACN; the registered office address of the company; the principal place of business of the company; the names and addresses of each director of the company (only for a proprietary company); and the shareholders of the company (for all proprietary companies which are not licensed subject to regulatory oversight of a Commonwealth, State or Territory statutory regulator). n If the company is a regulated company, a search of the licence or other records of the relevant Commonwealth, State or Territory statutory regulator. n If the company is listed, a search of the relevant financial market or stock exchange. n Copy or relevant extracts of partnership agreement, full name of partnership and any business name(s) used by the partnership. and n Information in relation to one of the partners in accordance with the individual requirements above. Please also provide the ID in accordance with the individual verification requirements above for one partner. n Copy of the trust deed (including any variations to the trust deed) confirming: the full name of the trust; the type of trust; the country where the trust was established; the name of each beneficiary or class of beneficiary (if the trust is a unit trust, then your will need to provide a certified copy of an extract of the trust register to confirm the name of each beneficiary. n For any trustee/s who are natural persons, ID in accordance with the individual verification requirements above. n If any of the trustees is a company, ID in accordance with the company verification requirements above. n If the trustees comprise individuals and companies, then ID required as individual and company. n Applications submitted under a power of attorney must be accompanied by an original power of attorney document and a specimen signature of the relevant attorney(s) and the information required to be collected (as stated above from the entity it acts for (if not already supplied). 32

33 BSPE EC2010 Application Form This application form is issued by Blue Sky Private Equity Limited (ABN , AFSL ) and is to be completed by Investors who wish to apply for Units as part of the offer made through this Memorandum dated 1 June 2010 (and any supplementary or replacement documents) for the Blue Sky Private Equity EC2010 Fund. You should read the Memorandum in full before deciding to invest in the Fund. Prospective Investors should consult with their financial or other professional advisor before considering whether to apply for an investment in the Fund. Application Amount I/We apply for $ of Units at $1.00 per Unit. The minimum investment amount is $5M or as approved otherwise by the trustee. Type of Investor(s) Please select: Individual Joint Applicants Company Trust Superannuation Fund Partnership Other Investor Details Please complete this section in conjunction with the AML/CTF Checklist on page 32 of the Memorandum If the AML/CTF information requirements are not satisfied, then your application will not be accepted. A. Individual / Individual Trustee Applicant 1 Title: First Name: Middle Name: Last Name: Date of Birth: / / Residential Address: Suburb, City or Town: State: Postcode: Country (if not Australia): Tax File Number or reason for exemption: Country of Residence for tax purposes (if not Australia): Business Name (for Sole Trader): Phone (Work): Phone (Home): Mobile: Address: Facsimile: Contact Method: Post Adviser: Applicant 2 Title: First Name: Middle Name: Last Name: Date of Birth: / / Residential Address: Suburb, City or Town: State: Postcode: Country (if not Australia): Tax File Number or reason for exemption: 33

34 Application Form Country of Residence for tax purposes (if not Australia): Business Name (for Sole Trader): Phone (Work): Phone (Home): Mobile: Address: Facsimile: Contact Method: Post Adviser: B. Company / Corporate Trustee Full name of Company or Corporate Trustee: Tax File Number or ABN or reason for exemption: Registered Office Address: ACN: Suburb. City or Town: Principal place of business (if different to above): State: Postcode: Country (if not Australia): Address: Telephone (Business Hours): Facsimile: Contact Method: Post Adviser: C. Trust Trustee to complete these details and the details in either A or B, as applicable. Full Name of Trust: TFN or ABN or reason for exemption: Country where Trust was established: Full Business Name (if any) of Trustee: ARSN (if Registered Managed Investment Scheme): Type of trust (e.g., Unit Trust, Discretionary Trust): D. Superannuation Fund Trustee to complete these details and either A or B as relevant. Full Name of Superannuation Fund: TFN or ABN or reason for exemption: Country where Superannuation Fund was established: Full Business Name (if any) of Trustee: Type of Superannuation Fund (e.g., SMSF, Government Superannuation Fund): 34

35 BSPE EC2010 Application Form E. Partnership One partner must complete all details below. Title: First Name: Middle Name: Last Name: Date of Birth: / / TFN or ABN or reason for exemption: Country where established: Partnership Name and Business Name (if applicable) : F. Clubs / Unincorporated Associations One representative must complete all details below. Title: First Name: Middle Name: Last Name: Date of Birth: / / TFN or ABN or reason for exemption: Country where established: Club / Unincorporated Associations Name (if applicable): Method of Payment to Blue Sky: Cheque (for full amount) $: Payable to Blue Sky Private Equity Limited Direct Deposit to: Bank: NAB BSB Number: Account Name: Blue Sky Private Equity Ltd Trust Account Account Number:

