EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of March
21, 2005 (the "EXECUTION DATE"), is by and between MediaBay, Inc., a Florida
corporation (the "COMPANY"), and each of the entities whose names appear on the
signature pages hereof. Such entities are each referred to herein as an
"INVESTOR" and, collectively, as the "INVESTORS".
A. The Company wishes to sell to each Investor, and each Investor wishes
to purchase, on the terms and subject to the conditions set forth in this
Agreement, (i) shares (the "PREFERRED SHARES") of the Company's Series D
Convertible Preferred Stock (the "PREFERRED STOCK") having the rights and
privileges set forth in the form of Articles of Amendment attached hereto as
Exhibit A (the "ARTICLES OF AMENDMENT"), (ii) a warrant in the form attached
hereto as Exhibit B (each, an "OFFERING WARRANT" and, collectively, the
"OFFERING WARRANTS") and (iii) an additional warrant in the form attached hereto
as Exhibit C (a "PREFERRED WARRANT"), exercisable by such Investor until (and
including) the ninetieth (90th) day following the Effective Date (as defined
below), for the purchase of additional Preferred Shares and an additional
warrant, identical in form to the Offering Warrants (each, an "ADDITIONAL
WARRANT" and, collectively, the "ADDITIONAL WARRANTS", with such Additional
Warrants and Offering Warrants being collectively referred to herein as the
"INVESTOR WARRANTS"), with the number of such additional Preferred Shares such
Investor shall have the right to purchase being equal to twenty-five percent
(25%) of the number of Preferred Shares purchased at the Closing (as defined
below) by such Investor hereunder, for an aggregate exercise price equal to the
aggregate Stated Value of the Preferred Shares purchased upon such exercise.
B. The Preferred Stock will be convertible into shares (the "CONVERSION
SHARES") of the Company's Common Stock (as defined below) at a conversion price
of $0.55 (subject to adjustment as provided in the Articles of Amendment). The
Offering Warrants issued to an Investor will entitle such Investor to purchase a
number of shares of Common Stock (the "OFFERING WARRANT SHARES") equal to fifty
percent (50%) of the initial number of Conversion Shares into which the
Preferred Shares purchased by such Investor at the Closing (as defined below)
are convertible (without regard to any limitation on such conversion contained
herein or in the Articles of Amendment), and the Additional Warrants issued to
an Investor upon exercise of a Preferred Warrant shall initially entitle such
Investor to purchase a number of shares of Common Stock (the "ADDITIONAL WARRANT
SHARES" and, together with the Offering Warrant Shares, the "INVESTOR WARRANT
SHARES") equal to fifty percent (50%) of the initial number of Conversion Shares
into which the Preferred Shares purchased by such Investor upon the exercise of
such Preferred Warrant are convertible (without regard to any limitation on such
conversion contained herein or in the Articles of Amendment).
C. The Company has agreed to issue at the Closing to Satellite Strategic
Finance Associates, LLC ("Satellite"), in consideration for Satellite's
consulting services, an additional warrant in the form attached hereto as
Exhibit D (the "SATELLITE CONSULTING WARRANT"), which shall entitle Satellite to
purchase up to 250,000 shares of Common Stock (the "SATELLITE WARRANT SHARES"
and, together with the Investor Warrant Shares, the "WARRANT SHARES") and shall
otherwise be on substantially the same terms as the Investor Warrants. The
Investor Warrants and the Satellite Consulting Warrant are collectively referred
to herein as the "WARRANTS". The Warrants will have an exercise price per share
equal to $0.56 (subject to adjustment as provided therein), will be exercisable
commencing six (6) months following the Closing Date (as defined below) and will
expire on the date that is sixty-six (66) months following the Closing Date.
D. The Preferred Shares (including without limitation any Preferred Shares
purchased pursuant to the Preferred Warrants), the Conversion Shares, the
Warrants and the Warrant Shares are collectively referred to herein as the
"SECURITIES".
E. The Company has agreed to effect the registration of the Conversion
Shares and the Warrant Shares, other than in certain respects the Conversion
Shares and the Warrant Shares issued or issuable to Goldman (the "GOLDMAN
SECURITIES") under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), pursuant to a Registration Rights Agreement in the form attached hereto
as Exhibit E-1 (the "REGISTRATION RIGHTS AGREEMENT").
F. The Company has agreed to effect the registration of the Goldman
Securities under the Securities Act pursuant to a Registration Rights Agreement
in the form attached hereto as Exhibit E-2 (the "GOLDMAN REGISTRATION RIGHTS
AGREEMENT").
G. The sale of the Preferred Shares, the Investor Warrants and the
Preferred Warrants by the Company to the Investors, and the issuance of the
Satellite Consulting Warrant by the Company to Satellite, will be effected in
reliance upon the exemption from securities registration afforded by the
provisions of Regulation D ("REGULATION D"), as promulgated by the Commission
(as defined below) under the Securities Act.
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and each Investor hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
1.1 Closing of Purchase and Sale; Purchase Price. Upon the terms and
subject to the satisfaction or waiver of the conditions set forth herein, the
Company agrees to sell, and each Investor agrees to purchase, on the Closing,
the following securities (all of such purchases and sales, collectively, being
referred to herein as the "FINANCING"): (i) the number of Preferred Shares set
forth below such Investor's name on the signature pages hereof; (ii) an Offering
Warrant to purchase the number of Warrant Shares indicated on the signature page
hereof; and (iii) a Preferred Warrant to purchase (a) a number of Preferred
Shares equal to 25% of the Preferred Shares referred to in clause (i) above and
(b) an Additional Warrant to purchase a number of Warrant Shares equal to 25% of
the Warrant Shares referred to in (ii) above. The purchase price for the
Preferred Shares, Offering Warrant and Preferred Warrant being purchased by each
Investor on the Closing (the "PURCHASE PRICE") shall be equal to the aggregate
Stated Value of the Preferred Shares being so purchased by such Investor. The
closing of the Financing (the "CLOSING") will be deemed to occur at the offices
of ▇▇▇▇▇ & Stachenfeld, LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
when (A) this Agreement and the other Transaction Documents (as defined below)
have been executed and delivered by the Company and, to the extent applicable,
by each Investor, (B) each of the conditions to the Closing described in Section
5 hereof has been satisfied or waived by the Company or each Investor, as
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appropriate, (C) pursuant to the terms of the Private Offering Escrow Agreement
in the form attached hereto as Exhibit F (the "INVESTOR ESCROW AGREEMENT"), each
Investor shall have, on or before the Closing Date, delivered the Purchase Price
payable by it to the Escrow Agent (as defined in the Investor Escrow Agreement)
by wire transfer of immediately available funds, (D) the Escrow Agent shall have
delivered to the Company by wire transfer of immediately available funds the
amounts held in escrow pursuant to the Investor Escrow Agreement (less such
amounts as are, pursuant to the Investor Escrow Agreement, to be paid to other
Persons), and (E) the Company shall have delivered duly executed certificates
representing the Preferred Shares, Offering Warrant and Preferred Warrant being
purchased by such Investor. The date on which the Closing occurs is referred to
herein as the "CLOSING DATE". Concurrently with the Closing, the Company will
enter into, and consummate the transactions contemplated by, that certain letter
agreement, dated as of the date hereof, between the Company and each of Forest
Hill Select Offshore, Ltd., Forest Hill Select Fund, L.P. and Lone Oak Partners,
L.P., in substantially the form attached hereto as Exhibit G.
1.2 Certain Definitions. When used herein, the following terms shall have
the respective meanings indicated:
"ADDITIONAL WARRANT" and "ADDITIONAL WARRANTS" have the respective
meanings specified in the preamble to this Agreement.
"AGREEMENT" has the meaning specified in the preamble to this
Agreement.
"AFFILIATE" means, as to any Person (the "subject Person"), any
other Person (a) that directly or indirectly through one or more intermediaries
controls or is controlled by, or is under direct or indirect common control
with, the subject Person, (b) that directly or indirectly beneficially owns or
holds ten percent (10%) or more of any class of voting equity of the subject
Person, or (c) ten percent (10%) or more of the voting equity of which is
directly or indirectly beneficially owned or held by the subject Person. For the
purposes of this definition, "CONTROL" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, through
representation on such Person's board of directors or other management committee
or group, by contract or otherwise.
"ARTICLES OF AMENDMENT" has the meaning specified in the preamble to
this Agreement.
"AVAILABLE UNDERSUBSCRIPTION AMOUNT" has the meaning specified in
Section 4.7(b) hereof.
"BASIC AMOUNT" has the meaning specified in Section 4.7(a) hereof.
"BOARD OF DIRECTORS" or "BOARD" means the Company's board of
directors, as constituted from time to time.
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"BUSINESS DAY" means any day other than a Saturday, a Sunday or a
day on which the New York Stock Exchange is closed or on which commercial banks
located in New York City are required or authorized by law to close.
"CAP AMOUNT" means 19.99% of the number of shares of Common Stock
outstanding on the
Closing Date, immediately prior to the Closing (subject to
adjustment upon a stock split, stock dividend or similar event).
"CLOSING" and "CLOSING DATE" have the respective meanings specified
in Section 1.1
hereof.
"CLOSING BID PRICE" shall mean, for the Common Stock as of any date,
the closing bid price on such date for the Common Stock on the Principal Market
as reported by Bloomberg Financial Markets ("BLOOMBERG"), or if the Principal
Market begins to operate on an extended hours basis, and does not designate the
closing bid price, then the last bid price at 4:00 p.m. (eastern time), as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price of the Common Stock in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price is reported for such security by Bloomberg, the last closing trade price
for such security as reported by Bloomberg, or, if no last closing trade price
is reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price
cannot be calculated for the Common Stock on such date on any of the foregoing
bases, then the Company shall submit such calculation to an independent
investment banking firm of national reputation reasonably acceptable to
Investors holding a majority of the Preferred Shares, and shall cause such
investment banking firm to perform such determination and notify the Company and
the Investors of the results of determination no later than two (2) Business
Days from the time such calculation was submitted to it by the Company. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period.
"COMMISSION" means the United States Securities and Exchange
Commission.
"COMMON STOCK" means the common stock, no par value, of the Company.
"COMPANY" has the meaning specified in the preamble to this
Agreement.
"COMPANY SUBSIDIARIES" means each of ABC Investment Corp., Inc.,
Audio Book Club, Inc., ▇▇▇▇▇▇▇▇.▇▇▇, Inc., ▇▇▇▇▇ ▇▇▇▇▇▇▇, Inc., and Video
Yesteryear, Inc.
"CONTROLLING STOCKHOLDER" has the meaning specified in Section
5.1.13 hereof.
"CONVERSION PRICE" has the meaning specified in the Articles of
Amendment.
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"CONVERSION SHARES" has the meaning specified in the preamble to
this Agreement.
"DEBT" as to any Person at any time, means: (a) all indebtedness,
liabilities and obligations of such Person for borrowed money; (b) all
indebtedness, liabilities and obligations of such Person to pay the deferred
purchase price of Property or services, except trade accounts payable of such
Person arising in the ordinary course of business that are (i) not past due by
more than 90 days or (ii) being disputed in good faith by the Company; (c) all
capital lease obligations of such Person; (d) all indebtedness, liabilities and
obligations of others guaranteed by such Person; (e) all indebtedness,
liabilities and obligations secured by a Lien existing on Property owned by such
Person, whether or not the indebtedness, liabilities or obligations secured
thereby have been assumed by such Person or are non recourse to such Person; (f)
all reimbursement obligations of such Person (whether contingent or otherwise)
in respect of letters of credit, bankers' acceptances, surety or other bonds and
similar instruments; and (g) all indebtedness, liabilities and obligations of
such Person to redeem or retire shares of capital stock of such Person.
"DISCLOSURE DOCUMENTS" means all SEC Documents filed by the Company
at least three (3)
Business Days prior to the Execution Date via the Commission's
Electronic Data Gathering, Analysis and Retrieval system (▇▇▇▇▇) in accordance
with the requirements of Regulation S-T under the Exchange Act.
"DTC" has the meaning specified in Section 4.11 hereof.
"EFFECTIVE DATE" means the later of (i) the "Effective Date as
defined in the Registration Rights Agreement and (ii) the date that Stockholder
Approval has been obtained.
"EMBARGOED PERSON" has the meaning specified in Section 3.27 hereof.
"ENVIRONMENTAL LAW" means any federal, state, provincial, local or
foreign law, statute, code or ordinance, principle of common law, rule or
regulation, as well as any Permit, order, decree, judgment or injunction issued,
promulgated, approved or entered thereunder, relating to pollution or the
protection, cleanup or restoration of the environment or natural resources, or
to the public health or safety, or otherwise governing the generation, use,
handling, collection, treatment, storage, transportation, recovery, recycling,
discharge or disposal of hazardous materials.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and the
regulations and published interpretations thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
(or any successor act).
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"EXECUTION DATE" has the meaning specified in the preamble to this
Agreement.
"EXCLUDED SECURITY" means (i) securities purchased under this
Agreement; (ii) securities issued upon conversion of the Preferred Shares or
exercise of the Warrants; (iii) shares of Common Stock issuable or issued to (x)
employees, consultants, officers or directors from time to time either directly
or upon the exercise of options, in such case granted or to be granted by the
Board of Directors or a committee thereof, pursuant to one or more stock option
plans, stock incentive plans or restricted stock plans or stock purchase plans
in effect as of the Closing Date or approved by the Board of Directors including
a majority of the Company's independent directors (as such term is defined under
Rule 4200(a)(15) of the Nasdaq Market Rules), or (y) consultants or vendors from
time to time upon the exercise of options or warrants to purchase Common Stock
that are outstanding on the date hereof or issued hereafter, provided any such
future issuances are approved by the Board of Directors; (iv) any borrowings,
direct or indirect, from financial institutions by the Company that are approved
by the Board of Directors, including any type of loan or payment evidenced by
any type of Debt instrument, provided the value of the equity portion of any
such borrowings, including warrants, options or other rights to purchase capital
stock and other interests convertible into capital stock of the Company, does
not exceed ten percent (10%) of such borrowing; (v) shares of Common Stock
issued in connection with any stock split, stock dividend or recapitalization of
the Company; (vi) shares of Common Stock issued in connection with the
acquisition by the Company of any corporation or other entity or of
substantially all of the assets of any corporation or other entity or division
or business unit thereof occurring after the Effective Date; (vii) shares of
Common Stock issued upon the exercise or conversion of any securities of the
Company outstanding on the Execution Date; (viii) shares of Common Stock issued
to a Person in connection with a joint venture, strategic alliance or other
commercial relationship with such Person relating to the operation of the
Company's business the primary purpose of which is not to raise equity capital;
and (ix) securities issued pursuant to a bona fide firm commitment underwritten
public offering with a nationally recognized underwriter.
"EXERCISE PRICE" has the meaning set forth in the Warrants.
"FAST" has the meaning specified in Section 4.11 hereof.
"FINANCING" has the meaning specified in the preamble to this
Agreement.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in (i) opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants, (ii) statements
of the Financial Accounting Standards Board and (iii) interpretations of the
Commission and the Staff of the Commission. Accounting principles are applied on
a "consistent basis" when the accounting principles applied in a current period
are comparable in all material respects to those accounting principles applied
in a preceding period.
"GOLDMAN" means ▇▇▇▇▇▇▇, Sachs & Co.
"GOLDMAN REGISTRATION RIGHTS AGREEMENT" has the meaning specified in
the preamble to this Agreement.
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"GOLDMAN SECURITIES" has the meaning specified in the preamble to
this Agreement.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state,
provincial or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including without limitation any stock exchange, securities
market or self-regulatory organization.
"GOVERNMENTAL REQUIREMENT" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, license or
other directive or requirement of any federal, state, county, municipal, parish,
provincial or other Governmental Authority or any department, commission, board,
court, agency or any other instrumentality of any of them.
"▇▇▇▇▇▇▇ PARTY" and "▇▇▇▇▇▇▇ PARTIES" have the respective meanings
specified in Section 4.9 hereof.
"INVESTMENT COMPANY ACT" has the meaning specified in Section 3.24
hereof.
"INVESTOR" and "INVESTORS" have the respective meanings specified in
the preamble to this Agreement.
"INVESTOR ESCROW AGREEMENT" has the meaning specified in Section 1.1
hereof.
"INVESTOR PARTY" has the meaning specified in Section 4.16 hereof.
"INVESTOR WARRANT" and "INVESTOR WARRANTS" have the respective
meanings specified in the preamble to this Agreement.
"INVESTOR WARRANT SHARES" has the meaning specified in the preamble
to this Agreement.
"INTELLECTUAL PROPERTY" means any U.S. or foreign patents, patent
rights, patent applications, trademarks, trade names, service marks, brand
names, logos and other trade designations (including unregistered names and
marks), trademark and service ▇▇▇▇ registrations and applications, copyrights
and copyright registrations and applications, inventions, invention disclosures,
protected formulae, formulations, processes, methods, trade secrets, computer
software, computer programs and source codes, manufacturing research and similar
technical information, engineering know-how, customer and supplier information,
assembly and test data drawings or royalty rights.
"KEY EMPLOYEES" means each of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
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"LIEN" means, with respect to any Property, any mortgage or
mortgages, pledge, hypothecation, assignment, deposit arrangement, security
interest, tax lien, financing statement, pledge, charge, or other lien, charge,
easement, encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property (including, without limitation, any conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).
"MAJORITY STOCKHOLDER CONSENT" has the meaning specified in Section
5.1.6 hereof.
"MARKET PRICE" means, as of a particular date, the lesser of (i) the
average of each daily VWAP for the ten (10) consecutive Trading Days occurring
immediately prior to (but not including) such date, and (ii) the Closing Bid
Price on the Trading Day immediately preceding such date.
"MATERIAL ADVERSE EFFECT" means an effect that is material and
adverse to (i) the consolidated business, operations, properties, financial
condition, prospects or results of operations of the Company and its
Subsidiaries taken as a whole or (ii) the transactions contemplated by the
Articles of Amendment, this Agreement or the other Transaction Documents or the
ability of the Company to perform its obligations with respect thereto.
"MATERIAL CONTRACTS" means, as to the Company, any agreement
required pursuant to Item 601 of Regulation S-B or Item 601 of Regulation S-K,
as applicable, under the Securities Act to be filed as an exhibit to any report,
schedule, registration statement or definitive proxy statement filed or required
to be filed by the Company with the Commission under the Exchange Act or any
rule or regulation promulgated thereunder, and any and all amendments,
modifications, supplements, renewals or restatements thereof.
"NASD" means the National Association of Securities Dealers, Inc.
"NOTICE OF ACCEPTANCE" has the meaning specified in Section 4.7(b)
hereof.
"OFFER", "OFFER PERIOD" and "OFFERED SECURITIES" have the respective
meanings specified in Section 4.7(a) hereof.
"OFFERING WARRANTS" has the meaning specified in the preamble to
this Agreement.
"OFFERING WARRANT SHARES" has the meaning specified in the preamble
to this Agreement.
"OUTSTANDING REGISTRABLE SECURITIES" means, at any time, all
Registrable Securities that at such time are either issued and outstanding or
issuable upon conversion of the Preferred Stock or exercise of the Warrants
(without regard to any limitation on such conversion or exercise).
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"PARI PASSU SECURITIES" means any securities ranking by their terms
pari passu with the Preferred Stock in respect of payment of dividends,
redemption or distribution upon liquidation.
"PENSION PLAN" means an employee benefit plan (as defined in ERISA)
maintained by the Company for employees of the Company or any of its Affiliates.
"PERMITTED DEBT" means the following:
(a) Debt that is outstanding on the Execution Date and
disclosed in the Disclosure Documents or on Schedule 3.5 hereto,
(b) Debt consisting of a working capital credit facility
provided by a bank or other financial institution that is secured only by the
Company's accounts receivable and/or inventory; and
(c) Debt consisting of capitalized lease obligations and
purchase money indebtedness incurred in connection with acquisition of capital
assets and obligations under sale-leaseback or similar arrangements provided in
each case that such obligations are not secured by Liens on any assets of the
Company or its Subsidiaries other than the assets so leased.
"PERMITTED LIENS" means the following:
(a) encumbrances consisting of easements, rights-of-way, zoning
restrictions or other restrictions on the use of real property or imperfections
to title that do not (individually or in the aggregate) materially impair the
ability of the Company or any of its Subsidiaries to use such Property in its
businesses, and none of which is violated in any material respect by existing or
proposed structures or land use;
(b) Liens for taxes, assessments or other governmental charges that
are not delinquent or which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture or
sale of the Property subject to such Liens, and for which adequate reserves (as
determined in accordance with GAAP) have been established; and
(c) Liens of mechanics, materialmen, warehousemen, carriers,
landlords or other similar statutory Liens securing obligations that are not yet
due and are incurred in the ordinary course of business or which are being
contested in good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the Property subject to such
Liens, for which adequate reserves (as determined in accordance with GAAP) have
been established; and
(d) Liens securing any of the Permitted Debt as disclosed on
Schedule 3.5 hereto.
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"PERSON" means any individual, corporation, trust, association,
company, partnership, joint venture, limited liability company, joint stock
company, Governmental Authority or other entity.
"PREFERRED SHARES" and "PREFERRED STOCK" have the respective
meanings specified in the preamble to this Agreement.
"PREFERRED STOCK TERMINATION DATE" means the first date on which
there are no Preferred Shares outstanding.
"PREFERRED WARRANT" has the meaning specified in the preamble to
this Agreement.
"PRINCIPAL MARKET" means the principal exchange or market on which
the Common Stock is listed or traded.
"PROPERTY" means property and/or assets of all kinds, whether real,
personal or mixed, tangible or intangible (including, without limitation, all
rights relating thereto).
"PRO RATA SHARE" means, with respect to an Investor, the ratio
determined by dividing (i) the number of Preferred Shares purchased by such
Investor on the Closing Date and upon exercise of a Preferred Warrant by (ii)
the aggregate number of Preferred Shares purchased by all of the Investors on
the Closing Date and upon exercise of the Preferred Warrants.
"PURCHASE PRICE" has the meaning specified in Section 1.1 hereof.
"REGISTRABLE SECURITIES" has the meaning set forth in the
Registration Rights Agreement.
"REGISTRATION RIGHTS AGREEMENT" has the meaning specified in the
preamble to this Agreement.
"REGISTRATION STATEMENT" has the meaning set forth in the
Registration Rights Agreement.
"REGULATION D" has the meaning specified in the preamble to this
Agreement.
"RESERVED AMOUNT" has the meaning specified in Section 4.3 hereof.
"RULE 144" means Rule 144 under the Securities Act, or any successor
provision.
"SATELLITE" has the meaning specified in the preamble to this
Agreement.
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"SATELLITE CONSULTING WARRANT" and "SATELLITE WARRANT SHARES" have
the respective meanings specified in the preamble to this Agreement.
"SEC DOCUMENTS" has the meaning specified in Section 3.4 hereof.
"SECURITIES" has the meaning specified in the preamble to this
Agreement.
"SECURITIES ACT" has the meaning specified in the preamble to this
Agreement.
"SENIOR SECURITIES" means (i) any Debt issued or assumed by the
Company and (ii) any securities of the Company which by their terms have a
preference over the Preferred Stock in respect of payment of dividends,
redemption or distribution upon liquidation.
"STATED VALUE" means $1,000 per Preferred Share, subject to
adjustment as provided in the Articles of Amendment.
