EXHIBIT 10.10
AGREEMENT
AGREEMENT (the "AGREEMENT"), dated as of April 28, 2004, between MediaBay,
Inc. (the "COMPANY"), and Xxxxxx Xxxxxxx ("XXXXXXX").
BACKGROUND
A. The Company has issued to Xxxxxxx a $1,984,250 principal amount senior
subordinated promissory note initially due December 31, 2004 and subsequently
extended to September 30, 2007 (the "XXXXXXX NOTE").
B. The Company has issued to Huntingdon (i) a $2,500,000 principal amount
convertible senior promissory note initially due September 30, 2002 and
subsequently extended to September 30, 2007 (the "$2,500,000 NOTE"), (ii) an
$800,000 convertible senior subordinated promissory note initially due December
31, 2002 and subsequently extended to September 30, 2007 (the "$800,000 NOTE"
and, together with the $2,500,000 Note, the "REMAINING Notes"), (iii) a $500,000
principal amount convertible senior promissory note due June 30, 2003 and
subsequently extended to September 30, 2007 (the "$500,000 NOTE"), (iv) a
$1,000,000 principal amount convertible senior promissory note due September 30,
2007 (the "$1,000,000 NOTE"), (v) a $150,000 principal amount convertible senior
promissory note due September 30, 2007 (the "$150,000 NOTE") and (vi) a $350,000
principal amount convertible senior promissory note due September 30, 2007 (the
"$350,000 NOTE" and, together with the $500,000 Note, the $1,000,000 Note and
the $150,000 Note, the "EXCHANGE NOTES"), in each case, subject to earlier
demand upon the Company's repayment of all of its obligations under its existing
credit agreement (the "EXISTING CREDIT AGREEMENT").
C. The Company has also issued (i) those certain promissory notes, due
October 30, 2004, in the aggregate principal amount of $1,065,000 (the "OCTOBER
NOTES"), (ii) a $4,200,000 principal amount convertible promissory note, due
December 31, 2004, in favor of ABC Investment, L.L.C. the principal amount of
which has been reduced to $3,200,000 (the "ABC NOTE") and (iii) a $500,000
principal amount convertible promissory note, initially due December 31, 2004
and subsequently extended to September 30, 2007 (the "TRUST NOTE"), in favor of
X. Xxxxxxx Irrevocable ABC Trust (the "TRUST").
D. The Trust is also the holder of 25,000 shares of the Company's Series A
Convertible Preferred Stock, no par value per share (the "SERIES A PREFERRED
STOCK").
E. The Trust distributed to Xxxxxxx, the beneficiary of the Trust, all
accrued and unpaid interest on the Trust Note through April 28, 2004
($593,963.18) and all accrued and unpaid dividends on the Series A Preferred
Stock through April 28, 2004 ($519,375.00) (collectively, the "Transferred
Interest and Dividends").
F. The Company requires financing to meet its working capital requirements
and is borrowing $8,600,000, and may make additional borrowings (the
"FINANCING"), pursuant to that certain Credit Agreement, dated the date hereof
(the "NEW CREDIT AGREEMENT"), among the Company, Xxxxx Xxxxxxx, Inc. ("RSI"),
Audio Book Club, Inc. ("AUDIO BOOK"), as borrowers, the guarantors signatory
thereto, Zohar CDO 2003-1, Limited, a Cayman Islands exempted company, as lender
("ZOHAR"), and Zohar, as Agent. Capitalized terms used but not otherwise defined
herein shall have the meanings set forth in the New Credit Agreement.
G. In connection with the Financing, the Company will enter into a letter
agreement with ABC Investments, L.L.C. ("ABC") pursuant to which the Company
will issue to ABC a new note (the "NEW ABC NOTE") to, among other things, (i)
reflect the repayment of fifty percent (50%) of the outstanding amounts owed
under the ABC Note, (ii) to extend the maturity of the remaining obligations to
ABC under the ABC Note to the date that is three months and one day following
the Maturity Date under the New Credit Agreement and (iii) reduce the conversion
price of the ABC Note (collectively, the "ABC TRANSACTIONS").
H. In connection with the Financing, the Company will enter into an
agreement with Huntingdon pursuant to which the Exchange Notes, all accrued and
unpaid interest on the Exchange Notes and a portion of the accrued and unpaid
interest on the Remaining Notes will be cancelled in exchange for the issuance
of the Units (as defined below) (the "HUNTINGDON TRANSACTIONS").
I. In connection with the Financing, the Company will enter an agreement
with the Trust (the "TRUST TRANSACTIONS").
