MSGI SECURITY SOLUTIONS, INC.
Exhibit
4.1
000
Xxxxxxx Xxxxxx
Xxx
Xxxx,
XX 00000
January
4, 2008
To
the
buyers (the "Buyers") listed on
the
Signature Pages to the SPA (as defined below)
Dear
Sirs:
Reference
is made to that certain Securities Purchase Agreement (the "SPA")
dated
as of the date hereof by and among each of the Buyers and MSGI Security
Solutions (the "Company").
Capitalized terms used herein but not otherwise defined herein shall have the
respective meanings set forth in the SPA.
This
letter agreement (the "Agreement")
grants
to each of the Buyers an irrevocable option (the "Put
Option")
to
sell up to the number of shares of Common Stock of the Company set forth
opposite such Buyer's name on column (5) to the Schedule of Buyers to the SPA
(or the same number of Series A Warrants or a combination of shares of Common
Stock and Series A Warrants) at a price equal to the Per Share Put Price (as
defined below) per share of Common Stock or Series A Warrant (the aggregate
price due to a Buyer on the exercise of the Put Option, the "Put
Price").
The
Put Option will be valid from the six month anniversary of the date hereof
until
the earlier of (i) the five year anniversary of the Closing Date and (ii) the
satisfaction of the Put Termination Event (as defined below) (the "Option
Period").
Each
Buyer may exercise the Put Option, at any time or from time to time from and
during the Option Period, by delivering to the Company written notice of
exercise, which notice shall specify the number of shares of Common Stock and/or
Series A Warrants to be purchased by the Company (the "Purchased
Securities").
The
closing of the sale and purchase of the Purchased Securities pursuant to an
exercise of the Put Option (the "Put
Closing"
and the
date of a Put Closing, the "Put
Closing Date")
will
occur no later than five (5) days following the delivery of such notice of
exercise unless mutually agreed otherwise by such exercising Buyer or its
assigns and the Company. Notwithstanding the foregoing, no Buyer may exercise
this Put Option to sell more than the Maximum Eligibility Number of shares
of
Common Stock and/or Series A Warrants at any time.
Exhibit
4.1
The
Put
Price shall be payable on the Put Closing Date, in shares of Common Stock (the
"Common
Shares")
so
long as there has been no Equity Conditions Failure; provided however that
the
Company may at its option following notice to the Buyer, either (i) pay the
Put
Price on such Put Closing Date in cash ("Cash
Payment")
or
(ii) a combination of Cash Payment and Common Shares; provided,
however,
that
the number of Common Shares to be paid by the Company may not exceed 100% of
the
average daily trading volume of the Common Stock for the ten (10) consecutive
trading days immediately prior to the Payment Election Date. The Company shall
deliver a written notice (each, a "Payment
Election Notice"
and the
date of such delivery the "Payment
Election Date")
to the
Buyer on or prior to the second (2nd) Business Days after the date of delivery
of a notice of exercise by a Buyer (the "Payment
Notice Due Date")
which
notice (1) either (A) confirms that the Put Price to be paid on such Put Closing
Date shall be paid entirely in Common Shares or (B) elects to pay the Put Price
as Cash Payment or a combination of Cash Payment and Common Shares and specifies
the amount of the Put Price that shall be paid as Cash Payment, and/or the
amount of the Put Price that shall be paid in Common Shares and (2) certifies
that there has been no Equity Conditions Failure. If any portion of the Put
Price for a particular Put Closing shall be paid in Common Shares, then the
Company shall pay to the Buyer a number of shares of Common Stock equal to
(x)
the amount of the Put Price payable on the applicable Put Closing Date in Common
Shares divided by (y) 75% of the Market Price. The Put Price to be paid on
a Put
Closing Date in Common Shares shall be paid in a number of fully paid and
nonassessable shares of Common Stock (rounded to the nearest whole share).
If
the Equity Conditions were satisfied as of the Put Notice Date but the Equity
Conditions are no longer satisfied at any time prior to the Put Closing Date,
the Company shall provide the Buyer a subsequent notice to that effect
indicating that unless the Buyer waives the Equity Conditions, the Put Price
shall be paid in cash.
On
or
prior to the date five (5) Trading Days after the applicable Put Closing Date,
each Buyer and its assigns exercising its Put Option hereunder will deliver
to
the Company the Purchased Securities and will take such action as may be
reasonably necessary in order to transfer to the Company good and marketable
title to such Purchased Securities, free and clear of all claims, liens and
encumbrances of any nature; provided,
that,
if the
Company has elected to pay the applicable Put Price in Common Shares and the
Buyer has exercised its Put Option with respect to shares of Common Stock,
then
the Buyer shall have no obligation to deliver such shares of Common Stock to
the
Company and the Company shall be obligated only to deliver to the Buyer the
difference between the number of Common Shares being paid by the Company and
the
number of shares of Common Stock being sold by the Buyer at such Put Closing.