"STOCKHOLDER APPROVAL" means the requisite affirmative vote by the
Company's stockholders at a meeting of stockholders or by the written consent of
stockholders in lieu of such meeting approving (i) the issuance of Common Stock
in excess of the Cap Amount in connection with the transactions contemplated by
this Agreement, the Articles of Amendment and the other Transaction Documents,
(ii) an increase in the number of shares of the Company's authorized Common
Stock from 150,000,000 to 300,000,000, and (iii) solely for purposes of
applicable Nasdaq regulations and listing requirements, a change of control of
the Company; provided, however that if Stockholder Approval is obtained by means
of written consent in lieu of a meeting, such Stockholder Approval shall not be
deemed to have been obtained until such written consent has become effective and
the actions consented to may be taken in accordance with the Exchange Act and
Regulation 14C promulgated thereunder.
"SUBSEQUENT PLACEMENT" means the issuance, sale, exchange, or
agreement or obligation to issue, sell or exchange or reserve, or agreement to
or set aside for issuance, sale or exchange, (1) any shares of Common Stock, (2)
any other equity security of the Company, including without limitation shares of
preferred stock, (3) any other security of the Company which by its terms is
convertible into or exchangeable or exercisable for any equity security of the
Company, or (4) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any such security described in the foregoing clauses (1)
through (3); provided, however, that the issuance or sale, or agreement to issue
or sell, an Excluded Security shall not constitute a Subsequent Placement.
"SUBSIDIARY" means, with respect to the Company, any corporation or
other entity of which at least a majority of the outstanding shares of stock or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors (or Persons performing similar
functions) of such corporation or entity (irrespective of whether or not at the
time, in the case of a corporation, stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
the Company or one or more of its Subsidiaries or by the Company and one or more
of its Subsidiaries.
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"TERMINATION DATE" means the first date on which there are no
Preferred Shares or Warrants outstanding.
"TRADING DAY" means any day on which the Common Stock is purchased
and sold on the Principal Market.
"TRANSACTION DOCUMENTS" means (i) this Agreement, (ii) the Warrants,
(iii) the Registration Rights Agreement, (iv) the Goldman Registration Rights
Agreement, (v) the Preferred Warrants and (vi) all other agreements, documents
and other instruments executed and delivered by or on behalf of the Company or
any of its officers at the Closing.
"TRANSFER AGENT" has the meaning specified in Section 4.11 hereof.
"UNDERSUBSCRIPTION AMOUNT" has the meaning specified in Section
4.7(a) hereof.
"VOTING AGREEMENT" has the meaning specified in Section 5.1.13
hereof.
"VWAP" on a Trading Day means the volume weighted average price of
the Common Stock for such Trading Day on the Principal Market as reported by
Bloomberg Financial Markets or, if Bloomberg Financial Markets is not then
reporting such prices, by a comparable reporting service of national reputation
selected by the Investors and reasonably satisfactory to the Company. If the
VWAP cannot be calculated for the Common Stock on such Trading Day on any of the
foregoing bases, then the Company shall submit such calculation to an
independent investment banking firm of national reputation reasonably acceptable
to the Investors, and shall cause such investment banking firm to perform such
determination and notify the Company and the Investors of the results of
determination no later than two (2) Business Days from the time such calculation
was submitted to it by the Company. All such determinations shall be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
"WARRANT SHARES" has the meaning specified in the preamble to this
Agreement.
"WARRANTS" has the meaning specified in the preamble to this
Agreement.
1.3 Other Definitional Provisions. All definitions contained in this
Agreement are equally applicable to the singular and plural forms of the terms
defined. The words "hereof", "herein" and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement.
12
2. REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.
Each Investor (with respect to itself only) hereby represents and warrants
to the Company and agrees with the Company that:
2.1 Authorization; Enforceability. Such Investor is duly and validly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with the requisite corporate
power and authority to purchase the Preferred Shares, the Warrant and the
Preferred Warrant being purchased by it hereunder and to execute and deliver
this Agreement and the other Transaction Documents to which it is a party. This
Agreement constitutes, and upon execution and delivery thereof, each other
Transaction Document to which such Investor is a party will constitute, such
Investor's valid and legally binding obligation, enforceable in accordance with
its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) general principles of equity.
2.2 Accredited Investor. Such Investor is an "accredited investor" as that
term is defined in Rule 501 of Regulation D and is acquiring the Preferred
Shares, Warrant and Preferred Warrant being purchased by it hereunder solely for
its own account, and not with a present view to the public resale or
distribution of all or any part thereof, except pursuant to sales that are
registered under, or are exempt from the registration requirements of, the
Securities Act; provided, however, that, in making such representation, such
Investor does not agree to hold the Securities for any minimum or specific term
and reserves the right to sell, transfer or otherwise dispose of the Securities
at any time in accordance with the provisions of this Agreement, the Articles of
Amendment and the other Transaction Documents and with Federal and state
securities laws applicable to such sale, transfer or disposition.
2.3 Information. Such Investor has had access to all of the Disclosure
Documents. To the extent requested by such Investor, the Company has, prior to
the Execution Date, provided such Investor with information regarding the
business, operations and financial condition of the Company, and has, prior to
the Execution Date, granted to such Investor the opportunity to ask questions of
and receive satisfactory answers from representatives of the Company, its
officers, directors, employees and agents concerning the Company and materials
relating to the terms and conditions of the purchase and sale of the Preferred
Shares, Warrants and Preferred Warrants hereunder, and based thereon such
Investor believes it can make an informed decision with respect to its
investment in the Securities. Neither such information nor any other
investigation conducted by such Investor or its representatives shall modify,
amend or otherwise affect such Investor's right to rely on the Company's
representations and warranties contained in this Agreement, including without
limitation those set forth in Section 3.30 hereof.
2.4 Limitations on Disposition. Such Investor acknowledges that, except as
provided in the Registration Rights Agreement and the Goldman Registration
Rights Agreement, the Securities have not been and are not being registered
under the Securities Act and may not be transferred or resold without
registration under the Securities Act or unless pursuant to an exemption
therefrom.
13
2.5 Legend. Such Investor understands that the certificates representing
the Securities may bear at issuance a restrictive legend in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and
may not be offered or sold unless a registration statement
under the Securities Act and applicable state securities laws
shall have become effective with regard thereto, or an
exemption from registration under the Securities Act and
applicable state securities laws is available in connection
with such offer or sale. Notwithstanding the foregoing but
subject to compliance with the requirements of the Securities
Act and applicable state securities laws, these securities and
the securities issuable upon exercise hereof may be pledged or
hypothecated in connection with a bona fide margin account or
other loan secured by such securities."
Notwithstanding the foregoing, it is agreed that, as long as
(A) the resale or transfer (including without limitation a pledge) of any of the
Securities is registered pursuant to an effective registration statement, (B)
such Securities have been sold pursuant to Rule 144, subject to receipt by the
Company of customary documentation in connection therewith, or (C) such
Securities are eligible for resale under Rule 144(k) or any successor provision
and the holder thereof represents in writing that it is not an affiliate of the
Company and is eligible to use such rule for public resales of such Securities,
the certificates representing such Securities shall be issued without any legend
or other restrictive language and, with respect to Securities upon which such
legend is stamped, the Company shall issue new certificates without such legend
to the holder upon request.
2.6 Reliance on Exemptions. Such Investor understands that the Securities
are being offered and sold to it in reliance upon specific exemptions from the
registration requirements of federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations and
warranties of such Investor set forth in this Section 2 in order to determine
the availability of such exemptions and the eligibility of such Investor to
acquire the Securities.
2.7 Non-Affiliate Status. Such Investor is not an Affiliate of the Company
or, to its knowledge, any other Investor and is not acting in association or
concert with any other Person with regard to its purchase of Preferred Shares,
Warrants and Preferred Warrant or otherwise in respect of the Company. Such
Investor's investment in the Securities is not for the purpose of acquiring,
directly or indirectly, control of, and it has no intent to acquire or exercise
control of, the Company or to influence the decisions or policies of the Board
of Directors.
2.8 Restricted Securities.
(a) Such Investor understands and agrees that the Securities are
"restricted securities" within the meaning of Rule 144 that can and will only be
resold by such Investor pursuant to (i) an effective registration statement
under the Securities Act where the prospectus delivery requirements are complied
with or (ii) under an applicable exemption from registration under the Act, and
in compliance with applicable state securities or "blue sky" laws.
14
(b) Such Investor understands that any sales by such Investor of any of
the Securities that are not made in compliance with paragraph (a) of this
Section 2.8 could subject the Company and such Investor to possible civil and
criminal liability under applicably federal securities laws and applicable state
securities or "blue sky" laws.
(c) Such Investor (i) agrees that it will only sell the Securities in a
transaction that complies in all material respects with applicable federal and
state securities laws, (ii) agrees that it will not sell or otherwise dispose of
or transfer the Securities or any interest therein in a transaction that is part
of a plan or scheme to evade the registration requirements of the Securities Act
and (iii) acknowledges and agrees that notwithstanding the removal from the
certificates representing the Securities of the legend set forth in Section 2.5
hereof upon effectiveness of a registration statement covering the Securities,
the Securities will remain "restricted securities" until such Securities have
been sold pursuant to (x) an effective registration statement or (y) Rule 144,
and such Investor will remain responsible for compliance with applicable federal
and state securities laws in connection with any resale by the Investor of the
Securities.
(d) Such Investor understands that the Company is relying on the
representations of such Investor set forth in this Section 2.8 in order to
determine compliance with applicable securities laws in connection with the sale
of the Securities to such Investor, and such Investor hereby agrees to indemnify
and hold harmless the Company and its officers, directors and agents from and
against, any liability it may incur (including reasonable attorneys' fees) as a
result of any breach by such Investor of the representations of such Investor
set forth in this Section 2.8.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to each Investor and agrees with such Investor as follows and
acknowledges that such Investor is relying on the representations,
acknowledgments and agreements made by the Company in this Article 3 and
elsewhere in this Agreement in making investing, trading and other decisions
concerning the Company's securities:
3.1 Organization, Good Standing and Qualification. Each of the Company and
each of its Subsidiaries (including without limitation the Company Subsidiaries)
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite power
and authority to carry on its business as now conducted. Each of the Company and
each of its Subsidiaries is duly qualified to transact business and is in good
standing in each jurisdiction in which it conducts business except where the
failure so to qualify has not had or would not reasonably be expected to have a
Material Adverse Effect. The Company Subsidiaries are the only Subsidiaries of
the Company that own or lease material assets or that conduct material business
or operations, or that have done so at any time during the twelve (12) months
immediately preceding the Execution Date.
3.2 Authorization; Consents. The Company has the requisite corporate power
and authority to adopt and file the Articles of Amendment and perform its
obligations thereunder and to enter into and perform its obligations under this
Agreement and the other Transaction Documents. The Company has the requisite
corporate power and authority to issue and sell the Preferred Shares, Warrant
15
and Preferred Warrant to such Investor in accordance with the terms hereof and
thereof, to issue the Conversion Shares upon conversion of the Preferred Shares
and to issue and the Warrant Shares upon exercise of the Warrants. Except for
Stockholder Approval, all corporate action on the part of the Company by its
officers, directors and stockholders necessary for the authorization, execution
and delivery of, and the performance by the Company of its obligations under,
the Articles of Amendment, this Agreement and the other Transaction Documents
has been taken, and no further consent or authorization of the Company, its
Board of Directors, stockholders, any Governmental Authority or organization
(other than (i) such approval as may be required under the Securities Act and
applicable state securities laws in respect of the Registration Rights Agreement
and the Goldman Registration Rights Agreement, (ii) the filing of a Form D with
the Commission and any applicable state securities departments as provided in
Section 4.1 hereof and (iii) the filing with Nasdaq of a Notification Form:
Listing of Additional Shares with respect to the Securities), or any other
person or entity is required (pursuant to any rule of the NASD, the Nasdaq
National Market or otherwise). The Board of Directors has determined, at a duly
convened meeting or pursuant to a unanimous written consent, that the issuance
and sale of the Securities, and the consummation of the transactions
contemplated by the Articles of Amendment, this Agreement and the other
Transaction Documents (including without limitation the issuance of the
Conversion Shares in accordance with the terms of the Preferred Shares and the
Warrant Shares in accordance with the terms of the Warrants), are in the best
interests of the Company. Except for the division of the Board of Directors into
three classes with staggered terms, the Company does not have any shareholder
rights plan, "poison pill" or other anti-takeover plans or similar anti-takeover
arrangements or provisions under its Articles of Incorporation or bylaws. The
Majority Stockholder Consent (i) has been duly executed and delivered to the
Company by holders of securities of the Company representing a majority of the
voting power of the Company's outstanding securities, (ii) constitutes the valid
and binding action of the stockholders of the Company, subject only to the
compliance by the Company with the provisions of Regulation 14C under the
Exchange Act, and (iii) has not been amended or superseded.
3.3 Due Execution; Enforceability. This Agreement has been and, at or
prior to the Closing, each other Transaction Document will be, duly executed and
delivered by the Company. Each Transaction Document constitutes the valid and
legally binding obligation of the Company, enforceable against it in accordance
with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization or other similar laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) general principles of equity.
3.4 SEC Documents; Agreements; Financial Statements; Other Information.
The Company is subject to the reporting requirements of the Exchange Act and has
timely filed (subject to any permitted extensions for which the Company has
timely filed) with the Commission all reports, schedules, registration
statements and definitive proxy statements that the Company was required to file
with the Commission on or after December 31, 2003 (collectively, the "SEC
DOCUMENTS"). The Company is not aware of any event occurring or expected to
occur on or prior to the Closing Date (other than the transactions effected
hereby) that would require the filing of, or with respect to which the Company
intends to file, a Current Report on Form 8-K after the Closing. Each SEC
Document, as of the date of the filing thereof with the Commission, complied in
all material respects with the requirements of the Securities Act or Exchange
Act, as applicable, and the rules and regulations promulgated thereunder and, as
16
of the date of such filing (or if amended or superseded by a filing prior to the
Execution Date, then on the date of such amending or superseding filing), such
SEC Document (including all exhibits and schedules thereto and documents
incorporated by reference therein) did not contain an untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except as described on Schedule 3.4, all
documents required to be filed as exhibits to the SEC Documents have been filed
as required. Except as set forth in the Disclosure Documents, the Company has no
liabilities, contingent or otherwise, other than liabilities incurred in the
ordinary course of business which, under GAAP, are not required to be reflected
in the financial statements included in the SEC Documents and which,
individually or in the aggregate, are not material to the consolidated business
or financial condition of the Company and its Subsidiaries taken as a whole. The
financial statements included in the SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission with respect thereto. The financial
statements included in the SEC Documents have been prepared in accordance with
GAAP consistently applied at the times and during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
adjustments).
3.5 Capitalization; Debt Schedule. The capitalization of the Company as of
the date hereof, including its authorized capital stock, the number of shares
issued and outstanding, the number of shares issuable and reserved for issuance
pursuant to the Company's stock option plans and agreements, the number of
shares issuable and reserved for issuance pursuant to securities (other than the
Preferred Shares, Warrants and Preferred Warrants) exercisable for, or
convertible into or exchangeable for any shares of Common Stock and the number
of shares initially to be reserved for issuance upon conversion of the Preferred
Shares and exercise of the Warrants and the Preferred Warrants is set forth on
Schedule 3.5 hereto. All outstanding shares of capital stock of the Company have
been validly issued, fully paid and nonassessable, and all shares of capital
stock issued by any Subsidiary have been validly issued, fully paid and
nonassessable, free and clear of all Liens other than Permitted Liens. All
outstanding shares of capital stock of the Company were issued, sold and
delivered in full compliance with all applicable Federal and state securities
laws. No shares of the capital stock of the Company are subject to preemptive
rights or any other similar rights of security holders of the Company or any
Liens created by or through the Company. Except as set forth on Schedule 3.5,
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company, or arrangements by which the Company is or may become bound to
issue additional shares of capital stock of the Company or any of its
Subsidiaries (whether pursuant to anti-dilution, "reset" or other similar
provisions). Except as disclosed on Schedule 3.5 hereto, the Company or a
Subsidiary or the Company owns all of the capital stock of each Subsidiary of
the Company. Except as described on Schedule 3.5 hereto, neither the Company nor
any of its Subsidiaries has any material Debt outstanding as of the date hereof.
17
3.6 Due Authorization; Valid Issuance. The Preferred Shares are duly
authorized and, when issued, sold and delivered in accordance with the terms of
the Articles of Amendment and the terms hereof or the terms of the Preferred
Warrant, as the case may be, (i) will be duly and validly issued, free and clear
of any Liens imposed by or through the Company, (ii) assuming the accuracy of
each Investor's representations in this Agreement, will be issued, sold and
delivered in compliance with all applicable Federal and state securities laws
and (iii) will be entitled to all rights, preferences and privileges described
in the Articles of Amendment. The Warrants, the Conversion Shares and the
Warrant Shares are duly authorized and, when issued, sold and delivered in
accordance with the terms of this Agreement, the Preferred Warrant, the Articles
of Amendment or the Warrants, as the case may be, will be duly and validly
issued, fully paid and nonassessable, free and clear of any Liens imposed by or
through the Company and, assuming the accuracy of each Investor's
representations in this Agreement, will be issued, sold and delivered in
compliance with all applicable Federal and state securities laws.
3.7 No Conflict. Neither the Company nor any of its Subsidiaries is in
violation of any provisions of its Articles of Incorporation, Bylaws or any
other governing document. Neither the Company nor any of its Subsidiaries is in
violation of or in default (and no event has occurred which, with notice or
lapse of time or both, would constitute a default) under any provision of any
instrument or contract to which it is a party or by which it or any of its
Property is bound, or in violation of any provision of any Governmental
Requirement applicable to the Company or any of its Subsidiaries, except for any
violation or default that has not had or would not reasonably be expected to
have a Material Adverse Effect. The (i) execution, delivery and performance of
this Agreement and the other Transaction Documents, (ii) filing of and
performance of its obligations under the Articles of Amendment and (iii)
consummation of the transactions contemplated hereby and thereby (including
without limitation, the issuance of the Preferred Stock and the Warrants and the
reservation for issuance and issuance of the Conversion Shares and the Warrant
Shares) will not result in any violation of any provisions of the Company's or
any of its Subsidiary's Certificate or Articles of Incorporation, Bylaws or any
other governing document or in a default under any provision of any instrument
or contract to which it is a party or by which it or any of its Property is
bound, or in violation of any provision of any Governmental Requirement
applicable to the Company or any of its Subsidiaries or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument or contract or an event which
results in the creation of any Lien upon any assets of the Company or of any of
its Subsidiaries or the triggering of any preemptive or anti-dilution rights
(including without limitation pursuant to any "reset" or similar provisions) or
rights of first refusal or first offer, or any other rights that would allow or
permit the holders of the Company's securities or other Persons to purchase
shares of Common Stock or other securities of the Company (whether pursuant to a
shareholder rights plan provision or otherwise).
3.8 Financial Condition; Taxes; Litigation.
3.8.1 The financial condition of the Company and each of its
Subsidiaries is, in all material respects, as described in the Disclosure
Documents, except for changes in the ordinary course of business and normal
year-end adjustments that are not, in the aggregate, materially adverse to the
consolidated business or financial condition of the Company and its Subsidiaries
taken as a whole. Except as otherwise described on Schedule 3.8.1, since
September 30, 2004, there has occurred no (i) material adverse change to the
Company's business, operations, properties, financial condition, or results of
operations or (ii) change by the Company in its accounting principles, policies
and methods except as required by changes in GAAP or applicable law.
18
3.8.2 The Company and each of its Subsidiaries (i) have prepared in
good faith and duly and timely filed (subject to any extensions for which the
Company or its Subsidiary (as the case my be) has timely filed) all tax returns
required to be filed by it and such returns are complete and accurate in all
material respects and (ii) have paid all taxes required to have been paid by it,
except for taxes which it reasonably disputes in good faith or the failure of
which to pay has not had or would not reasonably be expected to have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries has any
liability with respect to accrued taxes in excess of the amounts that are
described as accrued in the most recent financial statements included in the
Disclosure Documents.
3.8.3 Except as described on Schedule 3.8.3, neither the Company nor
any of its Subsidiaries is the subject of any pending or, to the Company's
knowledge, threatened inquiry, investigation or administrative or legal
proceeding by the Internal Revenue Service, the taxing authorities of any state
or local jurisdiction, the Commission, the NASD, any state securities commission
or other Governmental Authority.
3.8.4 Except as described on Schedule 3.8.4, there is no material
claim, litigation or administrative proceeding pending or, to the Company's
knowledge, threatened or contemplated, against the Company or any of its
Subsidiaries, or, to the Company's knowledge, against any officer, director or
employee of the Company or any such Subsidiary in connection with such person's
employment therewith. Neither the Company nor any of its Subsidiaries is a party
to or subject to the provisions of, any order, writ, injunction, judgment or
decree of any court or Governmental Authority which has had or would reasonably
be expected to have a Material Adverse Effect.
3.9 Form S-3. The Company is eligible to register the Registrable
Securities (other than Registrable Securities that are Goldman Securities) for
resale by each Investor on a registration statement on Form S-3 under the
Securities Act, provided the Commission does not take the position that such
sale of the Registrable Securities by the Investors is a primary offering on
behalf of the Company. To the Company's knowledge, there exist no facts or
circumstances (including without limitation any required approvals or waivers of
any circumstances that may delay or prevent the obtaining of accountant's
consents) that could reasonably be expected to prohibit or delay the
preparation, filing or effectiveness of such registration statement.
3.10 Acknowledgement of Dilution. The Company acknowledges that the
issuance of the Conversion Shares upon conversion of the Preferred Shares and
issuance of Warrant Shares upon exercise of the Warrants may result in dilution
of the outstanding shares of Common Stock, which dilution may be substantial
under certain market conditions. The Company further acknowledges that its
obligation to issue Conversion Shares in accordance with the terms of the
Articles of Amendment and to issue Warrant Shares in accordance with the terms
of the Warrants, is unconditional regardless of the effect of any such dilution.
19
3.11 Intellectual Property. Except as set forth in Schedule 3.11:
(a) The Company and/or its Subsidiaries own, free and clear of
claims or rights or any other Person, with full right to use, sell, license,
sublicense, dispose of, and bring actions for infringement of, or has acquired
licenses or other rights to use, all Intellectual Property necessary for the
conduct of its business as presently conducted (other than with respect to
"off-the-shelf" software which is generally commercially available and open
source software which may be subject to one or more "general public" licenses).
All works that are used or incorporated into the Company's or its Subsidiaries'
services, products or services or products actively under development and which
are proprietary to the Company or its Subsidiaries were developed by or for the
Company or its Subsidiaries by the current or former employees, consultants or
independent contractors of the Company or its Subsidiaries or purchased by the
Company or its Subsidiaries and are owned by the Company or its Subsidiaries,
free and clear of claims and rights of any other Person.
(b) The business of the Company and its Subsidiaries as
presently conducted and the production, marketing, licensing, use and servicing
of any products or services of the Company and its Subsidiaries do not, to the
Company's knowledge, infringe or conflict with any patent, trademark, copyright,
or trade secret rights of any third parties or any other Intellectual Property
of any third parties. Neither the Company nor any of its Subsidiaries has
received written notice from any third party asserting that any Intellectual
Property owned or licensed by the Company or its Subsidiaries, or which the
Company or its Subsidiaries otherwise has the right to use, is invalid or
unenforceable by the Company or its Subsidiaries, as the case may be, and, to
the Company's knowledge, there is no valid basis for any such claim (whether or
not pending or threatened).
(c) No claim is pending or, to the Company's knowledge,
threatened against the Company or any of its Subsidiaries nor has the Company or
any of its Subsidiaries received any written notice or other written claim from
any Person asserting that any of the Company's or its Subsidiaries' present or
contemplated activities infringe or may infringe in any material respect any
Intellectual Property of such Person, and the Company is not aware of any
infringement by any other Person of any material rights of the Company or any of
its Subsidiaries under any Intellectual Property Rights.