J. In connection with the Financing, the Company and Xxxxxxx desire to
enter into the agreements set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Upon receipt of the Fairness Opinion (defined below), $68,080.52 of the
accrued and unpaid interest with respect to Xxxxxxx Note and all Transferred
Interest and Dividends ($1,113,338), shall automatically (and without further
action), be exchanged for an aggregate of 11,814 Units, each Unit consisting of
(i) one share of the Company's Series C Convertible Preferred Stock, no par
value per share (the "SERIES C PREFERRED STOCK") and (ii) a number of Warrants
(defined below) determined by the following formula:
A = 2x($100/B)
A = number of Warrants
B = the Conversion Price (defined below).
The conversion price of the Series C Preferred Stock (the "CONVERSION PRICE")
shall be equal to (i) the greater of (a) the closing bid price of the Common
Stock or (b) $0.53 the per share book value of the Common Stock, in each case,
on the date hereof if the agreement is executed after 4:00 P.M. New York local
time or on the immediately preceding trading day if this agreement is executed
before 4:00 P.M. New York local time (the "MARKET PRICE") plus (ii) $0.25. The
Series C Preferred Stock shall be issued pursuant to the terms set forth in the
Articles of Amendment to the Company's Articles of Incorporation (the "Articles
of Amendment"), in the form attached hereto as Exhibit A. The Company shall file
the Articles of Amendment with the Department of State of Florida or prior to
the date on which it receives the Fairness Opinion.
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2. The Company shall obtain an opinion as to the fairness of the
transactions to the Company and its shareholders contemplated by this Agreement
on or before May 31, 2004 from an independent banking firm and to be retained by
the Company by resolution of the Board of Directors adopted by Unanimous Consent
on the date hereof (the "FAIRNESS OPINION"). The Company shall cause such
investment banking firm to deliver a copy of the Fairness Opinion to Xxxxxxx
simultaneously with its delivery to the Company.
3. Xxxxxxx shall enter into that certain Subordination and Intercreditor
Agreement by and among Huntingdon, Xxxxxxx, the Trust, the Company, RSI, Audio
Book and Zohar, in the form attached as an exhibit to the New Credit Agreement
(the "Subordination Agreement").
4. Each warrant (the "WARRANT") shall entitle the holder to purchase one
share of the Company's common, no par value per share ("COMMON STOCK"), pursuant
to the terms of the warrant agreement set forth as Exhibit B hereto. The Units,
the Series C Preferred Stock issued to Xxxxxxx and the Warrant are hereinafter
collectively referred to as, the "CONVERTIBLE SECURITIES," and together with the
shares of Common Stock issuable upon conversion or exercise thereof, as the case
may be, the "SECURITIES".
5. The Company agrees that, notwithstanding anything to the contrary
contained in the Trust Note, or any amendment or agreement relating thereto, as
long as Xxxxxxx or any person or entity controlled by Xxxxxxx or any members of
his immediately family or in which Xxxxxxx or any members of his immediate
family has at least a 20% beneficial interest, or any trust formed for the
benefit of any of the foregoing (each, a "Xxxxxxx Party") is the holder of the
Xxxxxxx Note, the Company shall not prepay the principal amount of the Xxxxxxx
Note in whole or in part. In addition, notwithstanding anything in the Xxxxxxx
Note or any amendment or agreement relating thereto, the holder of the Xxxxxxx
Note shall (i) not demand repayment of the note until the earlier of (a) July
28, 2007 or (b) 90th day after the Company has repaid all of its obligations
under the New Credit Agreement and (ii) agrees that all interest payments to be
paid in cash under the Xxxxxxx Note shall accrue until the tenth (10th) day
following the date on which all of the Company's obligations under the New
Credit Agreement have been satisfied. Xxxxxxx shall cause any subsequent holder
to agree in writing as to the foregoing in connection with any transfer of all
or a portion of the Trust Note.
6. Xxxxxxx hereby consents to the Financing on the terms and conditions
set forth in the New Credit Agreement and further consents to the ABC
Transactions, the Huntingdon Transactions and the Trust Transactions, including
but not limited to (a) the execution of the agreements relating to such
transactions, (b) the incurrence of the obligations under the New ABC Note and
New Credit Agreement, (c) the creation of the Series C Preferred Stock and the
issuance of shares thereof, (d) the payment in full of all outstanding
obligations under the Existing Credit Agreement, the October 2003 Notes and
one-half of the Company's obligations under the ABC Note, (e) the payment of
dividends on the Series A Preferred Stock and Series C Preferred Stock and (f)
the payment of interest under the New ABC Note and, subject to the terms of the
Intercreditor Agreement (defined below), the Remaining Notes and the Trust Note.