36 Application Form Acknowledgements, Declaration and Signing By completing, signing and lodging this application form, you: n confirm that you have read in full the Memorandum dated 1 June 2010 (and any supplementary or replacement document), Trust Deed and Application Form and agree to be bound by the provisions of the Constituent Documents. The Trust Deed prevails to the extent of any inconsistency between the Memorandum and the Trust Deed. n declare that all details and statements you have inserted into the Application Form are complete and accurate. n confirm that you are a wholesale client for purposes of the Corporations Act n confirm that if you are sole signatory signing on behalf of a company, you are signing as sole director and sole secretary of the company or as duly authorised representative or agent of the company. n confirm that if you are investing as trustee, on behalf of a superannuation fund or a trust, you are acting in accordance with your designated powers and authority under the trust deed or other constituent document, as applicable. In the case of a superannuation fund, you also confirm that it is a complying fund under the Superannuation Industry (Supervision) Act 1993 and will notify the Trustee immediately if the fund or trust should no longer meet the criteria outlined above. n declare that you have the power and authority to execute, deliver and perform your obligations under this Application Form and the Constituent Documents, and to subscribe for Units hereunder. n confirm that if you sign this Application Form under a power of attorney, then a certified copy of the power of attorney is submitted with this application, which as at the date of this application, has not been revoked. n confirm that if you are a natural person, that you are over the age of 18 years. n confirm that you have relied in every respect on your own independent investigation, enquiries and appraisals in connection with the Fund before deciding to invest in the Fund. n confirm that you have read and understood the sections on risks in the Memorandum and acknowledge that an investment in the Fund and the proposed investments of the Fund are illiquid and subject to investment risks. You understand that there can be no expectation of returns other than through the distribution of proceeds from the realisation of portfolio investments. n confirm that you have read the information on Privacy contained in section 7 of the Memorandum and consent to your personal information being used and disclosed as set out in the Memorandum. n confirm that you have provided all documentation requested for Anti-Money Laundering and Counter-Terrorism Financing Act (2006) ( AML/CTF Law ) investor identification purposes (see page 32 of the Memorandum). You will provide any additional information or assistance that the Trustee may request in order for the Trustee to comply with any AML/CTF Law. n declare that Units are to be purchased with funds that are from legitimate sources in connection with regular business activities and which do not constitute the proceeds of crime as contemplated by the Proceeds of Crime Act 1987 or 2002 and would not constitute a breach of the AML/CTF Law. You are not aware of and have no reason to suspect: that the monies used to fund your investment in the Fund have been or will be derived from or related to any money laundering, terrorism financing or similar activities illegal under applicable laws or regulations or otherwise prohibited under any international convention or agreement; or that the proceeds of your investment in the Fund will be used to finance any illegal activities. n agree to furnish the Trustee with any representations and information as shall reasonably be requested by the Trustee to assist it in determining the extent of, and in fulfilling, its withholding obligations and to assist it in obtaining any exemption, reduction or refund of any withholding or other taxes imposed by any taxing authority or other governmental agency upon the Trustee or Fund, their income, or amounts paid to them. You also confirm that the provisions of the Constituent Documents concerning your obligation to pay the Trustee any amounts that the Trustee is required to withhold or pay with respect to you or on your behalf and that exceed amounts then available for distribution to you and your obligation to indemnify the Trustee and the Fund, and their affiliates with respect to withholding and other taxes payable with respect to you or on your behalf will survive your withdrawal from the Fund or the termination or dissolution of the Fund. n declare that you have not and will not reproduce, duplicate or deliver the Constituent Documents or this Application Form to any other person, except to your professional advisers or relevant employees or as instructed by the Trustee. 36

