EXHIBIT 10.9
AGREEMENT
AGREEMENT (the "AGREEMENT"), dated as of April 28, 2004, between MediaBay,
Inc. (the "COMPANY"), and Huntingdon Corporation, a Delaware Corporation
("HUNTINGDON").
BACKGROUND
A. 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" and together with the Remaining Notes,
the "EXISTING HUNTINGDON 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").
B. 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"), (iii) a $1,984,250
principal amount convertible promissory note (the "XXXXXXX Note"), initially due
December 31, 2004 and subsequently extended to September 30, 2007, in favor of
Xxxxxx Xxxxxxx ("XXXXXXX"), and (iv) 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"). 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")
C. 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.
D. 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").
E. In connection with the Financing, the Company and Huntingdon desire to
enter into the agreements set forth herein.
F. In connection with the Financing, the Company will enter an agreement
with Xxxxxxx pursuant to which the following transactions (the "XXXXXXX
TRANSACTIONS") will take place: [(i) a portion of the accrued and unpaid
interest with respect to the Xxxxxxx Note, shall be exchanged for Units (defined
below), and (ii)] all accrued and unpaid interest with respect to the Trust Note
and accrued and unpaid demands on the Series A Preferred Stock (all of which
interest and dividends have been distributed by the Trust to Xxxxxxx) will be
exchanged for Units.
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), the $2,000,000
principal amount of the Exchange Notes, all accrued and unpaid interest with
respect to the Exchange Notes (an aggregate of $248,478.96 and all accrued and
unpaid interest with respect to the Remaining Notes (an aggregate of
$922,799.03, shall automatically (and without any further action), be exchanged
for an aggregate of 31,713 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 on 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 Huntingdon
simultaneously with its delivery to the Company.
3. (i) On the first anniversary of the Closing Date under the New Credit
Agreement, if proceeds of Additional Equity for the period from the Closing Date
through such first anniversary of the Closing Date do not equal or exceed
$1,000,000 or (ii) on the second anniversary of the Closing Date under the New
Credit Agreement, if (a) proceeds of Additional Equity from the Closing Date
through the First Anniversary of the Closing Date equal or exceed $1,000,000 but
are less than $2,000,000 and (b) proceeds of Additional Equity for the period
from but excluding the first anniversary of the Closing Date through such second
anniversary of the Closing Date does not equal or exceed $1,000,000, then the
principal balance of the $800,000 Note outstanding (if any) as of the respective
date shall automatically, and without further action by Huntingdon or any other
party, be cancelled in exchange for the issuance by the Company to Huntingdon of
a number of Units equal to the quotient obtained by dividing (x) the principal
amount of the $800,000 Note which is cancelled by such reduction (if any) by (y)
$100.
4. In addition, if on the second anniversary of the Closing Date under the
New Credit Agreement, if (i) proceeds of Additional Equity for the period from
such Closing Date through the first anniversary of the Closing Date are less
than $1,000,000 and (ii) proceeds of Additional Equity for the period from but
excluding the first anniversary of the Closing Date through such second
anniversary of the Closing Date do not equal or exceed $1,000,000, then the
principal balance of the $2,500,000 Huntingdon Note outstanding as of such date
(if any) shall automatically, and without further action by Huntingdon or any
other party, be reduced to $1,500,000 (to the extent the principal balance of
such $2,500,000 Huntingdon Note has not already been reduced to an amount equal
to $1,500,000 or less) in exchange for the issuance by the Company to Huntingdon
of a number of Units equal to the quotient obtained by dividing (a) the
principal amount of the $2,500,000 Note which is cancelled by such reduction (if
any) by (b) $100. Interest shall continue to accrue under the $800,000 Note
and/or the $2,500,000 Note in accordance with the terms of the respective
Remaining Note even if the principal balance (or a portion thereof) of such note
is cancelled under Section 3 above or this Section 4.
5. Huntingdon 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").
6. Each warrant (the "WARRANT") shall entitle the holder to purchase one
share of the Company's common, no par value per share ("COMMON STOCK"), at an
exercise price equal to the Market Price, for a period of ten years from the
date of the Agreement pursuant to the terms of the warrant agreement set forth
as Exhibit B hereto. The Units, the Series C Preferred Stock and the Warrants
issued to Huntingdon 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".
