Unassociated Document


    OCTOBER
      2008 LETTER AGREEMENT WITH DEBENTURE HOLDERS

     

    MSTI
      Holdings, Inc.

    259-263
      Goffle Road

    Hawthorne,
      New Jersey 07506

    


    


    
      	 	October 16,
              2008


    

    


    To
      the
      MSTI Holdings, Inc. Debenture Holders:

     

    Reference
      is hereby made to that certain Securities Purchase Agreement, dated as of May
      25, 2007 (the “Purchase
      Agreement”),
      as
      supplemented by letter agreements dated January 30, 2008, February 11, 2008
      and
      May 23, 2008, by and among MSTI Holdings, Inc., a Delaware corporation (the
      “Company”),
      and
      each entity identified on the signature pages thereto (each, including its
      successors and assigns, a “Purchaser”
and,
      collectively, the “Purchasers”).
      Capitalized terms used in this letter agreement (this “Agreement”)
      and
      not otherwise defined shall have the meanings ascribed to them in the Purchase
      Agreement.

    


    
      
        1. 
          Additional
          Issuances.
          

      

    

    


    (a) Section
      7(a) of the Debentures states that so long as any portion of the Debentures
      remains outstanding, unless the holders of at least 85% in principal amount
      of
      the then outstanding Debentures shall have otherwise given prior written
      consent, the Company shall not, directly or indirectly, other than Permitted
      Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist
      any indebtedness for borrowed money of any kind.

    


    (b) Section
      4.12 of the Purchase Agreement grants each of the Purchasers the right to
      participate in a Subsequent Financing.

    


    (c) Section
      4.13(a) of the Purchase Agreement restricts the Company from issuing Common
      Stock or Common Stock Equivalents.

    


    (d) Section
      4.13(b) of the Purchase Agreement restricts the Company from engaging in a
      Variable Rate Transaction.

    


    (e) Section
      4.13(c) of the Purchase Agreement grants the Purchasers so-called most favored
      nations rights (“MFN
      Rights”).

    


    The
      Purchasers hereby consent solely to the issuance of the Additional Debentures
      and Incentive Shares (each as defined below) and grant only the waivers
      described herein and no others.

     

    2.  Additional
      Debentures; Incentive Shares.
      

     

    (a)  Each
      of
      the Purchasers identified on Schedule
      I
      hereto
      hereby agrees to purchase from the Company, and the Company hereby agrees to
      sell to such Purchasers, additional Debentures in the aggregate principal amount
      of $352,631 (the “Additional
      Debentures”),
      in
      the form annexed hereto as Exhibit
      A
      and in
      the denominations set forth on Schedule
      I,
      for the
      purchase price set forth on Schedule
      I
      hereto.
      In connection with the purchase of the Additional Debentures, the Company will
      issue to each Purchaser who is acquiring Additional Debentures the amount of
      Common Stock set forth on Schedule
      I
      (“Incentive
      Shares”).
      The
      purchase price of the Debentures and Incentive Shares and the Debentures and
      Incentive Shares and “Intercreditor
      Agreement”
to
      be
      entered into in connection herewith will be deposited in escrow with Grushko
      & Mittman, P.C., as Escrow Agent, and released pursuant to the terms of the
      Escrow Agreement annexed hereto as Exhibit
      B.
      

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    (b) The
      rights and obligations of each Purchaser identified on Schedule
      I
      (severally and not jointly with the rights of such other Purchasers) and of
      the
      Company with respect to the Additional Debentures and the shares of Common
      Stock
      issuable under the Additional Debentures (the “Additional
      Underlying Shares”)
      shall
      be identical in all respects to the rights and obligations of such Purchaser
      and
      of the Company with respect to the Debentures and the Underlying Shares. The
      Purchase Agreement is hereby amended so that the term “Debentures” includes the
      Additional Debentures and the term “Underlying Shares” includes the Additional
      Underlying Shares. The Registration Rights Agreement entered into in connection
      with the Purchase Agreement is hereby amended so that the term “Registrable
      Securities” includes in the calculation thereof the Additional Underlying Shares
      and the Incentive Shares. The parties confirm and ratify that the term
“Obligations” in the Security Agreement and Subsidiary Guarantee includes the
      Additional Debentures.

