ADDENDUM TO SUBSCRIPTION AGREEMENT
ADDENDUM
TO SUBSCRIPTION AGREEMENT
Reference
is made to each of those Subscription Agreements, dated as of May __, 2007,
between MSTI Holdings, Inc., a Delaware corporation (the “Company”)
and
each of the subscribers (the “Subscribers”)
for
Units (as defined in the Company’s
Confidential Private Placement Memorandum (the “PPM”)
dated
May 7, 2007, as supplemented to date)
(the
“Subscription
Agreements”).
The
Company hereby provides the following Addendum (this “Addendum”)
to the
Subscription Agreements for the benefit of each Subscriber. Capitalized terms
used herein but not otherwise defined shall have the meanings ascribed to them
in the Subscription Agreements or the PPM.
1. Additional
Representations and Warranties.
The
provisions appearing under the heading “II. Representations of the Company” in
the Subscription Agreements is deleted and replaced in its entirety with the
following:
2.1 The
Company represents and warrants to the Subscriber that as of the date of the
closing of the Offering (the “Closing
Date”):
(a) Subsidiaries.
All of
the direct and indirect subsidiaries of the Company are set forth on
Schedule
2.1(a).
The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all of the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights
to
subscribe for or purchase securities. If the Company has no subsidiaries, all
other references to the Subsidiaries or any of them in the Transaction Documents
shall be disregarded.
(b) Organization
and Qualification.
The
Company and each of the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and
to
carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly qualified
to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in (i) a material adverse effect on
the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material
Adverse Effect”)
and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification.
(c) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and
the consummation by it of the transactions contemplated hereby and thereby
have
been duly authorized by all necessary action on the part of the Company and
no
further action is required by the Company, the Board of Directors or the
Company’s stockholders in connection therewith other than in connection with the
Required Approvals. Each Transaction Document has been (or upon delivery will
have been) duly executed by the Company and, when delivered in accordance with
the terms hereof and thereof, 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.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the other transactions contemplated
hereby and thereby do not and will not: (i) conflict with or violate any
provision of the Company’s or any Subsidiary’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
upon any of the properties or assets of the Company or any Subsidiary, or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary debt
or
otherwise) or other understanding to which the Company or any Subsidiary is
a
party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals, 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 or a Subsidiary is subject (including federal and state securities
laws
and regulations), or by which any property or asset of the Company or a
Subsidiary 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.
(e) Filings,
Consents and Approvals.
The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court
or
other federal, state, local or other governmental authority or other Person
in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings with the Commission of a
Current Report on Form 8-K disclosing the material terms of the transactions
contemplated by the PPM and attaching the Transaction Documents thereto, (ii)
the filing with the Commission of the Registration Statement, (iii) the notice
and/or application(s) to each applicable Trading Market for the issuance and
sale of the Common Stock included in the Units for trading thereon in the time
and manner required thereby and (iv) the filing of Form D with the Commission
and such filings as are required to be made under applicable state securities
laws (collectively, the “Required
Approvals”).
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(f) Issuance
of the Securities.
The
Securities are duly authorized and, when issued and paid for in accordance
with
the applicable Transaction Documents, 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
Common Stock included in the Units, when issued in accordance with the terms
of
the Transaction Documents, will be 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 Company has reserved
from its duly authorized capital stock a number of shares of Common Stock for
issuance of the Common Stock included in the Units at least equal to the
Required Minimum on the date hereof.
(g) Capitalization.
The
capitalization of the Company is as set forth on Schedule
2.1(g),
which
Schedule
2.1(g)
shall
also include the number of shares of Common Stock owned beneficially, and of
record, by Affiliates of the Company as of the date hereof. The Company has
not
issued any capital stock since its most
recently filed periodic report under the Exchange Act,
other
than pursuant to (i) the Merger, (ii) any transaction described in the PPM
or
(iii) the exercise of employee stock options under the Company’s stock option
plans, the issuance of shares of Common Stock to employees pursuant to the
Company’s employee stock purchase plan and pursuant to the conversion or
exercise of Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act. No Person has any right
of first refusal, preemptive right, right of participation, or any similar
right
to participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities, there are no
outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights
or
obligations convertible into or exercisable or exchangeable for, or giving
any
Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company
or
any Subsidiary is or may become bound to issue additional shares of Common
Stock
or Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to
any
Person (other than the Subscribers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under any of such securities. All of the outstanding shares of capital
stock of the Company are validly issued, fully paid and nonassessable, have
been
issued in compliance with all federal and state securities laws, and none of
such outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. No further approval
or
authorization of any stockholder, the Board of Directors or others is required
for the issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company’s stockholders.