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7. The Company, Huntingdon, Xxxxxxx and the Trust will enter into a
Registration Rights Agreement in the form attached hereto as Exhibit C (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which, among other things, the
Company shall grant to Xxxxxxx certain registration rights with respect to the
shares of Common Stock issuable upon conversion or exercise of the Convertible
Securities. The Company shall cause RSI, Audio Book, ABC Investment Corp. ("ABC
INVESTMENT"), XxxxxXxx.xxx, Inc. ("XXXXXXXX.XXX") and Video Yesteryear, Inc.
("VIDEO YESTERYEAR", and together with RSI, Audio Book, ABC Investment Corp. and
XxxxxXxx.xxx, collectively, the "GUARANTORS") to execute an Amended and Restated
Guaranty dated as of the date hereof in favor of Xxxxxxx in the form attached
hereto as Exhibit D (the "GUARANTY") pursuant to which each of the Guarantors
shall agree to guaranty and stand surety for the obligations of the Company to
Xxxxxxx under the Xxxxxxx Note. The Company shall, and shall cause each of the
Guarantors to, enter into an Amended and Restated Security Agreement dated as of
the date hereof in favor of Xxxxxxx in the form attached hereto as Exhibit E,
which among other things, grants Herrick a lien in all of the assets of the
Company to secure the obligations of the Company to Xxxxxxx under the Xxxxxxx
Note and also grants Herrick a lien in all of the assets of each Guarantor to
secure each such Guarantor's obligations to Xxxxxxx under the Guaranty (which
grant will expand the currently existing liens granted by the Company, RSI and
Video Yesteryear to Xxxxxxx to secure the obligations of the Company under the
Xxxxxxx Note (or, in the case of RSI and Video Yesteryear, the obligations of
each under prior guarantees of such obligations of the Company under the Xxxxxxx
Note) to include liens in all those assets of each of the Company, RSI and Video
Yesteryear not currently subject to liens in favor of Xxxxxxx), which liens
shall be senior to all liens granted or to be granted by the Company and each
Guarantor, except to the extent of the subordination of such liens to the liens
granted to the agent under the New Credit Agreement as set forth in the
Subordination Agreement and to the extent provided for in the Intercreditor
Agreement (defined below). Xxxxxxx, Huntingdon and the Trust shall enter into
the Seconded Amended and Restated Intercreditor Agreement dated as the date
hereof (the "Intercreditor Agreement").
8. The Company agrees that with regard to any board meeting, for so long
as Xxxxxxx is a shareholder of the Company, Xxxxxxx shall have the right to
appoint one representative to attend such board meeting of the Company (the
"Observer"). Provided that the Company has been informed in writing of the
Observer's identity, address and telephone and facsimile numbers, the Observer
shall receive written notice of any such board meeting at least three (3) days
prior to the date of such meeting and the Company shall permit the Observer to
attend all such board meetings and all committee meetings; provided, however, in
the case of telephonic board meetings, a written notice to the Observer two (2)
days prior to such meeting shall be permitted in lieu of the foregoing three (3)
day requirement. The Observer shall be permitted to be present by phone at any
such telephonic meetings. The Observer shall also be entitled to receive all
written materials and other information at the same time such materials and
information are given to the directors for a board meeting. The observer shall
also be entitled to receive by facsimile a copy of any resolutions (or drafts
thereof), together with all other materials and information given to the
directors in connection therewith that the board intends to adopt by unanimous
written consent at the same time such resolutions are distributed to the Board.
The Company shall pay the reasonable out-of-pocket expenses of the Observer
incurred in connection with attending any such board meetings.
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9. The Company agrees that, for a period of three years; provided that
Xxxxxxx beneficially owns at least 10,000,000 shares of Common Stock, the
Company will maintain at least $20,000,000 in directors and officers liability
insurance, and will cause Xxxxxxx to be named as an additional insured with
respect to all such insurance.
10. Xxxxxxx hereby represents, warrants and acknowledges to the Company
that:
(a) Xxxxxxx has full power and authority to execute and deliver this
Agreement, the Transaction Documents and the Registration Rights Agreement
(collectively, the "XXXXXXX AGREEMENTS") and to perform its obligations
thereunder. Each of the Xxxxxxx Agreements has been duly executed and delivered
by Xxxxxxx and constitutes the legal, valid and binding obligation of Xxxxxxx,
enforceable against Xxxxxxx in accordance with its terms.