    


    3. Representations
      and Warranties of the Company.
      The
      Company hereby makes to the Purchasers the following representations and
      warranties:

    


    (a)  Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by this Agreement and otherwise to
      carry out its obligations hereunder. The execution and delivery of this
      Agreement by the Company and the consummation by the Company of the transactions
      contemplated hereby have been duly authorized by all necessary action on the
      part of the Company and no further action is required by the Company, its board
      of directors or its stockholders in connection therewith other than in
      connection with the Required Approvals. This Agreement has been duly executed
      by
      the Company and, when delivered in accordance with the terms hereof, will
      constitute the valid and binding obligation of the Company enforceable against
      the Company in accordance with its terms, except (i) as limited by general
      equitable principles and applicable bankruptcy, insolvency, reorganization,
      moratorium and other laws of general application affecting enforcement of
      creditors’ rights generally, (ii) as limited by laws relating to the
      availability of specific performance, injunctive relief or other equitable
      remedies and (iii) insofar as indemnification and contribution provisions may
      be
      limited by applicable law.

     

    (b)  No
      Conflicts.
      The
      execution, delivery and performance of this Agreement by the Company and the
      consummation by the Company of the transactions contemplated hereby do not
      and
      will not: (i) conflict with or violate any provision of the Company’s
      certificate or articles of incorporation, bylaws or other organizational or
      charter documents; or (ii) conflict with, or constitute a default (or an event
      that with notice or lapse of time or both would become a default) under, result
      in the creation of any Lien (except as contemplated by the Security Documents)
      upon any of the properties or assets of the Company in connection with, or
      give
      to others any rights of termination, amendment, acceleration or cancellation
      (with or without notice, lapse of time or both) of, any material agreement,
      credit facility, debt or other material instrument (evidencing Company debt
      or
      otherwise) or other material understanding to which such Company is a party
      or
      by which any property or asset of the Company is bound or affected; or (iii)
      conflict with or result in a violation of any law, rule, regulation, order,
      judgment, injunction, decree or other restriction of any court or governmental
      authority to which the Company is subject (including federal and state
      securities laws and regulations), or by which any property or asset of the
      Company is bound or affected, except, in the case of each of clauses (ii) and
      (iii), such as could not have or reasonably be expected to result in a Material
      Adverse Effect.

     

    (c)  Issuance
      of the Additional Debentures and Incentive Shares.
      The
      Additional Debentures are duly authorized and, upon the execution of this
      Agreement by a Purchaser, will be duly and validly issued, fully paid and
      nonassessable, free and clear of all Liens imposed by the Company other than
      restrictions on transfer provided for in the Transaction Documents. The
      Incentive Shares upon issuance and the Additional Underlying Shares, when issued
      in accordance with the terms of the Additional Debentures, will be validly
      issued, fully paid and nonassessable, free and clear of all Liens imposed by
      the
      Company. The Company has reserved from its duly authorized capital stock a
      number of shares of Common Stock sufficient for issuance of the Incentive Shares
      and Additional Underlying Shares.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (d)  Equal
      Consideration.
      Except
      as set forth in this Agreement, no consideration has been offered or paid to
      any
      person to amend or consent to a waiver, modification, forbearance or otherwise
      of any provision of any of the Transaction Documents that is not proportional
      to
      such Purchaser’s holding of Debentures.

     

    (e) No
      Ratchet.
      The
      issuance of the Additional Debentures and Incentive Shares and the conduct
      of
      the Qualified Offering (defined below) do not and will not trigger any right
      of
      any holder of Common Stock or Common Stock Equivalents (other than the
      Purchasers if the Qualified Offering does not occur) to exercise or receive
      the
      benefit of ratchet, reset, anti-dilution, right of participation, right of
      first
      refusal, acceleration or other similar rights.

    


    (f)  Affirmation
      of Prior Representations and Warranties.
      The
      Company’s representations and warranties listed in Section 3.1 of the Purchase
      Agreement are true and correct as of the date hereof, provided that the
      Company’s representations and warranties are qualified by any SEC Filings made
      prior to the date hereof.

     

    4.  Representations
      and Warranties of the Purchasers.
      Each
      Purchaser hereby represents and warrants as of the date hereof to the Company
      as
      follows:

    


    (a)  Authority.
      The
      execution and delivery of this Agreement and performance by such Purchaser
      of
      the transactions contemplated by this Agreement have been duly authorized by all
      necessary corporate or similar action on the part of such Purchaser. This
      Agreement has been duly executed by such Purchaser and, when delivered by such
      Purchaser in accordance with the terms hereof, will constitute the valid and
      legally binding obligation of such Purchaser, enforceable against it in
      accordance with its terms, except (i) as limited by general equitable principles
      and applicable bankruptcy, insolvency, reorganization, moratorium and other
      laws
      of general application affecting enforcement of creditors’ rights generally,
      (ii) as limited by laws relating to the availability of specific performance,
      injunctive relief or other equitable remedies and (iii) insofar as
      indemnification and contribution provisions may be limited by applicable
      law.

