OCTOBER 2008 LETTER AGREEMENT WITH DEBENTURE HOLDERS MSTI Holdings, Inc. Hawthorne, New Jersey 07506
OCTOBER
2008 LETTER AGREEMENT WITH DEBENTURE HOLDERS
000-000
Xxxxxx Xxxx
Xxxxxxxxx,
Xxx Xxxxxx 00000
| October 16, 2008 |
To
the
MSTI Holdings, Inc. Debenture Holders:
Reference
is hereby made to that certain Securities Purchase Agreement, dated as of May
25, 2007 (the “Purchase
Agreement”),
as
supplemented by letter agreements dated January 30, 2008, February 11, 2008
and
May 23, 2008, by and among MSTI Holdings, Inc., a Delaware corporation (the
“Company”),
and
each entity identified on the signature pages thereto (each, including its
successors and assigns, a “Purchaser”
and,
collectively, the “Purchasers”).
Capitalized terms used in this letter agreement (this “Agreement”)
and
not otherwise defined shall have the meanings ascribed to them in the Purchase
Agreement.
1.
Additional
Issuances.
(a) Section
7(a) of the Debentures states that so long as any portion of the Debentures
remains outstanding, unless the holders of at least 85% in principal amount
of
the then outstanding Debentures shall have otherwise given prior written
consent, the Company shall not, directly or indirectly, other than Permitted
Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist
any indebtedness for borrowed money of any kind.
(b) Section
4.12 of the Purchase Agreement grants each of the Purchasers the right to
participate in a Subsequent Financing.
(c) Section
4.13(a) of the Purchase Agreement restricts the Company from issuing Common
Stock or Common Stock Equivalents.
(d) Section
4.13(b) of the Purchase Agreement restricts the Company from engaging in a
Variable Rate Transaction.
(e) Section
4.13(c) of the Purchase Agreement grants the Purchasers so-called most favored
nations rights (“MFN
Rights”).
The
Purchasers hereby consent solely to the issuance of the Additional Debentures
and Incentive Shares (each as defined below) and grant only the waivers
described herein and no others.
2. Additional
Debentures; Incentive Shares.
(a) Each
of
the Purchasers identified on Schedule
I
hereto
hereby agrees to purchase from the Company, and the Company hereby agrees to
sell to such Purchasers, additional Debentures in the aggregate principal amount
of $352,631 (the “Additional
Debentures”),
in
the form annexed hereto as Exhibit
A
and in
the denominations set forth on Schedule
I,
for the
purchase price set forth on Schedule
I
hereto.
In connection with the purchase of the Additional Debentures, the Company will
issue to each Purchaser who is acquiring Additional Debentures the amount of
Common Stock set forth on Schedule
I
(“Incentive
Shares”).
The
purchase price of the Debentures and Incentive Shares and the Debentures and
Incentive Shares and “Intercreditor
Agreement”
to
be
entered into in connection herewith will be deposited in escrow with Grushko
& Xxxxxxx, P.C., as Escrow Agent, and released pursuant to the terms of the
Escrow Agreement annexed hereto as Exhibit
B.
1
(b) The
rights and obligations of each Purchaser identified on Schedule
I
(severally and not jointly with the rights of such other Purchasers) and of
the
Company with respect to the Additional Debentures and the shares of Common
Stock
issuable under the Additional Debentures (the “Additional
Underlying Shares”)
shall
be identical in all respects to the rights and obligations of such Purchaser
and
of the Company with respect to the Debentures and the Underlying Shares. The
Purchase Agreement is hereby amended so that the term “Debentures” includes the
Additional Debentures and the term “Underlying Shares” includes the Additional
Underlying Shares. The Registration Rights Agreement entered into in connection
with the Purchase Agreement is hereby amended so that the term “Registrable
Securities” includes in the calculation thereof the Additional Underlying Shares
and the Incentive Shares. The parties confirm and ratify that the term
“Obligations” in the Security Agreement and Subsidiary Guarantee includes the
Additional Debentures.
3. Representations
and Warranties of the Company.
The
Company hereby makes to the Purchasers the following representations and
warranties:
(a) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by this Agreement and otherwise to
carry out its obligations hereunder. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company, its board
of directors or its stockholders in connection therewith other than in
connection with the Required Approvals. This Agreement has been duly executed
by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be
limited by applicable law.
(b) No
Conflicts.