(b) Xxxxxxx is a sophisticated purchaser and has received and
reviewed copies of the Company's most recent annual report, proxy statement and
other recent filings by the Company with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, and such other
information concerning the Company and its business, financial condition and
results of operations as to be able to make an informed analysis and decision
regarding the purchase Securities. Xxxxxxx and his representatives have had a
reasonable opportunity to ask questions of and receive answers from the Company,
and all such questions, if any, have been answered to Xxxxxxx and his
representatives' full satisfaction. Xxxxxxx and his representatives have such
knowledge and expertise in financial and business matters that they are capable
of evaluating the merits and risks involved in the purchase of the Securities.
Xxxxxxx is acquiring and will acquire, as applicable, the Securities solely for
its own account, for investment purposes only, and not with a view towards their
resale or distribution other than in accordance with an effective registration
statement under the Securities Act of 1933, as amended (the "Act") or an
applicable exemption therefrom. Xxxxxxx is an "accredited investor," as such
term is defined in Regulation D of the Rules and Regulations promulgated under
the Act.
(c) Xxxxxxx understands that (i) the sale of the Securities to
Xxxxxxx has not been registered under the Act or the securities laws of any
state, based upon an exemption from such registration requirements for
non-public offerings pursuant to the Act and regulations thereunder; (ii) the
Securities are and will be "restricted securities", as said term is defined in
Rule 144 of the Rules and Regulations promulgated under the Act; (iii) the
Securities may not be sold or otherwise transferred unless they have been first
registered under the Act and all applicable state securities laws, or unless
exemptions from such registration provisions are available with respect to said
resale or transfer; (iv) except as provided in the Registration Rights
Agreement, the Company is under no obligation to register the Securities under
the Act or any state securities laws, or to take any action to make any
exemption from any such registration provisions available; (v) the certificates
for Common Stock issued upon conversion or exercise, as the case may be, of the
Securities will bear a legend to the effect that the transfer of any of the
securities represented thereby is subject to the provisions hereof; and (vi)
stop transfer instructions will be placed in the Company's records with respect
to the Securities.
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11. The Company hereby represents, warrants and acknowledges to Xxxxxxx
that:
(a) The Company is a corporation duly organized under the laws of
the State of Florida and has full power and authority to execute and deliver the
this Agreement, the New Huntingdon Notes, the Warrant, the Registration Rights
Agreement and such other agreements necessary to consummate the transactions set
forth herein collectively (the "COMPANY AGREEMENTS"), and to perform its
obligations thereunder. The execution and delivery of the Company Agreements by
the Company and the performance by the Company of its obligations thereunder
have been duly authorized by all necessary corporate action on the part of the
Company. Each of the Company Agreements has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
(b) The Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued common stock, the
full number of shares of Common Stock issuable upon conversion or exercise, as
the case may be, of the Convertible Securities, and upon due conversion and/or
exercise thereof (including the payment of the exercise price thereof with
respect to the exercise of the Warrant), the shares of the Common Stock issuable
upon such conversion and/or exercise, as the case may be, will be duly
authorized, validly issued, fully paid and non-assessable.
(c) The execution, delivery and performance by the Company of the
Company Agreements and the consummation by the Company of the transactions
contemplated thereby do not (i) violate any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award or (ii) conflict with or
result in the breach of, or constitute a default under, any material contract,
loan agreement, indenture, mortgage, deed of trust, lease or other material
instrument or agreement binding on or affecting the Company.
12. If requested by any Xxxxxxx Party, (i) the Board of Directors of the
Company shall recommend to the Company's shareholders that the shareholders
approve amendments to the Xxxxxxx Note and the Articles of Amendment to provide
for full ratchet anti-dilution protection for issuances below the conversion
prices of the Xxxxxxx Note and Series C Preferred Stock and the exercise price
of the Warrants, to adjust the conversion and exercise prices to the effective
price at which the Company issues Common Stock or the effective purchase price
of Common Stock in connection with the issuance of securities convertible or
exchangeable into, or exchangeable for Common Stock (ii) the Company shall call
a meeting of its shareholders (the "Shareholder Meeting") to vote on such matter
on the one year anniversary of the date of this Agreement (or, if such day is
not a trading day, on the immediately preceding trading day) or such other date
as is reasonably requested by a Xxxxxxx Party and take such actions and use its
best efforts to obtain shareholder approval with respect to such amendments,
including retaining a proxy solicitation firm. The Company shall use its best
efforts to obtain and deliver valid and legally binding irrevocable proxies from
Xxxx X. Xxxx and all other members of the Board of Directors of the Company
owning shares of the Company's Common Stock, that provide Norton with the sole
and exclusive right to vote all such shares in favor of such amendments. Upon
receipt of shareholder approval, the Company shall file with the Department of
State of Florida an amendment to its Articles of Incorporation to affect such
amendment to the Articles of Amendment.