     

    (b)  Own
      Account.
      Such
      Purchaser (i) understands that the Additional Debentures, the Additional
      Underlying Shares and Incentive Shares (the “Securities”)
      are
“restricted securities” and have not been registered under the Securities Act or
      any applicable state securities law, (ii) is acquiring the Securities as
      principal for its own account and not with a view to or for distributing or
      reselling such Securities or any part thereof in violation of the Securities
      Act
      or any applicable state securities law, (iii) has no present intention of
      distributing any of such Securities in violation of the Securities Act or any
      applicable state securities law and (iv) has no arrangement or understanding
      with any other persons regarding the distribution of such Securities (this
      representation and warranty not limiting such Purchaser’s right to sell the
      Additional Underlying Shares pursuant to the Registration Statement or otherwise
      in compliance with applicable federal and state securities laws) in violation
      of
      the Securities Act or any applicable state securities law. Such Purchaser is
      acquiring the Securities hereunder in the ordinary course of its business.
      Such
      Purchaser does not have any agreement or understanding, directly or indirectly,
      with any Person to distribute any of the Securities.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (c)  Purchaser
      Status.
      Such
      Purchaser is an “accredited investor” as defined in Rule 501(a)(1), (a)(2),
      (a)(3), (a)(7) or (a)(8) under the Securities Act. Such Purchaser is not
      required to be registered as a broker-dealer under Section 15 of the Exchange
      Act.

     

    (d)  Experience
      of Such Purchaser.
      Such
      Purchaser, either alone or together with its representatives, has such
      knowledge, sophistication and experience in business and financial matters
      so as
      to be capable of evaluating the merits and risks of the prospective investment
      in the Securities, and has so evaluated the merits and risks of such investment.
      Such Purchaser is able to bear the economic risk of an investment in the
      Securities and, at the present time, is able to afford a complete loss of such
      investment.

     

    (e)  General
      Solicitation.
      Such
      Purchaser is not purchasing the Securities as a result of any advertisement,
      article, notice or other communication regarding the Securities published in
      any
      newspaper, magazine or similar media or broadcast over television or radio
      or
      presented at any seminar or any other general solicitation or general
      advertisement.

     

    5.  Public
      Disclosure.
      The
      Company shall, as soon as practical, issue a Current Report on Form 8-K,
      disclosing the material terms of the transactions contemplated hereby and
      attaching this Agreement as an exhibit thereto, but in any event within 5
      business days of the full execution hereof. The Company shall consult with
      the
      Purchasers in issuing any press releases with respect to the transactions
      contemplated hereby.

    


    6. Rollover
      Conditions and Qualified Offering.

    


    (a) Rollover
      Conditions.
      The
      Purchasers agree that the Maturity Date of the Additional Debenture will be
      automatically extended to April 30, 2010, as same may be accelerated pursuant
      to
      the terms of the Additional Debenture upon both the following conditions
      (“Rollover
      Conditions”):
      (i)
      the non-occurrence of an Event of Default (as defined in the Additional
      Debenture) or an event which with the passage of time or the giving of notice
      could become an Event of Default, and (ii) the receipt of net proceeds by the
      Company from a Qualified Offering.

    


    (b) Qualified
      Offering.
      “Qualified
      Offering”
shall
      mean (i) an offering of the Company’s Common Stock at not less than $0.125 of
      net proceeds to the Company per share of Common Stock, with aggregate net
      proceeds that must be received by the Company of not less than $1,000,000,
      (ii)
      the Company receives such net proceeds not later than sixty days after the
      issue
      date of the Additional Debenture, and (iii) the issuance of the Common Stock
      and
      the Common Stock Purchase Warrants described below do not result in the
      triggering of any right of any other holder of any Common Stock or Common Stock
      Equivalents to exercise or receive the benefit of any ratchet, reset,
      anti-dilution, right of participation, right of first refusal, acceleration,
      or
      other similar rights. If the Rollover Conditions do not occur, then the Maturity
      Date shall not be extended until April 30, 2010.

    


    (c) Qualified
      Offering Warrants.
      The
      Company may issue Common Stock Purchase Warrants as part of the Qualified
      Offering provided the exercise price of such Warrants is at no time less than
      $0.125 per share of Common stock and the number of shares purchasable upon
      exercise of the Warrants does not exceed the number of shares of Common Stock
      sold in the Qualified Offering.