If
the Buyer is required to deliver to the Company a stock certificate or Series
A
Warrant for more than the number of shares of Common Stock and/or Series A
Warrants being sold to the Company pursuant its exercise of the Put Option,
the
Company shall promptly deliver to the Buyer a replacement stock certificate
and/or Series A Warrant, as applicable, for the difference between the number
of
shares of Common Stock represented by the stock certificate or Series A Warrants
delivered to the Company and the number of shares of Common Stock and/or Series
A Warrants being sold to the Company pursuant the Buyer's exercise of the Put
Option.
2
Exhibit
4.1
The
Company's obligations under this Agreement are secured by the Letters of Credit
(as defined in the SPA). Upon a Buyer exercising its Put Option, such Buyer
may
draw under its Letter of Credit, such portion of the Letter of Credit not to
exceed the Cash Payment amount of the Put Price due to the Buyer from the
Company on such Put Closing Date. In addition to the terms set forth in the
SPA,
a Buyer may draw under its Letter of Credit in the event of the bankruptcy
or
liquidation of the Company.
As
used
herein, "Equity
Conditions"
means
that
each of
the following conditions is satisfied: (i) on each day during the period
beginning six (6) month prior to the applicable date of determination and ending
on and including the applicable date of determination (the "Equity
Conditions Measuring Period"),
either
(x) a registration
statement filed by the Company under the 1933 Act
(the
"Registration
Statement")
shall
be effective and available for the resale of all of the Listed Securities (as
defined in the Securities Purchase Agreement) and there shall not have been
any
suspensions of the effectiveness of such registration statement or
(y)
all
of the Listed Securities shall be eligible for sale without restriction and
without the need for registration under any applicable federal or state
securities laws;
(ii) on
each day during the Equity Conditions Measuring Period, the Common
Stock
is
designated for quotation on the Principal Market (as defined in the Securities
Purchase Agreement) or any other Eligible Market (as defined in the Warrants)
and shall not have been suspended from trading on such exchange or market (other
than suspensions of not more than two (2) days and occurring prior to the
applicable date of determination due to business announcements by the Company)
nor shall delisting or suspension by such exchange or market been threatened
or
pending either (A) in writing by such exchange or market or (B) by falling
below
the then effective minimum listing maintenance requirements of such exchange
or
market; (iii) during the one (1) year period ending on and including the date
immediately preceding the applicable date of determination, the Company shall
have delivered shares of Common Stock upon exercise of the Warrants to the
holders on a timely basis as set forth in Section 1(a) of the Warrants; (iv)
any
applicable shares of Common
Stock to
be
issued in connection with the event requiring determination may be issued in
full without violating Section 1(f)(i) of the Warrants or the rules or
regulations of the Principal Market or any applicable Eligible Market; (v)
during the Equity Conditions Measuring Period, the Company shall not have failed
to timely make any payments within five (5) Business Days of when such payment
is due pursuant to any Transaction Document (as defined in the Securities
Purchase Agreement); (vi) during the Equity Conditions Measuring Period, there
shall not have occurred the public announcement of a pending, proposed or
intended Fundamental Transaction (as defined in the Warrants) which has not
been
abandoned, terminated or consummated; (vii)
the
Company shall have no knowledge of any fact that would cause (x) the
Registration Statement not to be effective and available for the resale of
all
remaining Listed Securities or (y) any shares of Common Stock issuable upon
exercise of the Warrants not to be eligible for sale without restriction
pursuant to Rule 144 (and
not
subject to the public information requirements of Rule 144(c)(1)) and
any
applicable state securities laws; and (ix) the
Company otherwise shall have been in compliance with and shall not have breached
any provision, covenant, representation or warranty of any Transaction
Document.
3
Exhibit
4.1
As
used
herein, "Equity
Conditions Failure"
means
that on any day during the period commencing ten (10) Trading Days prior to
the
date the applicable Payment Notice is delivered to the Buyer through the
applicable Put Closing Date, the Equity Conditions have not been satisfied
(or
waived in writing by the Buyer).
As
used
herein, "Market
Price"
means,
the arithmetic average of the Weighted Average Price (as defined in the
Warrants) of the Common Stock for the five (5) consecutive Trading Days (as
defined in the Warrants) prior to the applicable Put Closing Date.