(d) All licenses or other agreements under which the Company
or any of its Subsidiaries is granted Intellectual Property (excluding licenses
to use "off-the-shelf" software utilized in the Company's or its Subsidiaries'
internal operations and which is generally commercially available) are listed in
Schedule 3.11. Except as set forth on Schedule 3.11, all such licenses or other
agreements are in full force and effect and, to the Company's knowledge, there
is no material default by any party thereto. The Company has no reason to
believe that the licensors under such licenses and other agreements do not have
and did not have all requisite power and authority to grant the rights to the
Intellectual Property purported to be granted thereby.
(e) All licenses or other agreements under which the Company
or any of its Subsidiaries has granted rights to Intellectual Property to others
(including all end-user agreements) are in full force and effect, there has been
no material default by the Company or its Subsidiaries thereunder and, to the
Company's knowledge, there is no material default by any other party thereto.
20
(f) Each of the Company and its Subsidiaries have taken all
steps required in accordance with commercially reasonable business practice to
establish and preserve its respective ownership in its owned Intellectual
Property and to keep confidential all material technical information developed
by or belonging to the Company or its Subsidiaries which has not been patented
or copyrighted. Neither the Company nor any of its Subsidiaries is making
unlawful use of any Intellectual Property of any other Person, including,
without limitation, any former employer of any past or present employees of the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries, nor, to the Company's knowledge, any of their respective employees
or consultants, has any agreements or arrangements with former employers of such
employees or consultants relating to any Intellectual Property of such
employers, which materially interfere or conflict with the performance of such
employee's or consultant's duties for the Company or its Subsidiaries or result
in any former employers of such employees and consultants having any rights in,
or claims on, the Company's or its Subsidiaries' Intellectual Property. To the
Company's knowledge, the activities of the Company's and its Subsidiaries'
employees and consultants (in connection with activities on behalf of the
Company or any of its Subsidiaries) do not violate any agreements or
arrangements which any such employees or consultants have with former employers
or other third parties. Except as described in Schedule 3.11, each current or
former employee, independent contractor or consultant of the Company and its
Subsidiaries has executed agreements regarding confidentiality, proprietary
information and assignment of inventions and copyrights to the Company or its
Subsidiaries (as the case may be). Neither the Company nor any of its
Subsidiaries has received written notice that any employee, consultant or
independent contractor (in connection with activities on behalf of the Company
or any of its Subsidiaries) is in violation of any agreement or in breach of any
agreement or arrangement with former or present employers relating to
proprietary information or assignment of inventions. Each employee listed in
Schedule 3.11 has executed a non-competition agreement. Without limiting the
foregoing: (i) the Company and each of its Subsidiaries have taken reasonable
security measures to guard against unauthorized disclosure or use of any of its
Intellectual Property; and (ii) the Company has no reason to believe that any
Person (including, without limitation, any former employee or consultant of the
Company or its Subsidiaries) has unauthorized possession of any of its
Intellectual Property, or any part thereof, or that any Person has obtained
unauthorized access to any of its Intellectual Property. The consummation of the
transactions contemplated by the Articles of Amendment, this Agreement and the
other Transaction Documents will not materially alter or impair, individually or
in the aggregate, any of such rights of the Company or its Subsidiaries. Except
as set forth on Schedule 3.11 hereto, the Company and its Subsidiaries each has
complied in all material respects with its obligations pursuant to all
agreements relating to Intellectual Property rights that are the subject of
licenses granted by third parties, except for any non-compliance that has not
had or would not reasonably be expected to have a Material Adverse Effect.
3.12 Registration Rights; Rights of Participation. Except as described on
Schedule 3.12 hereto, (A) the Company has not granted or agreed to grant to any
person or entity any rights (including, without limitation, "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied in
full prior to the date hereof and (B) no person or entity, including, but not
limited to, current or former stockholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, anti-dilutive right or any similar
right to participate in, or to receive securities or other assets of the Company
solely as a result of the transactions contemplated by this Agreement or the
other Transaction Documents.
21
3.13 Solicitation; Other Issuances of Securities. Neither the Company nor
any of its Subsidiaries or Affiliates, nor any person acting on its or their
behalf, (i) has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Securities, or (ii) has, directly or indirectly, made any offers or
sales of any security or the right to purchase any security, or solicited any
offers to buy any security or any such right, under circumstances that would
require registration of the Securities under the Securities Act or that would
cause this offering of Securities to be integrated with any prior offering of
securities of the Company for purposes of the Securities Act.
3.14 Fees. Except as described on Schedule 3.14, the Company is not
obligated to pay any compensation or other fee, cost or related expenditure to
any underwriter, broker, agent or other representative in connection with the
transactions contemplated hereby. The Company will indemnify and hold harmless
each Investor from and against any claim by any person or entity alleging that,
as a result of any agreement or arrangement between such Person and the Company,
such Investor is obligated to pay any such compensation, fee, cost or related
expenditure in connection with the transactions contemplated hereby.
3.15 Foreign Corrupt Practices. Neither the Company, any of its
Subsidiaries nor, to the Company's knowledge, any director, officer, agent,
employee or other person acting on behalf of the Company or any Subsidiary, has
(i) used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expenses relating to political activity, (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official or
employee (including without limitation any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment), or (iii) violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended.
3.16 Key Employees. Each of the Company's Key Employees is currently
serving in the capacity described on Schedule 3.16. The Company has no knowledge
of any fact or circumstance (including without limitation (i) the terms of any
agreement to which such person is a party or any litigation in which such person
is or may become involved and (ii) any illness or medical condition that could
reasonably be expected to result in the disability or incapacity of such person)
that would limit or prevent any such person from serving in such capacity on a
full-time basis in the foreseeable future, or of any intention on the part of
any such person to limit or terminate his or her employment with the Company.
Except as set forth on Schedule 3.16, no Key Employee has borrowed money
pursuant to a currently outstanding loan that is secured by Common Stock or any
right or option to receive Common Stock.
3.17 Employee Matters. There is no strike, labor dispute or union
organization activities pending or, to the knowledge of the Company, threatened
between it and its employees (or between any of its Subsidiaries and such
Subsidiary's employees). No employee of the Company belongs to any union or
collective bargaining unit. The Company has complied in all material respects
with all applicable federal and state equal opportunity and other laws related
to employment.
22
3.18 Environment. Neither the Company nor any of its Subsidiaries has any
liability under any Environmental Law, nor, to the knowledge of the Company, do
any factors exist that are reasonably likely to give rise to any such liability
that, individually or in the aggregate, has had or would reasonably be expected
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has violated any Environmental Law applicable to it now or
previously in effect, other than such violations or infringements that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Material Adverse Effect.
3.19 ERISA. Except as described on Schedule 3.19, neither the Company nor
any of its Subsidiaries maintains or contributes to, or has any obligation
under, any Pension Plan. The Company and each of its Subsidiaries is in
compliance in all material respects with the presently applicable provisions of
ERISA and the United States Internal Revenue Code of 1986, as amended, except
for matters that, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect.
3.20 Insurance. The Company maintains insurance for itself and its
Subsidiaries in such amounts and covering such losses and risks as is reasonably
sufficient and customary in the businesses in which the Company and its
Subsidiaries are engaged. No notice of cancellation has been received for any of
such policies and the Company is in compliance with all of the terms and
conditions thereof. The Company has no reason to believe that it will not be
able to renew any existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue doing business as currently conducted without a significant increase in
cost. Without limiting the generality of the foregoing, the Company maintains
Director's and Officer's insurance in an amount not less than $20 million for
each covered occurrence and in the aggregate.
3.21 Property. Schedule 3.21 sets forth all real property owned by the
Company or any of its Subsidiaries. The Company and its Subsidiaries have good
and marketable title to all personal Property and good and marketable title in
fee simple to all real property owned by them which, individually or in the
aggregate, is material to the business of the Company and its Subsidiaries, in
each such case free and clear of all Liens except for Permitted Liens. Any
Property held under lease by the Company or its Subsidiaries is held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made or proposed to be made of such
Property by the Company and its Subsidiaries.
3.22 Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses other than where the failure to possess such certificates,
authorizations or permits, individually or in the aggregate, has not had and
would not reasonably be expected to have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries has received any notice or otherwise become
aware of any proceedings, inquiries or investigations relating to the revocation
or modification of any such certificate, authorization or permit.
23
3.23 Exchange Act Registration; Listing. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act and is listed on the
Nasdaq National Market. Except as described on Schedule 3.23 hereto, (i) the
Company currently meets the continuing eligibility requirements for listing on
the Nasdaq National Market, and (ii) the Company has not received any notice
from Nasdaq, the NASD or any other Person that it may not currently satisfy such
requirements or that such continued listing of the Company's Common Stock on the
Nasdaq National Market is in any way threatened. The Company has taken no action
designed to, or which, to the knowledge of the Company, may have the effect of,
terminating the registration of the Common Stock under the Exchange Act or the
delisting of the Common Stock from the Nasdaq National Market.
3.24 Investment Company Status. The Company is not, and immediately after
receipt of payment for the Securities issued under this Agreement and the other
Transaction Documents will not be, an "INVESTMENT company" or an entity
"CONTROLLED" by an "INVESTMENT COMPANY" within the meaning of the Investment
Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"), and the Company
shall conduct its business in a manner so that it will not become subject to the
Investment Company Act.
3.25 Transfer Taxes. No stock transfer or other taxes (other than income
taxes) are required to be paid in connection with the issuance and sale of any
of the Securities, other than such taxes for which the Company has established
appropriate reserves and intends to pay in full on or before the Closing.
3.26 ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act; Internal Controls and Procedures. The Company is
in compliance in all material respects with all applicable requirements of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof. The Company
maintains internal accounting controls, policies and procedures, and such books
and records as are reasonably designed to provide reasonable assurance that (i)
all transactions to which the Company or any Subsidiary is a party or by which
its properties are bound are effected by a duly authorized employee or agent of
the Company, supervised by and acting within the scope of the authority granted
by the Company's senior management; (ii) the recorded accounting of the
Company's consolidated assets is compared with existing assets at regular
intervals; and (iii) all transactions to which the Company or any Subsidiary is
a party, or by which its properties are bound, are recorded (and such records
maintained) in accordance with all Government Requirements and as may be
necessary or appropriate to ensure that the financial statements of the Company
are prepared in accordance with GAAP.
3.27 Embargoed Person. None of the funds or other assets of the Company or
its Subsidiaries constitutes property of, or is beneficially owned, directly or
indirectly, by, any person subject to trade restrictions under United States
law, including, but not limited to, the International Emergency Economic Powers
Act, 50 U.S.C. ss. 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App.
1 et seq., and any Executive Orders or regulations promulgated under any such
United States laws (each, an "EMBARGOED PERSON"), with the result that the
investments evidenced by the Securities are or would be in violation of law. To
the Company's knowledge, no Embargoed Person has any interest of any nature
whatsoever in the Company or any of its Subsidiaries with the result that the
investments evidenced by the Securities are or would be in violation of law.
None of the funds or other assets of the Company has been derived from any
unlawful activity with the result that the investments evidenced by the
Securities are or would be in violation of law.
24
3.28 Transactions with Interested Person. Except as set forth in Schedule
3.28, no officer, director or employee of the Company or any of its Subsidiaries
is or has taken any steps to become a party to any transaction with the Company
or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
3.29 Customers; Suppliers. The relationships of the Company and its
Subsidiaries with their respective customers and suppliers are maintained on
commercially reasonable terms. Except as set forth in Schedule 3.29, since
January 1, 2004, no supplier of the Company or its Subsidiaries has canceled,
materially modified, or otherwise terminated its relationship with the Company
or its Subsidiaries or decreased materially its supply of the services or
products of the Company or its Subsidiaries, nor does any supplier have, to the
Company's knowledge, any plan or intention to do any of the foregoing. The
Company has no reason to believe that any of its or its Subsidiaries' suppliers
will experience a manufacturing disruption, a failure to dedicate adequate
resources to the production, assembly or testing of the Company's or its
Subsidiaries' products, or financial instability, or that any such supplier will
be unable to successfully transition its manufacturing capabilities to the
future needs of the Company and its Subsidiaries.
3.30 Full Disclosure.
(a) No written statement, information, report, representation or
warranty made by the Company in this Agreement or any other Transaction Document
or furnished to such Investor by or on behalf of the Company or any of its
Subsidiaries in connection with the Closing or such Investor's due diligence
investigation of the Company (as such statement, information, report,
representation or warranty may be amended or supplemented in writing prior to
the Execution Date) contains any untrue statement of a material fact or omits to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances in which made, not misleading.
(b) Following the issuance of the press release and Current Report
on Form 8-K in accordance with Section 4.1(c) hereof, and, with respect to each
Investor, except as otherwise provided in any written non-disclosure agreement
relating to the delivery and/or possession of material non-public information
heretofore entered into between the Company and such Investor (collectively, the
"NON-DISCLOSURE AGREEMENTS"), to the Company's knowledge, such Investor will not
possess any material non-public information concerning the Company (including,
without limitation, any information provided to such Investor prior to the
Execution Date, as referenced in Section 2.3). Without limiting the generality
of the foregoing, the Company confirms that, other than the Transaction
Documents and the terms and conditions of the transactions contemplated thereby
and by the Articles of Amendment, and except as otherwise provided in the
Non-Disclosure Agreements, neither the Company nor any Person acting on its
behalf has provided any Investor with any material non-public information
concerning the Company. Each of the Non-Disclosure Agreements shall survive the
execution of this Agreement and the Closing hereunder and shall remain in full
force and effect in accordance with the terms thereof, and the Company agrees to
comply fully with its obligations under each of the Non-Disclosure Agreements.
25
(c) In addition to (and not by way of limitation of) any obligation
the Company may have under any of the Non-Disclosure Agreements, the Company
shall, not later than the earlier to occur of (i) the Effective Date and (ii)
ninety (90) days following the Closing Date (the earlier of such dates being the
"DISCLOSURE DEADLINE"), take all actions necessary (including, without
limitation, making public disclosure of information in compliance with
Regulation FD under the Exchange Act) in order to ensure that, as of the
Disclosure Deadline, no information provided by the Company, or any Person
acting on its behalf, to any Investor on or before the Execution Date,
constitutes (as of the Disclosure Deadline) material non-public information
concerning the Company.
(d) The Company acknowledges that such Investor is relying on the
representations, acknowledgements and agreements made by the Company in this
Section 3.30 and elsewhere in this Agreement in making trading and other
decisions concerning the Company's securities.
3.31 No Other Agreements. The Company has not, directly or indirectly,
entered into any agreement with or granted any right to any Investor relating to
the terms or conditions of the transactions contemplated by the Articles of
Amendment or the Transaction Documents except as expressly set forth therein.
3.32 Anti-Takeover Provisions. The Company and its board of directors have
taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination or other similar anti-takeover provision
under the laws of the state of its incorporation which is or could become
applicable to any Investor as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Securities and any and all Investors' ownership of the Securities.
3.33 Solvency. Based on the financial condition of the Company as of the
Closing Date after giving effect to the Financing, (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to be paid
on or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the Company's
assets do not constitute unreasonably small capital to carry on its business for
the current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).
26
4. COVENANTS OF THE COMPANY AND EACH INVESTOR.
For the avoidance of doubt, a covenant by the Company, in this Agreement or any
of the other Transaction Documents, to use its best efforts (or some other level
of efforts) to take a particular action is not breached so long as the Company
has used its best efforts (or such level other level of efforts, as the case may
be) to take such action, notwithstanding that the Company may be unsuccessful in
taking the such action.
4.1 The Company agrees with each Investor that the Company will:
(a) file a Form D with the Commission and any applicable state
securities departments with respect to the Securities issued at the Closing as
and when required under Regulation D and will provide a copy thereof to such
Investor promptly after such filing;
(b) take such action as the Company reasonably determines upon
the advice of counsel is necessary to qualify the Securities for sale under
applicable state or "blue-sky" laws or obtain an exemption therefrom, and shall
provide evidence of any such action to such Investor at such Investor's request;
(c) (i) on or prior to 8:30 a.m. (eastern time) on the
Business Day immediately following the Execution Date, issue a press release
disclosing the material terms of this Agreement and the Financing and (ii) on or
prior to 8:30 a.m. (eastern time) on the second Business Day following the
Execution Date, file with the Commission a Current Report on Form 8-K disclosing
the material terms of this Agreement and the transactions contemplated hereby,
including as exhibits this Agreement, the Articles of Amendment and the other
Transaction Documents; provided, however, that each Investor named therein
(except solely as a result of the Investor being named on a signature page or
Schedule to the Agreement or any other Transaction Document) shall have a
reasonable opportunity to review and comment on any such press release or
Current Report on Form 8-K prior to the issuance or filing thereof. Thereafter,
the Company shall timely file any filings and notices required by the Commission
or applicable law with respect to the transactions contemplated hereby;
(d) on the Closing Date, concurrently with the Closing, repay
in full all indebtedness of the Company to Zohar CDO 2003-1, Limited under that
certain Credit Agreement, dated as of April 28, 2004, between the Company and
certain of its Subsidiaries, as borrowers, and Zohar CDO 2003-1, Limited, as
lender, as amended.
27
(e) on or prior to 8:30 a.m. on the second Business Day
following the Execution Date, file with the Commission pursuant to Regulation
14C under the Exchange Act a preliminary information statement with respect to
Majority Stockholder Consent and shall thereafter take such action as is
necessary to comply with the provisions of such Regulation 14C and applicable
Florida law with respect to such Majority Stockholder Consent and to use its
best efforts to obtain Stockholder Approval as soon as practicable following the
Execution Date.
4.2 The Company agrees that it will, during the period beginning on the
Execution Date and ending on the Termination Date:
(a) maintain its corporate existence in good standing;
(b) maintain, keep and preserve all of its Properties necessary in
the proper conduct of its businesses in good repair, working order and condition
(ordinary wear and tear excepted) and make all necessary repairs, renewals and
replacements and improvements thereto, except where the failure to do so would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
(c) pay or discharge before becoming delinquent (a) all taxes,
levies, assessments and governmental charges imposed on it or its income or
profits or any of its Property and (b) all lawful claims for labor, material and
supplies, which, if unpaid, might become a Lien upon any of its Property, except
where the failure to do so would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect; provided, however,
that the Company shall not be required to pay or discharge any tax, levy,
assessment or governmental charge, or claim for labor, material or supplies,
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings being diligently pursued and for which adequate reserves
have been established under GAAP;
(d) comply with all Governmental Requirements applicable to the
operation of its business (except that the failure to comply with a Governmental
Requirement where the failure to do so does not have, and would not reasonably
be expected to have, individually or in the aggregate with other failures of the
Company to comply with Governmental Requirements, a Material Adverse Effect,
shall not be deemed a breach of this Section 4.2(d));
(e) use its best efforts to comply with all agreements, documents
and instruments binding on it or affecting its Properties or business,
including, without limitation, all Material Contracts, except for instances of
noncompliance that would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;
(f) provide each Investor with copies of all materials sent to its
stockholders, in each such case at the same time as such materials are delivered
to such stockholders;
(g) timely file with the Commission all reports required to be filed
pursuant to the Exchange Act and refrain from terminating its status as an
issuer required by the Exchange Act to file reports thereunder even if the
Exchange Act or the rules or regulations thereunder would permit such
termination; provided, however, that the failure of the Company to timely file a
report required to be filed pursuant to the Exchange Act shall not be deemed a
breach of this Section 4.2(g) if (i) the Company has used its best efforts to
timely file such report, (ii) such failure does not have and would not
reasonably be expected to have, individually or in the aggregate with other such
failures, a Material Adverse Effect, and (ii) the Company pays to each Investor,
not later than five (5) Business Days following the filing of such report, cash
in the amount of the product of (A) the aggregate Liquidation Preference of the
Preferred Shares held by such Investor times (B) fifteen percent (15%) times (C)
a fraction, the numerator of which is the number of days that the Company was
delinquent in filing such report and the denominator of which is 365;
28
(h) until the Effective Date, take commercially reasonable steps to
restrict Key Employees from selling shares of Common Stock, other than in
connection with any 10b-5(1) trading plans in effect as of the Execution Date
and disclosed to each Investor in writing; and
(i) use commercially reasonable efforts to maintain adequate
insurance coverage (including D&O insurance) for the Company and each
Subsidiary.
4.3 Reservation of Common Stock. The Company shall, on the Closing Date,
have authorized and reserved for issuance, and shall keep available at all times
during which Preferred Shares or Warrants are outstanding, free from any
preemptive rights, a number of shares of Common Stock (the "RESERVED AMOUNT")
that, on the Closing Date, is not less than one hundred twenty five percent
(125%) of the maximum number of shares of Common Stock issuable upon (A)
conversion of all of the outstanding Preferred Shares and Preferred Shares
issuable pursuant to the Preferred Warrants at the Conversion Price then in
effect and (B) exercise in full of the outstanding Warrants, including
Additional Warrants issuable pursuant to the Preferred Warrants at the Exercise
Price then in effect, in each case without regard to any limitation on such
conversion or exercise that may otherwise be set forth in the Articles of
Amendment or the Warrants, and including any shares of Common Stock issued or
issuable, from time to time, as a distribution on or in exchange for or
otherwise with respect to any of the foregoing, whether as Dividends (as defined
in the Articles of Amendment), default payments, on account of anti-dilution or
other adjustments or otherwise; provided, however, that prior to the date that
Stockholder Approval is obtained, the Reserved Amount shall be 75,000,000
shares. The Reserved Amount shall be allocated in accordance with each
Investor's Pro Rata Share. In the event that an Investor shall sell or otherwise
transfer any of such Investor's Preferred Shares or Warrants, each transferee
shall be allocated a pro rata portion of such transferor's Reserved Amount. Any
portion of the Reserved Amount allocated to any Investor or other Person which
no longer holds any Preferred Shares or Warrants shall be reallocated to the
remaining Investors pro rata based on the number of Outstanding Registrable
Securities held by such Investors at such time. In the event that the Reserved
Amount is insufficient at any time to cover one hundred five percent 105% of the
Registrable Securities issuable upon the conversion of the Preferred Stock and
the exercise of the Warrants (based on the Conversion Price and the Exercise
Price then in effect, and without regard to any restriction on such conversion
or exercise), the Company shall use its best efforts (including without
limitation holding a meeting of its stockholders) to increase the Reserved
Amount to cover one hundred twenty five percent (125%) of the maximum number of
shares of Common Stock issuable upon (A) conversion of all of the outstanding
Preferred Shares and Preferred Shares issuable pursuant to the Preferred
Warrants at the Conversion Price then in effect and (B) exercise in full of the
outstanding Warrants and Additional Warrants issuable pursuant to the Preferred
Warrants at the Exercise Price then in effect, in each case without regard to
any limitation on such conversion or exercise that may otherwise be set forth in
the Articles of Amendment or the Warrants, and including any shares of Common
Stock issued or issuable, from time to time, as a distribution on or in exchange
for or otherwise with respect to any of the foregoing, whether as Dividends,
default payments, on account of anti-dilution or other adjustments or otherwise,
such increase to be effective not later than the thirtieth (30th) day (or
seventy-fifth (75th) day, in the event stockholder approval is required for such
increase) following the Company's receipt of written notice of such deficiency.
Each increase in the Reserved Amount shall be allocated pro rata among the
Investors based on the amount of Registrable Securities into which all of the
Preferred Shares and Warrants held by such Investor at the time of such increase
are convertible or exercisable (without regard to any limitation on such
conversion or exercise). While any Preferred Shares or Warrants are outstanding,
the Company shall not reduce the Reserved Amount without obtaining the prior
written consent of each Investor.
29
4.4 Use of Proceeds. The Company shall use the proceeds from the sale of
the Securities for the purposes specified on Schedule 4.4 hereto.