    


    (d) Acknowledgement.
      The
      Company acknowledges and agrees that if the Qualified Offering does not occur,
      then the Conversion Price as set forth in Section 4(b) of the Additional
      Debentures shall be applicable to all of the Debentures issued by the Company
      to
      the Purchasers including the Additional Debentures and the Debentures issued
      pursuant to the Letter Agreement With Debenture Holders dated May 23, 2008.
      The
      Company further acknowledges and agrees that if the Qualified Offering does
      not
      occur the issuance of the Additional Debentures is not an Exempt Issuance.
      The
      Purchasers acknowledge that provided the Qualified Offering occurs, then the
      issuance of the Additional Debentures and Incentive Shares and the conduct
      of
      the Qualified Offering are each an Exempt Issuance.

    


    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    7.  Independent
      Nature of Purchasers' Obligations and Rights.
      The
      Company has elected to provide all Purchasers with the same terms and Agreement
      for the convenience of the Company and not because it was required or requested
      to do so by the Purchasers. The obligations of each Purchaser under this
      Agreement, and any Transaction Document, are several and not joint with the
      obligations of any other Purchaser, and no Purchaser shall be responsible in
      any
      way for the performance or non-performance of the obligations of any other
      Purchaser under this Agreement or any Transaction Document. Nothing contained
      herein or in any Transaction Document, and no action taken by any Purchaser
      pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
      an association, a joint venture or any other kind of entity, or create a
      presumption that the Purchasers are in any way acting in concert or as a group
      with respect to such obligations or the transactions contemplated by this
      Agreement or the Transaction Documents. Each Purchaser shall be entitled to
      independently protect and enforce its rights, including, without limitation,
      the
      rights arising out of this Agreement or out of the other Transaction Documents,
      and it shall not be necessary for any other Purchaser to be joined as an
      additional party in any proceeding for such purpose. Each Purchaser has been
      represented by its own separate legal counsel in their review and negotiation
      of
      this Agreement and the Transaction Documents.

    


    8. Successor
      Agent.
      The
      Purchasers, Company and DKR Soundshore Oasis Holding Fund Ltd., as Agent,
      consent to the appointment of Collateral Agents, LLC as successor Agent pursuant
      to the Security Agreement. Collateral Agents, LLC, by its signature hereto
      accepts such appointment pursuant to the Security Agreement. DKR Soundshore
      Oasis Holding Fund Ltd. as former Agent will promptly deliver to Collateral
      Agents, LLC any Collateral (as defined in the Security Agreement) in its
      possession to Collateral Agents, LLC. The address for notice purposes of
      Collateral Agents, LLC is 111 West 57th
      Street,
      Suite 1416, New York, NY 10019, Attn: General Counsel, fax: (212) 245-9101.
      The
      Company agrees to pay Collateral Agents, LLC an annual fee of $2,500 for serving
      as Collateral Agent. The fee for the first year commencing on the date of this
      Letter Agreement shall be paid out of the proceeds of the purchase price of
      the
      Additional Debentures deposited pursuant to the Escrow Agreement.

    


    9. Additional
      Notice.
      Any
      notice required to be given by the Company to the Purchasers pursuant to the
      Transaction Documents shall also be given in the same manner to Grushko &
Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, NY 10176, fax: (212)
      697-3575.

    


    10.  Miscellaneous.
      Subject
      to the waivers and agreements provided herein, the Transactions Documents shall
      remain in full force and effect. Except as expressly set forth herein, this
      Agreement shall not be deemed to be a waiver, amendment or modification of
      any
      provisions of the Transaction Documents or of any right, power or remedy of
      the
      Purchasers, or constitute a waiver of any provision of the Transaction Documents
      (except to the extent herein set forth), or any other document, instrument
      and/or agreement executed or delivered in connection therewith, in each case
      whether arising before or after the date hereof or as a result of performance
      hereunder or thereunder. The Purchasers reserve all rights, remedies, powers
      or
      privileges available under the Transaction Documents, at law or otherwise,
      subject to the terms of this Agreement. This Agreement shall not constitute
      a
      novation or satisfaction and accord of the Transaction Documents or any other
      document, instrument and/or agreement executed or delivered in connection
      therewith. This Agreement shall be governed by and construed in accordance
      with
      the laws of the State of New York.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    


    Please
      indicate your acknowledgment of and agreement to the foregoing by signing a
      copy
      of this letter and returning an executed original to the Company.
This
      Agreement may be executed by the parties hereto in counterparts, and execution
      may be evidenced by facsimile or other electronic transmission of a signed
      signature page by any party hereto, and all of such counterparts together shall
      constitute one and the same instrument.

    
      	 	 	 
	 	Sincerely,
	 	 
	 	MSTI HOLDINGS, INC.
	 
