RE: Letter of Intent to Acquire Loyalty Magic
23
August
2007
▇▇▇▇
▇▇▇▇▇▇
President
& CEO
▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇.
Suite
302
Charlottesville,
VA 22901
USA
RE:
Letter
of Intent to Acquire Loyalty Magic
Dear
▇▇▇▇,
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1
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Acquisition
and Service Agreement
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This
Letter of Intent records the intention of Wishlist Holdings Ltd (“Wishlist
Holdings”)
in
relation to the proposed acquisition by Wishlist Holdings of all of the shares
on issue in Loyalty Magic Pty Ltd (“Loyalty
Magic”)
(“Acquisition”).
Loyalty Magic is a wholly owned subsidiary of Catuity Inc.
The
parties acknowledge that at the time this Letter of Intent is signed, a
Liquidation Agreement between Catuity Inc., Loyalty Magic, Chip Application
Technologies Pty Limited, CIT Cards Australia Pty Limited, Gottbetter Capital
Master, Ltd. and Bridgepointe Master Fund Ltd. (“Liquidation
Agreement”)
will
have been entered into or will be about to be entered into. Pursuant to this
Liquidation Agreement, Gottbetter Capital Master, Ltd. and Bridgepointe Master
Fund Ltd. (collectively, “Bond
Holders”)
will be
required to use their best endeavours to sell all of the issued shares in
Loyalty Magic and this Liquidation Agreement will provide the Bond Holders
with
the ability to sell all of the issued shares in Loyalty Magic.
If,
however, the Liquidation Agreement is not entered into, the parties acknowledge
and agree that Catuity Inc. will remain entitled to sell all of the issued
shares in Loyalty Magic.
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2
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Structure
of Acquisition
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(a)
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Subject
to certain conditions precedent and the terms and conditions of this
Letter of Intent, Wishlist Holdings agrees to acquire and each of
the Bond
Holders agree to sell all of the shares on issue in Loyalty
Magic.
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(b)
|
This
Letter of Intent records the basic terms of the agreement of the
parties
in relation to the Acquisition. The parties agree to execute a definitive
written purchase agreement in relation to the Acquisition (“Purchase
Agreement”)
in accordance with the terms of this Letter of Intent.
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(c)
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Prior
to the execution of a Purchase Agreement, which will supersede this
Letter
of Intent, Catuity Inc., Loyalty Magic and each of the Bond Holders
agree
to permit Wishlist Holdings to undertake due diligence in respect
of
Loyalty Magic on an exclusive
basis.
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3
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Purchase
Price
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(a)
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During
the course of Wishlist Holdings’ due diligence investigations, the
forecast earnings of Loyalty Magic before interest, tax, depreciation
and
amortisation (“EBITDA”) in respect of the full financial year ending 30
June 2008 (“FY08”)
will be determined in accordance with Australian generally accepted
accounting principles.
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(b)
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The
determination of EBITDA for the purposes of this Letter of Intent
including without limitation the calculation of the purchase price
of the
Acquisition (“Purchase
Price”)
will be made in good faith by Wishlist Holdings and its auditors,
after
taking into account the view of Catuity Inc. and/or Loyalty Magic
and
after due consideration and analysis of Loyalty Magic’s client contracts
in existence, new client commitments as reflected in the “pipeline” and
supported by past evidence of signings and existing letters of intent
from
clients.
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(c)
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Subject
to the satisfaction or waiver of each of the conditions precedent
set out
in paragraph 4 of this Letter of Intent, the terms of paragraph 3(d)
and
the adjustment in paragraph 3(e), Wishlist Holdings will offer to
pay as
the Purchase Price:
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(i)
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if
the forecast EBITDA of Loyalty Magic in respect of FY08 is greater
than or
equal to AUD$847,400 (ie. 95% of AUD$892,000), the sum of AUD$4,500,000
less the Option Fee on the completion of the Acquisition (“Completion”);
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(ii)
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if
the forecast EBITDA of Loyalty Magic in respect of FY08 is greater
than or
equal to AUD$650,000 and less than AUD$847,400, the sum of AUD$4,200,000
less the Option Fee on Completion.
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(d)
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It
is currently contemplated that the Purchase Price will be paid in
cash to
the party which is entitled to sell all of the issued shares in Loyalty
Magic (being the Bond Holders or Catuity Inc.) and that, on Completion,
Wishlist Holdings will pay to the party which is entitled to sell
all of
the issued shares in Loyalty Magic (being the Bond Holders or Catuity
Inc.) the amount set out in paragraph 3(c)(i) or 3(c)(ii) (whichever
is
applicable).
