Exhibit 10.5
MSGI SECURITY SOLUTIONS, INC.
000 XXXXXXX XXXXXX
XXX XXXX, XX 00000
December 13, 2006
AJW Partners, LLC
AJW Offshore, Ltd.
AJW Qualified Partners, LLC
New Millennium Capital Partners II, LLC
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Re: MSGI Security Solutions, Inc. (the "Company")
Ladies and Gentlemen:
This letter sets forth the agreement of the Company and the investors
listed in the signature pages hereto (collectively, the "Investors") to: (i)
amend the conversion provisions of certain Callable Secured Convertible Notes,
as amended, which are convertible into shares of the Company's common stock, par
value $.01 per share (the "Common Stock"), previously issued by the Company to
the Investors (collectively, the "Convertible Notes"), as set forth on Schedule
1 hereto; (ii) extend the expiration dates and amend the exercise price of
certain warrants previously issued by the Company to the Investors in connection
with the issuance of the Convertible Notes and in a subsequent transaction in
June 2006 (collectively, the "Warrants"), as set forth on Schedule 1 hereto,
(iii) extend the maturity date of certain promissory notes previously issued by
the Company to the Investors (collectively, the "Promissory Notes"), (iv)
resolve certain other matters.
By execution hereof, for good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree that:
1. The Convertible Notes shall no longer be subject to the
amortization provisions thereof, and such provisions shall be
deemed to be deleted.
2. Section 2.2 of each of the Convertible Notes shall be amended
and restated in its entirety as follows:
"The Conversion Price shall be the Variable Conversion Price (as
defined herein) (subject, in each case, to equitable adjustments for
stock splits, stock dividends or rights offerings by the Borrower
relating to the Borrower's securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar events). The
"Variable Conversion Price" shall mean the Applicable Percentage (as
defined herein) multiplied by the Market Price (as defined herein).
"Market Price" means the average of the lowest three (3) Trading Prices
(as defined below) for the Common Stock during the twenty (20) Trading
Day period ending one Trading Day prior to the date the Conversion
Notice is sent by the Holder to the Borrower via facsimile (the
"Conversion Date"). "Trading Price" means, for any security as of any
date, the closing price on the Over-the-Counter Bulletin Board (the
"OTCBB") as reported by a reliable reporting service ("Reporting
Service") mutually acceptable to Borrower and Holder and hereafter
designated by Holders of a majority in interest of the Notes and the
Borrower or, if the OTCBB is not the principal trading market for such
security, the closing price of such security on the principal
securities exchange or trading market where such security is listed or
traded or, if no closing price of such security is available in any of
the foregoing manners, the average of the closing prices of any market
makers for such security that are listed in the "pink sheets" by the
National Quotation Bureau, Inc. If the Trading Price cannot be
calculated for such security on such date in the manner provided above,
the Trading Price shall be the fair market value as mutually determined
by the Borrower and the holders of a majority in interest of the Notes
being converted for which the calculation of the Trading Price is
required in order to determine the Conversion Price of such Notes.
"Trading Day" shall mean any day on which the Common Stock is traded
for any period on the OTCBB, or on the principal securities exchange or
other securities market on which the Common Stock is then being traded.
"Applicable Percentage" shall mean 75%. Notwithstanding the foregoing,
in no event will the Conversion Price be less than $.50."
3. The Maturity Date (as defined in the Convertible Notes) is
hereby extended to December 13, 2009.
4. The Warrants shall expire on the seventh (7th) anniversary of
their respective dates of issuance, as set forth on Schedule I
hereto.
5. The Exercise Price (as defined in the Warrants) is hereby
amended to be $1.00 per share.
6. The Maturity Date (as defined in the Promissory Notes) is
hereby extended to December 13, 2009.
7. The Investors hereby waive any and all defaults under the
Convertible Notes, the Promissory Notes and the Warrants
existing on the date hereof, provided that the Company shall
still be obligated to pay any interest on the Convertible
Notes and the Promissory Notes that has accrued through the
date hereof.
8. The Company acknowledges that the Investors are entering into
this letter based upon the understanding of the parties hereto
that the holding period of the Convertible Notes, as amended
pursuant to this letter, for purposes of Rule 144(d)
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under the Securities Act of 1933, as amended, shall commence
on the original date of issuance of the Convertible Notes as
set forth on Schedule 1 hereto, and that the Company will use
its best efforts to deliver to the Investors unrestricted and
unlegended shares of Common Stock upon conversion of the
Convertible Notes, provided that the other requirements of
Rule 144 are satisfied.
9. The Convertible Notes, the Promissory Notes and the Warrants
are hereby amended in accordance with the foregoing
provisions. All other provisions of the Convertible Notes, the
Promissory Notes and the Warrants, as amended from time to
time, shall remain in full force and effect.
10. Upon the payment or conversion of at least $500,000 in
principal on the Convertible Notes and the Promissory Notes,
the investors will release the lien on Xxxxxx Xxxxxxx'x shares
of Common Stock that have been pledged pursuant to that
certain Guaranty and Pledge Agreement dated as of January 19,
2006 by and among the Company and the Investors.
The parties shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other parties hereto
may reasonably request in order to carry out the intent an accomplish the
purposes of this letter agreement, including without limitation the issuance of
amended Convertible Notes, Promissory Notes and Warrants.
[Signature Page Follows]
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Please signify your agreement with the foregoing by signing a copy of
this letter where indicated and returning it to the undersigned.
Sincerely,
MSGI SECURITY SOLUTIONS, INC.
----------------------------------------
Xxxxxx Xxxxxxx
Chief Executive Officer
ACCEPTED AND AGREED:
AJW PARTNERS, LLC.
By: SMS GROUP, LLC
----------------------------------------
Xxxxx X. Xxxxxxxx, Manager
AJW OFFSHORE, LTD.
By: FIRST STREET MANAGER II, LLC
----------------------------------------
Xxxxx X. Xxxxxxxx, Manager
AJW QUALIFIED PARTNERS, LLC
By: AJW MANAGER, LLC
----------------------------------------
Xxxxx X. Xxxxxxxx, Manager
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: FIRST STREET MANAGER II, LLC,
----------------------------------------
Xxxxx X. Xxxxxxxx, Manager
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