The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby do not
and
will not: (i) conflict with or violate any provision of the Company’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents; or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result
in the creation of any Lien (except as contemplated by the Security Documents)
upon any of the properties or assets of the Company in connection with, or
give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any material agreement,
credit facility, debt or other material instrument (evidencing Company debt
or
otherwise) or other material understanding to which such Company is a party
or
by which any property or asset of the Company is bound or affected; or (iii)
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except, in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material
Adverse Effect.
(c) Issuance
of the Additional Debentures and Incentive Shares.
The
Additional Debentures are duly authorized and, upon the execution of this
Agreement by a Purchaser, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The
Incentive Shares upon issuance and the Additional Underlying Shares, when issued
in accordance with the terms of the Additional Debentures, will be validly
issued, fully paid and nonassessable, free and clear of all Liens imposed by
the
Company. The Company has reserved from its duly authorized capital stock a
number of shares of Common Stock sufficient for issuance of the Incentive Shares
and Additional Underlying Shares.
2
(d) Equal
Consideration.
Except
as set forth in this Agreement, no consideration has been offered or paid to
any
person to amend or consent to a waiver, modification, forbearance or otherwise
of any provision of any of the Transaction Documents that is not proportional
to
such Purchaser’s holding of Debentures.
(e) No
Ratchet.
The
issuance of the Additional Debentures and Incentive Shares and the conduct
of
the Qualified Offering (defined below) do not and will not trigger any right
of
any holder of Common Stock or Common Stock Equivalents (other than the
Purchasers if the Qualified Offering does not occur) to exercise or receive
the
benefit of ratchet, reset, anti-dilution, right of participation, right of
first
refusal, acceleration or other similar rights.
(f) Affirmation
of Prior Representations and Warranties.
The
Company’s representations and warranties listed in Section 3.1 of the Purchase
Agreement are true and correct as of the date hereof, provided that the
Company’s representations and warranties are qualified by any SEC Filings made
prior to the date hereof.
4. Representations
and Warranties of the Purchasers.
Each
Purchaser hereby represents and warrants as of the date hereof to the Company
as
follows:
(a) Authority.
The
execution and delivery of this Agreement and performance by such Purchaser
of
the transactions contemplated by this Agreement have been duly authorized by all
necessary corporate or similar action on the part of such Purchaser. This
Agreement has been duly executed by such Purchaser and, when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium and other
laws
of general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
(b) Own
Account.
Such
Purchaser (i) understands that the Additional Debentures, the Additional
Underlying Shares and Incentive Shares (the “Securities”)
are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law, (ii) is acquiring the Securities as
principal for its own account and not with a view to or for distributing or
reselling such Securities or any part thereof in violation of the Securities
Act
or any applicable state securities law, (iii) has no present intention of
distributing any of such Securities in violation of the Securities Act or any
applicable state securities law and (iv) has no arrangement or understanding
with any other persons regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser’s right to sell the
Additional Underlying Shares pursuant to the Registration Statement or otherwise
in compliance with applicable federal and state securities laws) in violation
of
the Securities Act or any applicable state securities law. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.
Such
Purchaser does not have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Securities.
3
(c) Purchaser
Status.
Such
Purchaser is an “accredited investor” as defined in Rule 501(a)(1), (a)(2),
(a)(3), (a)(7) or (a)(8) under the Securities Act. Such Purchaser is not
required to be registered as a broker-dealer under Section 15 of the Exchange
Act.
(d) Experience
of Such Purchaser.
Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters
so as
to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of such
investment.
(e) General
Solicitation.
Such
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in
any
newspaper, magazine or similar media or broadcast over television or radio
or
presented at any seminar or any other general solicitation or general
advertisement.
5. Public
Disclosure.
The
Company shall, as soon as practical, issue a Current Report on Form 8-K,
disclosing the material terms of the transactions contemplated hereby and
attaching this Agreement as an exhibit thereto, but in any event within 5
business days of the full execution hereof. The Company shall consult with
the
Purchasers in issuing any press releases with respect to the transactions
contemplated hereby.
6. Rollover
Conditions and Qualified Offering.
(a) Rollover
Conditions.
The
Purchasers agree that the Maturity Date of the Additional Debenture will be
automatically extended to April 30, 2010, as same may be accelerated pursuant
to
the terms of the Additional Debenture upon both the following conditions
(“Rollover
Conditions”):
(i)
the non-occurrence of an Event of Default (as defined in the Additional
Debenture) or an event which with the passage of time or the giving of notice
could become an Event of Default, and (ii) the receipt of net proceeds by the
Company from a Qualified Offering.
