AGREEMENT ON DISPOSITION OF CONVERTIBLE DEBENTURES
This
Agreement on Disposition of Convertible Debentures (this “Agreement”)
is
entered into as of September 9, 2008, by and among Solution Technology
International, Inc. (the “Company”),
with
its principal place of business at Xxxxxxx Information Enterprise Center, 000
Xxxxxx Xxxx, Xxxxx 00, XxXxxxx, Xxxxxxxx 00000, Resurgence Partners, LLC
(“Resurgence
Partners”),
a
Virginia limited liability company, with its principal place of business at
000
Xxxxx Xxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxxx, XX 00000, and YA Global
Investments, L.P. (“YA
Global”)
(f/k/a
Cornell Capital Partners, LP), a Cayman Islands limited partnership, with its
principal place of business at 000 Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx Xxxx,
Xxx
Xxxxxx 00000.
WHEREAS,
the
Company has issued convertible debentures to YA Global in the principal amount
of $2,875,000 in connection with secured loans made by YA Global to the Company
(the “Debentures”),
a
list of which is attached hereto and incorporated herein as Schedule
1,
and has
issued warrants to purchase shares of its common stock, par value $.01 per
share
(“Common
Stock”)
to YA
Global (the Warrants”);
and
WHEREAS,
YA
Global has entered into an Intercreditor Agreement with Crosshill Georgetown
Capital, L.P. (“Crosshill”)
to
arrange for a division of the blanket lien against the Company’s assets under
UCC-1 financing statements on file in the State of Delaware (the “YA/Crosshill
Intercreditor Agreement”);
and
WHEREAS,
the
Company requires additional financing to achieve its business plan;
and
WHEREAS,
the
Company has entered into discussions with a Resurgence Partners to invest not
less than $2,500,000 (the “Financing”)
assuming that (i) the Company has eliminated existing secured debt from its
balance sheet, (ii) it effects a reverse split of its shares of common stock
to
provide the financing group with 92.5% ownership of the Company’s issued and
outstanding shares of common stock, par value $.01 per share (the “Common
Stock”)
and
the existing shareholders 7.5% of the Company’s issued and outstanding shares of
Common Stock post reverse split (the “Reverse
Split”)
and
(iii) it eliminates all liens against its assets; and
WHEREAS,
the
Company, as a precondition to receipt of the Financing, must enter into an
agreement with YA Global to terminate the Debentures or allow Resurgence
Partners to purchase the Debentures, terminate the YA/Crosshill Intercreditor
Agreement and terminate all liens against the Company and any outstanding
warrants; and
WHEREAS,
YA
Global is willing to terminate or sell to Resurgence Partners the Debentures
and
to terminate the YA/Crosshill Intercreditor Agreement, its lien against the
Company’s assets and the Warrants in return for receipt of $700,000 cash and a
deferred payment of $150,000.
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 hereto
agree as follows:
Section
1. Cash
Payment by the Company; Closing.
Upon YA
Global’s execution of this Agreement and compliance with sections 4, 5 and 6
below (the “Closing”),
the
Company shall pay to YA Global $700,000 by wire transfer in immediately
available funds (the “Cash Payment”).
Section
2. Deferred
Payment.
At
the
Closing, Resurgence Partners shall purchase all but $150,000 of the Debentures
(the “Assigned
Debentures”) from
YA
Global, by executing the Non-Recourse Assignment attached hereto as Schedule
2.
(The
debentures that YA Global retains shall be referred to herein as the
“YA
Global Debentures”).
The
security interest held by YA Global in the Company’s assets shall be
subordinated to the security interest in all of its now owned or hereafter
acquired personal property of the Company, including the Company’s software (the
“Collateral”)
held
by Resurgence Partners following its purchase of the Debentures, as set forth
in
the Intercreditor Agreement of even date herewith in the form attached hereto
as
Schedule
3
pursuant
to which Resurgence Partners will have the authority to make all decisions
regarding the security on behalf of itself and YA Global. In the event that
the
Company files for protection under Chapter 11 of the U.S. Bankruptcy Code,
Resurgence Partners shall, within three (3) days of entry of a final plan of
reorganization, or other final disposition of the bankruptcy action execute
a
note in the form attached hereto as Schedule
4,
(the
“Note”)
whose
principal amount shall be $150,000, and which shall bear interest at 10% per
annum, such interest to accrue and be paid annually, and shall have a maturity
date two years from the date of this Agreement. The Note shall be secured by
a
pledge of shares equal to five and one half percent (5.5%) of the number of
shares in the Company (or in any successor entity or entities of the Company)
received by Resurgence in the final plan of reorganization, or other final
disposition of the bankruptcy action. The pledge shall be implemented by
execution of the Pledge Agreement attached hereto as Schedule
5.