37 BSPE EC2010 By completing, signing and lodging this application form, you acknowledge that: n we are not bound to accept any application and may accept or reject this application in whole or in part. Furthermore, the Trustee reserves the right to cancel the offer contained in the Memorandum. n you may not be allocated any Units, and the Trustee has absolute discretion to allocate Units as it sees fit and you agree to accept the number of Units allocated to you by the Trustee notwithstanding that it is less than the number you have applied for. n information contained in the Memorandum is not investment advice nor a recommendation that the Fund is suitable for your investment needs. n neither the Fund, the Trustee nor any other person guarantees the repayment of capital or the performance of the Fund or any particular rate of return from the Fund. n monies invested in the Fund do not represent an investment in or a deposit of or other liability of the Trustee nor any other Blue Sky affiliate. n providing your tax file number ( TFN ) or Australian Business Number ( ABN ) on this Agreement is not compulsory and it is not an offence if you decline to quote them. However, if you decide not to quote your TFN or ABN, or your reason for exemption, tax at the highest marginal rate plus Medicare levy will be deducted from your income. For joint applications, both TFNs are required. The Trustee is authorised to apply the TFN or ABN provided above and it will be applied to all future applications for Units, including re-investments, unless you advise the Trustee otherwise. n Minter Ellison acts as counsel only to the Trustee and Manager and no solicitor-client relationship exists between Minter Ellison and any other person solely by virtue of such person making an investment in the Fund. n except as permitted by applicable law or as otherwise provided herein, you may not cancel, terminate or revoke this Application Form or any agreement made hereunder, and that this Application Form shall survive your death or legal disability and shall be binding upon your heirs, executors, administrators, successors and assigns. Please note: This Application Form must not be handed out, reproduced, or used unless accompanied by the Memorandum. If received through electronic means, you declare you received this Application Form accompanied by or attached to a print out or paper copy of this Memorandum. Dated the day of 2010 Name of Applicant 1: Signature Applicant 1: Position of applicant (if applicable): Sole director Director Trustee Partner Name of Applicant 2: Other Signature Applicant 2 (If joint applicants, then both applicants must sign): Position of Applicant (if applicable): Company Secretary (for company investments only) Director Partner Trustee Other 37

38 Accountant s Certificate Section 761G(7) of the Corporations Act 2001 I, of Name of accountant Address being a qualified accountant* certify that of Name of Investor Address n has net assets^ in excess of $2.5 million, or n had a gross income^ in excess of $250,000 per annum for each of the last two financial years. I also confirm the following: n I belong to Name of professional body e.g., CPA Australia, ICAA, NIA n My membership designation from this professional body is Insert details e.g. CPA, CA or PNA n I am subject to and comply with this body s continuing professional education requirements. Signed: Date certificate issued: ^ The net assets or gross income of the investor include: n the assets or income of controlled trusts or companies, and/or n the assets or income of a person who controls the investor (where the proposed investor is a company or trust). When determining the net assets or gross income of a person who controls a corporate or trust investor, the net assets or gross income of any other company or trust controlled by that person may be included. For the purposes of this accountant s certificate, the term control is defined in section 50AA of the Corporations Act. * Qualified accountant means any member of: n Australian Certified Practicing Accountants (CPA) who is entitled to use the post nominals CPA or FCPA ; n Institute of Chartered Accountants in Australia (ICAA) who is entitled to use the post-nominals CA, ACA or FCA ; n National Institute of Accountants (NIA) who is entitled to use the post-nominals PNA, FPNA, MNIA or FNIA ; or n Accountants belonging to any of the following foreign bodies who have at least three years experience in accounting or auditing and is providing this certificate to a person who is a resident in the same country: n American Institute of Certified Public Accountants; n Association of Certified Chartered Accountants (United Kingdom); n Canadian Institute of Chartered Accountants; n Institute of Chartered Accountants of New Zealand; n The Institute of Chartered Accountants in England and Wales; n The Institute of Chartered Accountants in Ireland; n The Institute of Chartered Accountants of Scotland. 38

39 BSPE EC2010 Corporate Directory Issuer Investment Enquiries: Blue Sky Private Equity Limited 130 Commercial Road Teneriffe QLD 4005 Manager BSPE Pty Limited 130 Commercial Road Teneriffe QLD 4005 Phone: (07) Fax: (07) In Writing: Blue Sky Private Equity Limited PO Box 999, New Farm QLD 4005 Australian Legal Counsel Minter Ellison Lawyers Aurora Place 88 Phillip Street Sydney NSW 2000 Custodian Australian Executor Trustees Suite 1, Level 9 Christie Corporate 320 Adelaide Street Brisbane QLD

40 Brisbane Adelaide Blue Sky Private Equity Limited ABN AFSL Head Office 130 Commercial Road, Teneriffe Qld 4005 PO Box 999, New Farm QLD 4005 Fax Phone