LIQUIDATION AGREEMENT
THIS
AGREEMENT (“Agreement”) is entered into as of August 23,
2007 by
and among Catuity Inc., a Delaware corporation (the “Company”), the undersigned
subsidiaries of the Company (each a “Subsidiary”
and
collectively and together with the Company the “Subsidiaries”),
Gottbetter Capital Master, Ltd., a Cayman Islands company (“Gottbetter”)
and
Bridgepointe Master Fund Ltd., a Cayman Islands Exempted Company (“Bridgepointe,”
collectively with Gottbetter, the “Holders”).
WHEREAS,
the Company entered into a Securities Purchase Agreement with Gottbetter and
Bridgepointe (the “Securities
Purchase Agreement”)
dated
as of November 21, 2006 and in connection therewith issued Senior Secured
Convertible Notes to each of Gottbetter and Bridgepointe dated November 22,
2006; and
WHEREAS,
pursuant to the Securities Purchase Agreement, the Company issued a Secured
Promissory Note to Gottbetter in the original principal amount of $1,111,112
and
issued a Secured Promissory Note to Bridgepointe in the original principal
amount of $688,888
(each an
“Original
Note”
and
collectively the “Original
Notes”);
WHEREAS,
in furtherance of the Securities Purchase Agreement, the Grantors entered into
a
Security Agreement (the “Security
Agreement”)
with
Gottbetter dated as of November 21, 2006; and
WHEREAS,
the Company issued new Secured Promissory Notes to Gottbetter and Bridgepointe
dated as of July 5, 2007, each in the amount of $75,000 (each a “New
Note”
and
collectively the “New
Notes,”
and
together with the Original Notes, collectively referred to as the “Notes”);
and
WHEREAS,
in furtherance of the purchase of the New Notes, the Holders each entered into
a
Joinder Agreement for Securities Agreement (the “Joinder
Agreement”)
with
the Company dated as of July 5, 2007; and
WHEREAS,
the Holders and the Company desire that certain of the property which
constitutes Collateral (as defined in the Securities Purchase Agreement) be
sold
pursuant to this Agreement and that the proceeds be distributed in accordance
with the requirements hereof in order to satisfy debt held by the
Holders.
NOW
THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the
parties hereby agree as follows:
1.
Default.
The
Company agrees and acknowledges that an Event of Default (as defined in the
Securities Purchase Agreement) has occurred pursuant to Section 4(a)(a)(v)
and
(xii) of the Original Notes, by virtue of the Company’s failure to pay the
interest due to each of the Holders, respectively, on July1, 2007 and August
1,
2007. The
Holders hereby require the Company to redeem, and the Company agrees to redeem,
all of the outstanding amount of the Holders’ Notes. The parties are hereby
deemed to have delivered to the Company a written "Event of Default Redemption
Notice" pursuant to Section 4(b) of the Original Notes.
2.
Private
Sale of Collateral.
The
Holders will conduct a private sale of the Collateral, including but not limited
to the assets listed on Schedule
1
hereto
(the “Core
Assets”),
in
accordance with Section 9-610 of the Uniform Commercial Code (“UCC”)(a
“Private
Sale”)
and the
Company agrees (a) not to object to such private sale, (b) to waive further
notice of the disposition, and (c) to use commercially reasonable Efforts to
cooperate in such process. For purposes hereof, the “Core
Assets”
shall
include the Loyalty Magic Stock and the IP (as each is defined below). For
purposes hereof:
“Loyalty
Magic Stock” shall
mean all of the shares of Loyalty Magic, Inc. that are owned by the Company,
which shares are pledged to the Holders as collateral for the Notes;
“IP”
shall
mean the Company’s patents and other intellectual property identified on
Schedule
1
hereto;
and
(a)
Private
Sale of Loyalty Magic Stock.
The
Holders will use their best endeavors to conduct a Private Sale of the Loyalty
Magic Stock (the “First
Private Sale”)
by not
later than September 15, 2007 (the “First
Private Sale Deadline”)
and to
distribute the proceeds of such sale in accordance with this agreement by the
earlier of (i) the date that is 15 days following the Private Sale, or (ii)
September 30, 2007 (the “First
Proceeds Distribution Deadline”).
In the
event that the Holders are unable to consummate a Private Sale of the Loyalty
Magic Stock by the First Private Sale Deadline and unless a letter of intent
(a
“Bona
Fide LOI”)
has
been entered into with a bona fide purchaser or prospective purchaser of the
Loyalty Magic Stock (a “Bona
Fide Prospective Purchaser”)
and
that bona fide purchaser or prospective purchaser has not materially breached
the terms of the letter of intent as of the date of the First Proceeds
Distribution Deadline, the Company hereby stipulates to the entry of a judgment,
in favor of the Holders, in a court of competent jurisdiction, in an amount
equal to the unpaid amount of the Aggregate Notes Redemption Amount (as defined
below) and to the entry of a Writ of Execution in such court under which the
Holders could levy and sell the Loyalty Magic Stock to satisfy the judgment.