 	 
 	 
 
	 	              	/s/ Frank
              Matarazzo
	 	
              
Frank
              Matarazzo
	 	Chief
              Executive Officer


    

     

    


    


    


    [DEBENTURE
      HOLDER SIGNATURE PAGES TO FOLLOW]

    


    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    


    [DEBENTURE
      HOLDER SIGNATURE PAGE TO

    OCTOBER
      2008 LETTER AGREEMENT WITH DEBENTURE HOLDER]

    


    


    ACCEPTED
      AND AGREED AS OF THE DATE ABOVE WRITTEN:

    


    DKR
      SOUNDSHORE OASIS HOLDING FUND LTD.

    


    

      
        	By: 	
                /s/
                  Barbara Burger

              	 
	 	
                By:
                  Barbara Burger

              	 
	 	
                DKR
                  Oasis Management Company L.P., its investment manager

              
	 	 	 	 
	 	 	 	 
	ALPHA
                CAPITAL ANSTALT
	 	 	 	 
	 	 	 	 
	 	
                By:
                  /s/
                  Konrad Ackerman

              	 
	 	Konrad
                Ackerman, Director
	 	 	 	 
	 	 	 	 
	GEMINI
                MASTER FUND, LTD.
	 	 	 	 
	 	 	 	 
	 	
                By:
                  /s/
                  Steven Winters

              	 
	 	Steven
                W. Winters, President
	 	 	 	 
	 	 	 	 
	WHALEHAVEN
                CAPITAL FUND LIMITED
	 	 	 	 
	 	 	 	 
	By: 	
                /s/
                  Brian Mazzella

              	 
	 	Brian
                Mazzella, Chief Financial Officer
	 	 	 	 
	 	 	 	 
	CMS
                CAPITAL
	 	 	 	 
	 	 	 	 
	By: 	
                /s/
                  Howard Weiss 

              	 
	 	Howard
                Weiss, Director	 
	 	 	 	 
	 	 	 	 
	BRIO
                CAPITAL L.P.
	 	 	 	 
	 	 	 	 
	By: 	
                /s/
                  Shaye Hirsch

              	 
	 	Shaye
                Hirsch, Manager of General
                Partner


      



    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    


    SUBSIDIARY
      SIGNATURE PAGE TO OCTOBER 2008 LETTER

    AGREEMENT
      WITH DEBENTURE HOLDERS

    


    


    AGREED
      AND CONSENTED:

    


    


     

    


    


    


    The
      undersigned on behalf of Collateral Agents, LLC consents to the appointment
      as
      successor Agent under the Security Agreement.

    


    COLLATERAL
      AGENTS, LLC

    


    
      	 	 	 	 
	By:
/s/
              Robert Schechter	 	 	 
	
              
                
Robert
                Schechter, Chief Executive Officer

            	 	 	
            


    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      I


    
      	
              Name
                of Purchaser

            	 	
              Proportionate
                Share

            	 	 	
              Purchase
                Price

            	 	
              Principal
                Amount of Debenture

            	 	
              Incentive
                Shares

            	 
	
              ALPHA
                CAPITAL ANSTALT

              Pradafant
                7

              9490
                Furstentums

              Vaduz,
                Lichtenstein

              Fax:
                011-42-32323196

            	 	 	
              35.714%

            	
               

            	 	
              $

            	
              119,642.00

            	 	
              $

            	
              125,939.00

            	 	 	
              714,280

            	 
	
              GEMINI
                MASTER FUND, LTD.

              c/o
                Gemini Strategies LLC

              12220
                El Camino Real, Suite 400

              San
                Diego, CA 92130-2091

              Fax:
                (858) 509-8808

            	 	 	
              35.714%

            	
               

            	 	
              $

            	
              119,642.00

            	 	
              $

            	
              125,939.00

            	 	 	
              714,280

            	 
	
              WHALEHAVEN
                CAPITAL FUND LIMITED 

              560
                Sylvan Avenue

              Englewood
                Cliffs, NJ 07632

              Fax:
                (201) 782-9327

            	 	 	
              21.429%

            	
               

            	 	
              $

            	
              71,787.00

            	 	
              $

            	
              75,565.00

            	 	 	
              428,580

            	 
	
              BRIO
                CAPITAL L.P.

              401
                East 34th
                Street, Suite 33C

              New
                York, New York 10016

              Fax:
                (646) 390-2158

            	 	 	
               7.143%

            	
               

            	 	
              $

            	
              23,929.00

            	 	
              $

            	
              25,188.00

            	 	 	
              142,860

            	 
	
              TOTALS

            	 	 	
                 100%

            	
               

            	 	
              $

            	
              335,000.00

            	 	
              $

            	
              352,631.00

            	 	 	
              2,000,000

            	 


    

    


    
      
        
        

      

      
        9