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(h) SEC
Reports; Financial Statements.
The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required
by
law or regulation to file such material) (the foregoing materials, including
the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC
Reports”)
on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As
of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act, as applicable,
and
none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The audited financial
statements of the Microwave Satellite Technologies, Inc., a New Jersey
corporation (the “MST
Subsidiary”)
and
its direct and indirect subsidiaries for the past two fiscal years and unaudited
financial statements for the most recent fiscal quarter are attached hereto
as
Schedule
2.1(h).
Such
financial statements comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have
been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved
(“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the MST Subsidiary and its consolidated Subsidiaries
as of
and for the dates thereof and the results of operations and cash flows for
the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements
comply in all material respects with applicable accounting requirements and
the
rules and regulations of the Commission with respect thereto as in effect at
the
time of filing. Such financial statements have been prepared in accordance
with
GAAP, except as may be otherwise specified in such financial statements or
the
notes thereto and except that unaudited financial statements may not contain
all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(i) Material
Changes.
Since
the date of the latest audited financial statements included attached hereto
as
Schedule 2.1(h), except as specifically disclosed on Schedule
2.1(i),
(i)
there has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of the Securities
contemplated by the Subscription Agreement or as set forth on Schedule
2.1(i),
no
event, liability or development has occurred or exists with respect to the
Company or its Subsidiaries or their respective business, properties, operations
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made or
deemed made that has not been publicly disclosed at least one Trading Day prior
to the date that this representation is made.
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(j) Litigation.
There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting
the
Company, any Subsidiary or any of their respective properties before or by
any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Securities or (ii) could, if there
were
an unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim
of
violation of or liability under federal or state securities laws or a claim
of
breach of fiduciary duty. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of
the Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor
Relations.
No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s
relationship with the Company or such Subsidiary, and neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and
the
Company and its Subsidiaries believe that their relationships with their
employees are good. No executive officer, to the knowledge of the Company,
is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement
or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and the continued employment of each
such
executive officer does not subject the Company or any of its Subsidiaries to
any
liability with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and foreign
laws and regulations relating to employment and employment practices, terms
and
conditions of employment and wages and hours, except where the failure to be
in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
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(l) Compliance.
Neither
the Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is
in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each case as could
not
have or reasonably be expected to result in a Material Adverse
Effect.
(m) Regulatory
Permits.
The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses, except where
the
failure to possess such permits could not reasonably be expected to result
in a
Material Adverse Effect (“Material
Permits”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(n) Title
to Assets.
The
Company and the Subsidiaries have good and marketable title in fee simple to
all
real property owned by them and good and marketable title in all personal
property owned by them that is material to the business of the Company and
the
Subsidiaries, in each case free and clear of all Liens, except for Liens as
do
not materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
the Subsidiaries and Liens for the payment of federal, state or other taxes,
the
payment of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the Subsidiaries
are
held by them under valid, subsisting and enforceable leases with which the
Company and the Subsidiaries are in compliance.
(o) Patents
and Trademarks.
The
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights necessary or material for use in connection with
their
respective businesses as described in the SEC Reports and which the failure
to
so have could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”).
Neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of the Intellectual Property Rights used by the Company
or
any Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties, except where failure to do so could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
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(p) Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. Neither the
Company nor any Subsidiary has any reason to believe that it will not be able
to
renew its existing insurance coverage as and when such coverage expires or
to
obtain similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.
(q) Transactions
with Affiliates and Employees.
Except
as set forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner, in each case in excess of $60,000
other than for (i) payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii)
other employee benefits, including stock option agreements under any stock
option plan of the Company.
(r) Xxxxxxxx-Xxxxx;
Internal Accounting Controls.
The
Company is in material compliance with all provisions of the Xxxxxxxx-Xxxxx
Act
of 2002 which are applicable to it as of the Closing Date. The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s most recently filed periodic report under
the Exchange Act (such date, the “Evaluation
Date”).
The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes in the
Company’s internal control over financial reporting (as such term is defined in
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
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(s) Certain
Fees.
All
brokerage or finder’s fees or commissions that are or will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents are as set forth in the PPM. The
Subscribers shall have no obligation with respect to any fees or with respect
to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by the Transaction Documents.
(t) Private
Placement.