Section
3. Exercise
of Conversion Rights.
Immediately prior to the Closing, YA Global intends to issue a notice of
conversion (the “Conversion
Notice”) to
obtain
shares of the Company’s Common Stock under the terms of its outstanding
Convertible Debentures that will allow YA Global to own up to 9.99% of the
outstanding shares of the Company’s Common Stock pre-Reverse Split. The Company
agrees to honor the notice of conversion and issue the number of shares of
Common Stock set forth in the conversion notice. The Company agrees further
that, upon execution of this Agreement, all limitations on share ownership
contained in the YA Global Debentures shall be amended to be 9.99% of the
outstanding shares of Common Stock of the Company.
Section
4. Termination
of the YA/Crosshill Intercreditor Agreement. YA
Global
hereby agrees that the YA/Crosshill Intercreditor Agreement shall be terminated
at Closing. YA Global acknowledges that concurrently with the execution and
delivery of this Agreement, Crosshill is terminating its agreements with the
Company and releasing its lien on the assets of the Company, in exchange for
a
cash payment (the “Cash Payment”). Crosshill’s agreement to accept the Cash
Payment is being made in reliance upon YA Global’s express termination of the
YA/Crosshill Intercreditor Agreement and YA Global’s Agreement to waive any and
all interest in the Cash Payment. YA Global hereby waives any and all interest
in the Cash Payment and agrees that Crosshill may rely on this Agreement in
terminating its agreements and releasing the collateral pledged to
Crosshill.
2
Section
5. Sale
of the Debentures.
At
Closing YA Global shall sell, and Resurgence Partners will purchase, the
Assigned Debentures. The terms of such sale shall be as set forth in the
Non-Recourse Assignment between Resurgence Partners and YA Global of even date
herewith, which shall provide for the ownership of the Assigned Debentures
by
Resurgence Partners contemporaneously with the Closing. YA Global shall have
three (3) days from the date of the Closing to physically deliver the assigned
debentures to Resurgence Partners. In the event that such assigned debentures
are not delivered in accordance with this section 5 YA Global authorizes the
Company to cancel the Assigned Debentures and reissue replacement debentures
that are consistent with this Agreement.
Section
6. Cancellation
of Outstanding Warrants.
At
Closing, the Warrants, shall be immediately cancelled on the books of the
Company with no additional action by YA Global or Resurgence Partners necessary
to effectuate such cancellation. YA Global shall physically deliver the Warrants
to the Company within five (5) days of the Closing.
Section
7. Mutual
Release.
In
consideration of the covenants and agreements contained in this Agreement,
the
Company and YA Global do hereby RELEASE AND FOREVER DISCHARGE the other party
and its subsidiaries and its respective affiliates, parents, joint ventures,
officers, directors, shareholders, interest holders, members, managers,
employees, consultants, representatives, successors and assigns, heirs,
executors and administrators from all causes of action, suits, debts, claims
and
demands whatsoever known or unknown, at law, in equity or otherwise, which
either party had, now has, or hereafter may have, arising from or relating
in
any way to the Company’s status as a debtor of YA Global on or prior to the date
hereof, any agreement between the Company and YA Global entered into prior
to
the date hereof, any claims for reasonable attorneys’ fees and costs, and
including, without limitation, any claims relating to fees, penalties,
liquidated damages, and indemnification for losses, liabilities and
expenses. This release is effective without regard to the legal nature of
the claims raised and without regard to whether any such claims are based upon
tort, equity, or implied or express contract. It is expressly understood
and agreed that this release shall operate as a clear and unequivocal waiver
by
both the Company and YA Global of any such claim whatsoever. The terms of this
mutual release shall not, however, preclude an action seeking
to enforce the parties’ rights and obligations under this Agreement, or any
action by YA Global to enforce its rights and remedies under the
Note.
