EX-2
LETTER AGREEMENT
FREESTAR ACQUISITION CORPORATION
FreeStar Technology Corporation
Calle Fantino Falco #24
Edificio ▇. ▇▇▇▇, Ensanche Naco
Santo ▇▇▇▇▇▇▇
Republica Dominicana
Attn: Mr. ▇▇▇▇ ▇▇▇▇
April 21, 2003
Dear ▇▇. ▇▇▇▇:
Freestar Acquisition Corporation, a Delaware corporation (the
"Purchaser") is pleased to submit a proposal to acquire (the
"Acquisition") 100% of the outstanding capital stock of Freestar
Technology Corporation, a Nevada corporation (the "Company"). The
acquisition would be consummated on the terms and conditions
described herein.
1. Enterprise Value.
(a) Assuming the accuracy and completeness of the publicly available
information regarding the Company, including, without limitation, the
Company's Form 10-KSB for the fiscal year ended June 30, 2002, Form
10-QSB for the fiscal quarter ended September 30, 2002 and Form 10-
QSB for the fiscal quarter ended December 31, 2002 as well as all
other Company filings pursuant to the Securities Act of 1933 or the
Exchange Act of 1934 (the "Public Documents"), we have placed an
enterprise value on the Company of $74,480,000 (the "Enterprise Value").
(b) The Enterprise Value assumes that all existing indebtedness of
the Company for borrowed money, including, without limitation,
capitalized lease obligations (collectively, the "Funded Debt") shall
be repaid in full at the closing together with any outstanding
interest and any penalties, premiums or other fees which may be owed
in connection therewith; provided that the Purchaser shall reserve
the right to elect to keep certain items of the Funded Debt
outstanding as of the Closing. The Enterprise Value also assumes
that all preferred stock which is not being converted into common
stock is redeemed at the redemption price therefore (including all
accrued and unpaid dividends payable) (the "Preferred Redemption
Amount") and that there are no retention bonuses, sale bonuses,
change in control payments or severance or other similar payments
resulting from the transactions contemplated by the Acquisition.
2. Structure.
(a) While we are amenable to exploring alternative structures which
will help to facilitate the transaction, we currently anticipate
consummating the Acquisition by means of a reverse subsidiary merger
whereby the Company would be merged with a newly-formed subsidiary of
the Purchaser or an entity affiliated therewith, with the Company
being the surviving entity (the "Merger").
(b) In connection with the Merger, all outstanding capital stock of
the Company would be converted into the right to receive cash in an
amount (the "Per Share Value") equal to quotient obtained by dividing
(i) the remainder of the Enterprise Value minus Funded Debt and minus
the Preferred Redemption Amount (the "Equity Value") minus the amount
of the Escrow Fund (as defined below) by (ii) the number of shares of
common stock of the Company outstanding as of the Merger on a fully-
diluted basis (including all options, warrants or similar securities
which are fully vested as of or in connection with the Merger
("Vested Options")).
(c) Also in connection with the Merger, all holders of Vested
Options shall be entitled to receive an amount equal to the remainder
of (i) the Per Share Value minus (ii) the exercise price thereof, and
all unvested options, warrants or similar securities shall be
terminated with no further liability or obligation to the Company.
(d) Prior to Closing, pursuant to procedures mutually acceptable to
the Company and the Purchaser, the Company would prepare, in
accordance with generally accepted accounting principles consistently
applied and using the same practices, principles and methodologies as
its financial statements: (i) a statement showing thereon the amount
("Closing Working Capital"), projected immediately prior to Closing
obtained by subtracting: (x) the sum of accounts payable, any accrued
liabilities and income taxes payable from (y) the sum of net accounts
receivable, net inventory, current prepaid expenses, tax assets and
miscellaneous current receivables; and (ii) a statement showing
thereon the amount, projected immediately prior to Closing, of freely
available cash and cash equivalents (giving effect to the termination
of any interest rate swaps). The Merger agreement will further
provide for mutually acceptable procedures whereby, subsequent to the
Merger, the Purchaser and the representative(s) of the former Company
securityholders will confirm the amount of such Closing Working
Capital and freely available cash and cash equivalents, and prior to
and subsequent to the Merger will confirm amounts payable under any
special bonus plan, indebtedness and transaction expenses. If the
Closing Working Capital is subsequently determined to be less than an
agreed-upon target, then an amount equal to such deficiency shall be
released from the Escrow Fund to the Company.