In
the event that the Holders have been unable to consummate a Private Sale of
the
Loyalty Magic Stock by the First Proceeds Distribution Deadline and a letter
of
intent has been entered into with a bona fide purchaser or prospective purchaser
of the Loyalty Magic Stock and that bona fide purchaser or prospective purchaser
has not materially breached the terms of that letter of intent as at the date
of
the First Proceeds Distribution Deadline, then the Holders must provide the
bona
fide purchaser or prospective purchaser with a reasonable opportunity to
complete the purchase of the Loyalty Magic Stock in accordance with the terms
of
the letter of intent and any subsequent formal purchase agreement in respect
of
the sale and purchase of the Loyalty Magic Stock, and the Company will refrain
from stipulating to the entry of a judgment, in favor of the Holders, and
refrain from entering a Writ of Execution in any court under which the Holders
could levy and sell the Loyalty Magic Stock to satisfy any such judgment, until
the bona fide purchaser or prospective purchaser has completed the purchase
of
the Loyalty Magic Stock in accordance with the terms of the letter of intent
and
any subsequent formal purchase agreement in respect of the sale and purchase
of
the Loyalty Magic Stock, provided that the Company will not so refrain beyond
November 1, 2007, if such purchase and sale has not been completed by such
date.
Notwithstanding the above, the Holders shall not conduct the First Private
Sale,
and this Agreement shall become null and void ab initio, if the Holders shall
not have received and countersigned an executed a letter of intent from a bona
fide purchaser of the Loyalty Magic Stock by not later than September 1, 2007
to
sell the Loyalty Magic Stock to such purchaser for at least AUS.
$4,200,000.
The
Holders shall not sell the Loyalty Magic Common Stock for less than AUS
$4,200,000 without the Company’s written approval.
2
(b)
Private Sale of IP.
In the
event that the proceeds of the First Private Sale are insufficient to pay off
all amounts off the Notes (for the Aggregate Notes Redemption Amount, as defined
below), the Holders agree to will use their best endeavors to conduct a Private
Sale of the IP (the “Second
Private Sale”)
as soon
as possible by not later than November 1, 2007 (the “Second
Private Sale Deadline”)
and to
distribute the proceeds of such sale in accordance with this agreement by the
earlier of (i) the date that is 15 days following the Private Sale, or (ii)
November 15, 2007 (the “Second
Proceeds Distribution Deadline”).
In the
event that the Holders are unable to conduct the Second Private Sale by the
Second Private Sale Deadline, the Company hereby stipulates to the entry of
a
judgment, in favor of the Holders, in a court of competent jurisdiction, in
an
amount equal to the unpaid amount of the Aggregate Notes Redemption Amount
(as
defined below) and to the entry of a Writ of Execution in such court under
which
the Holders could levy and sell the IP to satisfy the judgment. The Holders
shall not sell the IP for less than U.S.
$250,000
without
the Company’s written approval.
3. Disposition
of Collateral In Accordance With UCC Requirements.
The
Holders agree to conduct its disposition of the collateral in accordance with
the requirements of the UCC.
4.
Forbearance
of Legal Proceedings.
The
Holders agree to forebear from bringing legal action to enforce the Notes from
the date hereof until October 1, 2007 or, if a Bona Fide LOI has been entered
into with a Bona Fide Prospective Purchaser by October 1, 2007, then the Holders
agree to forebear from bringing legal action to enforce the Notes from the
date
hereof until such time as the a Bona Fide Prospective Purchaser (if any) has
completed the purchase of the Loyalty Magic Stock in accordance with the terms
of the letter of intent and any subsequent formal purchase agreement in respect
of the sale and purchase of the Loyalty Magic Stock, but the Holders will not
so
forebear beyond November 1, 2007, if such purchase and sale has not been
completed by such date(collectively, the “Forbearance
Period”).
5.
Distribution
Amounts.
The
proceeds of each Private Sale, which shall include any option fee received
from
a prospective purchaser, shall be used: (i) first, to pay reasonable legal
and
other costs associated with the disposition, then (ii) to redeem the Original
Notes for the Original Note Redemption Amount (as defined below) and (iii)
last
to redeem the New Notes for the New Note Redemption Amount (as defined
below)(collectively, the “Distribution
Schedule”).
Any
proceeds in excess of the foregoing shall be paid to the Company.
6.
Note
Redemption Amounts.
The
Company and the Holders each agree that the Holders shall use the proceeds
of
each of the Private Sales (through the Escrow Agent) to redeem the Original
Notes in an Event of Default Redemption pursuant to Section 4 of the Original
Notes and acknowledge that the “Redemption
Premium”
(as
defined in the Original Notes) shall be deemed to equal 125% for the Event
of
Default Redemption. The parties agree that the Event of Default Redemption
Price
for the Original Notes shall equal the amounts set forth below, plus any
additional interest which accrues after September 30, 2007 (the “Original
Notes Redemption Amount”).
|
Holder
|
Event
of Default Redemption Price
|
|
BridgePointe
|
U.S.$884,072.93
|
|
Gottbetter
|
U.S.$1,425,927.07
|
3
The
Company and the Holders each agree and acknowledge that the New Notes shall
be
redeemed hereunder for the redemption amounts set forth below, plus any
additional interest which accrues after September 30, 2007 (the “New
Notes Redemption Amount”).
|
Holder
|
Event
of Default Redemption Price
|
|
BridgePointe
|
U.S.