3
Section
8. Company
Representations and Warranties.
(a).
Organization,
Good Standing and Qualification.
The
Company has been duly incorporated and organized, and is validly existing in
good standing under the laws of the State of Delaware. The Company has the
corporate power and authority to own and operate its properties and assets
and
to carry on its business as currently conducted and as presently proposed to
be
conducted.
(b).
Due
Authorization.
All
corporate action on the part of the Company’s directors and shareholders
necessary for the authorization, execution, delivery of, and the performance
of
all obligations of the Company under this Agreement have been taken or will
be
taken prior to the Closing of the Financing, and this Agreement when executed
and delivered, will constitute, a valid and legally binding obligation of the
Company, enforceable in accordance with its terms, except as may be limited
by
(i) applicable bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting the enforcement of creditor’s
rights generally and (ii) the effect of rules of law governing the
availability of equitable remedies.
(c).
Corporate
Power.
The
Company has the corporate power and authority to execute and deliver this
Agreement and to carry out and perform all its obligations under this
Agreement.
(d).
SEC
Reports. The
Company has filed all forms, reports, schedules, registration statements, proxy
statements, and other documents (including any document required to be filed
as
an exhibit thereto) required to be filed by the Company with the Securities
and
Exchange Commission (“SEC”)
from
September 30, 2005 to September 30, 2008. All such required forms, reports,
schedules, registration statements, proxy statements and other documents
(including those that the Company may file subsequent to the date hereof) are
referred to herein as the “SEC
Reports.”
As
of
their respective dates, the SEC Reports (including any financial statements
or
schedules included or incorporated by reference therein) (i) were prepared
in
all material respects in accordance with the requirements of the 1933 Act or
the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”),
as
the case may be, and the rules and regulations of the SEC thereunder applicable
to such SEC Reports and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the
date
of such filing) contain any untrue statement of a material fact or omit to
state
a material fact required to be stated therein or necessary in order to make
the
statements therein, in light of the circumstances under which they were made,
not misleading. As of the date hereof, there has not been any material adverse
change with respect to the Company that would require disclosure under the
Securities Act.
Section
9. Covenants
of the Company.
The
Company hereby covenants and agrees that it shall remain a public company so
long as YA Global remains a stockholder in the Company (or in any successor
entity to the Company that emerges from any bankruptcy or reorganization case
or
action). This covenant shall be binding on any successor entity to the Company
that emerges from any bankruptcy or reorganization case or action involving
the
Company.
4
Section
10. Covenants
of Resurgence Partners.
Resurgence Partners hereby covenants and agrees that should the Company file
to
seek protection under Chapter 11 of the U.S. Bankruptcy Code (i) it will
transfer to YA Global from the shares of the Company that it owns that number
of
Company shares (or shares in the successor entity or entities that emerge from
the Chapter 11 case) necessary to ensure that, consistent with section 3, YA
Global owns 1% of the shares of the Company (or in the successor entity or
entities that emerge from the Chapter 11 case) after the Company emerges from
the Chapter 11 case and (ii) it shall not sell any shares of Common Stock that
it holds should it exercise any of the Debentures until the Company emerges
from
Chapter 11. In the event that the Company does not file for protection under
Chapter 11 Resurgence Partners covenants and agrees not to sell any of the
shares that it holds should it exercise any of the Debentures for not less
than
one year from the date of this Agreement.
Section
11. Representations
and Warranties by YA Global.
YA
Global
hereby represents and warrants to, and agrees with, the Company,
that
this
Agreement constitutes YA Global’s valid and legally binding obligation,
enforceable in accordance with its terms except as may be limited by
(i) applicable bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting the enforcement of creditors’
rights generally and (ii) the effect of rules of law governing the
availability of equitable remedies. YA Global represents that it has full power
and authority to enter into this Agreement.
Section
12. Support
of Reverse Split.
YA
Global agrees to vote its shares of Common Stock in favor of the Reverse Split
and authorizes the Company to count the shares of Common Stock that it owns
as a
vote in favor of the Reverse Split for purposes of computing the shareholder
approval needed to issue an information statement under SEC Form 14C rather
than
having to file SEC Form 14A and providing for a meeting of shareholders to
approve the Reverse Split. YA Global further agrees to provide the Company
with
the exact number of shares of Common Stock that it owns directly and indirectly
at the Company’s request in connection with the Company’s effort to obtain
shareholder approval of the Reverse Split.