Assuming the accuracy of the Subscribers’ representations and warranties set
forth in the Subscription Agreement, no registration under the Securities Act
is
required for the offer and sale of the Securities by the Company to the
Subscribers as contemplated by the PPM. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading
Market.
(u) Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.
(v) Registration
Rights.
Other
than each of the Subscribers or as set forth in the PPM, no Person has any
right
to cause the Company to effect the registration under the Securities Act of
any
securities of the Company.
(w) Listing
and Maintenance Requirements.
The
Company has not, in the 12 months preceding the date hereof, received notice
from any Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the listing
or
maintenance requirements of such Trading Market. The Company is, and has no
reason to believe that it will not in the foreseeable future continue to be,
in
compliance with all such listing and maintenance requirements.
(x) Application
of Takeover Protections.
The
Company and the Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s certificate of
incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Subscribers as a result
of the Subscribers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation
as a
result of the Company’s issuance of the Securities and the Subscribers’
ownership of the Securities.
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(y) Disclosure.
Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company confirms that neither
it
nor any other Person acting on its behalf has provided any of the Subscribers
or
their agents or counsel with any information that it believes constitutes or
might constitute material, nonpublic information. The Company understands and
confirms that the Subscribers will rely on the foregoing representation in
effecting transactions in securities of the Company. Attached hereto as
Schedule
2.1(y)
is a
copy of a substantially final Current Report on Form 8-K (the “Merger
8-K”)
that
the Company will file with the Commission in connection with the Merger on
or
prior to the 2nd
Trading
Day immediately following the date hereof (which Current Report contains, among
other information, risk factors concerning the Company and financial statements
required to be filed therewith). All disclosure furnished by or on behalf of
the
Company to the Subscribers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Addendum, is true and correct and does not contain any untrue statement of
a
material fact or omit to state any material fact necessary in order to make
the
statements made therein, in light of the circumstances under which they were
made, not misleading. The press releases disseminated by the Company during
the
twelve months preceding the date of this Agreement taken as a whole do not
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 and when
made,
not misleading. The Company acknowledges and agrees that no Subscriber makes
or
has made any representations or warranties with respect to the transactions
contemplated by the PPM other than those specifically set forth in the
Subscription Agreement.
(z) No
Integrated Offering.
Assuming
the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2, neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers
or
sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated
with prior offerings by the Company for purposes of (i) the Securities Act
which
would require the registration of any such securities under the Securities
Act,
or (ii) any applicable shareholder approval provisions of any Trading Market
on
which any of the securities of the Company are listed or designated.
(aa) Solvency.
Based
on the consolidated financial condition of the Company as of the Closing Date
after giving effect to the receipt by the Company of the proceeds from the
sale
of the Securities hereunder, (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature, (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now conducted and as
proposed to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof, and (iii)
the
current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account
all
anticipated uses of the cash, would be sufficient to pay all amounts on or
in
respect of its liabilities when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such debts
as
they mature (taking into account the timing and amounts of cash to be payable
on
or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization
or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. Schedule
2.1(aa)
sets
forth as of the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any Subsidiary
has
commitments. For the purposes of this Addendum, “Indebtedness”
means
(a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect
of
indebtedness of others, whether or not the same are or should be reflected
in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value
of
any lease payments
in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP. Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
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(bb) Tax
Status.
Except
for matters that would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect, the Company and each
Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon,
and the Company has no knowledge of a tax deficiency which has been asserted
or
threatened against the Company or any Subsidiary.
(cc) No
General Solicitation.
Neither
the Company nor any person acting on behalf of the Company has offered or sold
any of the Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only to the
Subscribers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.
(dd) Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in violation
of law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
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(ee) Accountants.
The
Company’s accounting firm is set forth on Schedule
2.1(ee)
of the
Disclosure Schedule. To the knowledge and belief of the Company, such accounting
firm (i) is a registered public accounting firm as required by the Exchange
Act
and (ii) shall express its opinion with respect to the financial statements
to
be included in the Company’s Annual Report on Form 10-KSB for the year ending
December 31, 2006.
(ff) Seniority.
As of
the Closing Date, no Indebtedness or other claim against the Company is senior
to the Debentures in right of payment, whether with respect to interest or
upon
liquidation or dissolution, or otherwise, other than indebtedness secured by
purchase money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as to
the
property covered thereby).
(gg) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company and the Company is current with
respect to any fees owed to its accountants and lawyers which could affect
the
Company’s ability to perform any of its obligations under any of the Transaction
Documents.
(hh) Acknowledgment
Regarding Subscribers’ Purchase of Securities.