$77,272.58
|
|
Gottbetter
|
U.S.
$77,272.58
|
The
Original Notes Redemption Amount and the New Notes Redemption Amount are
collectively referred to herein as the “Aggregate
Notes Redemption Amount.”
6.
Deposit
of Sales Proceeds into Escrow.
As a
part of the terms of each Private Sale, the Holders shall cause the purchaser(s)
at each Private Sale to deposit the purchase price for the assets being sold
(the “Sales
Proceeds”)
directly into the Escrow Account (as defined below) for distribution by the
Escrow Agent and accounting in accordance with the UCC. This
includes:
(a)
Upon
closing of the First Private Sale, the gross proceeds from the sale of assets
will be deposited in a trust account (the “First
Escrow Account”)
with
Xxxxxx Xxxxx Xxxxxxx, a law firm located in Sydney Australia (the “First
Escrow Agent”).
The
Holders, the Company and the Escrow Agent shall enter into an escrow agreement,
in a customary and mutually agreeable form reflecting the requirements of this
Agreement (the “First
Escrow Agreement”),
whereby the Company instructs the First Escrow Agent to receive the proceeds
of
the First Private Sale and to distribute the proceeds of such Private Sale
pursuant to the Distribution Schedule by the deadline specified in this
Agreement.
(b)
Upon
closing of the Second Private Sale, the gross proceeds from the sale of assets
will be deposited in a trust account (the “Second
Escrow Account,” together
with the First Escrow Account, each referred to as an“Escrow
Account”)
with a
mutually acceptable, nationally known securities law firm located in the United
States (the “Second
Escrow Agent,” together
with the First Escrow Agent each referred to as an“Escrow
Agent”).
The
Holders, the Company and the Second Escrow Agent shall enter into an escrow
agreement in a customary and mutually agreeable form reflecting the requirements
of this Agreement (the “Second
Escrow Agreement”),
whereby the Company instructs the Second Escrow Agent to receive the proceeds
of
the Second Private Sale and to distribute the proceeds of the Second Private
Sale pursuant to the Distribution Schedule by the deadline specified in this
Agreement.
(c)
Upon
confirmation of the receipt by the Escrow Agent of Sales Proceeds in an amount
equal to at least the unpaid portion of the Aggregate Notes Redemption Amount,
the Holders of the Original Notes and the New Notes shall each provide a written
notification of release (the “Releases”) to the Escrow Agent of such Holder’s
lien on the company’s assets (conditioned upon payment of such amounts to the
Holders pursuant to the Distribution Schedule), so that such assets may be
released to the purchaser. Further, the Holders will, in writing, direct the
Escrow Agent to immediately distribute the funds according to the Distribution
Schedule and to immediately deliver the Releases to the
Company.
4
(d)
All
surpluses from the sale of assets, after all distributions required under the
Distribution Schedule, will be returned to the Company immediately upon
satisfaction of the obligations set forth in this Agreement.
7.
Termination.
Provided that the Holders have complied with their obligations under Section
2(a) of this Agreement, the Holders, and
either of them, may terminate this Agreement if either (i) any Private Sale
is
not completed by the applicable Private Sale Deadline, or (ii) the Company
fails
to complete, or cause the Escrow Agent to complete, the distribution of proceeds
by in accordance with the Distribution Schedule by the applicable Proceeds
Distribution Deadline.
8.
Notices.
All
notices, requests, demands and other communications required or permitted to
be
given hereunder shall be given to Bridgepointe and Gottbetter at their
respective addresses provided in the Schedule of Note Buyers under the
Securities Purchase Agreement.
9.
Governing
Law.
Pursuant to Section 10(f) of the Security Agreement, this Agreement shall be
construed, and the rights and liabilities of the parties hereto determined,
in
accordance with the internal laws of the State of New York.
10. Captions,
Definitions.
The
captions to this Agreement are for convenience of reference only and in no
way
define, limit or describe the scope or intent of this Agreement or any part
hereof, nor in any way affect this Agreement or any part hereof. Capitalized
terms not defined herein shall have the meanings given to them in the Security
Agreement.
11.
Counterparts.
This
Agreement may be executed in several counterparts, which together shall
constitute a single document.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date
first set forth above.
| CATUITY INC. | LOYALTY MAGIC PTY LIMITED | ||
| By: | By: | ||
|
Name: |
Name: |
||
| Title: | Title: | ||
| CHIP APPLICATION TECHNOLOGIES PTY LIMITED | CIT CARDS AUSTRALIA PTY LIMITED | ||
| By: | By: | ||
|
Name: |
Name: |
||
| Title: | Title: | ||
5
ACCEPTED AND AGREED TO:
| Gottbetter Capital Master, Ltd. | |||
| By: | |||
|
Name: |
|||
| Title: | |||
| Bridgepointe Master Fund Ltd. | |||
| By: | |||
|
Name: |
|||
| Title: | |||
6