Section
13. Governing Law.
This
Amendment shall be governed by and construed under the laws of the State of
Delaware.
Section
14. Titles and Subtitles.
The
titles of the sections and subtitles of this Amendment are for convenience
of
reference only and are not to be considered in construing this
Amendment.
Section
15. Counterparts.
This
Amendment may be executed in counterparts, each of which shall be deemed an
original, and all of which shall constitute one and the same
instrument.
Section
16. Binding
Effect, Assignment.
This
Agreement shall be binding upon and shall insure to the benefit of the Company
and YA Global and to their successors and assigns. Nothing in this Agreement
shall be construed to permit the assignment by the Company or YA Global of
any
of their rights or obligations hereunder, and such assignment is expressly
prohibited without the prior written consent of the other party.
5
Section
17. Amendment
and Non-Waiver.
No
amendment or modification of this Agreement shall be valid unless in writing
and
signed by the parties. No waiver of any of the provisions of this Agreement
shall be valid unless the same is in writing and signed by the party against
whom it is sought to be enforced. Any waiver of any breach of this Agreement
shall not be considered to be a continuing waiver or consent to any subsequent
breach on the part of either party.
Section
18. Severability.
All
provisions of this Agreement are severable, and if any of them is determined
to
be invalid or unenforceable for any reason, the remaining provisions and
portions of this Agreement shall be unaffected thereby and shall remain in
full
force to the fullest extent permitted by law.
Section
19. Entire
Agreement.
This
Agreement contains the entire understanding of the Company and YA Global with
respect to the subject matter hereof and supersedes any and all prior
understandings, written or oral.
Section
20. Recitals.
The
parties acknowledge the accuracy of the Recitals and incorporate
the
Recitals
into and
make them a part of this Agreement.
[Signature
Page to Agreement on Disposition of Convertible Debentures Next]
6
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
as
of the date first set forth above.
| SOLUTION TECHNOLOGY INTERNATIONAL, INC. | ||
| |
|
|
| By: | /s/ Xxx Xxxxxx | |
|
Name: Xxx Xxxxxx |
||
| Title: President and CEO | ||
| YA GLOBAL INVESTMENTS, L.P. | ||
| |
|
|
| By: | /s/ Xxxx Xxxxx | |
|
Name: Xxxx Xxxxx |
||
| Its: Senior Managing Director | ||
| RESURGENCE PARTNERS, LLC | ||
| |
|
|
| By: | /s/ Xxxx Xxxxxxxxx | |
|
Name: Xxxx Xxxxxxxxx |
||
| Title: Manager | ||
[Signature
Page to Agreement on Disposition of Convertible Debentures]
7
Schedule
1
LIST
OF CONVERTIBLE DEBENTURES
As
of March 12, 2008
|
Original
Name:
|
Issued
or Restated To:
|
Date:
|
Original
Principal
|
Aggregate
Conversions:
|
Outstanding
Net
Amount
|
|
Cornell
Capital Partners
|
NetWorth
Technologies, Inc. (STI)
|
4/4/2006
|
$1,000,000
|
$0
|
$1,000,000
|
|
Xxxxxxxxxx
Equity Partners
|
NetWorth
Technologies, Inc. (STI)
|
4/4/2006
|
$256,757
|
$207,200
|
$49,557
|
|
Cornell
Capital Partners
|
NetWorth
Technologies, Inc. (STI)
|
4/4/2006
|
$642,041
|
$628,241
|
$13,800
|
|
Cornell
Capital Partners
|
NetWorth
Technologies, Inc. (STI)
|
4/4/2006
|
$400,000
|
$0
|
$400,000
|
|
Advantage
Capital Development Corp., Knightsbridge Capital, Xxxxxxxxxx Equity
Partners, et al.
|
Colmena
Corp.
(NetWorth Technologies & NetWorth Systems)
|
11/24/20041/24/2005
|
$625,000
|
$52,500
|
$572,500
|
|
TOTAL
|
$2,923,798
|
$887,941
|
$2,035,857
|
||
8