As
used
herein, "Maximum
Eligibility Number"
means
initially one-sixth (1/6) of the number shares of Common Stock of the Company
set forth opposite such Buyer's name on column (5) to the Schedule of Buyers
to
the SPA (subject to adjustments for any stock dividend, stock split, stock
combination or other similar transaction) and shall be increased successively
on
each monthly anniversary of the commencement of the Option Period (each
successive month a "Monthly
Period")
by
one-sixth (1/6) of the number shares of Common Stock of the Company set forth
opposite such Buyer's name on column (5) to the Schedule of Buyers to the SPA
(subject to adjustments for any stock dividend, stock split, stock combination
or other similar transaction); provided,
that,
if the
Maximum Eligibility Number in any Monthly Period is less than 35% of the average
monthly trading volume of the Common Stock in such Monthly Period, as reported
by Bloomberg, and the Company has elected to pay any portion of a Put Price
in
such Monthly Period in Common Shares, then the Maximum Eligibility Number shall
equal 35% of the average monthly trading volume of the Common Stock for such
Monthly Period, as reported by Bloomberg.
As
used
herein, "Per
Share Put Price"
means,
(i) from the six month anniversary of the date hereof until the one year
anniversary of the date hereof, $1.20, (ii) from the one year anniversary of
the
date hereof until the two year anniversary of the date hereof, $1.40, (iii)
from
the two year anniversary of the date hereof until the three year anniversary
of
the date hereof, $1.60, (iv) from the three year anniversary of the date hereof
until the four year anniversary of the date hereof, $1.80 and (v) from the
four
year anniversary of the date hereof through the five year anniversary of the
date hereof, $2.00 (with all such amounts set forth in this definition subject
to adjustments for any stock dividend, stock split, stock combination or other
similar transaction).
As
used
herein, "Put
Termination Event"
shall
mean ten (10) trading days after the Company gives notice (the "Put
Termination Notice")
to
each Buyer that the following conditions have been satisfied: (i) the Weighted
Average Price of the Company's Common Stock is at or above 166 2/3% of the
then
existing Per Share Put Price for twenty (20) consecutive trading days (the
"Put
Termination Measuring Period"),
(ii)
the dollar trading volume of the Common Stock during the Put Termination
Measuring Period is at or above $100,000, (iii) the shares of Common Stock
subject to the Put Option and the shares of Common Stock underlying the Series
A
Warrants are registered or freely tradeable without restriction or limitation
pursuant to Rule 144 and not subject to the public information requirements
of
Rule 144(c)(1) during the Put Termination Measuring Period. The Company may
not
give notice of the Put Termination Event later than ten (10) Trading Days after
the conditions to the Put Termination Event have been satisfied and the Company
may not deliver a Put Termination Notice prior to the six month anniversary
of
date hereof. Notwithstanding the foregoing, nothing shall prohibit the Buyers
from exercising their Put Options from the date the Company gives notice of
satisfaction of the conditions of the Put Termination Event until the end of
the
tenth (10th) Trading Day thereafter.
4
Exhibit
4.1
The
Company and each Buyer will each be deemed to represent to the other party
as of
the date of this Agreement the following: (i) it has full power, authority
and
capacity to execute and deliver this Agreement, (ii) this Agreement is a valid
and binding obligation upon it and is fully enforceable according to the terms
contained herein except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies, and
(iii) the execution, delivery and performance by it of this Agreement and the
consummation by it of the transactions contemplated hereby will not result
in a
violation of the organizational documents of it, conflict with, or constitute
a
default (or an event which with notice or lapse of time or both would become
a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which
it is a party or result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable
to
it.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of the Put
Options. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of Put
Options representing at least a majority of the Put Options then outstanding,
including by merger or consolidation. A Buyer may assign some or all of its
rights hereunder without the consent of the Company, in which event such
assignee shall be deemed to be a Buyer hereunder with respect to such assigned
rights.
The
terms
and conditions of this Agreement shall be binding and inure to the benefit
of
the parties and their respective
successors and permitted assign. This Agreement shall be construed in accordance
with the laws of the State of New York.
This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if
the
signature were an original, not a facsimile signature.
Please
sign and return to us the enclosed copy of this letter to signify your agreement
with and acceptance of its terms.
5
Exhibit
4.1
Yours
faithfully,
|
By:
/s/
Xxxxxx
Xxxxxxx
|
|
Name:
Xxxxxx Xxxxxxx
|
|
Title:
CEO
|
6
Exhibit
4.1
Acknowledged
and agreed:
|
Xxxxxx
Bay Fund, LP
|
|
By:
/s/
Xxxx
Xxxx
|
|
Name:
Xxxx Xxxx
|
|
Title:
Principal and Portfolio Manager
|
|
Xxxxxx
Bay Overseas Fund, Ltd.
|
|
By:
/s/
Xxxx
Xxxx
|
|
Name:
Xxxx Xxxx
|
|
Title:
Principal and Portfolio Manager
|
7