4.5 Limitation on Debt and Liens. During the period beginning on the
Execution Date and ending on the Preferred Stock Termination Date, the Company
shall refrain, and shall ensure that each of its Subsidiaries refrains, (a) from
incurring any Debt (including without limitation by issuing any Debt securities)
or increasing the amount of any existing line of credit or other Debt facility
beyond the amount outstanding on the date hereof, other than Permitted Debt, and
(b) from granting, establishing or maintaining any Lien on any of its assets,
including without limitation any pledge of securities owned or held by it
(including without limitation any securities issued by any such Subsidiary),
other than (i) Permitted Liens (including the imposition of any Lien after the
Closing Date, provided that, upon the imposition of any mechanic's, tax or
similar statutory lien, the Company shall use commercially reasonable efforts to
remove such lien as soon as practicable (including without limitation contesting
such lien in good faith by appropriate proceedings)), (ii) any interest or title
of a lessor under any capitalized lease obligation provided that such Liens do
not extend to any property or assets which is not leased property subject to
such capitalized lease obligation, (iii) purchase money Liens to finance
property or assets of the Company or any Subsidiary of the Company acquired in
the ordinary course of business; provided, however, that (A) the related
purchase money Debt shall not exceed the cost of such property or assets
(including the cost of design, development, improvement, production,
acquisition, construction, installation and integration) and shall not be
secured by any property or assets of the Company or any Subsidiary of the
Company other than the property and assets so acquired or constructed (and any
improvements) and (B) the Lien securing such purchase money Debt shall be
created within ten (10) days of such acquisition, construction or improvement,
(iv) Liens upon specific items of inventory or other goods and proceeds of any
Person securing such Person's obligations in respect of bankers' acceptances
issued or created for the account of such Person to facilitate the purchase,
shipment or storage of such inventory or other goods, and (v) Liens encumbering
deposits made to secure obligations arising from statutory, regulatory,
contractual, or warranty requirements of the Company or any of its subsidiaries,
including rights of offset and set off.
30
4.6 Issuance Limitation. During the period beginning on the Execution Date
and ending on the Preferred Stock Termination Date, the Company shall not issue,
sell or exchange, or agree or obligate itself to issue, sell or exchange or
reserve, agree to or set aside for issuance, sale or exchange, (1) any Senior
Securities or Pari Passu Securities, (2) any other security of the Company which
by its terms is convertible into or exchangeable or exercisable for any Senior
Security or Pari Passu Security, or (3) any option, warrant or other right to
subscribe for, purchase or otherwise acquire any such security described in the
foregoing clauses (1) and (2); provided, however, that the foregoing shall not
apply to the issuance of Permitted Debt.
4.7 Right of Participation.
(a) Offered Securities. From the Effective Date through the
Termination Date, the Company will not, directly or indirectly, effect a
Subsequent Placement, unless in each such case the Company shall have first
offered to sell to the Investors at least forty percent (40%) of the securities
being offered in such Subsequent Placement (the securities being offered in such
Subsequent Placement being referred to herein as the "SUBSEQUENT SECURITIES",
the securities being offered to the Investors pursuant to this Section 4.7 being
referred to herein as the "OFFERED SECURITIES", and the securities not offered
to the Investors (i.e. up to sixty percent (60%) of the Subsequent Securities)
being referred to herein as the "REMAINING SECURITIES"). The Company shall offer
to sell to each Investor (A) such Investor's Pro Rata Share of the Offered
Securities (the "BASIC AMOUNT"), and (B) such additional portion of the Offered
Securities as such Investor shall indicate it will purchase should the other
Investors subscribe for less than their Basic Amounts (the "UNDERSUBSCRIPTION
AMOUNT"), at a price and on such other terms as shall have been specified by the
Company in writing delivered to such Investor (the "Offer"), which Offer by its
terms shall remain open to the Investors and irrevocable (unless the Company
determines not to proceed with, or to reduce the amount of securities to be
issued in, the Subsequent Placement) for a period of not less than ten (10)
Business Days from such Investor's receipt of the terms of the Offer in writing
(the "OFFER PERIOD").
(b) Notice of Acceptance. Each Investor that wishes to accept the
Offer shall deliver written notice thereof (a "NOTICE OF ACCEPTANCE") to the
Company prior to the expiration of the Offer Period, specifying the amount of
such Investor's Basic Amount that the Investor elects to purchase and, if such
Investor elects to purchase all of its Basic Amount, the Undersubscription
Amount that Investor elects to purchase. If the aggregate of the Basic Amounts
subscribed for by all Investors is less than the total Offered Securities, each
Investor who has indicated in its Notice of Acceptance that it wishes to
purchase Undersubscription Amounts shall be entitled to purchase all
Undersubscription Amounts it has subscribed for; provided, however, that if the
aggregate of the Undersubscription Amounts subscribed for exceed the difference
between the Offered Securities and the Basic Amounts subscribed for (the
"AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each Investor who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Undersubscription Amount subscribed
for by such Investor bears to the total Undersubscription Amounts subscribed for
by all Investors, subject to rounding by the Board of Directors to the extent it
deems reasonably necessary.
(c) Permitted Sales of Refused Securities. In the event that Notices
of Acceptance are not timely delivered by the Investors in respect of all the
Offered Securities, the Company shall have sixty (60) days from the expiration
of the Offer Period to close the sale of all or any part of the Remaining
Securities and such Offered Securities as to which a Notice of Acceptance has
not been given by an Investor (the "REFUSED SECURITIES") to the Person or
Persons specified in the Offer, but only upon terms and conditions, including,
without limitation, unit price and interest rates (if applicable), which are, in
the aggregate, no more favorable to such other Person or Persons or less
favorable to the Company than those set forth in the Offer.
31
(d) Reduction in Amount of Offered Securities. In the event that the
Company proposes to sell less than all the Subsequent Securities (any such sale
to be in the manner and on the terms specified in paragraph (c) above), then
each Investor may, at its option and in its sole and absolute discretion, reduce
the number or other units of the Offered Securities specified in its Notice of
Acceptance to an amount which shall be not less than the amount of the Offered
Securities which such Investor elected to purchase pursuant to paragraph (b)
above multiplied by a fraction, (A) the numerator of which shall be the amount
of Subsequent Securities which the Company actually proposes to sell, and (B)
the denominator of which shall be the amount of all Subsequent Securities. In
the event that any Investor so elects to reduce the number or amount of Offered
Securities specified in its Notice of Acceptance, the Company may not sell or
otherwise dispose of more than the reduced amount of the Offered Securities
until such securities have been offered to the Investors in accordance herewith.
(e) Closing. Upon each closing of the purchase and sale of Offer
Securities, the Investor shall purchase from the Company, and the Company shall
sell to the Investor the number of Offered Securities specified in the Notices
of Acceptance, as reduced pursuant to paragraph (d) above if the Investors have
so elected, upon the terms and conditions specified in the Offer. The purchase
by the Investors of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Investors of a
purchase agreement relating to such Offered Securities on the same terms and
conditions applicable to other Persons purchasing the Offered Securities.
(f) Further Sale. In each case, any Subsequent Securities not
purchased by the Investors or other Person or Persons in accordance herewith may
not be sold or otherwise disposed of by the Company until they are again offered
to the Investors under the procedures specified herein.
4.8 Certain Transactions. During the period beginning on the Execution
Date and ending on the Termination Date, and except as may be expressly
permitted or required by the Articles of Amendment or the Transaction Documents
or as may be expressly required by the terms of the Company's Series B Preferred
Stock (with respect to shares of such Series B Preferred Stock outstanding on
the Execution Date), the Company shall not, nor will it permit any of its
Subsidiaries to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of the Company or any Subsidiary of the Company (a) to pay dividends or make any
other distribution to the Company or any Subsidiary of the Company in respect of
capital stock or with respect to any other interest or participation in, or
measured by, its profits, or (b) to pay any amounts that are or become payable
under the Articles of Amendment or any of the Transaction Documents.
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4.9 Transactions with Affiliates. The Company agrees that, during the
period beginning on the Execution Date and ending on the Termination Date, any
transaction or arrangement between it or any of its Subsidiaries and any
Affiliate or employee of the Company or any of its Subsidiaries shall be
effected only on an arms' length basis and shall be approved by the Board of
Directors, including a majority of the Company's directors not having an
interest in such transaction. Without limiting the generality of the foregoing,
during such period, and other than with the written consent of Investors holding
a majority of the then outstanding Preferred Shares, the Company shall not (i)
enter into any agreement or arrangement between the Company and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
or Huntington Corporation, or any of their respective Affiliates (collectively,
the "▇▇▇▇▇▇▇ PARTIES", each being a "▇▇▇▇▇▇▇ PARTY"), other than as disclosed on
the Form 8-K to be filed by the Company pursuant to Section 4.1(c) hereof, or
(ii) amend, modify or waive compliance with any provision of any agreement or
arrangement between the Company and any ▇▇▇▇▇▇▇ Party in a manner that is
unfavorable to the Company or to the Investors.
4.10 Use of Investor Name. Except as may be required by applicable law
and/or this Agreement, the Company shall not use, directly or indirectly, any
Investor's name or the name of any of its Affiliates in any advertisement,
announcement, press release or other similar communication unless it has
received the prior written consent of such Investor for the specific use
contemplated or as otherwise required by applicable law or regulation.
4.11 Company's Instructions to Transfer Agent. On or prior to the Closing
Date, the Company shall execute and deliver irrevocable written instructions to
the transfer agent for its Common Stock (the "TRANSFER AGENT"), and provide each
Investor with a copy thereof, directing the Transfer Agent (i) to issue
certificates representing Conversion Shares upon conversion of the Preferred
Shares and receipt of a valid Conversion Notice (as defined in the Articles of
Amendment) from an Investor, in the amount specified in such Conversion Notice,
in the name of such Investor or its nominee, (ii) to issue certificates
representing Warrant Shares upon exercise of the Warrants and (iii) to deliver
such certificates to such Investor no later than the close of business on the
third (3rd) business day following the related Conversion Date (as defined in
the Articles of Amendment) or Exercise Date (as defined in the Warrants), as the
case may be, in each except to the extent any such shares are subject to a
Dispute Procedure as such term is defined in the Articles of Amendment or
Warrants as the case may be. Such certificates shall bear only such legends as
are required pursuant to Section 2.5 hereof or applicable law. The Company shall
instruct the transfer agent that, in lieu of delivering physical certificates
representing shares of Common Stock to an Investor upon conversion of the
Preferred Shares, or exercise of the Warrants, and as long as the Transfer Agent
is a participant in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program ("FAST"), and such Investor has not informed the
Company that it wishes to receive physical certificates therefor, and no
restrictive legend is required to appear on any physical certificate if issued,
the transfer agent may effect delivery of Conversion Shares or Warrant Shares,
as the case may be, by crediting the account of such Investor or its nominee at
DTC for the number of shares for which delivery is required hereunder within the
time frame specified above for delivery of certificates. The Company represents
to and agrees with each Investor that it will not give any instruction to the
Transfer Agent that will conflict with the foregoing instruction or otherwise
restrict such Investor's right to convert the Preferred Shares or to receive
Conversion Shares in accordance with the terms of the Articles of Amendment or
to exercise the Warrant or to receive Warrant Shares upon exercise of the
Warrants. In the event that the Company's relationship with the Transfer Agent
should be terminated for any reason, the Company shall use its best efforts to
cause the Transfer Agent to continue acting as transfer agent pursuant to the
terms hereof until such time that a successor transfer agent is appointed by the
Company and receives the instructions described above.
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4.12 No Adverse Action. The Company and its Subsidiaries shall refrain,
during the period beginning on the Execution Date and ending on the Termination
Date, from taking any action or entering into any arrangement which in any way
materially and adversely affects the provisions of the Articles of Amendment,
this Agreement or any other Transaction Document.
4.13 Limitations on Disposition. No Investor shall sell, transfer, assign
or dispose of any Securities, unless:
(a) either (i) there is then in effect an effective registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement or (ii) such
securities may be sold pursuant to Rule 144(k) or any successor provision; or
(b) such Investor has notified the Company in writing of any such
disposition, received the Company's written consent (which consent shall not be
unreasonably withheld or delayed) to such disposition and furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such Securities under the
Securities Act; provided, however, that no such consent or opinion of counsel
will be required (A) if the sale, transfer or assignment complies with federal
and state securities laws and is made to an Affiliate of such Investor which is
also an "accredited investor" as that term is defined in Rule 501 of Regulation
D, (B) if the sale, transfer or assignment is made pursuant to Rule 144 and such
Investor provides the Company with evidence reasonably satisfactory to the
Company that the proposed transaction satisfies the requirements of Rule 144 or
(C) in connection with a bona fide pledge or hypothecation of any Securities
under a margin arrangement with a broker-dealer or other financial institution
or the sale of any such Securities by such broker-dealer or other financial
institution following such Investor's default under such margin arrangement;
provided, in the case of any such transfer or disposition other than as
described in paragraph (a) or clauses (B) or (C) of this paragraph (b), the
transferee of such Securities makes representations to the Company substantially
similar to those made by the Investors in Section 2.8 hereof.
4.14 Disclosure of Information. The Company agrees that it will not at any
time following the Execution Date disclose material non-public information to
any Investor without first obtaining such Investor's written consent to receive
such information. If the Company breaches this Section 4.14, it shall promptly,
and no later than one business day following such breach, make a public
disclosure, in compliance with Regulation FD under the Exchange Act, of all such
material non-public information theretofore disclosed to such Investor in breach
of this Section 4.14.
4.15 Listing. The Company (i) promptly following the Closing shall use its
best efforts to cause the Common Stock, including all of the Conversion Shares
issuable upon conversion of the Preferred Shares and all of the Warrant Shares
issuable upon exercise of the Warrants (without regard to any limitation on such
conversion or exercise), to be listed on the Nasdaq National Market, and (ii)
use its commercially reasonable efforts to maintain the designation and
quotation, or listing, of the Common Stock on the Nasdaq National Market, the
Nasdaq SmallCap Market or the New York Stock Exchange for a minimum of five (5)
years following the Closing Date. The Company shall use its best efforts to
maintain the listing of the Common Stock on the Nasdaq National Market or the
Nasdaq SmallCap Market for a minimum of five (5) years following the Closing
Date (or, if earlier, until such time as the Common Stock is listed on the New
York Stock Exchange).
34
4.16 Indemnification of Investors. The Company will indemnify and hold
each Investor and its directors, managers, officers, shareholders, members,
partners, employees and agents (each, an "INVESTOR PARTY") harmless from any and
all losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys' fees and costs of investigation that any such Investor
Party may suffer or incur as a result of or relating to (a) any breach of any of
the representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents or (b) any action
instituted against an Investor, or any of them or their respective Affiliates,
by any stockholder of the Company who is not an Affiliate of such Investor, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon (i) a breach of such Investor's
representation, warranties or covenants under the Transaction Documents, (ii)
any agreements or understandings such Investor may have with any such
stockholder, (iii) any violations by such Investor of state or federal
securities laws or (iv) any conduct by such Investor which constitutes fraud,
gross negligence, willful misconduct or malfeasance). If any action shall be
brought against any Investor Party in respect of which indemnity may be sought
pursuant to this Agreement, such Investor Party shall promptly notify the
Company in writing, and the Company shall have the right to assume the defense
thereof with counsel of its own choosing that is reasonably acceptable to such
Investor Party (and Blank Rome LLP shall be deemed to be reasonably acceptable
to such Investor Party). Any Investor Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Investor
Party except that the Company shall pay the reasonable fees and expenses of such
counsel to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and
the position of such Investor Party or a conflict of interest that would, under
applicable attorney codes of ethics, require the retention of separate counsel
for the Company and such Investor Party. The Company will not be liable to any
Investor Party under this Agreement (i) for any settlement by an Investor Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to such Investor Party's
fraud, gross negligence, willful misconduct or malfeasance or to such Investor
Party's breach of any of the representations, warranties, covenants or
agreements made by such Investor in this Agreement or in the other Transaction
Documents.
35
4.17 No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the sale of the Securities being offered or sold
hereunder under the Securities Act or cause this offering of the Securities to
be integrated with any other offering of securities by the Company for purposes
of any stockholder approval provision applicable to the Company or its
securities.
4.18 Board of Directors. The Company and the Board of Directors shall take
all action necessary (including, without limitation, promptly appointing
replacement directors, in accordance with the Articles of Incorporation and
Bylaws of the Company, to fill vacancies created by the resignation of an
directors) to cause the composition of the Board of Directors to comply (or to
continue to comply, as the case may be) with all Governmental Requirements and
with the listing criteria of the Principal Market.
5. CONDITIONS TO CLOSING.
5.1 Conditions to Investors' Obligations at the Closing. Each Investor's
obligations to effect the Closing, including without limitation its obligation
to purchase Preferred Shares, Warrants and a Preferred Warrant at the Closing,
are conditioned upon the fulfillment (or waiver by such Investor in its sole and
absolute discretion) of each of the following events as of the Closing Date, and
the Company shall use commercially reasonable efforts to cause each of such
conditions to be satisfied:
5.1.1 the representations and warranties of the Company set
forth in this Agreement and in the other Transaction
Documents that are not qualified by materiality or
"Material Adverse Effect" shall be true and correct in
all material respects, and the representations and
warranties of the Company set forth in this Agreement
and in the other Transaction Documents that are
qualified by materiality or "Material Adverse Effect"
shall be true in all respects, in each case, as of such
date as if made on such date (except that to the extent
that any such representation or warranty relates to a
particular date, in which case such representation or
warranty shall be true and correct in all material
respects as of that particular date);
5.1.2 the Company shall have complied with or performed in all
material respects all of the agreements, obligations and
conditions set forth in the Articles of Amendment, this
Agreement and the other Transaction Documents that are
required to be complied with or performed by the Company
on or before such date;
5.1.3 the Company shall have filed the Articles of Amendment
with the Secretary of State of the State of Florida, and
shall have delivered to such Investor written evidence
of the acceptance of such filing;
5.1.4 the Closing Date shall occur on the Execution Date
unless a later date is mutually agreed by the Company
and such Investor;
36
5.1.5 the Company shall have delivered to such Investor a
certificate, signed by the Chief Executive Officer and
Chief Financial Officer of the Company, certifying that
the conditions specified in this paragraph 5.1 have been
fulfilled as of the Closing Date, it being understood
that such Investor may rely on such certificate as
though it were a representation and warranty of the
Company made herein;
5.1.6 the Company shall have delivered to such Investor a
certificate, signed by the Secretary or an Assistant
Secretary of the Company, (A) attaching (i) the Articles
of Incorporation and By-Laws of the Company, (ii)
resolutions passed by its Board of Directors to
authorize the transactions contemplated hereby and by
the other Transaction Documents, and (iii) the written
consent of stockholders of the Company holding shares of
the Company's capital stock representing a majority of
the voting power of the Company's outstanding capital
stock (the "MAJORITY STOCKHOLDER CONSENT") approving (x)
the issuance of Common Stock in excess of the Cap Amount
in connection with the transactions contemplated by this
Agreement, the Articles of Amendment and the other
Transaction Documents, (y) an increase in the number of
shares of the Company's authorized Common Stock from
150,000,000 to 300,000,000 and (z) solely for purposes
of applicable Nasdaq regulations and listing
requirements, a change of control of the Company; and
(B) certifying that such documents are true and complete
copies of the originals and that such resolutions have
not been amended or superseded, it being understood that
such Investor may rely on such certificate as though it
were a representation and warranty of the Company made
herein;
5.1.7 the Company shall have delivered to such Investor an
opinion of counsel for the Company, dated as of the
Closing Date, in the form attached hereto as Exhibit H;
5.1.8 the Company shall have delivered to such Investor the
duly executed Investor Warrant and Preferred Warrant,
and certificates representing the Preferred Shares,
being purchased by such Investor at the Closing;
5.1.9 the Company shall have delivered to Satellite the duly
executed Satellite Consulting Warrant;
5.1.10 the Company shall have executed and delivered to such
Investor the Registration Rights Agreement and the
Company shall have executed and delivered to Goldman the
Goldman Registration Rights Agreement;
37
5.1.11 the principal amount of the convertible subordinated
notes issued by the Company and shares of the Company's
Series A Preferred Stock, each as described on Schedule
5.1.11 hereto, shall have been converted in accordance
with the terms thereof into shares of Common Stock;
5.1.12 an escrow agreement in the form attached hereto as
Exhibit I (the "STOCKHOLDER ESCROW AGREEMENT") shall
have been executed and delivered by the Company and the
other parties named therein, and the shares of the
Company's Series A Preferred Stock and Series C
Preferred Stock set forth on Schedule 5.1.12 hereto
shall have been placed in escrow pursuant to the
Stockholder Escrow Agreement, which Stockholder Escrow
Agreement shall provide (x) that such securities shall
remain in escrow until the earlier of (i) such time as
Stockholder Approval has been obtained and (ii) June 1,
2005, (y) for the Company to deposit with the escrow
agent under the Stockholder Escrow Agreement at the
Closing agreement the funds necessary to redeem such
securities, and (z) for such securities and funds to
remain in escrow pursuant to the Stockholder Escrow
Agreement until the earlier of (i) such time as
Stockholder Approval has been obtained, after which such
securities shall be redeemed by the Company, and (ii)
June 1, 2005;
5.1.13 each of the record holders of the securities described
on Schedules 5.1.11 and 5.1.12 hereto (the "CONTROLLING
STOCKHOLDERS") shall have delivered to the Company, and
the Company shall have executed and delivered to each
Controlling Stockholder, an agreement, in the form
attached hereto as Exhibit J, (the "VOTING AGREEMENT"),
pursuant to which (i) each Controlling Stockholder
grants to the chairman and/or president of the Company
such Controlling Stockholder's irrevocable proxy to vote
all voting securities of the Company held by the
Controlling Stockholder with specific instructions (x)
not to vote such securities in favor of any action that
would be inconsistent with the transactions contemplated
by this Agreement and (y) to vote such securities in
favor of Stockholder Approval and in favor of any action
(other than any action described in the foregoing clause
(x)), including without limitation with respect to the
election of directors, recommended by the Board of
Directors; and (ii) each Controlling Stockholder agrees
not to exercise any voting rights (whether at a meeting
of stockholders or by written consent) with respect to
any voting securities of the Company held by such
Controlling Stockholder, other than any such voting
rights exercised pursuant to the proxy included in the
Voting Agreement;
38
5.1.14 the Company shall have obtained the written agreement of
each Key Employee to refrain from selling shares of
Common Stock prior to the Effective Date;
5.1.15 there shall have occurred no material adverse change in
the Company's consolidated business or financial
condition since the date of the Company's most recent
audited financial statements contained in the Disclosure
Documents;
5.1.16 the Common Stock shall be actively traded and quoted on
the Nasdaq National Market;
5.1.17 the Company shall have authorized and reserved for
issuance upon conversion of the Preferred Shares and
exercise of the Warrants a number of shares of Common
Stock equal to not less than the Reserved Amount;
5.1.18 there shall be no injunction, restraining order or
decree of any nature of any court or Government
Authority of competent jurisdiction that is in effect
that restrains or prohibits the consummation of the
transactions contemplated hereby or by the other
Transaction Documents;
5.1.19 each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and Huntington Corporation shall
have waived in writing such holder's right to include
such holder's shares of Common Stock (whether issuable
upon conversion of convertible preferred stock, upon
exercise of warrants, or otherwise) in the Registration
Statement or in the registration statement, if any,
filed pursuant to the Goldman Registration Rights
Agreement, or otherwise to participate in such
registration pursuant to the Registration Rights
Agreement or the Goldman Registration Rights Agreement
of the Conversion Shares and Warrant Shares, other than
as set forth in that certain Registration Rights
Agreement, dated as of the date hereof, among such
holders and the Company and attached hereto as Exhibit
K; and
5.1.20 each of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have executed and delivered to the
Company a letter agreement, in the form attached hereto
as Exhibit L, pursuant to which each such Person shall
agree, immediately upon the request of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or
any successor Chairman of the Board, to resign such
Person's position as a director of the Company.