The
Company acknowledges and agrees that each of the Subscribers is acting solely
in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary
of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by
any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Subscribers’ purchase of the Securities. The Company
further represents to each Purchaser that the Company’s decision to enter into
this Agreement and the other Transaction Documents has been based solely on
the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.
(ii) Acknowledgment
Regarding Subscribers’ Trading Activity.
Notwithstanding anything in the PPM to the contrary, it is understood and
acknowledged by the Company that (i) none of the Subscribers has been asked
to
agree by the Company, nor has any Purchaser agreed, to desist from purchasing
or
selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities
for any specified term, (ii) past or future open market or other transactions
by
any Purchaser, specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company’s
publicly-traded securities, (iii) any Purchaser, and counter-parties in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, may presently have a “short” position in the Common Stock, and (iv)
each Purchaser shall not be deemed to have any affiliation with or control
over
any arm’s length counter-party in any “derivative” transaction. The
Company further understands and acknowledges that (a) one or more Investors
may
engage in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods
that the value of the Common Stock included in the Units are being determined
and (b) such hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time that the
hedging activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.
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(jj) Regulation
M Compliance.
The Company has not, and to its knowledge no one acting on its behalf has,
(i)
taken, directly or indirectly, any action designed to cause or to result in
the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
securities of the Company or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii), compensation paid
to
the Company’s placement agent in connection with the placement of the
Securities.
2.2 For
purposes of this Article II, references to the Subsidiaries shall include the
MST Subsidiary and its business and its direct and indirect subsidiaries, and
references to all Schedules herein shall mean any and all information and
disclosures included on the same or equivalent schedule to the Securities
Purchase Agreement for the Debentures which disclosures are hereby incorporated
by reference and are not repeated herein; further any and all amendments,
modifications, waivers, consents, or agreements approved by the Debenture
purchasers in accordance with the Debentures, with respect to such
representations and warranties, will be binding upon all beneficiaries of the
representations and warranties provided in this paragraph without further action
or consent by any Unit purchasers):
2. Anti
Dilution Provisions.
The
provisions appearing under the heading “III. Covenants By the Company” in the
Subscription Agreement is deleted and replaced in its entirety with the
following:
3.1 The
Company agrees that the Subscriber shall have certain registration rights with
respect to the shares of Common Stock underlying the Units issued to Subscribers
pursuant to the terms of the Registration Rights Agreement attached as Exhibit
C
to the PPM.
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3.2 For
a
period of eighteen (18) months following the Closing Date (the “Adjustment
Period”),
in
the event that the Company sells
or
grants any option to purchase or sells or grants any right to reprice, or
otherwise disposes of or issues (or announces any sale, grant or any option
to
purchase or other disposition), any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock at an effective price
per
share that is lower than $0.55
per
share (such
lower price, the “Base Price” and such issuances, collectively, a “Dilutive
Issuance”)
(if
the holder of the Common Stock or Common Stock Equivalents so issued shall
at
any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than $0.55 per share, such issuance shall be deemed
to
have occurred for less than the $0.55 per share on such date of the Dilutive
Issuance), then the Company shall promptly issue additional shares of Common
Stock to each Subscriber in the Offering in an amount sufficient that the
subscription price paid by each Subscriber, when divided by the total number
of
shares issued (shares included in the purchased Units plus the additional shares
issued in the Dilutive Issuance), will result in an actual price paid by each
Subscriber per share of Common Stock equal to the Base Price. Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are issued
within the Adjustment Period. Notwithstanding the foregoing, no adjustment
will
be made under this Section 3.2 in respect of an Exempt Issuance. The Company
shall notify the purchaser in writing, no later than 1 Business Day following
the issuance of any Common Stock or Common Stock Equivalents subject to this
Section, indicating therein the applicable issuance price, or applicable reset
price, exchange price, conversion price and other pricing terms (such notice,
the “Dilutive
Issuance Notice”).
For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 3.2, upon the occurrence of any
Dilutive Issuance, the purchaser is entitled to receive a number of shares
based
upon the Base Price on or after the date of such Dilutive Issuance, regardless
of whether the purchaser accurately refers to the Base Price in any notice.
Notwithstanding anything herein or in any related document to the contrary,
the
foregoing does not convey to the purchaser any right to participation in any
future financings or offerings now or in the future contemplated or undertaken
by the Company.
“Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including, without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that is
at
any time convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
“Exempt
Issuance”
means:
(A) any issuance resulting from the availability or effectiveness of any
anti-dilution or price protection rights under the Debenture or related to
the
Debenture, such as any warrants or purchase agreements); and (B) the issuance
of: (a) shares of Common Stock or options to employees, officers, directors,
or
consultants of the Company pursuant to any stock or option plan duly adopted
for
such purpose by a majority of the non-employee members of the Board of Directors
of the Company or a majority of the members of a committee of non-employee
directors established (provided, however, any such issuances to consultants
shall not exceed 750,000 shares of Common Stock and Common Stock Equivalents,
in
the aggregate, in any 12 month period), (b) securities upon the exercise or
exchange of or conversion of any Securities issued hereunder and/or other
securities exercisable or exchangeable for or convertible into shares of Common
Stock issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the exercise,
exchange or conversion price of such securities; and (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of
the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person which is either an owner
of,
or an entity that is, itself or through its subsidiaries, an operating company
in a business synergistic with the business of the Company and in which the
Company receives benefits in addition to the investment of funds, but shall
not
include a transaction in which the Company is issuing securities primarily
for
the purpose of raising capital or to an entity whose primary business is
investing in securities.
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3. Legal
Opinion.
The
Company shall deliver or cause to be delivered to each purchaser of Units a
legal opinion of Xxxxxx and Xxxxx, LLP, counsel to the Company, addressed to
such purchaser, dated as of the date of closing on the purchase of Units, in
standard form, covering such matters as are contained in the opinion to be
delivered to the Debenture purchasers, and subject to the same caveats and
limitations as set forth in such opinion.
4. Definitions.
In
addition to the terms defined elsewhere in this Addendum, the following terms
have the meanings set forth in this Section 4:
(a) “Affiliate”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 144 under the Securities Act. With
respect to a Subscriber, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such Subscriber
will
be deemed to be an Affiliate of such Subscriber.
(b) “Commission”
means
the Securities and Exchange Commission.
(c) “Common
Stock”
means
the common stock of the Company, par value $.001 per share, and any other class
of securities into which such securities may hereafter be reclassified or
changed into.
(d) “Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including, without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that is
at
any time convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
(e) “Debentures”
means,
the 8% Secured Convertible Debentures due April 30, 2010, issued by the Company
to the purchasers pursuant to that certain Securities Purchase Agreement, dated
as of May __, 2007, among the Company and each purchaser identified on the
signature pages thereto.
(f) “Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
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(g) “Liens”
means
a
lien, charge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction.
(h) “Merger”
means
the closing of the acquisition of 100% of the issued and outstanding capital
stock of the MST Subsidiary by the Company pursuant to that certain Agreement
of
Merger and Plan of Reorganization among the Company (f/k/a Fitness Xpress
Software, Inc.), Microwave Acquisition Corp. and the MSTI Subsidiary, of even
date herewith.
(i) “Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
(j) “Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
(k) “Registration
Rights Agreement”
means
the Registration Rights Agreement, dated the date hereof, among the Company
and
the Subscribers.
(l) “Registration
Statement”
means
a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale of the Common Stock included in the
Units by each Subscriber as provided for in the Registration Rights
Agreement.
(m) “Rule
144”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
(n) “Securities”
means
the Common Stock, the Warrants and the Common Stock included in the
Units.
(o) “Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated hereunder.
(p) “Short
Sales”
means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
(q) “Subscription
Amount”
means,
as to each Subscriber, the aggregate amount to be paid for Common Stock and
Warrants purchased under such Subscriber’s Subscription Agreement in United
States dollars and in immediately available funds.
(r) “Subsidiary”
means
any subsidiary of the Company as set forth on Schedule 2.1(a).
(s) “Trading
Day”
means
a
day on which the Common Stock is traded on a Trading Market.
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(t) “Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq
Global Market, the Nasdaq Global Select Market, the New York Stock Exchange
or
the OTC Bulletin Board.
(u) “Transaction
Documents”
means
the Subscription Agreements, the Warrants, the Registration Rights Agreement,
all exhibits and schedules hereto and thereto and any other documents or
agreements executed in connection with the transactions contemplated
thereunder.
(v) “Warrants”
means
collectively the Common Stock purchase warrants delivered to the Subscribers
in
accordance with the Subscription Agreements and the PPM.
IN
WITNESS WHEREOF, the Company has executed this Addendum as of the
___th
day of
May 2007.
|
MSTI
Holdings, Inc.
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||
| |
|
|
| By: | ||
|
Name:
Xxxxx Xxxxxxxxx
Title:
Chief Executive Officer
|
||
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