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(e)
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At
the close of the transaction, Loyalty Magic will have a minimum of
AUD
$140,000 in net working capital at Completion. Net working capital
is
defined as current assets less current liabilities. The Purchase
Price
will be adjusted for any difference between the amount of net working
capital determined in accordance with this paragraph 3(e), and the
actual
amount of Loyalty Magic’s net working capital at Completion, and only if
the actual amount of net working capital is lower than AUD
$140,000.
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4
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Conditions
Precedent of Offer and
Agreement
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(a)
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Wishlist
Holdings’ offer and agreement to acquire all of the shares on issue in
Loyalty Magic is conditional upon:
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(i)
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Wishlist
Holdings completing legal, commercial, technical and product audit
and
financial due diligence investigations in relation to Loyalty Magic
and
the business operated by Loyalty Magic (or any of its subsidiaries
or
affiliates) as is set out on Loyalty Magic’s website at ▇▇▇.▇▇▇▇▇▇▇-▇▇▇▇▇.▇▇▇
(“Business”)
to the satisfaction of Wishlist Holdings and its advisers.
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2
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(ii)
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Catuity
Inc., Loyalty Magic, each of the Bond Holders and their respective
directors, employees, representatives and advisers providing reasonable
co-operation to Wishlist Holdings in relation to its due diligence
investigations and providing Wishlist Holdings and its directors,
employees, representatives and advisers with access to information
in
relation to Loyalty Magic and reasonable access to senior management
of
Loyalty Magic.
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(iii)
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There
being employment contracts in place between Loyalty Magic and each
employee of Loyalty Magic that Wishlist Holdings determines is essential
to the continued success of the Business, which are on terms reasonably
acceptable to Wishlist Holdings, it being acknowledged that on Completion
Loyalty Magic will assume responsibility for ▇▇▇▇▇▇ ▇▇▇▇▇▇’▇ employment
contract and all of his accrued entitlements, save and except that
the
notice period applicable in respect of that contract in the event
of its
termination will be amended to correspond with the notice periods
which
currently apply in the event of the termination of the employment
contracts of Wishlist Holdings’ executives.
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(iv)
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Wishlist
Holdings receiving from the key customers of Loyalty Magic (being
Amcal,
API, EFS and others including without limitation potential prospective
clients of the Business at Wishlist Holdings’ request) confirmation that
they do not intend to terminate their contracts with Loyalty Magic
or
alter their intention to enter into contracts with Loyalty Magic
merely
because Wishlist Holdings is to make the Acquisition and will operate
the
Business post-Completion through face to face meetings which Wishlist
Holdings intends to have with those key customers (such meetings
only to
be held in the presence of a representative of Loyalty
Magic).
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(v)
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None
of Catuity Inc, Loyalty Magic, any of the Bond Holders or any of
their
respective directors, employees or advisers providing any other party
with
any information concerning the Business or allowing any other party
to
conduct any form of due diligence in respect of the Business during
the
exclusivity period referred to in paragraph 9 of this Letter of
Intent.
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(vi)
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Loyalty
Magic’s forecast EBITDA for FY08 being greater than or equal to
AUD$650,000.
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5
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Purchase
Agreement
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(a)
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The
parties agree to negotiate in good faith to enter into the Purchase
Agreement, which will supersede this Letter of Intent. The Purchase
Agreement will include the following principal terms and such other
terms
as the parties and their legal advisers consider appropriate to a
transaction of the kind envisaged by this Letter of
Intent:
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(i)
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Between
the date of the Purchase Agreement and
Completion:
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(A)
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the
Business must be conducted in the usual
course;
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3
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(B)
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none
of Catuity Inc., Loyalty Magic or any of the Bond Holders must take
any
action which interferes with or impedes or otherwise adversely affects
the
ordinary conduct of the Business; and
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(C)
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any
material transactions or actions taken in relation to the Business
must be
approved by Wishlist Holdings.
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(ii)
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Completion
will be conditional on the conditions precedent set out in paragraphs
4(a)(i) to 4(a)(iv) inclusive of this Letter of
Intent.
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(b)
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The
parties acknowledge that any foreclosure undertaken by the Bond Holders
in
respect of Catuity Inc. prior to Completion will not affect Completion
as:
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(i)
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Catuity
Inc. and each of the Bond Holders agree to the sale of all of the
shares
on issue in Loyalty Magic, subject to certain conditions precedent
and the
terms and conditions of this Letter of Intent; and
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(ii)
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the
security held by the Bond Holders over the Loyalty Magic shares will
be
released at Completion.