5.2 Conditions to Company's Obligations at the Closing. The Company's
obligations to effect the Closing with each Investor are conditioned upon the
fulfillment (or waiver by the Company in its sole and absolute discretion) of
each of the following events as of the Closing Date:
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5.2.1 the representations and warranties of such Investor set
forth in this Agreement and in the other Transaction
Documents that are not qualified by materiality or
"Material Adverse Effect" shall be true and correct in
all material respects, and the representations and
warranties of such Investor set forth in this Agreement
and in the other Transaction Documents that are
qualified by materiality shall be true in all respects,
in each case, as of such date as if made on such date
(except that to the extent that any such representation
or warranty relates to a particular date, in which case
such representation or warranty shall be true and
correct in all material respects as of that particular
date);
5.2.2 such Investor shall have complied with or performed all
of the agreements, obligations and conditions set forth
in this Agreement and in the other Transaction Documents
that are required to be complied with or performed by
such Investor on or before the Closing Date;
5.2.3 there shall be no injunction, restraining order or
decree of any nature of any court or Government
Authority of competent jurisdiction that is in effect
that restrains or prohibits the consummation of the
transactions contemplated hereby or by the other
Transaction Documents;
5.2.4 such Investor shall have executed each Transaction
Document to which it is a party and shall have delivered
the same to the Company; and
5.2.5 such Investor shall have tendered to the Escrow Agent
the Purchase Price for the Preferred Shares, Investor
Warrant and Preferred Warrant being purchased by it at
the Closing in accordance with the terms of the Investor
Escrow Agreement and the Escrow Agent shall have been
authorized to release and deliver the Purchase Price,
less the Placement Agent Fee, to the Company in
accordance with the terms of the Investor Escrow
Agreement.
6. MISCELLANEOUS.
6.1 Survival; Severability. The representations, warranties,
covenants and indemnities made by the parties herein, in the Articles of
Amendment and in the other Transaction Documents shall survive the Closing
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided, that in such case the parties shall negotiate
in good faith to replace such provision with a new provision which is not
illegal, unenforceable or void, as long as such new provision does not
materially change the economic benefits of this Agreement to the parties.
40
6.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. Each Investor may assign its
rights and obligations hereunder, in connection with any private sale or
transfer of Preferred Shares or Warrants in accordance with the terms hereof, as
long as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement, in which case the term "INVESTOR" shall be deemed to refer to such
transferee as though such transferee were an original signatory hereto. The
Company may not assign its rights or obligations under this Agreement.
6.3 No Reliance. Each party acknowledges that (i) it has such
knowledge in business and financial matters as to be fully capable of evaluating
this Agreement, the other Transaction Documents, and the transactions
contemplated hereby and thereby, (ii) it is not relying on any advice or
representation of any other party in connection with entering into this
Agreement, the other Transaction Documents, or such transactions (other than the
representations made in this Agreement or the other Transaction Documents),
(iii) it has not received from any party any assurance or guarantee as to the
merits (whether legal, regulatory, tax, financial or otherwise) of entering into
this Agreement or the other Transaction Documents or the performance of its
obligations hereunder and thereunder, and (iv) it has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting advisors
to the extent that it has deemed necessary, and has entered into this Agreement
and the other Transaction Documents based on its own independent judgment and on
the advice of its advisors as it has deemed necessary, and not on any view
(whether written or oral) expressed by any party.
6.4 Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor hereunder are several and not joint with the
obligations of the other Investors hereunder, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor hereunder. Nothing contained herein, in the Articles of Amendment or in
any other Transaction Document, and no action taken by any Investor pursuant
hereto or thereto, shall be deemed to constitute any Investors as a partnership,
an association, a joint venture or any other kind of entity, or a "group" as
described in Section 13(d) of the Exchange Act, or create a presumption that any
Investors are in any way acting in concert with respect to such obligations or
the transactions contemplated by this Agreement. Each Investor has been
represented by its own separate counsel in connection with the transactions
contemplated hereby, shall be entitled individually to protect and enforce its
rights, including without limitation rights arising out of this Agreement, the
Articles of Amendment or the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose.
6.5 Other Engagements and Activities. Notwithstanding anything in
any of the Transaction Documents to the contrary, no Affiliate of an Investor
shall be restricted in any way from engaging in any brokerage, investment
advisory, financial advisory, anti-raid advisory, financing, asset management,
trading, market making, arbitrage or other similar activities conducted in the
ordinary course of business.
41
6.6 Injunctive Relief. The Company acknowledges and agrees that a
breach by it of its obligations hereunder will cause irreparable harm to each
Investor and that the remedy or remedies at law for any such breach will be
inadequate and agrees, in the event of any such breach, in addition to all other
available remedies, such Investor shall be entitled to an injunction restraining
any breach and requiring immediate and specific performance of such obligations
without the necessity of showing economic loss.
6.7 Governing Law; Jurisdiction. This Agreement shall be governed by
and construed under the laws of the State of New York applicable to contracts
made and to be performed entirely within the State of New York. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting in the City and County of New York for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby (including without limitation any dispute under or with
respect to the Articles of Amendment, the Preferred Shares, the Warrants or the
Preferred Warrants), and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding involving the Investor or permitted assignee of
the Investor, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.
6.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument. This Agreement may be
executed and delivered by facsimile transmission.
6.9 Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
6.10 Notices. Any notice, demand or request required or permitted to
be given by the Company or an Investor pursuant to the terms of this Agreement
shall be in writing and shall be deemed delivered (i) when delivered personally
or by verifiable facsimile transmission, unless such delivery is made on a day
that is not a Business Day, in which case such delivery will be deemed to be
made on the next succeeding Business Day, (ii) on the next Business Day after
timely delivery to an overnight courier and (iii) on the Business Day actually
received if deposited in the U.S. mail (certified or registered mail, return
receipt requested, postage prepaid), addressed as follows:
42
If to the Company:
MediaBay, Inc.
▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer and
Chief Financial Officer
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Blank Rome LLP
The Chrysler Building
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and if to any Investor, to such address for such Investor as shall appear on the
signature page hereof executed by such Investor, or as shall be designated by
such Investor in writing to the Company in accordance with this Section 6.10.
6.11 Expenses. The Company and each Investor shall pay all costs and
expenses that it incurs in connection with the negotiation, execution, delivery
and performance of this Agreement or the other Transaction Documents, provided,
however, that that the Company shall, at the Closing, pay up to $55,000 in
immediately available funds for all reasonable out-of-pocket expenses (including
without limitation reasonable legal fees and expenses) incurred or to be
incurred by Satellite in connection with its due diligence investigation of the
Company and the negotiation, preparation, execution, delivery and performance of
this Agreement, the Articles of Amendment and the other Transaction Documents
(regardless of whether the Closing occurs). At the Closing, the amount due for
such fees and expenses (which may include fees and expenses estimated to be
incurred for completion of the transaction and post-closing matters) may be
netted out of the Purchase Price payable by Satellite. In the event the amount
paid by the Company for such fees and expenses is less than the amount of fees
and expenses actually incurred by Satellite, the Company shall promptly pay such
deficiency (up to $55,000 in the aggregate, including any amounts paid at
Closing) within thirty (30) days following receipt of an invoice therefor.
43
6.12 Entire Agreement; Amendments. This Agreement, the Articles of
Amendment and the other Transaction Documents constitute the entire agreement
between the parties with regard to the subject matter hereof and thereof,
superseding all prior agreements or understandings, whether written or oral,
between or among the parties, other than any Non-Disclosure Agreement, each of
which shall survive the Closing and continue in full force and effect in
accordance with the terms thereof. Except as expressly provided herein, neither
this Agreement nor any term hereof may be amended except pursuant to a written
instrument executed by the Company and the holders of at least two-thirds (2/3)
of the Registrable Securities into which all of the Preferred Shares and
Warrants then outstanding are convertible or exercisable (without regard to any
limitation on such conversion or exercise), and no provision hereof may be
waived other than by a written instrument signed by the party against whom
enforcement of any such waiver is sought. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Neither the Company nor any Person acting on its behalf shall, directly
or indirectly, pay or cause to be paid any consideration (immediate or
contingent), whether by way of interest, fee, payment for the redemption,
conversion or exercise of the Securities, or otherwise, to an Investor for or as
an inducement to, or in connection with the solicitation of, any amendment of
any of the terms of this Agreement, the Articles of Amendment or any of the
other Transaction Documents, unless such consideration is required to be paid to
all of the Investors bound by such amendment.
[Signature Pages to Follow]
44
IN WITNESS WHEREOF, the undersigned have executed this Securities Purchase
Agreement as of the date first-above written.
MEDIABAY, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive Officer
SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC
By: Satellite Asset Management, L.P., its Manager
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: General Counsel
ADDRESS:
c/o Satellite Advisors, L.L.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ & Stachenfeld LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Number of Preferred Shares to be Purchased: 4,316
-----
Number of Warrant Shares initially
issuable upon exercise of Investor Warrant: 3,923,636
---------
IN WITNESS WHEREOF, the undersigned have executed this Securities Purchase
Agreement as of the date first-above written.
MEDIABAY, INC.
By:
--------------------------------------------
Name:
Title:
SATELLITE STRATEGIC FINANCE PARTNERS, LTD
By: Satellite Asset Management, L.P., its Manager
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: General Counsel
ADDRESS:
c/o Satellite Advisors, L.L.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ & Stachenfeld LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Number of Preferred Shares to be Purchased: 10,684
------
Number of Warrant Shares initially
issuable upon exercise of Investor Warrant: 9,712,727
---------
IN WITNESS WHEREOF, the undersigned have executed this Securities Purchase
Agreement as of the date first-above written.
MEDIABAY, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive Officer
-------------------------------------------
Investor Name
By:
-----------------------------------
Name:
Title:
ADDRESS:
___________________________
___________________________
Attn: ____________________
Tel: __________________
Fax: __________________
With a copy to:
___________________________
___________________________
Attn: ____________________
Tel: __________________
Fax: __________________
Number of Preferred Shares to be Purchased: _______________
Number of Warrant Shares initially
issuable upon exercise of Investor Warrant: _______________
IN WITNESS WHEREOF, the undersigned have executed this Securities Purchase
Agreement as of the date first-above written.
MEDIABAY, INC.
By: __________________________
Name:
Title:
LONE OAK PARTNERS, L.P.
By: Forest Hill Capital, its Manager
By: /s/ ▇▇▇▇ ▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇
Title: President
ADDRESS:
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇.▇. ▇▇▇▇▇▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
___________________________
___________________________
Attn: ____________________
Tel: __________________
Fax: __________________
Number of Preferred Shares to be Purchased: 305
---------
Number of Warrant Shares initially
issuable upon exercise of Investor Warrant: 277,273
---------
IN WITNESS WHEREOF, the undersigned have executed this Securities Purchase
Agreement as of the date first-above written.
MEDIABAY, INC.
By: __________________________
Name:
Title:
FOREST HILL SELECT OFFSHORE, LTD.
By: Forest Hill Capital, its Manager
By: /s/ ▇▇▇▇ ▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇
Title: President
ADDRESS:
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇.▇. ▇▇▇▇▇▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
___________________________
___________________________
Attn: ____________________
Tel: __________________
Fax: __________________
Number of Preferred Shares to be Purchased: 270
------
Number of Warrant Shares initially
issuable upon exercise of Investor Warrant: 245,455
---------
IN WITNESS WHEREOF, the undersigned have executed this Securities Purchase
Agreement as of the date first-above written.
MEDIABAY, INC.
By: __________________________
Name:
Title:
FOREST HILL SELECT FUND, L.P.
By: Forest Hill Capital, its Manager
By: /s/ ▇▇▇▇ ▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇
Title: President
ADDRESS:
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇.▇. ▇▇▇▇▇▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
___________________________
___________________________
Attn: ____________________
Tel: __________________
Fax: __________________
Number of Preferred Shares to be Purchased: 1,325
--------
Number of Warrant Shares initially
issuable upon exercise of Investor Warrant: 1,204,545
-----------
IN WITNESS WHEREOF, the undersigned have executed this Securities Purchase
Agreement as of the date first-above written.
MEDIABAY, INC.
By: __________________________
Name:
Title:
RADCLIFFE SPC, LTD. for and on behalf of the Class A Convertible Crossover
Segregated Portfolio*
*Tax ID# ▇▇-▇▇▇▇▇▇▇
By: RGC Management Company, LLC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
--------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Managing Director
ADDRESS:
c/o RG Capital Management, L.P.
▇ ▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇, LLP
One ▇▇▇▇▇ Square
▇▇▇▇ & ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Number of Preferred Shares to be Purchased: 4,000
-------
Number of Warrant Shares initially
issuable upon exercise of Investor Warrant: 3,636,364
-----------
IN WITNESS WHEREOF, the undersigned have executed this Securities Purchase
Agreement as of the date first-above written.
MEDIABAY, INC.
By: __________________________
Name:
Title:
▇▇▇▇▇▇▇, SACHS & CO.
By:
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Managing Director
ADDRESS:
▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn:
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ Raysman ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Number of Preferred Shares to be Purchased: 3,000
-------
Number of Warrant Shares initially
issuable upon exercise of Investor Warrant: 2,727,273
----------
IN WITNESS WHEREOF, the undersigned have executed this Securities Purchase
Agreement as of the date first-above written.
MEDIABAY, INC.
By: __________________________
Name:
Title:
PALISADES MASTER FUND, L.P.
By: Discovery Management Ltd.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: Authorized Signatory
ADDRESS:
▇.▇. ▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
___________________________
___________________________
Attn: ____________________
Tel: __________________
Fax: __________________
Number of Preferred Shares to be Purchased: 2,000
-------
Number of Warrant Shares initially
issuable upon exercise of Investor Warrant: 1,818,182
-----------
IN WITNESS WHEREOF, the undersigned have executed this Securities Purchase
Agreement as of the date first-above written.
MEDIABAY, INC.
By: __________________________
Name:
Title:
CCM MASTER QUALIFIED FUND, LTD.
By: ▇▇▇▇▇▇▇ Capital Management, LLC, its Manager
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President & Chief Investment Officer
ADDRESS:
CCM MASTER QUALIFIED FUND, LTD.
c/o Coghill Capital Management, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Number of Preferred Shares to be Purchased: 10,000
--------
Number of Warrant Shares initially
issuable upon exercise of Investor Warrant: 9,090,909
-----------
DISCLOSURE SCHEDULES
TO THAT CERTAIN
SECURITIES PURCHASE AGREEMENT
DATED MARCH 21, 2005
General Terms of Schedules:
1. Unless the context otherwise requires, any terms used herein but not defined
herein shall have the meanings ascribed thereto in the Securities Purchase
Agreement dated as of March 21, 2005 (the "Securities Purchase Agreement") by
and between MediaBay, Inc., a Florida corporation (the "Company") and each of
the entities whose names appear on the signature pages thereof (collectively,
the "Investors").
2. No disclosure of any matter contained herein shall create an implication that
such matter meets any standard of materiality. Matters reflected in the
following Schedules are not necessarily limited to matters required by the
Securities Purchase Agreement to be reflected in the Schedules. Such additional
matters are set forth for informational purposes only and do not necessarily
include other matters of a similar nature, nor shall the inclusion of any item
be construed as implying that any such item is "material" for any purpose.
3. Any fact or item which is clearly disclosed in any Schedule attached hereto
in such a way as to make its relevance or applicability to information called
for by another Schedule attached hereto reasonably apparent shall be deemed
disclosed in such other Schedule, to the same extent as if specific reference
thereto were made in such other Schedule.
4. Headings and introductory language have been inserted in the sections of the
Schedules for convenience of reference only and shall to no extent have the
effect of amending or changing the express description of the Sections as set
forth in the Securities Purchase Agreement.
SCHEDULE 3.4
Agreements Not Filed with the SEC
Attached hereto is a true and complete copy of that certain Employment Agreement
dated January 28, 2004 between the Company and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇.
SCHEDULE 3.5
Capitalization; Debt Schedule
CAPITALIZATION
Common Stock
There are 150,000,000 shares of the Company's Common Stock authorized and, as of
March 21, 2005, 24,969,278 shares of Common Stock issued and outstanding. Upon
Stockholder Approval, there will be 300,000,000 shares of Common Stock
authorized.
Preferred Stock
There are 5,000,000 shares of the Company's Preferred Stock authorized, of which
(i) 75,000 shares are designated as Series A Preferred Stock, (ii) 10,000 are
designated as Series B Preferred Stock, and (iii) 100,000 are designated as
Series C Preferred Stock.
There are (i) 25,000 shares of the Series A Preferred Stock issued and
outstanding, (ii) 200 shares of the Series B Preferred Stock issued and
outstanding, and (iii) 43,527 shares of the Series C Preferred Stock issued and
outstanding.
Stock Option Plan1
The Company's 1997 Stock Option Plan (the "1997 Plan") provides for the grant of
stock
options to purchase up to 2,000,000 shares. As of March 1, 2005, options to
purchase an aggregate of 1,977,000 shares of Common Stock have been granted
under the 1997 Plan.
A total of 2,500,000 shares of common stock have been reserved for issuance
pursuant to the 1999 Stock Option Plan (the "1999 Plan"). As of March 1, 2005,
options to purchase an aggregate of 2,379,843 shares of Common Stock have been
granted under the 1999 Plan.
The Company's 2000 Stock Incentive Plan (the "2000 Plan"), the 2001 Stock
Incentive Plan (the "2001 Plan") and the 2004 Stock Incentive Plan (the "2004
Plan") each provide for the grant of any or all of the following types of
awards: (1) stock options, which may be either incentive stock options or
non-qualified stock options, (2) restricted stock, (3) deferred stock and (4)
other stock-based awards.
A total of 3,500,000 shares of Common Stock have been reserved for issuance
pursuant to the 2000 Plan. As of March 1, 2005, options to purchase an aggregate
of 3,418,250 shares of Common Stock have been granted under the 2000 Plan..
A total of 3,500,000 shares of Common Stock have been reserved for issuance
pursuant to the 2001 Plan. As of March 1, 2005, options to purchase an aggregate
of 3,417,000 shares of Common Stock have been granted under the 2001 Plan.
------------------------
1 No additional options under these Plans granted since March 1, 2005.
A total of 7,500,000 shares of Common Stock have been reserved for issuance
pursuant to the 2004 Plan. As of March 1, 2005, options to purchase an aggregate
of 450,000 shares of Common Stock have been granted under the 2004 Plan.
Other Convertible or Exercisable Securities
As outlined in the table below, the Company has issued to ▇▇▇▇▇▇▇ (i) certain
convertible promissory notes (the "▇▇▇▇▇▇▇ Notes"), (ii) shares of the Company's
(A) Series A Convertible Preferred Stock and (B) Series C Convertible Preferred
Stock.2 In addition, as noted below, the Company has issued to Huntingdon
certain convertible promissory notes (the "Huntingdon Notes") and Series C
Convertible Preferred Stock.3
Accrued
Interest/
Dividends (as Accrual Rate of
Principal March 17, Interest/Dividends
Name Security Issue Date Amount 2005) Per Diem4
---- -------- ---------- ------ ----- ---------
▇▇▇▇▇▇▇ Convertible Notes 12/31/1998 $1,984,250 $1,326,149 $ 1,006.28
▇▇▇▇▇▇▇ Convertible Notes 12/31/2002 $ 500,000 $ 46,773 $ 136.11
Huntington Convertible Notes 04/30/2000 $ 800,000 $ 95,153 $ 533.66
Huntington Convertible Notes 04/30/2000 $2,500,000 $ 158,980 $ 296.70
▇▇▇▇▇▇▇ Series A Convertible 01/18/2002 $2,500,000 $ 184,375 $ 625.00
Preferred Stock
▇▇▇▇▇▇▇ Series C Convertible 05/25/2004 $1,181,419 $ 116,173 $ 393.81
Preferred Stock
2 Pursuant to that certain agreement by and between the Company, ▇▇▇▇▇▇▇ and
Huntingdon (the "▇▇▇▇▇▇▇/Huntingdon Agreement"), (i) ▇▇▇▇▇▇▇ will convert the
principal amount of the ▇▇▇▇▇▇▇ Notes and $1,068,400 of stated capital of his
Series A Preferred Stock into Common Stock, and (ii) the Company will redeem the
remaining $1,431,600 of stated capital of ▇▇▇▇▇▇▇'▇ Series A Preferred Stock and
$1,181,419 of stated capital of ▇▇▇▇▇▇▇'▇ Series C Preferred Stock. All accrued
and unpaid interest and dividends as of the Closing Date will be paid.
3 Pursuant to the ▇▇▇▇▇▇▇/Huntingdon Agreement (i) Huntingdon will convert the
Huntingdon Notes into Common Stock, (ii) the Company will redeem $3,171,278 of
stated capital of Huntingdon's Series C Preferred Stock, and (iii) the Company
will pay to Huntingdon all accrued but unpaid interest on notes issued to
Huntingdon which were previously canceled (which amounts to $11,913 as of March
17, 2005 and accruing at a rate of $2.53 per diem thereafter).
4 All accrued interest and dividends shall continue to accrue from March 17,
2005 until the Closing Date at these listed per diem rates. All accrued interest
and dividends shall continue to accrue from the Closing Date at these listed per
diem rates until paid, except that, pursuant to the terms of the
▇▇▇▇▇▇▇/Huntingdon Agreement, ▇▇▇▇▇▇▇ and Huntingdon, as applicable, have waived
their rights to all dividends accruing on the Remaining Series A Preferred Stock
and Series C Preferred Stock subsequent to the Closing Date.
Huntington Series C Convertible 05/25/2004 $3,171,278 $ 311,842 $ 1,057.09
Preferred Stock
20,000 shares of Series B Preferred Stock are convertible into 25,974 shares of
Common Stock at a conversion price of $0.77 per share.