(b) Qualified
Offering.
“Qualified
Offering”
shall
mean (i) an offering of the Company’s Common Stock at not less than $0.125 of
net proceeds to the Company per share of Common Stock, with aggregate net
proceeds that must be received by the Company of not less than $1,000,000,
(ii)
the Company receives such net proceeds not later than sixty days after the
issue
date of the Additional Debenture, and (iii) the issuance of the Common Stock
and
the Common Stock Purchase Warrants described below do not result in the
triggering of any right of any other holder of any Common Stock or Common Stock
Equivalents to exercise or receive the benefit of any ratchet, reset,
anti-dilution, right of participation, right of first refusal, acceleration,
or
other similar rights. If the Rollover Conditions do not occur, then the Maturity
Date shall not be extended until April 30, 2010.
(c) Qualified
Offering Warrants.
The
Company may issue Common Stock Purchase Warrants as part of the Qualified
Offering provided the exercise price of such Warrants is at no time less than
$0.125 per share of Common stock and the number of shares purchasable upon
exercise of the Warrants does not exceed the number of shares of Common Stock
sold in the Qualified Offering.
(d) Acknowledgement.
The
Company acknowledges and agrees that if the Qualified Offering does not occur,
then the Conversion Price as set forth in Section 4(b) of the Additional
Debentures shall be applicable to all of the Debentures issued by the Company
to
the Purchasers including the Additional Debentures and the Debentures issued
pursuant to the Letter Agreement With Debenture Holders dated May 23, 2008.
The
Company further acknowledges and agrees that if the Qualified Offering does
not
occur the issuance of the Additional Debentures is not an Exempt Issuance.
The
Purchasers acknowledge that provided the Qualified Offering occurs, then the
issuance of the Additional Debentures and Incentive Shares and the conduct
of
the Qualified Offering are each an Exempt Issuance.
4
7. Independent
Nature of Purchasers' Obligations and Rights.
The
Company has elected to provide all Purchasers with the same terms and Agreement
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers. The obligations of each Purchaser under this
Agreement, and any Transaction Document, are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in
any
way for the performance or non-performance of the obligations of any other
Purchaser under this Agreement or any Transaction Document. Nothing contained
herein or in any Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by this
Agreement or the Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including, without limitation,
the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. Each Purchaser has been
represented by its own separate legal counsel in their review and negotiation
of
this Agreement and the Transaction Documents.
8. Successor
Agent.
The
Purchasers, Company and DKR Soundshore Oasis Holding Fund Ltd., as Agent,
consent to the appointment of Collateral Agents, LLC as successor Agent pursuant
to the Security Agreement. Collateral Agents, LLC, by its signature hereto
accepts such appointment pursuant to the Security Agreement. DKR Soundshore
Oasis Holding Fund Ltd. as former Agent will promptly deliver to Collateral
Agents, LLC any Collateral (as defined in the Security Agreement) in its
possession to Collateral Agents, LLC. The address for notice purposes of
Collateral Agents, LLC is 000 Xxxx 00xx
Xxxxxx,
Xxxxx 0000, Xxx Xxxx, XX 00000, Attn: General Counsel, fax: (000) 000-0000.
The
Company agrees to pay Collateral Agents, LLC an annual fee of $2,500 for serving
as Collateral Agent. The fee for the first year commencing on the date of this
Letter Agreement shall be paid out of the proceeds of the purchase price of
the
Additional Debentures deposited pursuant to the Escrow Agreement.
9. Additional
Notice.
Any
notice required to be given by the Company to the Purchasers pursuant to the
Transaction Documents shall also be given in the same manner to Grushko &
Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, XX 00000, fax: (000)
000-0000.
10. Miscellaneous.
Subject
to the waivers and agreements provided herein, the Transactions Documents shall
remain in full force and effect. Except as expressly set forth herein, this
Agreement shall not be deemed to be a waiver, amendment or modification of
any
provisions of the Transaction Documents or of any right, power or remedy of
the
Purchasers, or constitute a waiver of any provision of the Transaction Documents
(except to the extent herein set forth), or any other document, instrument
and/or agreement executed or delivered in connection therewith, in each case
whether arising before or after the date hereof or as a result of performance
hereunder or thereunder. The Purchasers reserve all rights, remedies, powers
or
privileges available under the Transaction Documents, at law or otherwise,
subject to the terms of this Agreement. This Agreement shall not constitute
a
novation or satisfaction and accord of the Transaction Documents or any other
document, instrument and/or agreement executed or delivered in connection
therewith. This Agreement shall be governed by and construed in accordance
with
the laws of the State of New York.