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6
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Notification
of Material Adverse Changes
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Catuity
Inc., Loyalty Magic and the Bond Holders must promptly notify Wishlist Holdings
about any circumstance reasonably likely to:
|
(a)
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materially
adversely change the financial position, operations, profitability
or
prospects of the Business or the value of the assets of Loyalty Magic;
or
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(b)
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require
substantial capital expenditure,
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and
upon
receipt of such notice, Wishlist Holdings may immediately terminate this Letter
of Intent or the Purchase Agreement (as the case may be) by written notice
to
Catuity Inc., Loyalty Magic and the Bond Holders and in such circumstances,
Wishlist Holdings will be entitled to the Option Fee. If Wishlist Holdings
does
not elect to terminate this Letter of Intent or the Purchase Agreement (as
the
case may be) then an appropriate adjustment will be made to the Purchase Price
as agreed between the parties or, failing agreement, as determined by an
independent accountant, whose determination will be final and binding upon
the
parties.
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7
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Co-operation
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The
parties will use their best endeavours to observe the following
timeframe:
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(a)
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execution
of the Purchase Agreement to occur before 15 September 2007;
and
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(b)
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Completion
to occur before 30 September 2007.
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Wishlist
Holdings agrees to use its best endeavours to observe the above timeframe
provided that Catuity Inc., Loyalty Magic and each of the Bond Holders cooperate
with Wishlist Holdings and provide Wishlist Holdings with such reasonable
information, documents, and access to information, as Wishlist Holdings may
deem
desirable in order to conduct “due diligence” reviews in normal commercial scope
and means.
4
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8
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Fees
and Expenses
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Except
as
specified in this Letter of Intent, each party will be responsible for its
own
expenses and those of its agents, auditors, attorneys and consultants incurred
in connection with this letter and the Acquisition. Each party shall hold the
other harmless from any claims of brokers, finders, agents, advisers and
consultants.
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9
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Exclusivity
and Wishlist Holdings’
Option
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(a)
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In
due consideration of the value of an exclusive purchase opportunity,
Wishlist Holdings agrees to pay the sum of AUD$250,000 (“Option
Fee”)
to acquire an option to undertake the Acquisition (“Option”).
The Option may be exercised by Wishlist Holdings in writing at any
time
but no later than 30 September 2007 (“Option
Expiration Date”).
If Wishlist Holdings exercises the Option, the parties commit to
undertaking the Acquisition on the terms of this Letter of Intent.
The
Option Fee is payable within 5 business days of Wishlist Holdings
receiving this Letter of Intent signed by Catuity Inc., Loyalty Magic
and
each of the Bond Holders to Loyalty Magic’s solicitor, ▇▇▇▇▇▇ ▇▇▇▇▇
Leibler of Melbourne (“Stakeholder”)
for the Stakeholder to hold in trust.
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(b)
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In
granting the Option and receiving the Option Fee, Catuity Inc., Loyalty
Magic, each of the Bond Holders and their respective directors, officers
and advisers agree to negotiate exclusively with Wishlist Holdings,
and
not to enter into any discussions, arrangements, agreements or any
contracts with any other party, in relation to the Business or the
Acquisition or the sale of any of Loyalty Magic’s assets (other than sales
of inventory in the ordinary course of business), from the date of
this
Letter of Intent until the date on which the Purchase Agreement is
executed or the Option Expiration Date, whichever is earlier. Save
to the
extent that legal obligations to their shareholders or creditors
require
otherwise, prior to this date, none of Catuity Inc., Loyalty Magic
or any
of the Bond Holders will directly or indirectly, through any director,
employee or representative or otherwise, solicit or entertain offers
from,
negotiate with or in any manner encourage, discuss, accept, or consider
any proposal of any other person relating to the acquisition of the
Business or assets of Loyalty Magic or the shares in Loyalty Magic
in
whole or in part, whether directly or indirectly, through purchase,
merger, consolidation, or otherwise (other than sales of inventory
in the
ordinary course of business). Catuity Inc., Loyalty Magic and each
of the
Bond Holders each undertake to immediately notify Wishlist Holdings
of any
contact between Catuity Inc. or Loyalty Magic or any of the Bond
Holders
or any of their respective directors, employees or representatives
and any
other person regarding any such offer or proposal or any related
inquiry
and upon receipt of such notice, Wishlist Holdings may immediately
terminate this Letter of Intent.