13. The Company agrees that, until the earlier of (i) the day after the
Shareholder Meeting, and (ii) one year from the date hereof, it will not issue
Common Stock, or securities convertible into or exercisable or exchangeable for
Common Stock where the effective purchase price of the Common Stock for any
securities so issued would be below the conversion prices of the Xxxxxxx Note,
the Remaining Notes, the Series C Preferred Stock or the exercise price of the
Warrants, without obtaining Xxxxxxx'x written consent for such issuance.
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14. The Company and Xxxxxxx agree that the Termination Agreement (the
"Termination Agreement") between the Company, XNH Consulting Services, Inc.
("XNH") and Xxxxxxx dated as of March 8, 2004 is hereby amended by terminating
(i) XNH's obligations to cause Xxxxxxx to provide advisory services to the
Company pursuant to Section 2 of the Termination Agreement and (ii) the
Company's obligations to pay the $7,500 monthly fee to XNH under Section 5 of
the Termination Agreement. All other provisions of the Termination Agreement
shall remain in full force and effect and remain unchanged.
15. On the date hereof, Company shall pay Xxxxxxx $638,910.47 (the
"Expense Amount") as reimbursement for expenses incurred by Xxxxxxx and/or
affiliates of Xxxxxxx on behalf of the Company as set forth below, which amount
is agreed to between the Company and Xxxxxxx as the amount owed by the Company
to Xxxxxxx as reimbursement of expenses and specifically does not include other
amounts for which the Company is indebted to Xxxxxxx and/or affiliates of
Xxxxxxx (other than the Company's obligations under the Xxxxxxx Note, an October
Note, the Remaining Notes, the Exchange Notes, the Trust Note and accrued and
unpaid interest thereon and accrued and unpaid dividends on the Series A
Preferred Stock) immediately prior to the execution of this Agreement. The
Expense Amount shall be paid (i) $40,500 per month on the first business day of
the month for fifteen consecutive months, commencing May 2004, and (ii)
$31,410.47 on the first business day of August 2005. The Company and Xxxxxxx
agree that the February 2, 2004 letter agreement between the Company and The
Xxxxxxx Company, Inc. relating to invoices for services is terminated and that
any amounts owed thereunder are part of the Expense Amount. Additionally, the
Company will use its best efforts to cause its bank to accept irrevocable
instructions to wire the Expense Amount payments to Xxxxxxx unless the bank
receives written notice from the Agent under the New Credit Agreement that an
Event of Default (as defined in the New Credit Agreement) has occurred.
16. The Company shall reimburse Xxxxxxx for its actual out-of-pocket
expenses incurred in connection with the transactions set forth in this
Agreement, including, without limitation, the reasonable fees and expenses of
his legal counsels (including special securities counsel relating to Xxxxxxx'x
obligations under Sections 13 and 16 of the Securities Exchange Act of 1934
(including in connection with filing of Forms 4 and amendments to his Schedule
13(d)) as a result of the transactions contemplated by this Agreement. All such
payments shall be made on the date hereof, except to the extent Xxxxxxx agrees
to accept later payment therefore or any such fees or expenses are incurred
subsequent to the date hereof (in which case payment will be due upon submission
of an invoice by Xxxxxxx.
17. Xxxxxxx hereby represents and warrants to the Company that he is not
entitled to reimbursement for expenses in excess of the Expense Amount and, upon
receipt of such Expense Amount, Xxxxxxx forever releases and discharges the
Company with respect expenses incurred by Xxxxxxx on behalf of the Company prior
to the date hereof.
18. This Agreement is made under, and shall be construed and enforced in
accordance with, the substantive laws of New York.
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19. This Agreement may be executed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. Facsimile signatures shall be
effective and binding as original signatures.
-SIGNATURE PAGE FOLLOWS-
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
MEDIABAY, INC.
By: /s/ Xxxx X. Xxxx
------------------------------------
Name: Xxxx X. Xxxx
Title: Executive Vice President
/s/ Xxxxxx Xxxxxxx
--------------------------------
XXXXXX XXXXXXX
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