(e) Upon the consummation of the Merger (subject to the conditions
contemplated by Paragraph 3), the Purchaser would cause the Company
to deposit with a mutually acceptable Escrow Agent a mutually agreed-
upon portion of the Enterprise Value (the "Escrow Fund") to be held
pursuant to the terms of an escrow agreement acceptable to the
Purchaser and the Company, in order to provide for payment of
deficiencies in the Closing Working Capital, indemnification of
claims and other disbursements as herein contemplated.
We will discuss mutually-acceptable terms on which existing
management may rollover a portion of their equity in the company into
the surviving entity.
3. Conditions. The Purchaser's obligations to consummate the
Acquisition will be subject to satisfaction of the following conditions:
(a) execution of definitive agreements in form and substance
satisfactory to the Purchaser and generally containing provisions
customary for transactions of this type;
(b) satisfaction with the results of the Purchaser's business,
accounting and legal due diligence;
(c) the Purchaser's obtaining of debt financing on satisfactory terms;
(d) the obtaining of all requisite third-party and governmental
consents and approvals;
(e) the absence of the occurrence of a material adverse effect
in respect of the Company;
(f) the termination without recourse of any agreements between
the Company and affiliates of the Company (e.g., officers, directors,
shareholders and their respective family members and affiliates);
(g) accuracy of the Company's representations and warranties and
compliance with the Company's covenants set forth in the definitive
agreements; and
(h) waiver of dissenters rights by not less than 95% of all holders
of outstanding common stock of the Company.
4. No Solicitation; Alternative Transactions.
(a) The Company and ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ and Fionn Stakelun (the
"Major Shareholders") each agree that, from the time of execution of
this letter agreement by them until such time as this letter
agreement has terminated in accordance with the provisions of Section
8 hereof (such period, the "Exclusivity Period"), neither the
Company, the Major Shareholders nor any of their respective
representatives, officers, employees, directors, partners, agents,
stockholders, equityholders, subsidiaries or affiliates
(collectively, the "Seller Group") shall initiate, solicit,
entertain, negotiate, accept or discuss, directly or indirectly, any
proposal or offer to acquire all or any significant part of the
business and properties, capital stock or capital stock equivalents
of the Company, whether by merger, other business combination,
purchase of stock, purchase of assets, tender offer or otherwise, or
to effect a material recapitalization or reorganization of the
Company (each, an "Alternative Transaction"), or provide any non-
public information to any third party in connection with an
Alternative Transaction or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to
consummate the Acquisition with the Purchaser, or otherwise encourage
or facilitate any of the foregoing. The Company and each Major
Shareholder each agree to immediately terminate (and to direct all
members of the Selling Group to terminate) all discussions with any
third party regarding an Alternative Transaction (including, without
limitation, any third parties who had previously submitted a proposal
and/or an offer for an Alternative Transaction). The Company and
each Major Shareholder each agree to immediately notify the Purchaser
if any member of the Seller Group receives any indications of
interest, requests for information or offers (whether oral or
written) in respect of an Alternative Transaction, and shall
immediately communicate to the Purchaser in reasonable detail the
terms of any such indication, request or offer, and will immediately
provide the Purchaser with copies of all written communications
relating to any such indication, request or offer. The Company and
each Major Shareholder each represent that no member of the Seller
Group is party to or bound by any agreement with respect to an
Alternative Transaction other than under this letter agreement.