As of March 1, 2005, the Company has issued outstanding warrants to purchase
15,809,598 shares of Common Stock.5 Below is a list detailing such warrants:
GRANT DATE GRANTED PRICE
▇▇▇▇▇▇▇ 05/25/2004 3,029,230 $0.53
Huntington 10/03/2002 250,000 $2.00
Huntington 10/10/2002 37,500 $2.00
Huntington 11/15/2002 140,000 $1.25
Huntington 05/25/2004 8,131,538 $0.53
11,588,268
Alpha Capital AG, 01/29/2004 294,118 $1.28
Bonanza Master Fund LTD 01/29/2004 588,236 $1.28
Bridges & Pipes 10/01/2003 25,000 $0.80
Bridges & Pipes 04/01/2004 25,000 $0.80
Bridges & Pipes 01/29/2004 201,765 $1.28
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, LP 01/29/2004 88,236 $1.28
▇▇▇▇▇ International Limited Inc 01/29/2004 147,059 $1.28
Forest Hill Select Fund, L.P. 12/14/2004 39,000 $1.42
Forest Hill Select Fund, L.P. 10/11/2004 311,000 $0.83*
Forest Hill Select Offshore Ltd. 12/14/2004 1,000 $1.42
Forest Hill Select Offshore Ltd. 10/11/2004 9,000 $0.83*
Gryphon Master Fund, LP 01/29/2004 294,118 $1.28
Lone Oak Partners, L.P. 12/14/2004 10,000 $1.42
Lone Oak Partners, L.P. 10/11/2004 80,000 $0.83*
RHP Master Fund, Ltd. 01/29/2004 176,471 $1.28
Rockwood, Inc. 01/29/2004 205,000 $1.28
Rockwood, Inc. 04/12/2004 500,884 $1.28
Sandor Capital Master Fund, LP 01/29/2004 150,000 $1.28
SRG Capital, LLC 01/29/2004 147,059 $1.28
Truk International Fund, LP 01/29/2004 88,236 $1.28
3,381,182
▇▇▇▇▇, ▇▇▇▇ 01/03/2003 50,000 $3.00
Blakely Jr., ▇▇▇▇▇▇ ▇. 01/29/2004 13,334 $1.28
Brunella Jacs LLC 10/01/2003 50,000 $0.80
Brunella Jacs LLC 04/01/2004 50,000 $0.80
▇▇▇▇▇, ▇▇▇▇▇▇▇ 10/01/2003 50,000 $0.80
▇▇▇▇▇, ▇▇▇▇▇▇▇ 04/01/2004 50,000 $0.80
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. 01/29/2004 13,333 $1.28
Gross Foundation, Inc. 01/29/2004 58,824 $1.28
▇▇▇▇, ▇▇▇▇▇▇ 10/01/2003 25,000 $0.80
▇▇▇▇, ▇▇▇▇▇▇ 04/01/2004 25,000 $0.80
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. 01/29/2004 58,824 $1.28
Investor relations int'l 11/17/2003 150,000 $0.94
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 10/01/2003 10,000 $0.80
5 No additional warrants have been issued since March 1, 2005.
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 04/01/2004 10,000 $0.80
▇▇▇▇▇, ▇▇▇▇ ▇. 01/29/2004 60,000 $1.28
▇▇▇▇▇, ▇▇▇▇▇▇ 02/18/2003 40,000 $1.50
MFW Associates 10/01/2003 25,000 $0.80
MFW Associates 04/01/2004 25,000 $0.80
▇▇▇▇▇▇▇▇ III, ▇▇▇▇▇ ▇. 01/29/2004 13,333 $1.28
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 10/01/2003 25,000 $0.80
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 04/01/2004 25,000 $0.80
▇▇▇▇▇▇, ▇▇▇▇▇ 10/01/2003 6,250 $0.80
▇▇▇▇▇▇, ▇▇▇▇▇ 04/01/2004 6,250 $0.80
840,148
TOTAL 15,809,598
* See "Material Debt Outstanding - Forest Hill Debt." 6
Shares Reserved for Issuance upon Conversion of the Preferred Stock and Exercise
of the Warrants
Investor Preferred Warrants Additional Additional
Shares Preferred Shares Warrants
Satellite Strategic 4,316 3,923,636 1,079 980,909
Finance
Associates, LLC
Satellite Strategic 10,664 9,712,727 2,671 2,428,182
Finance Partners,
Ltd.
CCM Master 10,000 9,090,909 2,500 2,272,727
Qualified Fund,
Ltd.
Radcliffe SPC, 4,000 3,636,364 1,000 909,091
Ltd. for and on
behalf of the Class
A Convertible
Crossover
Segregated
Portfolio
------------------------------
6 Pursuant to a certain Securities Purchase Agreement dated October 11, 2004, as
amended on December 14, 2004 and February 8, 2005 (the "October Securities
Purchase Agreement"), by and among the Company, Forest Hill Select Offshore
Ltd., Forest Hill Select Fund, L.P. and Lone Oak Partners L.P. (collectively,
the "Forest Hill Parties"), the Company agreed to issue to the Forest Hill
Parties warrants (the "Forest Hill Warrants") to purchase 400,000 shares of
Common Stock at an exercise price of $0.83 per share during the five (5)-year
period commencing on October 11, 2004.
Investor Preferred Warrants Additional Additional
Shares Preferred Shares Warrants
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co. 3,000 2,727,273 750 681,818
Palisades Master Fund, L.P. 2,000 1,818,182 500 454,546
Forest Hill Select Fund, 1,325 1,204,545 331 301,136
L.P.
Forest Hill Select 270 245,455 68 61,364
Offshore, Ltd.
Lone Oak Partners, L.P. 305 277,273 76 69,318
Other Outstanding Commitments by which the Company may be Required to Issue
Additional Shares
Pursuant to three separate agreements each dated April 28, 2004 (the "April 28th
Agreements") between the Company and each of ▇▇▇▇▇▇▇, Huntingdon and ▇. ▇▇▇▇▇▇▇
Irrevocable ABC Trust, respectively, each party may have the right (the "Warrant
Amendment Rights") to require the Company to hold a shareholder meeting in order
to amend certain warrants to provide for full ratchet anti-dilution protection
under certain conditions. Pursuant to the ▇▇▇▇▇▇▇/Huntingdon Agreement, ▇▇▇▇▇▇▇
and Huntingdon have waived and agreed to eliminate such Warrant Amendment Rights
including, but not limited to, with respect to the warrants sold pursuant to the
HH Securities Purchase Agreement (as defined in Schedule 3.12).
See footnote 8 for additional issuances that shall be issued to the Forest Hill
Parties.
The Effective Date Payment described under "Material Debt Outstanding - Forest
Hill Debt" may be paid in the form of Common Stock under certain conditions.
Pursuant to a marketing consulting agreement, the Company is obligated to issue
to Terra Nova Capital 100,000 options to be issued under the 2004 Plan and
expiring 5 years from the date such options are granted, exercisable at the
market price of the Company's Common Stock as of the grant date.
▇▇▇▇▇▇▇▇ Curhan Ford & Co. ("MCF") and ▇▇▇▇▇▇ Capital, LLC ("▇▇▇▇▇▇") will
receive warrants to purchase shares of Common Stock in connection with the
Capital Raising Transaction as described in Schedule 3.14.
MATERIAL DEBT OUTSTANDING
▇▇▇▇▇▇▇ and Huntingdon Notes
The outstanding principal and accrued interest on the ▇▇▇▇▇▇▇ Notes and
Huntingdon Notes (See this Schedule 3.5 and footnotes 2, 3 and 4), which are
being converted upon the Closing, and liens securing certain of such notes.
▇▇▇▇▇▇▇/Huntingdon Agreement
Pursuant to the ▇▇▇▇▇▇▇/Huntingdon Agreement, the Company is required to redeem
the remaining $1,431,600 of stated capital of ▇▇▇▇▇▇▇'▇ Series A Preferred
Stock, $1,181,419 of stated capital of ▇▇▇▇▇▇▇'▇ Series C Preferred Stock and
$3,171,278 of stated capital of Huntingdon's Series C Preferred Stock.
Pursuant to the ▇▇▇▇▇▇▇/Huntingdon Agreement, the Company is required to pay all
accrued but unpaid interest and dividends as outlined in the chart above (See
this Schedule 3.5 and footnotes 2, 3 and 4)
Zohar Senior Notes
The Company has issued and outstanding Senior Notes in the principal amount of
$9.5 million pursuant to that certain Credit Agreement dated April 28, 2004 by
and among the Company (the "Zohar Credit Agreement"), certain of subsidiaries of
the Company as guarantors, Zohar CDO 2003-1, Limited ("Zohar"), as lender, and
Zohar, as agent.7 In addition, ABC Investment Corp., ▇▇▇▇▇▇▇▇.▇▇▇, Inc. and
Video Yesteryear, Inc., each a subsidiary of the Company, executed a Guaranty
dated April 28, 2004 whereby each is a guarantor under the Credit Agreement.
Forest Hill Debt
Pursuant to a letter agreement dated February 8, 2005 (the "February Letter
Agreement"), if the last sale price of the Common Stock is below $0.75 on the
date on which a registration statement covering the securities purchased under
the October Securities Purchase Agreement is declared effective by the SEC (the
"Registration Effective Date"), the Company shall be obligated to make a payment
to the Forest Hill Parties in an aggregate amount equal to (A) $250,000 (pro
rata in proportion to the number of shares initially purchased by them pursuant
to the October Securities Purchase Agreement) less (B) the value of the 119,048
shares of its Common Stock issued to the Forest Hill Parties in January 2005 on
the Registration Effective Date based on the last sale price of the Common Stock
on the Registration Effective Date (the "Effective Date Payment").
Pursuant to February Letter Agreement, if, at any time prior to the Registration
Effective Date, the last sale price of the Common Stock is above $4.00 per share
(the "Target Price"), each of the Forest Hill Parties shall have the right (the
"Put Right"), exercisable in writing within five business days after the first
trading day on which the last sale price of the Common Stock is above the Target
Price, to require the Company to purchase 200,000 shares of Common Stock at a
price of $3.00 per share. The Company's maximum potential obligation under the
Put Right is $600,000.8
------------------------------
7 Simultaneous with the consummation of the Financing, the Company will repay
all principal and accrued but unpaid interest due pursuant to the Senior Notes
in the amount of $9,436,829.41 (including certain legal fees).
3. Premier Agreement
Pursuant to that certain agreement dated April 1, 2004 (the "Premier Agreement")
by and among the Company, Premier Electronic Laboratories, Inc. ("Premier"),
Edison Realty and Marketing, Inc. and Video Yesteryear, Inc., the Company agreed
to pay Premier $950,000 in cash, without interest, as follows: (i) $14,000
simultaneously with the execution and delivery of the Premier Agreement, (ii)
$7,000 per month in 34 equal consecutive monthly payments on the first day of
each calendar month commencing July 1, 2004 and concluding April 1, 2007, and
(iii) $19,389 per month in 36 consecutive monthly payments on the first day of
each calendar month commencing May 1, 2007 and concluding April 1, 2010.
Permitted Debt
The Company has and will continue to have outstanding payables and customer
credit balances which are or will become more than 90 days past due, but as to
which payment has not been requested. If payment is requested, any such payable
or customer credit balance as to which payment is requested shall no longer be
Permitted Debt if, within 20 Business Days of the request for payment, the
Company has not (i) paid such payable or customer credit balance in full, or
(ii) entered into an agreement with the payee requesting the settlement and/or
repayment of the payable or customer credit balance.
Other Debt
Immediately prior to Closing, in connection with the ▇▇▇▇▇▇▇ Notes, Huntingdon
Notes and the Senior Notes issued pursuant to the Zohar Credit Agreement, liens
(the "Liens") shall exist on substantially all of the Company's assets. All such
Notes shall be repaid in connection with the Financing and, upon the filing of
Form UCC-3's with the appropriate Secretary of State, the Liens may be removed.
------------------------------
8 The Company intends to enter into a letter agreement (the "Forest Hill
Agreement") with the Forest Hill Parties whereby the Forest Hill Parties agree
to return and have cancelled the Forest Hill Shares and Forest Hill Warrants
issued pursuant to the October Securities Purchase Agreement, and in
consideration thereof, the Company shall credit the Forest Hill Parties $900,000
(pro rata based on their initial investment), which shall be applied towards the
purchase of $900,000 of the Securities pursuant to the Securities Purchase
Agreement.
SCHEDULE 3.8.1
Changes to Financial Condition
The Company expects to report a loss of approximately $18.0 to $19.0 million in
the fourth quarter. This amount and the amounts below are preliminary and
subject to final audit by the Company's auditors and may vary significantly from
the final audited results. Included in this expected loss are the following
non-cash adjustments or write-offs relating to the Company's change in strategy
as follows (amounts are approximate):
(000)'s
-------
Deferred Tax Asset $14,753
Inventory Obsolescence ABC $ 870
Inventory Obsolescence RSI $ 560
Royalty Advances ABC $ 214
Deferred Member Acquisition Costs $ 846
In addition the Company will lose substantially all of its Net Operating Loss
Carryforwards as result of the Financing and related transactions.
In the first quarter of 2005, the Company will report an additional charge to
reflect the write-off of unamortized financing charges related to the repayment
of the Company's senior debt.
SCHEDULE 3.8.3
Pending Inquiries/Investigations
The Company receives inquiries from time to time from various taxing authorities
as to certain filings that may have been required or as to requests for payment
in a particular jurisdiction. None of these amounts are material either
individually or in the aggregate.
SCHEDULE 3.8.4
Litigation
None.
SCHEDULE 3.11
Intellectual Property
Intellectual Property Rights
Attached hereto is a list of all licenses and other agreements under which the
Company or any of its subsidiaries has been granted intellectual property.
The Company has an agreement with a publisher under which it made periodic
payments for a series of audiobook titles. The agreement provides for the
Company to make additional payments of approximately $700,000, some of which is
past due which amounts are in dispute. The Company does not believe that it can
profitably license the additional titles and is negotiating with the publisher
to revise, amend or cancel the agreement. The Company does not believe that
canceling the agreement would have a material adverse effect on its business,
however it does want to maintain a good relationship with the publisher.
Confidentiality Agreements
To the best of the Company's knowledge, all of the Company's employees (current
or former), independent contractors and/or consultants of the Company and its
Subsidiaries have executed agreements regarding confidentiality, proprietary
information and assignment of inventions and copyrights to the Company or its
Subsidiaries (as the case may be), except for independent contractors and/or
consultants of the Company that were not given access to material, confidential
information of the Company.
Employees as Parties to a Non-Competition Agreement
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
Non-Compliance
As of the Closing Date, certain royalty payments have not been made and there
have been no requests for royalty statements or payments in connection
therewith. The publishers and other rightsholders have not requested royalty
statements or payments. The amounts, all of which are accrued for and reflected
in the Company's financial statements.
SCHEDULE 3.12
Piggy-Back Registration Rights
The following Persons have the registration rights outlined below:
UNREGISTERED PLAN OPTIONS
Name Registration Rights Grant Date Granted
Financial Globe, Inc. None 10/04/2004 100,000*
Financial Globe, Inc. None 10/04/2004 100,000*
Financial Globe, Inc. None 10/04/2004 100,000*
▇▇▇▇▇▇▇▇▇▇ Public Relations, Piggyback 09/22/2004 100,000*
Inc.
UNREGISTERED NON-PLAN WARRANTS AND OPTIONS
Name Registration Rights Grant Date Granted
▇▇▇▇▇, ▇▇▇▇ None 01/03/03 50,000*
Bridges & Pipes, Piggyback 10/01/03 25,000*
Bridges & Pipes Piggyback 04/01/04 25,000*
Brunella Jacs LLC Piggyback 10/01/03 50,000*
Brunella Jacs LLC Piggyback 04/01/04 50,000*
▇▇▇▇▇, ▇▇▇▇▇▇▇ Piggyback 10/01/03 50,000*
▇▇▇▇▇, ▇▇▇▇▇▇▇ Piggyback 04/01/04 50,000*
Forest Hill Select Fund, L.P. Demand 10/11/04 311,000*
Forest Hill Select Fund, L.P. Demand 12/14/04 39,000*
Forest Hill Select Offshore Demand 10/11/04 9,000*
Ltd.
Forest Hill Select Offshore Demand 12/14/04 1,000*
Ltd.
▇▇▇▇, ▇▇▇▇▇▇ Piggyback 10/01/03 25,000*
▇▇▇▇, ▇▇▇▇▇▇ Piggyback 04/01/04 25,000*
▇▇▇▇▇▇▇ Demand 05/25/04 3,029,230
Huntington Demand 10/03/02 250,000
Huntington Demand 10/10/02 37,500
Huntington Demand 11/15/02 140,000
Huntington Demand 05/25/04 8,131,538
Investor Relations Int'l None 11/17/03 150,000*
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Piggyback 10/01/03 10,000*
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Piggyback 04/01/04 10,000*
▇▇▇▇▇, ▇▇▇▇▇▇ None 02/18/03 40,000*
Lone Oak Partners, L.P. Demand 10/11/04 80,000*
Lone Oak Partners, L.P. Demand 12/14/04 10,000*
MFW Associates Piggyback 10/01/03 25,000*
MFW Associates Piggyback 04/01/04 25,000*
Rockwood, Inc. Piggyback 04/12/04 500,884*
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ Piggyback 10/01/03 25,000*
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ Piggyback 04/01/04 25,000*
▇▇▇▇▇▇, ▇▇▇▇▇ Piggyback 10/01/03 6,250*
SERIES B PREFERRED STOCK
Name Registration Rights Grant Date Granted
▇▇▇▇ ▇▇▇▇ Piggyback 05/03 25,974*
UNREGISTERED STOCK
Name Registration Rights Grant Date Granted
Forest Hill Select Fund, L.P. Demand 10/13/2004 1,400,000**
Forest Hill Select Offshore Demand 10/13/2004 40,000**
Ltd.
Lone Oak Partners, L.P. Demand 10/13/2004 360,000**
Forest Hill Select Fund, L.P. Demand February-05 92,593*
Forest Hill Select Offshore Demand February-05 2,646*
Ltd.
Lone Oak Partners, L.P. Demand February-05 23,810*
Celebrity Newsletter (▇▇▇▇▇ Piggyback 11/1/2004 25,000*
King)
OTHER
Name Registration Rights Granted
▇▇▇▇▇▇▇▇ Curhan Ford & Co. Piggyback All the warrants issuable to MCF
and ▇▇▇▇▇▇ as set forth on
Schedule 3.14.*
▇▇▇▇▇▇ Capital, LLC Piggyback
* The Company intends to include the shares of Common Stock issuable upon
exercise of these options and warrants, as the case may be, in the Registration
Statement.
**See footnote 6 of Schedule 3.5.
The holders (and/or their assignees) of registrable securities covered by a
currently effective registration statement (to the extent such shares have not
been sold) have certain demand and/or "piggy-back" registration rights.
The Company has entered into a registration rights agreement dated the date
hereof with ▇▇▇▇▇▇▇ and Huntingdon in which the parties are granted "piggy-back"
registration rights and, with respect to the shares of Common Stock issuable to
▇▇▇▇▇▇▇ and Huntingdon upon conversion of the ▇▇▇▇▇▇▇ Notes and Series A
Preferred Stock, ▇▇▇▇▇▇▇ and Huntingdon are granted the same automatic
registration rights as the Investors under the Registration Rights Agreement and
will be included in the Registration Statement. In addition, if the SEC
determines that the offering of all or part of the shares reported for ▇▇▇▇▇▇▇
and Huntingdon does not meet the eligibility requirements for filing a
Registration Statement on Form S-3, the Company shall file a Registration
Statement on Form S-1 or S-2 covering such shares.
The Company has entered into another registration rights agreement dated the
date hereof with ▇▇▇▇▇▇▇ and Huntingdon in which the parties are granted
"piggy-back" registration rights and, with respect to the shares of Common Stock
issuable to ▇▇▇▇▇▇▇ and Huntingdon upon exercise of the warrants held by ▇▇▇▇▇▇▇
and Huntingdon as set forth under Schedule 3.5, ▇▇▇▇▇▇▇ and Huntingdon are
granted substantially the same automatic registration rights as the Investors
under the Registration Rights Agreement, except that the Company is not required
to file this registration statement (the "Second Registration Statement") until
30 days after the effective date of the Registration Statement.
The shares of Common Stock issuable upon conversion or exercise, as the case may
be, of the Preferred Stock and Warrants issued to the Forest Hill Parties under
the Securities Purchase Agreement shall be included in the Registration
Statement. The Forest Hill Parties have registration rights under an existing
agreement whereby the Company agreed to file a registration statement covering
the securities issued to the Forest Hill Parties to be effective by May 1, 2005.
In addition, see Schedule 3.5 regarding the Forest Hill Debt.
On the Closing Date, pursuant to a securities purchase agreement (the "HH
Securities Purchase Agreement"), ▇▇▇▇▇▇▇ and/or Huntingdon will sell to certain
purchasers (the "Purchasers") 9,090,909 shares of Common Stock (the "HH Shares")
at $.55 per share and shall transfer to such Purchasers certain warrants (the
"HH Warrants") for each HH Share purchased by such Purchasers (an aggregate of
4,545,455 warrants). The HH Shares and the shares of Common Stock issuable upon
exercise of the HH Warrants will be included in the Second Registration
Statement.
SCHEDULE 3.14
Fees
Pursuant to that certain letter agreement dated December 17, 2004, as amended on
March 21, 2005, and in consideration for certain financial advisory and capital
raising services (the "Capital Raising Transaction"), MCF is entitled to receive
the following compensation: (i) a cash payment in the amount equal to 7.5% of
the Purchase Price, (ii) warrants to purchase that number of shares of Common
Stock equal to (a) 7.5% of the Conversion Shares issuable upon conversion of the
Preferred Shares issued at the Closing (calculated as if such Preferred Shares
were converted on the Closing Date), and (b) 7.5% of the Warrant Shares issuable
upon exercise of the Investor Warrants issued at the Closing (calculated as if
such Investor Warrants were exercised on the Closing Date), and (iii) if, and to
the extent that, the Preferred Warrants are exercised, (A) a cash payment equal
to 7.5% of the exercise price of such Preferred Warrants (i.e., 7.5% of the
Stated Value of the Preferred Shares issuable upon exercise of the Preferred
Warrants) and (B) warrants to purchase that number shares of Common Stock equal
to (1) 7.5% of the Conversion Shares issuable upon conversion of the Preferred
Shares issued upon such exercise (calculated as if such additional Preferred
Shares were converted on the date they are issued) and (2) 7.5% of the shares of
Common Stock issuable upon exercise of the Additional Warrants issued upon such
exercise (calculated as if such Additional Warrants were exercised on the date
they are issued) (collectively, the "MCF Financing Fee"). MCF shall not be
entitled to any compensation in connection with any securities issued to the
Forest Hill Parties pursuant to the Forest Hill Agreement and Securities
Purchase Agreement.
In addition, MCF is entitled to a fee of $175,000 for its services in connection
with the sale, pursuant to the HH Securities Purchase Agreement, of common stock
and warrants to the Purchasers.
▇▇▇▇▇▇ is entitled to receive from MCF 10% of the MCF Financing Fee when payable
to MCF in accordance with the foregoing paragraph.
SCHEDULE 3.16
Key Employees
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇.
SCHEDULE 3.19
Pension Plans
The Company provides a self-directed 401K for employees who wish to participate.
The Company does not contribute any money to the plan.
SCHEDULE 3.21
Property
None.
SCHEDULE 3.23
Nasdaq Notices; Non-Compliance
Non-Compliance
The Company's Common Stock is currently below the minimum per share requirement
($1.00) for continued listing on the Nasdaq market. See "Nasdaq Notices" below.
The Company expects that upon filing its Form 10-K for the year ended December
31, 2004, it will report shareholders' equity below $10 million.
Nasdaq Notices
The Company received a letter dated March 8, 2005 from Nasdaq Stock Market, Inc.
that the Company is not in compliance with the minimum per share requirement
($1.00) for continued listing on the exchange under NASDAQ Marketplace Rules
4310(c)(4). The Company has 180 days to demonstrate compliance by having its
stock trade over $1.00 for a minimum of ten consecutive trading days. The
Company shall use commercially reasonable efforts to maintain its continued
listing on the exchange.
SCHEDULE 3.28
Transactions with Interested Persons
As of December 31, 2004, the Company owed to ▇▇▇▇▇▇▇ and his affiliates $314,910
for reimbursement of expenses and services. On April 28, 2004, in connection
with the agreements described below, the Company agreed to repay approximately
$639,000 as follows: (i) $40,500 per month on the first of each month from May
2004 through and including July 2005 and (ii) $31,410 on August 1, 2005.
The Company and The ▇▇▇▇▇▇▇ Company, Inc. share an umbrella insurance policy
(the "Insurance Policy") with a limit of $20 million of coverage. Pursuant to
the terms of the ▇▇▇▇▇▇▇/Huntingdon Agreement, on or before the expiration of
the Insurance Policy, the Company shall use commercially reasonable efforts to
enter into a new umbrella insurance policy whereby the Company shall be the sole
insured party.
The Company has issued to ▇▇▇▇▇▇▇ and Huntingdon notes, preferred stock and
warrants set forth on Schedule 3.5.