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7. The Company agrees that, notwithstanding anything to the contrary
contained in the Remaining Notes, or any amendment or agreement relating
thereto, as long as Huntingdon, Xxxxxx Xxxxxxx or any person or entity
controlled by Xxxxxx Xxxxxxx or any members of his immediately family or in
which Xxxxxx 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 a Remaining Note, the Company shall
not prepay the principal amount of any such Remaining Note in whole or in part.
In addition, notwithstanding anything in the Remaining Notes or any amendment or
agreement relating thereto the holder of the Note (i) shall not demand repayment
of either Remaining Note until the earlier of (a) July [ ], 2007 or (b) 90th day
after the date on which 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 and the Remaining Notes shall accrued until the tenth (10th) day following
the date on which all of the Company's obligations under the New Credit
Agreement have been satisfied. Huntingdon shall cause any subsequent holder to
agree in writing as to the foregoing in connection with the transfer of all or a
portion of any Remaining Note.
8. Huntingdon hereby consents to the Financing on the terms and conditions
set forth in the New Credit Agreement and further consents to the Xxxxxxx
Transactions, the Trust Transactions and the ABC 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 the New Credit
Agreement, (c) the repayment 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, (d) the creation of the Series C Preferred Stock
and the issuance of shares thereof, (e) the payment of dividends on the shares
of the Series A Preferred Stock of the Company and the 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 Xxxxxxx Note and the Trust
Note.
9. 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 Huntingdon 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 Huntingdon
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 Huntingdon under the Existing Huntingdon Notes. 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 Huntingdon
in the form attached hereto as Exhibit E, which among other things, grants
Huntingdon a lien in all of the assets of the Company to secure the obligations
of the Company to Huntingdon under the Existing Huntingdon Notes and also grants
Huntingdon a lien in all of the assets of each Guarantor to secure each such
Guarantor's obligations to Huntingdon under the Guaranty (which grant will
expand the currently existing liens granted by the Company, RSI and Audio Books
to Huntingdon to secure the obligations of the Company under the Existing
Huntingdon Notes (or, in the case of RSI and Audio Books, the obligations of
each under prior guarantees of such obligations of the Company under the
Existing Huntingdon Notes) to include liens in all those assets of each of the
Company, RSI and Audio Books not currently subject to liens in favor of
Huntingdon), 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). Huntingdon, Xxxxxxx and the Trust shall
enter into the Second Amended and Restated Intercreditor Agreement dated as of
the date hereof (the "Intercreditor Agreement").
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10. Huntingdon hereby represents, warrants and acknowledges to the Company
that:
(a) Huntingdon is a corporation duly organized under the laws of the
State of Delaware and has full power and authority to execute and deliver this
Agreement, the Transaction Documents, the Registration Rights Agreement
(collectively, the "HUNTINGDON AGREEMENTS") and to perform its obligations
thereunder. The execution and delivery of the Huntingdon Agreements by
Huntingdon and the performance by Huntingdon of its obligations thereunder have
been duly authorized by all necessary corporate action on the part of
Huntingdon. Each of the Huntingdon Agreements has been duly executed and
delivered by Huntingdon and constitutes the legal, valid and binding obligation
of Huntingdon, enforceable against Huntingdon in accordance with its terms.
(b) Huntingdon 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. Huntingdon's 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 Huntingdon's full
satisfaction. Huntingdon's 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. Huntingdon 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. Huntingdon is an "accredited investor," as such term is
defined in Regulation D of the Rules and Regulations promulgated under the Act.
(c) Huntingdon understands that (i) the sale of the Securities to
Huntingdon 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 Huntingdon
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 Units, 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.
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 Remaining Notes and the Articles of Amendment to
provide for full ratchet anti-dilution protection for issuances below the
conversion prices of the Remaining Notes 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 to vote on such matter 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.
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12. The Company shall reimburse Huntington 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
its legal counsels, including special securities counsel retained by Huntingdon
to advise with matters relating to Huntingdon's obligations under Sections 13
and 16 of the Securities Exchange Act of 1934 (including in connection with the
filing of Forms 4 and amendments to 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
thereof 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 Huntingdon.
13. This Agreement is made under, and shall be construed and enforced in
accordance with, the substantive laws of New York.
14. 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
HUNTINGDON CORPORATION
By: /s/ Xxxxxx Xxxxxxx
------------------------------------
Name: Xxxxxx Xxxxxxx
Title: President
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