(b) Without limiting the generality of clause (a) above, prior to
the eighteen-month anniversary of the Termination Date (as defined in
Section 7 hereof), in the event that the Company or any of the Major
Shareholders receives a bona fide offer to enter into an Alternative
Transaction (a "Bona Fide Offer") , the Company or such Major
Shareholder shall immediately communicate to the Purchaser in
reasonable detail the terms of any such Bona Fide Offer and shall
give the Purchaser or its designee a right of first refusal to match
such Bona Fide Offer and to consummate such Alternative Transaction
(with the parties mutually agreeing in good faith upon the fair
market value of any non-cash consideration which is included in the
Bona Fide Offer for matching purposes or, if they can not so agree,
then as determined by a mutually selected independent investment
banking firm of good reputation), which right of first refusal may be
exercised by the Purchaser or its designee by notice to the Company
(and, if applicable, the Major Shareholder) within 45 days following
delivery of the terms of such Bona Fide Offer to the Purchaser.
5. Non-Publicity. Except as and to the extent required by law,
the Purchaser, the Company and the Major Shareholders each agree that
neither any member of the Seller Group nor the Purchaser nor any of
their respective Advisors (as hereinafter defined) shall, issue or
cause any press release or public or private announcement or
communication with respect to, or otherwise disclose or permit the
disclosure of, the contents or existence of this letter agreement or
the terms of the Acquisition without the prior written approval of
the other parties; provided, however, each party may disclose the
contents or existence of this letter agreement and the terms of the
Acquisition to its own directors, officers, employees, agents,
affiliates and financing sources and their respective legal,
accounting and financial representatives and advisors (collectively,
the "Advisors") who need to know such information for the purpose of
evaluating or pursuing the Transaction. Each party shall inform its
Advisors of the confidential nature of such information and shall
direct its respective Advisors to treat such information
confidentially and otherwise to comply with the terms of this letter
agreement.
6. Access. During the Exclusivity Period, the Company and the
Major Shareholders shall provide to the Purchaser and its Advisors
full access to such information and documents (the "Evaluation
Material") regarding the Company, including access to the Company's
places of business and operations, and to the management, personnel
and representatives of the Company, as the Purchaser may reasonably
request for purposes of conducting its due diligence in furtherance
of consummating the Acquisition.
7. Expenses. In the event that either the Purchaser or the Company
elects not to consummate the Acquisition for any reason, the Company
shall immediately reimburse the Purchaser for its out-of-pocket fees,
costs and expenses incurred in connection with the Acquisition
(including, without limitation, any such fees, costs and expenses
incurred in connection with the enforcement of this Section 7). In
addition, in the event that the Company consummates an Alternative
Transaction on or prior to the one-year anniversary of the
Termination Date (as defined below), the Company shall immediately
pay to the Purchaser $2,250,000 as a break-up fee (the "Break-Up
Fee"). The "Termination Date" shall mean the termination of this
letter agreement in accordance with clauses (ii) or (iii) of Section
8 hereof or, if a definitive agreement in respect of the Acquisition
has been entered into, then the termination of the Definitive
Agreement in accordance with its terms. The Company's obligations
pursuant to this Section 7 shall be guaranteed pursuant to a
Performance Guarantee executed by Margaux Investment Management Group
S.A. and ▇▇ ▇▇▇▇▇▇▇ attached hereto.
8. Termination. This letter agreement will automatically terminate
and be of no further force and effect upon the earlier of (i)
execution of a definitive agreement for the Transaction by and among
the Purchaser and the Company, (ii) mutual agreement of the Purchaser
and the Company and (iii) 90 days after the date of acceptance of
this letter agreement by the Company. The termination of this letter
agreement shall not affect any rights any party has with respect to
the breach of this letter agreement by another party prior to such
termination. In addition, notwithstanding the foregoing, Section 2
and Sections 7 through 10, inclusive, shall survive termination of
this letter agreement.
9. Limited Binding Effect. This letter agreement shall not
constitute a binding agreement among Purchaser, the Company and the
Major Shareholders to enter into definitive agreements or to
consummate an Acquisition; it being understood and agreed that the
obligation to consummate an Acquisition shall only arise pursuant to
fully-executed definitive agreements which by their terms are
intended to be legally binding. Notwithstanding the foregoing, the
provisions of Sections 4 through 10, inclusive, shall be binding upon
and enforceable by the Purchaser, the Company and the Major
Shareholders.