On November 15, 2002, the Company entered into an indemnification agreement with
▇▇▇▇▇▇▇ pursuant to which, the Company agreed to indemnify ▇▇▇▇▇▇▇ to the
maximum extent permitted by the corporate laws of the State of Florida or, if
more favorable, Articles of Incorporation and By-Laws in effect at the time the
agreement was executed, against all claims (as defined in the agreement) arising
from or out of or related to ▇▇▇▇▇▇▇'▇ services as an officer, director,
employee, consultant or agent of the Company or any subsidiary or in any other
capacity.
On November 15, 2002, the Company entered into an agreement with ▇▇▇▇▇▇▇
pursuant to which ▇▇▇▇▇▇▇ agreed to resign as Chairman upon the lenders under
the senior credit facility consent to such resignation or the Company's
repayment of the facility as to permit ▇▇▇▇ ▇▇▇▇ to become Chairman. As
consideration, ▇▇▇▇▇▇▇ was given the right to nominate up to four members of the
Board of Directors of the Company and the Company agreed not to increase the
number of directors to more than seven members without ▇▇▇▇▇▇▇'▇ consent.
On May 7, 2003, the Company sold 3,350 shares of a newly created Series B Stock
with a liquidation preference of $100 per share for $335,000. Of the total sold,
200 shares ($20,000) were purchased by ▇▇▇▇ ▇▇▇▇, Executive Vice President and
Chief Financial Officer of the Company. Under a subscription agreement, certain
"piggy-back" registration rights were granted.
On April 28, 2004, the Company entered into a new credit agreement. ▇▇▇▇▇▇▇,
Huntingdon and ▇. ▇▇▇▇▇▇▇ Irrevocable ABC Trust (the "Trust"), of which ▇▇▇▇▇▇▇
was the beneficiary, consented to the new credit agreement and the other
transactions described above and entered into a subordination agreement with
Zohar. The new credit agreement required the aggregate amount of principal and
interest owed by the Company to ▇▇▇▇▇▇▇, Huntingdon and the Trust be reduced to
$6,800,000 ("Permissible Debt") by June 1, 2004, and that the Permissible Debt
be further reduced by up to an additional $1,800,000 if the Company does not
raise at least $2,000,000 in additional equity in each of the two calendar years
following the execution of the new credit agreement.
Pursuant to an agreement dated April 28, 2004, on May 25, 2004, ▇▇▇▇▇▇▇
exchanged accrued and unpaid interest and dividends (including accrued and
unpaid interest distributed by the Trust to ▇▇▇▇▇▇▇) owed to ▇▇▇▇▇▇▇ aggregating
$1,181,419 into (i) 11,814 shares of Series C Convertible Preferred Stock with a
liquidation preference of $100 per share convertible into an aggregate of
1,514,615 shares of Common Stock at an effective conversion price of $0.78, and
(ii) warrants to purchase 3,029,230 shares of Common Stock. The warrants are
exercisable until April 28, 2014 at an exercise price of $0.53.
Pursuant to an agreement dated April 28, 2004, on May 25, ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
exchanged the principal of the $500,000 principal amount note, $1,000,000
principal amount note, $150,000 principal amount note and $350,000 principal
amount note held by Huntingdon, plus accrued and unpaid interest owed to
Huntingdon aggregating $1,171,278 into (i) 31,713 shares of Series C Convertible
Preferred Stock convertible into an aggregate of 4,065,768 shares of Common
Stock at an effective conversion price of $0.78, and (ii) warrants to purchase
an aggregate of 8,131,538 shares of Common Stock. The warrants are exercisable
until April 28, 2014 at an exercise price of $0.53. If the amount of the
Permissible Debt is required to be reduced due to the Company's failure to raise
the requisite additional equity, such reduction will automatically occur by the
exchange of Permissible Debt held by Huntingdon for additional shares of Series
C Convertible Preferred Stock in an aggregate liquidation preference equal to
the amount of debt exchanged and warrants to purchase a number of shares of
Common Stock equal to two times the number of shares of Common Stock issuable
upon conversion of the Series C Convertible Preferred Stock.
▇▇▇▇▇▇▇ and Huntingdon agreed not to demand repayment of their debt until the
earlier of (i) the repayment of the New Credit Agreement or (ii) June 28, 2007.
The remaining promissory notes held by ▇▇▇▇▇▇▇, Huntingdon and the Trust are
guaranteed by certain subsidiaries of the Company and secured by a lien on the
assets of the Company and certain subsidiaries of the Company.
In connection with an agreement to terminate and a consulting termination
agreement, the non-competition and nondisclosure covenants of the XNH Consulting
Services, Inc. consulting agreement were extended until December 31, 2006.
See the ▇▇▇▇▇▇▇/Huntingdon Agreement and the exhibits thereto described in
footnotes 2 and 3.
The Company, ▇▇▇▇▇▇▇ and Huntingdon shall enter into a voting agreement whereby
each shall authorize the chairman and/or president of the Company to vote their
voting securities pursuant to the terms set forth in Section 5.1.13 of the Asset
Purchase Agreement.
The Company has entered into a registration rights agreement dated the date
hereof with ▇▇▇▇▇▇▇ and Huntingdon in which the parties are granted "piggy-back"
registration rights and, with respect to the shares of Common Stock issuable to
▇▇▇▇▇▇▇ and Huntingdon upon conversion of the ▇▇▇▇▇▇▇ Notes and Series A
Preferred Stock, ▇▇▇▇▇▇▇ and Huntingdon are granted the same automatic
registration rights as the Investors under the Registration Rights Agreement.
The Company has entered into another registration rights agreement dated the
date hereof with ▇▇▇▇▇▇▇ and Huntingdon in which the parties are granted
"piggy-back" registration rights and, with respect to the shares of Common Stock
issuable to ▇▇▇▇▇▇▇ and Huntingdon upon exercise of the warrants held by ▇▇▇▇▇▇▇
and Huntingdon as set forth under Schedule 3.5, ▇▇▇▇▇▇▇ and Huntingdon are
granted substantially the same automatic registration rights as the Investors
under the Registration Rights Agreement, except that the Company is required to
file the Second Registration Statement.
On the Closing Date, the Company shall become a party to the HH Securities
Purchase Agreement and shall deliver an acknowledgment letter to the Purchasers
whereby the Company shall acknowledge that the Purchasers are the new holders of
the HH Shares and HH Warrants and shall be entitled to all the registration
rights associated therewith.
See the October Securities Purchase Agreement, the February Letter Agreement and
Forest Hill Agreement set forth in Schedule 3.5.
SCHEDULE 3.29
Customers; Suppliers
Fulfillment Agreement with Bookspan expires April 2005 and the Company is
negotiating to extend such agreement to continue on a month-to-month basis. In
addition, the Company is exploring other options.
See Schedule 3.11 regarding non-compliance.
SCHEDULE 4.4
Use of Proceeds
The Company shall use proceeds to:
o Make payment under the Premier Agreement (See Schedule 3.5);
o Repay principal and accrued interest on the Senior Notes issued to Zohar
(See Schedule 3.5 and footnote 7);
o (i) Redeem (A) the balance of ▇▇▇▇▇▇▇'▇ Series A Preferred Stock, (B) all
of ▇▇▇▇▇▇▇'▇ Series C Preferred Stock, and (C) all of Huntingdon's Series
C Preferred Stock, (ii) pay all accrued but unpaid interest on certain
notes issued to Huntingdon which were previously canceled, (iii) pay all
accrued but unpaid interest on the ▇▇▇▇▇▇▇ Notes as of the Closing Date
immediately upon conversion, (iv) pay all accrued but unpaid interest on
the Huntingdon Notes as of the Closing Date immediately upon conversion,
and (v) pay all accrued but unpaid dividends on the Remaining Series A
Preferred Stock and the Series C Preferred Stock as of the Closing Date,
in cash to ▇▇▇▇▇▇▇ and Huntingdon, as applicable, on the Closing Date9
(See Schedule 3.5 and footnotes 2, 3 and 4);
o Pay MCF the MCF Financing Fee;
o Pay MCF a fee of $175,000 for its services in connection with the sale,
pursuant to the HH Securities Purchase Agreement, of common stock and
warrants to the Purchasers;
o Pay legal fees of Investors' counsel, ▇▇▇▇▇ & Stachenfeld LLP, up to
$55,000; and
o Pay the Company's legal fees and other expenses related to the Financing.
The Company will use the remaining funds for general working capital purposes.
-------------------------
9 Pursuant to the terms of the ▇▇▇▇▇▇▇/Huntingdon Agreement, ▇▇▇▇▇▇▇
and Huntingdon, as applicable, have waived their rights to all dividends
accruing on the Remaining Series A Preferred Stock and Series C Preferred Stock
subsequent to the Closing Date.
SCHEDULE 5.1.11
Convertible Subordinated Notes Being Converted
Principal Conversion Shares Issuable Upon
Holder Amount Issue Date Price Conversion
------ --------- ---------- ---------- --------------------
▇▇▇▇▇▇▇ $1,984,250 December 31, 1998 $ 0.56 3,543,303
▇▇▇▇▇▇▇ $ 500,000 December 31, 2002 $ 0.56 892,857
Huntingdon $ 800,000 April 30, 2000 $ 0.56 1,428,571
Huntingdon $2,500,000 April 30, 2000 $ 0.56 4,464,285
Convertible Series A Preferred Stock Being Converted
Holder Series Conversion Price Stated Capital
------ ------ ---------------- --------------
▇▇▇▇▇▇▇ A $0.56 $1,068,400
SCHEDULE 5.1.12
Series A and Series C Preferred Stock Being Redeemed
Conversion
Holder Series Price Stated Capital
------ ------ ---------- --------------
▇▇▇▇▇▇▇ A $0.56 $1,431,600
▇▇▇▇▇▇▇ C $0.78 $1,181,419
Huntingdon C $0.78 $3,171,278
EXHIBIT A
ARTICLES OF AMENDMENT
See Exhibit No. 3.1.
EXHIBIT B
FORM OF WARRANT
See Exhibit No. 10.2.
EXHIBIT C
FORM OF PREFERRED WARRANT
See Exhibit No. 10.3.
EXHIBIT D
FORM OF WARRANT TO SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC
See Exhibit No. 10.4.
EXHIBIT E-1
REGISTRATION RIGHTS AGREEMENT
See Exhibit No. 4.1.
EXHIBIT E-2
GOLDMAN REGISTRATION RIGHTS AGREEMENT
See Exhibit No. 4.2.
EXHIBIT F
INVESTOR ESCROW AGREEMENT
PRIVATE OFFERING ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of March 21, 2005 (this "ESCROW
AGREEMENT"), is entered into by and between MediaBay, Inc. (the "COMPANY") and
▇▇▇▇▇ Fargo Bank, National Association (the "ESCROW AGENT").
WHEREAS, the Company intends to issue and sell, and each of the entities
listed on Exhibit A hereto (each, an "INVESTOR" and collectively, the
"INVESTORS") intends to purchase, certain securities of the Company (the
"SECURITIES") pursuant to a Securities Purchase Agreement by and among the
Company and each of the Investors, a copy of which is attached hereto as Exhibit
B (the "SECURITIES PURCHASE AGREEMENT");
WHEREAS, it has been determined that, pending the Closing under (and as
defined in) the Securities Purchase Agreement, each Investor will deposit with
the Escrow Agent the amount, as set forth opposite such Investor's name on
Exhibit A hereto, to be paid by such Investor in respect of the Purchase Price
payable by such Investor under (and as defined in) the Securities Purchase
Agreement, such amount to be held and released in accordance with the terms of
this Escrow Agreement; and
WHEREAS, the Escrow Agent is willing to accept appointment as Escrow Agent
solely for the expressed duties, terms and conditions outlined herein.
NOW, THEREFORE, in consideration of the premises set forth above and other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. PROCEEDS TO BE HELD IN ESCROW. All such funds received from Investors
by the Escrow Agent ("INVESTOR FUNDS") shall be retained in a separate account
by the Escrow Agent (the "ESCROW ACCOUNT") and invested as stated herein. Each
Investor that deposits funds with the Escrow Agent in accordance herewith is
referred to herein as a "PURCHASER". The Investor Funds, together with all
earnings thereon, are referred to herein as the "ESCROW AMOUNT". All Investor
Funds so deposited shall remain the property of the respective Purchasers
depositing such Investor Funds and shall not be subject to any liens or charges
by the Company or the Escrow Agent, or judgments or creditors' claims against
the Company, unless and until such Investor Funds are released to the Company as
hereinafter provided. As and when the Escrow Agent receives Investor Funds, the
Escrow Agent shall notify the Company of the amount of Investors Funds received
and from whom such Investor Funds have been received.
2. INVESTOR INFORMATION. The amount to be deposited with the Escrow Agent
by each Investor, together with each such Investor's address and tax
identification number (if applicable), is set forth on Exhibit A hereto. The
Escrow Agent will not use the information provided to it by the Company and the
Investors for any purpose other than to fulfill its obligations as Escrow Agent.
The Company and the Escrow Agent will treat all Investor information as
confidential.
3. DISBURSEMENT OF FUNDS.
(a) If:
(x) Investors have deposited with the Escrow
Agent, in the aggregate, not less than
$35,000,000; and
(y) the Escrow Agent has received an
Authorization to Disburse Funds, in
substantially the form attached hereto as
Exhibit C (the "AUTHORIZATION"), executed
(which execution may be in separate
counterparts and may be transmitted by
facsimile) by (i) the Company and (ii) by
each Purchaser;
then, upon the satisfaction of such conditions, the Escrow Agent shall promptly
pay out and deliver the Escrow Amount in accordance with the instructions set
forth on the Authorization (the "ESCROW Release"). Upon the satisfaction of the
conditions set forth in clauses (x) and (y) above, (i) the Closing under the
Securities Purchase Agreement shall occur, (ii) each Purchaser shall, for
purposes of the Securities Purchase Agreement and for all other purposes, be
deemed to have delivered to the Company the Purchase Price payable by such
Purchaser under the Securities Purchase Agreement and (iii) the Company shall
forthwith (and in any event not later than the close of business on the Closing
Date) deliver to each Purchaser all certificates representing the Securities
purchased by such Purchaser under the Securities Purchase Agreement. For the
avoidance of doubt, no portion of the Escrow Amount shall be released pursuant
to this Section 3(a) unless and until the conditions set forth in clauses (x)
and (y) above have been satisfied.
(b) In the event that, for any reason whatsoever (and irrespective
of fault), the Escrow Release has not occurred on or prior to March 23, 2005
(the "TERMINATION DATE"), then, not later than the close of business on the next
following business day (which for purposes hereof shall mean a date on which the
Escrow Agent is open for business), the Escrow Agent shall release, pay over and
return to each Purchaser, by wire transfer in accordance with wire transfer
instructions provided in writing to the Escrow Agent by such Purchaser, without
charge or deduction, an amount equal to the sum of (i) the amount of the
Investor Funds previously delivered to the Escrow Agent hereunder plus (ii) the
amount of any interest or other amount earned on such amount (such release of
funds in accordance with this Section 3(b) being an "ESCROW TERMINATION").
4. DUTY AND LIABILITY OF THE ESCROW AGENT. The sole duty of the Escrow
Agent, other than as herein specified, shall be to receive the Escrow Amount and
hold them subject to release in accordance herewith, and the Escrow Agent shall
be under no duty to determine whether the Company or any Investor is complying
with requirements of the Securities Purchase Agreement or any other Transaction
Document (as defined in the Securities Purchase Agreement. The Escrow Agent may
conclusively rely upon and shall be protected in acting upon any statement,
certificate, notice, request, consent, order or other document believed by it to
be genuine and to have been signed or presented by the proper party or parties.
The Escrow Agent shall have no duty or liability to verify any such statement,
certificate, notice, request, consent, order or other document, and its sole
responsibility shall be to act only as expressly set forth in this Escrow
Agreement. The Escrow Agent shall be under no obligation to institute or defend
any action, suit or proceeding in connection with this Escrow Agreement unless
first indemnified to its satisfaction. The Escrow Agent may consult counsel of
its own choice in respect of any question arising under this Escrow Agreement
and the Escrow Agent shall not be liable for any action taken or omitted in good
faith upon advice of such counsel.
9
5. ESCROW AGENT'S FEE. The Escrow Agent shall be entitled to compensation
for its services as stated in the fee schedule attached hereto as Exhibit D,
which compensation shall be paid by the Company. The fee agreed upon for the
services rendered hereunder is intended as full compensation for the Escrow
Agent's services as contemplated by this Escrow Agreement; provided, however,
that in the event that the Escrow Agent renders any material service not
contemplated by this Escrow Agreement, or there is any assignment of interest in
the subject matter of this Escrow Agreement, or any material modification
hereof, or if any material controversy arises hereunder, or the Escrow Agent is
made a party to any litigation pertaining to this Escrow Agreement or the
subject matter hereof, then the Escrow Agent shall be reasonably compensated for
such extraordinary services and reimbursed for all costs and expenses, including
reasonable attorney's fees, occasioned by any delay, controversy, litigation or
event, and the same shall be recoverable solely from the Company.
6. INVESTMENT OF PROCEEDS. The Escrow Amount shall be credited by the
Escrow Agent and recorded in the Escrow Account. Such funds will be invested in
the ▇▇▇▇▇ Fargo Prime Investment Money Market Fund. Any interest received by the
Escrow Agent with respect to the Escrow Amount shall become part of the Escrow
Amount and shall be disbursed (i) in the event of the Escrow Release in
accordance with Section 3(a) hereof, to the Company, or (ii) in the event of an
Escrow Termination in accordance with Section 3(b) hereof, to the Purchasers,
pro rata in proportion to the amount of Investor Funds deposited with the Escrow
Agent by each Purchaser.
7. TAX MATTERS.
(a) The parties agree that, for tax reporting purposes, all interest
or other taxable income earned on the Escrow Amount in any tax year shall be
taxable to party or parties receiving such interest or other income in
accordance with Section 6 hereof. On or prior to the payment of any such
interest or other income, the parties to whom such interest or other income is
to be paid shall provide Escrow Agent with certified tax identification numbers
by furnishing appropriate IRS forms W-9 or W-8 and other forms and documents
that Escrow Agent may reasonably request. The parties hereto understand that, if
such tax reporting documentation is not so certified to Escrow Agent, Escrow
Agent may be required by the Internal Revenue Code of 1986, as amended, to
withhold a portion of any interest or other income earned on the Escrow Amount
pursuant to this Escrow Agreement.
10
(b) To the extent that Escrow Agent becomes liable for the payment
of any taxes in respect of income derived from the investment of Escrow Amount
held or payments made hereunder, Escrow Agent shall satisfy such liability to
the extent possible from the Escrow Amount. The Company agrees to indemnify and
hold Escrow Agent harmless from and against any taxes, additions for late
payment, interest, penalties and other expenses that may be assessed against
Escrow Agent on or with respect to any payment or other activities under this
Escrow Agreement unless any such tax, addition for late payment, interest,
penalties and other expenses shall arise out of or be caused by the actions of,
or failure to act, by Escrow Agent.
8. NOTICES. All notices, requests, demands, and other communications under
this Escrow Agreement, shall be in writing and shall be deemed to have been duly
given (a) on the date of service if served personally on the party to whom
notice is to be given, (b) on the day of transmission if sent by facsimile/email
transmission to the facsimile number/email address given below, and telephonic
confirmation of receipt is obtained promptly after completion of transmission,
or (c) on the day after delivery to Federal Express or similar overnight courier
or the Express Mail service maintained by the United States Postal Service, to
the parties as follows:
If to the Company:
MediaBay, Inc.
▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Chief Executive Officer
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Escrow Agent:
▇▇▇▇▇ Fargo Bank, National Association
Corporate Trust Services
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and if to any Purchaser, to such address for such Purchaser as appears on
Exhibit A hereto or as shall be designated by such Purchaser in writing to the
Escrow Agent. Any party may change its address for purposes of this paragraph by
giving the other party written notice of the new address in the manner set forth
above.
9. INDEMNIFICATION OF ESCROW AGENT. The Company hereby indemnifies and
holds harmless the Escrow Agent from and against, any and all loss, liability,
cost, damage and expense, including, without limitation, reasonable counsel
fees, which the Escrow Agent may suffer or incur by reason of any action, claim
or proceeding brought against the Escrow Agent arising out of or relating in any
way to this Escrow Agreement or any transaction to which this Escrow Agreement
relates unless such action, claim or proceeding is the result of the willful
misconduct or gross negligence of the Escrow Agent.
11
10. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Escrow
Agreement, no party hereto shall assign this Escrow Agreement or any rights or
obligations hereunder without the prior written consent of the other parties
hereto and any such attempted assignment without such prior written consent
shall be void and of no force and effect. This Escrow Agreement shall inure to
the benefit of and shall be binding upon the successors and permitted assigns of
the parties hereto.
11. THIRD PARTY BENEFICIARIES. Each Purchaser is an intended third party
beneficiary of this Escrow Agreement and of each of the provisions hereof, and
the parties hereto agree that each Purchaser may enforce this Escrow Agreement,
and each of the provisions hereof, to the same extent as if such Purchaser were
a party hereto.
12. GOVERNING LAW; JURISDICTION. This Escrow Agreement shall be construed,
performed, and enforced in accordance with, and governed by, the internal laws
of the State of New York, without giving effect to the principles of conflicts
of laws thereof that would result in the application of the laws of any other
jurisdiction.
13. SEVERABILITY. In the event that any part of this Escrow Agreement is
declared by any court or other judicial or administrative body to be null, void,
or unenforceable, said provision shall survive to the extent it is not so
declared, and all of the other provisions of this Escrow Agreement shall remain
in full force and effect.
14. AMENDMENTS; WAIVERS. This Escrow Agreement may be amended or modified,
and any of the terms, covenants, representations, warranties, or conditions
hereof may be waived, only by a written instrument executed by each of the
parties hereto and consented to by each Purchaser, or in the case of a waiver,
by the party or Purchaser waiving compliance. Any waiver by any party or
Purchaser of any condition, or of the breach of any provision, term, covenant,
representation, or warranty contained in this Escrow Agreement, in any one or
more instances, shall not be deemed to be nor construed as further or continuing
waiver of any such condition, or of the breach of any other provision, term,
covenant, representation, or warranty of this Escrow Agreement.
15. ENTIRE AGREEMENT. This Escrow Agreement contains the entire
understanding among the parties hereto with respect to the escrow contemplated
hereby and supersedes and replaces all prior and contemporaneous agreements and
understandings, oral or written, with regard to such escrow.
16. SECTION HEADINGS. The section headings in this Escrow Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Escrow Agreement.
17. COUNTERPARTS. This Escrow Agreement may be executed in counterparts,
and by facsimile transmission, and each counterpart shall be deemed an original,
but all of which counterparts together shall constitute the same instrument.
12
18. RESIGNATION. Escrow Agent may resign upon 30 days advance written
notice to the parties hereto. If a successor Escrow Agent is not appointed
within the 30-day period following such notice, Escrow Agent may petition any
court of competent jurisdiction to name a successor Escrow Agent or interplead
the Investor Amount with such court, whereupon Escrow Agent's duties hereunder
shall terminate.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement
to be executed as of the day and year first set forth above.
MEDIABAY, INC.
By: __________________________
Name:
Title:
▇▇▇▇▇ Fargo Bank, National Association, as Escrow Agent
By:
--------------------------------------------------
Its:
-------------------------------------------------
EXHIBIT A
4. List of Investors
Name & Address of Investor Tax Investor Funds
-------------------------- ---- ---------------
ID Amount
--- ------
Number
------
Satellite Strategic Finance $ 4,316,000.00
Associates, LLC
c/o Satellite Advisors, L.L.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Satellite Strategic Finance $10,684,000.00
Partners, Ltd.
c/o Satellite Advisors, L.L.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
CCM Master Qualified Fund, Ltd. $10,000,000.00
c/▇ ▇▇▇▇▇▇▇ Capital
Radcliffe SPC. Ltd. $ 4,000,000.00
c/o RG Capital Management, L.P.