5
Please
indicate your acknowledgment of and agreement to the foregoing by signing a
copy
of this letter and returning an executed original to the Company.
This
Agreement may be executed by the parties hereto in counterparts, and execution
may be evidenced by facsimile or other electronic transmission of a signed
signature page by any party hereto, and all of such counterparts together shall
constitute one and the same instrument.
| Sincerely, | ||
| MSTI HOLDINGS, INC. | ||
| |
|
|
| /s/ Xxxxx Xxxxxxxxx | ||
|
Xxxxx Xxxxxxxxx |
||
| Chief Executive Officer | ||
[DEBENTURE
HOLDER SIGNATURE PAGES TO FOLLOW]
6
[DEBENTURE
HOLDER SIGNATURE PAGE TO
OCTOBER
2008 LETTER AGREEMENT WITH DEBENTURE HOLDER]
ACCEPTED
AND AGREED AS OF THE DATE ABOVE WRITTEN:
DKR
SOUNDSHORE OASIS HOLDING FUND LTD.
| By: |
/s/
Xxxxxxx Xxxxxx
|
||
|
By:
Xxxxxxx Xxxxxx
|
|||
|
DKR
Oasis Management Company L.P., its investment manager
|
|||
| ALPHA CAPITAL ANSTALT | |||
|
By:
/s/
Xxxxxx Xxxxxxxx
|
|||
| Xxxxxx Xxxxxxxx, Director | |||
| GEMINI MASTER FUND, LTD. | |||
|
By:
/s/
Xxxxxx Xxxxxxx
|
|||
| Xxxxxx X. Xxxxxxx, President | |||
| WHALEHAVEN CAPITAL FUND LIMITED | |||
| By: |
/s/
Xxxxx Xxxxxxxx
|
||
| Xxxxx Xxxxxxxx, Chief Financial Officer | |||
| CMS CAPITAL | |||
| By: |
/s/
Xxxxxx Xxxxx
|
||
| Xxxxxx Xxxxx, Director | |||
| BRIO CAPITAL L.P. | |||
| By: |
/s/
Xxxxx Xxxxxx
|
||
| Xxxxx Xxxxxx, Manager of General Partner | |||
7
SUBSIDIARY
SIGNATURE PAGE TO OCTOBER 2008 LETTER
AGREEMENT
WITH DEBENTURE HOLDERS
AGREED
AND CONSENTED:
The
undersigned on behalf of Collateral Agents, LLC consents to the appointment
as
successor Agent under the Security Agreement.
COLLATERAL
AGENTS, LLC
| By: /s/ Xxxxxx Xxxxxxxxx | |||
|
Xxxxxx Xxxxxxxxx, Chief Executive Officer |
8
SCHEDULE
I
|
Name
of Purchaser
|
Proportionate
Share
|
Purchase
Price
|
Principal
Amount of Debenture
|
Incentive
Shares
|
||||||||||
|
ALPHA
CAPITAL ANSTALT
Pradafant
7
9490
Furstentums
Vaduz,
Lichtenstein
Fax:
000-00-00000000
|
35.714%
|
|
$
|
119,642.00
|
$
|
125,939.00
|
714,280
|
|||||||
|
GEMINI
MASTER FUND, LTD.
c/o
Gemini Strategies LLC
00000
Xx Xxxxxx Xxxx, Xxxxx 000
Xxx
Xxxxx, XX 00000-0000
Fax:
(000) 000-0000
|
35.714%
|
|
$
|
119,642.00
|
$
|
125,939.00
|
714,280
|
|||||||
|
WHALEHAVEN
CAPITAL FUND LIMITED
000
Xxxxxx Xxxxxx
Xxxxxxxxx
Xxxxxx, XX 00000
Fax:
(000) 000-0000
|
21.429%
|
|
$
|
71,787.00
|
$
|
75,565.00
|
428,580
|
|||||||
|
BRIO
CAPITAL L.P.
000
Xxxx 00xx
Xxxxxx, Xxxxx 00X
Xxx
Xxxx, Xxx Xxxx 00000
Fax:
(000) 000-0000
|
7.143%
|
|
$
|
23,929.00
|
$
|
25,188.00
|
142,860
|
|||||||
|
TOTALS
|
100%
|
|
$
|
335,000.00
|
$
|
352,631.00
|
2,000,000
|
|||||||
9