10. Miscellaneous.
(a) This letter agreement contains the entire agreement among the
parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect
thereto. This letter agreement may be amended, superseded,
cancelled, renewed or extended, and the terms hereof may be waived,
only by a written agreement signed by each of the parties hereto.
(b) No failure or delay by any party hereto in exercising any right,
power or privilege hereunder shall operate or be construed as a
waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder.
(c) This letter agreement is governed by the laws of the State of
New York applicable to contracts to be performed entirely within the
State of New York, without regard to its principles of conflicts of
law, and any disputes or actions brought by any party hereto against
any other party hereto in connection with this letter of intent shall
only be brought in New York in the federal courts located in the
Southern District or state courts in the Second Department therein.
(d) The parties understand and agree that money damages would not be
an adequate remedy for any breach of Section 5 by a party or any of
its representatives or agents and that the non-breaching party shall
be entitled to seek equitable relief, including injunctive relief and
specific performance (without the posting of a bond in connection
therewith), if the other party or any of its representatives or
agents breach or threaten to breach any provision of Section 5.
(e) The invalidity or unenforceability of any provision of this
letter agreement shall not affect the validity or enforceability of
the other provisions of this letter agreement, which shall remain in
full force and effect provided that the benefits of this Agreement
and the intent of the parties is not frustrated thereby.
(f) This letter agreement may be executed in one or more
counterparts, each of which will be deemed to be an original of this
letter agreement and all of which, when taken together, will be
deemed to constitute one and the same instrument.
(g) Nothing herein is intended or shall be construed to confer upon
any person or entity other than the parties hereto and their
successors or assigns any rights or remedies by reason of this letter
agreement.
(h) The Purchaser shall be entitled to assign its rights under this
letter agreement to an affiliate thereof.
11. Notices. Notices shall be deemed delivered (i) when sent by
telecopy with electronic confirmation of receipt and hard copy to
follow, (ii) when delivered personally or by courier or delivery
service or (iii) three business days after being deposited with the
postal service which is local to the recipient, postage prepaid; in
each case to the address or telecopy numbers below (or such other
address or telecopy number as the applicable party may specify with
notice to the other parties):
Notices to the Company:
FreeStar Technology Corporation
Calle Fantino Falco #24
Edificio ▇. ▇▇▇▇, Ensanche Naco
Santo ▇▇▇▇▇▇▇
Republica Dominicana
Attn: Mr. ▇▇▇▇ ▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Notices to the Purchaser:
C/O Phaeton Investments Limited
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Notices to the Major Shareholders:
c/o FreeStar Technology Corporation
Calle Fantino Falco #24
Edificio ▇. ▇▇▇▇, Ensanche Naco
Santo ▇▇▇▇▇▇▇
Republica Dominicana
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Please acknowledge your agreement to the foregoing by signing and
returning to me the enclosed duplicate copy of this letter agreement.
FREESTAR ACQUISITION CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
Its: Chairman
Accepted and agreed:
FREESTAR TECHNOLOGY CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇
Its: President
Date: April 24, 2003
/s/ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
/s/ Fionn Stakelum
Fionn Stakelum
PERFORMANCE GUARANTEE
Each of the undersigned guarantors (the "Guarantors") hereby
jointly and severally irrevocably and unconditionally guarantees the
full and prompt performance of FreeStar Technology Corporation, a
Nevada corporation (the "Company"), pursuant to Section 7 of the
letter agreement to which this guarantee is attached. This
performance guarantee is a guarantee of performance and not of
collection, and the Purchaser (as defined in the letter agreement)
shall be entitled to proceed directly against the Guarantors for
satisfaction of the Company's obligations pursuant to Section 7 of
the letter agreement without the necessity of pursuing any particular
remedy against the Company. The Guarantors' obligations pursuant to
this guarantee shall not be limited or affected by any amendment,
modification, accommodation, waiver or release which the Purchaser
may enter into with respect to the letter agreement.
In witness whereof, the Guarantors have executed this
Performance Guarantee as of this 24th day of April, 2003.
GUARANTORS:
MARGAUX INVESTMENT MANAGEMENT GROUP S.A.
By: /s/ ▇▇ ▇▇▇▇▇▇▇
Its: President