▇ ▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇, Sachs & Co. $ 3,000,000.00
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Discovery Management Ltd. $ 2,000,000.00
c/o Palisades Master Fund, L.P.
Forest Hill Select Fund, L.P. $1,325,000.0010
Forest Hill Select Offshore, Ltd. $ 270,000.00*
Lone Oak Partners L.P. $ 305,000.00*
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇.▇. ▇▇▇▇▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
-------------------------------
10 Aggregate cash amount for Forest Hill Select Fund, L.P., Forest Hill Select
Offshore, Ltd. and Lone Oak Partners is $1,000,000.00; remaining $900,000.00
being invested by these entities being paid in non-cash consideration.
EXHIBIT G
FOREST HILL LETTER AGREEMENT
See Exhibit No. 10.10.
EXHIBIT H
FORM OF OPINION OF COUNSEL
March ___, 2005
To the Investors set forth
on the Signature Pages to the Securities
Purchase Agreement
(as defined below)
Re: MediaBay, Inc.
Ladies and Gentlemen:
We are securities counsel to MediaBay, Inc. (the "Company"), and are
rendering this opinion on behalf of the Company, in connection with the private
offering of (a) 35,900 shares ("Offering Shares") of Series D Convertible
Preferred Stock, no par value ("Series D Preferred Stock"), (b) 32,636,364
five-year common stock purchase warrants ("Offering Warrants") and (c) warrants
(the "Over-Allotment Warrants") exercisable for a limited time, to purchase (i)
up to 8,975 additional shares of Series D Preferred Stock ("Additional Shares"
and, together with the Offering Shares, the "Preferred Shares") and (ii)
8,159,091 additional warrants identical to the Offering Warrants ("Additional
Warrants" and, together with the Offering Warrants, the "Warrants"), pursuant to
the terms and subject to the conditions set forth in the Securities Purchase
Agreement dated the date hereof (the "Purchase Agreement") between the Company
and each of the investors signatory thereto (the "Investors"). All capitalized
terms used in this letter and not otherwise defined herein have the meanings
ascribed to them in the Purchase Agreement.
As a basis for rendering the opinion contained herein, we have examined
the Purchase Agreement, the Offering Warrants, the Registration Rights
Agreement, the Over-Allotment Warrants, the Escrow Agreement, the Proxy, and the
agreements of the Key Employees delivered pursuant to Section 5.1.4 of the
Purchase Agreement (the "Key Employee Lock-Up Agreement") (collectively, the
"Transaction Documents"). We have also examined originals, or copies, certified
or otherwise identified to our satisfaction, of (i) the Certificate of
Incorporation, as amended, of the Company (the "Certificate"); (ii) the By-Laws,
as amended, of the Company (the "By-Laws"); (iii) minutes of certain meetings
and/or unanimous consents of the Board of Directors of the Company; (iv) Consent
of the Majority Shareholders to Action taken in Lieu of a Meeting dated March
_____, 2005 (the "Stockholder Consent") and (v) Good Standing Certificate of the
Company for the State of Florida dated March ___, 2005, without having
undertaken any independent investigation to determine the existence or absence
of the factual conditions or circumstances set forth therein. In such
examination, we have assumed the authenticity of all documents submitted to us
as originals, the conformity with originals of all documents submitted to us as
certified copies or otherwise satisfactorily identified as true and correct
copies of originals and the correctness of all statements of fact contained
therein. With respect to such examination, we have also assumed (i) the due
organization, valid existence and good standing of each party (other than the
Company) to each of the instruments, documents and agreements referred to
herein; (ii) the full corporate and other power and authority of each party
(other than the Company with respect to the Transaction Documents) to execute
each of the instruments, documents and agreements referred to herein; (iii) the
legality, validity, enforceability and binding nature of the respective
obligations of each party (other than (i) the Company with respect to the
Transaction Documents and the Controlling Stockholders with respect to the
Stockholder Consent) to each of the instruments, documents and agreements
referred to herein; and (iv) the due authorization, execution and delivery of
each of the instruments, documents and agreements referred to herein by each
party thereto (other than the Company with respect to the Transaction
Documents). We have relied, to the extent we deemed proper, as to factual
matters, upon certificates of appropriate state and local officials and
executives of the Company, upon representations of representatives of the
Company and upon the factual matters set forth in or otherwise supporting or
underlying the representations, warranties, covenants and agreements of the
Company and Investors contained in the Transaction Documents. We have not
independently investigated or verified the facts represented in such agreements
or certificates, and do not opine as to the accuracy of any such facts.
Our opinions are limited solely to matters governed by the Securities Act
of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934,
as amended (the "Exchange Act") the laws of the State of New York and the
Florida Business Corporation Act. In addition, without limiting the generality
of the foregoing, no opinion is rendered herein with respect to (i) whether a
federal or state court within or outside of New York would give effect to any
New York law provision in the Transaction Documents; or (ii) the effect of
applicable laws and court decisions which may hereafter be enacted, promulgated
or made and which may limit or render unenforceable certain rights and remedies
under the Transaction Documents; or (iii) any provisions contained in the
Transaction Documents in which the parties agree to agree or cooperate, with
respect to any matter, at some time in the future.
Please be advised that with respect to statements made in the following
opinion that are modified by phrases such as "to our knowledge," "known to us,"
"we know of" or similar language, such phrases are intended to indicate that
during the course of our representation of the Company in connection with the
transactions contemplated by the Purchase Agreement, no information has come to
the attention of the attorneys of this firm who are currently providing
substantive attention to Company matters to give such attorneys actual knowledge
of factual conditions or circumstances that are contrary to the statements set
forth therein, but that we have not undertaken any independent investigation to
determine the existence or absence of such factual conditions or circumstances.
Without limited the generality of the foregoing, in connection with our opinions
below, we have not performed any litigation, lien, judgment, tax, UCC or similar
searches with respect to the Company. No inference as to our knowledge of the
existence or absence of any fact should be drawn from our representation of the
Company or the rendering of the opinion set forth below.
With respect to paragraph 2 below, we express no opinion as to (i)
limitations resulting from applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance or transfer and other laws or
equitable principles (whether applied in a proceeding at law or in equity)
relating to or affecting any rights, powers, preferences, remedies or interests
of creditors generally; (ii) the availability of equitable remedies, including,
without limitation, specific performance or injunctive relief; (iii) Federal and
state laws or public policies relating to the enforceability of the
indemnification, contribution and hold harmless provisions contained in the
Transaction Documents; (iv) the acceleration of any obligations or other
exercise of rights or remedies upon the occurrence of a technical or
non-material breach or violation or notwithstanding any course of conduct,
action or dealing on any Investor's part; (v) provisions which purport to
establish evidentiary standards or render ineffective any waiver or modification
not in writing; (vi) liability limitations with respect to third parties or
liquidated damages; (vii) provisions imposing penalties, forfeitures, legal
costs or late payment charges upon delinquency in payment or the occurrence of a
default; (viii) provisions allowing the institution of judicial or nonjudicial
proceedings or the exercise of any other rights, without notice to the person or
entity against whom enforcement is sought; (ix) provisions implying that a
person or entity may act in any manner that is not commercially reasonable where
absolute discretion is reserved; (x) provisions relating to payment of costs of
indemnity, court costs, attorneys' fees and expenses which may be chargeable or
recoverable in any judicial proceedings in excess of those which are actually
incurred and would be reasonable; (xi) provisions which may be limited by rules
or principles of equity or public policy affecting enforcement including
(without limitation) those pertaining to good faith, fair dealing, diligence,
reasonableness, unconscionability, impossibility of performance or other cure,
surety rights or defenses, waiver, laches, estoppel or judicial deference and
(xii) any provisions contained in the Transaction Documents in which the parties
agree to agree or cooperate, with respect to any matter, at some time in the
future.
As you are aware, the Company's Common Stock is listed on the Nasdaq
National Market System ("NMS"), and Rule 4350(i) of the Rules of the Nasdaq
Stock Market, Inc. ("Nasdaq") require, among other things, an issuer listed on
NMS to (i) obtain shareholder approval in connection with a transaction other
than a public offering involving the sale, issuance or potential issuance by the
issuer of common stock (or securities convertible into common stock) equal to
20% or more of the common stock or 20% or more of the voting power outstanding
before the issuance for less than the greater of book or market value of the
stock, and (ii) submit a notification form for listing of additional shares in
connection with a transaction involving the issuance or potential issuance of
10% or more of the voting power outstanding before the issuance at least 15 days
before such issuance. Upon conversion of the Preferred Shares and/or exercise of
the Warrants, the number of underlying shares underlying such Preferred Shares
and/or Warrants (i) exceeds the threshold for which Nasdaq requires shareholder
approval, (ii) exceeds the Company's authorized Common Stock, and (iii) solely
for purpose of applicable Nasdaq regulations and listing requirements, may
result in a change of control of the Company under Rule 4350(i)(1)(B) of the
Nasdaq Rules. While the Company has obtain shareholder approval with respect to
issuing shares of Common Stock in connection with the transactions contemplated
by the Transaction Documents and to increase authorized Common Stock from
150,000,000 to 300,000,000 (the "Shareholder Approval"), the Company may not
issue shares in excess of the Cap Amount or file the Articles of Amendment with
the Department of State of the State of Florida until it satisfies certain
information requirements to the shareholders of the Company not party to the
Shareholder Consent, under Section 607.0704 of the Florida Business Corporation
Act (the "Florida Act") and Regulation 14C of the Exchange Act. In addition, the
Company has not submitted a notification form for listing of additional shares
in connection with this transaction. After the Articles of Amendment are filed
with the Department of State of the State of Florida, the Company will be
authorized to issue up to 300,000,000 shares of Common Stock. Because the
Articles of Amendment and Warrants provide for certain anti-dilution protection
and the potential to reset the conversion price of the Preferred Series and
exercise price of the Warrants the Company may become obligated to issue a
number of shares of Common Stock in connection with the Transaction Documents in
excess of the difference between the 300,000,000 authorized shares and the
number of shares outstanding and reserved for issuance (the "Authorized
Amount"). Our opinion below is qualified in its entirety by, and subject to, the
foregoing.
The term "Material Agreements" means each document filed as an item 10
exhibits to the Company's Form 10-K for the year ended December 31, 2003 and
Form 10-Q for the quarters ended March 31, 2004, June 30, 2004 and September 30,
2004. No opinion is given as to whether the Material Agreements are the only
agreements material to the Company.
Based upon and subject to the foregoing, and subject to the further
qualifications set forth below, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Florida. The Company has the
requisite corporate power and authority necessary to own or hold its properties
and to conduct its business as described in the Company's Annual Report on Form
10-K for the year ended December 31, 2003 and Form 10-Q for the quarter ended
September 30, 2004.
2. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Transaction Documents and to
issue Series D Preferred Stock, (ii) the Warrants, (iii) the shares of Common
Stock issuable upon conversion of the Preferred Shares (the "Conversion Shares")
(other than the issuance of Common Stock in excess of the Authorized Amount) and
(iv) the shares of Common Stock issuable upon exercise of the Warrants (the
"Warrant Shares") (other than the issuance of Common Stock in excess of the
Authorized Amount). The Shareholder Approval constitutes a valid corporate
action by the Company's shareholders to approve the matters covered thereby
pursuant to Section 607.0704 of the Florida Act and for the Company to file the
Articles of Amendment with the Department of State of the State of Florida and
issue shares of Common Stock up to the Authorized Amount. The execution and
delivery of the Transaction Documents by the Company and the consummation by it
of the transactions contemplated thereby (other than the issuance of Common
Stock in excess of the Authorized Amount) have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. Each of the
Transaction Documents has been duly executed and delivered by the Company and
the certificates representing the Offering Shares, and the Additional Shares
upon their issuance, and Offering Warrants, and Additional Warrants upon their
issuance, have been, and will be in the case of the Additional Shares and
Additional Warrants, duly executed, issued and delivered by the Company. Each of
the Transaction Documents constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms.
3. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation of the Company of the transactions
contemplated thereby, including, without limitation, the issuance of the
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares, do
not (i) result in a violation of the Company's Articles of Incorporation
By-Laws; or (ii) result in a violation of any federal or state law, rule or
regulation as to which an attorney practicing in New York applying reasonable
diligence would recognize as applicable to the Company and the transactions
contemplated by the Agreements, except for such violations, conflicts or
defaults as would not, individually or in the aggregate, have a Material Adverse
Effect.
4. The authorized capital stock of the Company consists of an
aggregate of 150,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock, no par value. Upon the Shareholder Consent becoming effecting
in accordance with Regulation 14C of the Exchange Act and the filing by the
Company of Articles of Amendment to its Articles of Incorporation with the
Department of State of the State of Florida reflecting the increase in
authorized capital set forth in the Shareholder Consent, the authorized common
stock of the Company will be increased to 300,000,000 shares of Common Stock.
5. The Conversion Shares and Warrant Shares have been duly reserved
for issuance from the authorized but unissued Common Stock of the Company (other
than the issuance of shares of Common Stock in excess of the Authorized Amount).
When issued, the Conversion Shares and Warrant Shares will be validly issued,
fully paid and nonassessable, and free of any liens, encumbrances and preemptive
or similar rights contained in the company's Articles or By-Laws or, in any
Material Agreement to which the Company is party.
6. Assuming (i) the accuracy of the representations of the Company
and the Investors in the Transaction Documents, (ii) that the Company has
complied in all material respects with the requirements of Section 4(2) of the
Securities Act (and the provisions of Regulation D promulgated thereunder), and
(iii) that the Company is not disqualified under Rule 507 of the Securities Act
from using the exemption available under Rule 506 under the Securities Act, the
issuance and sale of the Preferred Shares and Warrants by the Company to the
Investors in accordance with the terms of the Purchase Agreement will be exempt
from the registration requirements of the Securities Act, subject to timely
filing of a Form D pursuant to Regulation D promulgated under the Securities
Act.
7. To our knowledge, except as set forth in the Schedules to the
Purchase Agreement, there is no demand, suit, action, claim, assessment,
proceeding or investigation, pending or threatened in writing, (i) which could
reasonably be expected to have a Material Adverse Effect on the Company, or (ii)
challenges or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with the transactions contemplated by the Purchase
Agreement.
Our opinion is limited to the matters expressly stated herein, and no
opinion is implied or may be inferred beyond the matters expressly stated
herein. This opinion is based upon the state of the law and factual situations
known to us as of the date of this opinion, and we assume no obligation to
update or supplement such opinion to reflect any facts or circumstances which
may hereafter come to our attention or any change in law which may hereafter
occur. We bring to your attention the fact that the opinions set forth in this
letter are expressions of professional judgment and not a guaranty of a result.
This opinion is being delivered to you pursuant to Section 5.1.7 of the
Purchase Agreement solely for your benefit and may not be used, circulated,
quoted, relied upon, or otherwise referred to in any manner by you for any other
purpose or by any other person for any purpose.
Very truly yours,
BLANK ROME LLP
EXHIBIT I
STOCKHOLDER ESCROW AGREEMENT
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of March 19, 2005, by and among MediaBay, Inc.,
a Florida corporation (the "COMPANY"), ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), Huntingdon
Corporation, a Delaware corporation ("HUNTINGDON") and Blank Rome LLP, as escrow
agent (the "ESCROW AGENT").
RECITALS
A. The Company, ▇▇▇▇▇▇▇ and Huntingdon are parties to that certain
Agreement dated as of March 19, 2005 (the "▇▇▇▇▇▇▇/HUNTINGDON AGREEMENT"),
pursuant to which the Company has agreed to (A) redeem from ▇▇▇▇▇▇▇ (i) 14,316
shares Series A Preferred Stock, no par value, for a redemption price of
$1,431,600 (the "SERIES A ESCROW FUNDS"), and (ii) 11,814 shares Series C
Preferred Stock, no par value, for a redemption price $1,181,400 (together with
the Series A Escrow Funds, the "▇▇▇▇▇▇▇ ESCROW FUNDS"), and (B) redeem from
Huntingdon 31,713 shares of Series C Preferred Stock, no par value, for a
redemption price of $3,171,300 (the "HUNTINGDON ESCROW FUNDS", and together with
▇▇▇▇▇▇▇ Escrow Funds, the "ESCROW FUNDS"). Capitalized terms used but not
otherwise defined herein shall have the meaning ascribed to them in the
▇▇▇▇▇▇▇/Huntingdon Agreement.
B. Pursuant to the ▇▇▇▇▇▇▇/Huntingdon Agreement, (i) the Company is
required to place into escrow the Escrow Funds, (ii) ▇▇▇▇▇▇▇ is required to
place into escrow the ▇▇▇▇▇▇▇ Stock Certificates, which certificates shall have
attached to them a stock power endorsed in blank for transfer, and (iii)
Huntingdon is required to place into escrow the Huntingdon Stock Certificates,
which certificates shall have attached to them a stock power endorsed in blank
for transfer, to be held in escrow by the Escrow Agent pursuant to Section 6 of
the ▇▇▇▇▇▇▇/Huntingdon Agreement and the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. Appointment. The Company, ▇▇▇▇▇▇▇ and Huntingdon do hereby appoint and
designate the Escrow Agent as escrow agent for the purposes set forth herein,
and the Escrow Agent does hereby accept such appointment subject to the terms
and conditions set forth herein.
2. Establishment of Escrow.
(a) Simultaneously with the execution and delivery hereof, (i) the
Company is depositing the Escrow Funds with the Escrow Agent, (ii) ▇▇▇▇▇▇▇ is
depositing the ▇▇▇▇▇▇▇ Stock Certificates, which certificates have attached to
them a stock power endorsed in blank for transfer, and (iii) Huntingdon is
depositing the Huntingdon Stock Certificates, which certificates have attached
to them a stock power endorsed in blank for transfer.
(b) The Escrow Agent is authorized and instructed to invest the
Escrow Funds in one or more interest-bearing accounts of the Escrow Agent's
choice in one or more banks or financial institutions of having a net worth of
at least $100,000,000 each, the terms of which accounts shall provide that
withdrawals may be made only by Escrow Agent. Interest earned on the Escrow
Funds (the "INTEREST") shall be payable to ▇▇▇▇▇▇▇ and Huntingdon, pro rata base
on the amount of Escrow Funds distributed to such party. All Interest or
earnings on the Escrow Funds will be chargeable to ▇▇▇▇▇▇▇ and Huntingdon, as
applicable, for tax purposes. Escrow Agent will not be responsible for any loss
incurred as a result of any deposits or investments made in accordance with this
Section 2(b).
3. Release from Escrow; Escrow Period. On the Redemption Date and without
any further action by the parties hereto, the Escrow Agent shall distribute (A)
the ▇▇▇▇▇▇▇ Escrow Funds and Interest thereon to ▇▇▇▇▇▇▇ and the ▇▇▇▇▇▇▇ Stock
Certificates to the Company, and (B) the Huntingdon Escrow Funds and Interest
thereon to Huntingdon and the Huntingdon Stock Certificates to the Company.
4. Duties and Responsibilities of the Escrow Agent.
(a) The duties and responsibilities of the Escrow Agent hereunder
shall be determined solely by the express provisions of this Escrow Agreement
and no other or further duties or responsibilities shall be implied. The Escrow
Agent shall be under no obligation to refer to any documents between or among
the parties related in any way to this Escrow Agreement.
(b) The Escrow Agent's only obligations hereunder, and the only acts
the Escrow Agent shall take hereunder, is to hold in escrow the Escrow Funds
(including Interest), the ▇▇▇▇▇▇▇ Stock Certificates and the Huntingdon Stock
Certificates (collectively, the "ESCROW ITEMS") and to release the Escrow Items
only in accordance with Section 3 of this Agreement. The Escrow Agent may rely
and shall be protected in acting upon the written instructions by the Company,
▇▇▇▇▇▇▇ and Huntingdon furnished to it hereunder and believed by it to be
genuine and to have been signed or presented by the proper party.
(c) The Escrow Agent shall not be liable for any action taken or
omitted by it in good faith unless a court of competent jurisdiction determines
that the Escrow Agent's willful misconduct was the cause of any loss to the
Company, ▇▇▇▇▇▇▇ or Huntingdon. The Escrow Agent may consult with counsel of its
own choice and, at its option, may act as its own counsel in connection
herewith.
5. Indemnification. The Company, ▇▇▇▇▇▇▇ and Huntingdon hereby agree to
jointly and severally indemnify the Escrow Agent for, and to hold it harmless
against, any loss, liability or expense, arising out of or in connection with
this Escrow Agreement and carrying out its duties hereunder, including, without
limitation, reasonable attorneys' fees and other costs and expenses of defending
itself against any claim of liability, except to the extent such loss, liability
or expense is the result of the Escrow Agent's willful misconduct; provided,
however, that the foregoing provisions of this Section 5 shall not affect the
rights and remedies of the Company, ▇▇▇▇▇▇▇ and Huntingdon as against each
other. Anything in this Escrow Agreement to the contrary notwithstanding, in no
event shall the Escrow Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including, but not limited to, lost
profits), even if the Escrow Agent has been advised of the likelihood of such
loss or damage and regardless of the form of action.
6. Notices. All notices and communications hereunder shall be in writing
and shall be sent by certified or registered mail, return receipt requested, air
courier, personal delivery or verified facsimile, as follows:
If to the Escrow Agent: Blank Rome LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company: MediaBay, Inc.
▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer and
Chief Financial Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to ▇▇▇▇▇▇▇: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Huntingdon: Huntingdon Corporation
▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any of the above may have furnished to the other
parties in writing by certified or registered mail, return receipt requested,
air courier, personal delivery, or verified facsimile, and any such notice or
communication given in the manner specified in this Section 6 shall be deemed to
have been duly given on the date received by the recipient party. In the event
that the Escrow Agent, in its sole discretion, shall determine that any
emergency exists, the Escrow Agent may use such other means of communications,
as the Escrow Agent deems advisable.
7. Amendment. The provisions of this Escrow Agreement may be waived,
altered, amended or supplemented, in whole or in part, only by a writing signed
by all of the parties to be charged with such waiver, alteration, amendment or
supplement.
8. Binding Agreement. This Escrow Agreement shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and assigns.
9. Counterparts. This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10. Conflict Waiver. The parties hereto acknowledge and agree that the
Escrow Agent currently represents and may continue to represent the Company,
▇▇▇▇▇▇▇ and Huntingdon. The parties hereto waive the right to raise any claim of
conflict or any claim of a similar nature in connection with such
representation.
11. Governing Law; Jurisdiction. This Escrow Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to its principles of conflicts of laws and any action brought hereunder
shall be brought exclusively in the Federal or state courts located in the State
of New York, County of New York. With respect to any action brought hereunder in
said courts, each party hereto (a) irrevocably waives any objection on the
grounds of venue, forum non-conveniens or any similar grounds and (b)
irrevocably consents to service of process in any manner permitted by applicable
law and consents to the jurisdiction of said courts.
- SIGNATURE PAGE FOLLOWS -
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the day and year first above written.
MediaBay, Inc.
By:
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
Huntingdon Corporation
By:
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Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
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▇▇▇▇▇▇ ▇▇▇▇▇▇▇
ESCROW AGENT:
BLANK ROME LLP
By:
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Partner
EXHIBIT J
VOTING AGREEMENT
See Exhibit No. 10.8.
EXHIBIT K
REGISTRATION RIGHTS AGREEMENT
See Exhibit Nos. 4.3 and 4.4.
EXHIBIT L
BOARD MEMBER LETTER AGREEMENT
See Exhibit No. 10.11.