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(c)
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Subject
to paragraph 6, the party which is entitled to sell all of the issued
shares in Loyalty Magic (being the Bond Holders or Catuity Inc.)
will be
entitled to the Option Fee if:
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5
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(i)
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Completion
occurs; or
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(ii)
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Completion
does not occur and:
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(A)
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Loyalty
Magic’s forecast EBITDA in respect of FY08 is greater than or equal to
AUD$650,000; and
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(B)
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none
of Catuity Inc., Loyalty Magic or any of the Bond Holders are in
breach of
the terms of this Letter of Intent or the Purchase Agreement (as
the case
may be) in a material respect; and
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(C)
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none
of Catuity Inc., Loyalty Magic or any of the Bond Holders or any
of their
respective directors, employees or representatives have, directly
or
indirectly, engaged in any of the activities referred to in paragraph
9(b).
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(d)
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Subject
to paragraph 6, Wishlist Holdings will be entitled to the Option
Fee if
Completion does not occur and:
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(i)
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Loyalty
Magic’s forecast EBITDA in respect of FY08 is less than AUD$650,000;
or
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(ii)
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Catuity
Inc., Loyalty Magic or any of the Bond Holders are in breach of the
terms
of this Letter of Intent or the Purchase Agreement (as the case may
be) in
a material respect; or
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(iii)
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Catuity
Inc. and/or Loyalty Magic and/or any of the Bond Holders and/or any
of
their respective directors, employees or representatives directly
or
indirectly engage in any of the activities referred to in paragraph
9(b)
and their respective legal obligations to their shareholders or creditors
require either or both of them to do
so.
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10
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Confidentiality
and public announcements
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(a)
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The
content of this Letter of Intent and the fact that Wishlist Holdings
is
interested in the Acquisition are confidential and will remain
confidential until expressly agreed otherwise by the parties. None
of
Wishlist Holdings, Catuity Inc. Loyalty Magic, any of the Bond Holders
or
any of their respective directors, agents, employees or representatives
shall make any disclosure or announcement concerning the content
of this
Letter of Intent or the existence of the proposed transaction, its
terms,
the proposals contained herein, or the terms of any definitive agreements,
without the prior written consent of the other party or as required
by law
(including the rules of the SEC or any relevant stock market exchange
in
the U.S. or Australia), and such information shall only be disclosed
to
third parties (including employees) on a “need-to-know” basis.
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(b)
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The
parties agree that the provisions of this paragraph shall remain
in effect
for two years following the termination of this Letter of Intent
should
the anticipated transaction not be completed.
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6
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11
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Present
Intent
|
This
Letter of Intent is intended to constitute legal relations between the parties
and to be formally binding upon the parties.
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12
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No
other statements.
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The
parties agree that as of this date there are no oral or written representations,
agreements or understandings concerning the subject matter of this Letter of
Intent or the Acquisition contemplated herein.
Please
return a copy of this Letter of Intent countersigned by an authorized
representative of each of Catuity Inc., Loyalty Magic, Gottbetter Capital
Master, Ltd. and Bridgepointe Master Fund Ltd. indicating Catuity
Inc.’s, Loyalty
Magic’s, Gottbetter Capital Master, Ltd.’s and Bridgepointe Master Fund Ltd.’s
confirmation of their interest in the terms set forth herein and agreement
to
the provisions hereof.
The
parties may execute separate copies of this letter, but both shall be deemed
the
same document. The
offer contained in this Letter of Intent shall remain open until 24 August
2007.
If not
signed by an authorized officer or representative of each of Catuity Inc.,
Loyalty Magic, Gottbetter Capital Master, Ltd. and Bridgepointe Master Fund
Ltd.
and returned by such date, then it will expire without further
action.
We
look
forward to proceeding in an effort to finalize a definitive agreement that
is
mutually acceptable, both in structure and price.
Best
regards,
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▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
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▇▇▇
▇▇▇▇▇▇
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CEO
|
Chairman
|
Wishlist
Holdings Ltd
ACKNOWLEDGED
AND AGREED THIS
day
of
August 2007:
| CATUITY INC. | ||
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By:
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Name
of Authorised Director
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7
| LOYALTY MAGIC PTY LTD | ||
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By:
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Name
of Authorised Director
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| GOTTBETTER CAPITAL MASTER, LTD. | ||
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By:
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Name
of Authorised Director
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BRIDGEPOINTE
MASTER FUND LTD.
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By:
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Name
of Authorised Director
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8