EXHIBIT 10.2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of June 12,
2000, by and among eToys Inc., a Delaware corporation, with headquarters located
at 0000 Xxxxx Xxxx Xxxx., Xxxxx 000, Xxxxx Xxxxxx, Xxxxxxxxxx 00000 (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized the following new series of its preferred
stock, par value $0.0001 per share: the Company's Series D Convertible Preferred
Stock (the "PREFERRED STOCK"), which shall be convertible into shares of the
Company's common stock, par value $0.0001 per share (the "COMMON STOCK") (as
converted, the "CONVERSION SHARES"), in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of the Preferred
Stock, substantially in the form attached hereto as EXHIBIT A (the "CERTIFICATE
OF DESIGNATIONS");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, an aggregate of up to 10,000 shares of the Preferred Stock (the
"PREFERRED SHARES") in the respective amounts set forth opposite each Buyer's
name on the Schedule of Buyers and warrants, substantially in the form attached
hereto as EXHIBIT B (the "WARRANTS"), to acquire a number of shares of Common
Stock for each Preferred Share purchased equal to the result of (a) $3,000,
divided by (b) the arithmetic average of the Closing Bid Prices (as defined in
the Warrants) of the Common Stock for the ten (10) consecutive trading days
immediately preceding the Closing Date (as exercised, collectively, the "WARRANT
SHARES"); and
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. PURCHASE OF PREFERRED SHARES. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer and each Buyer severally agrees to purchase
from the Company the respective number of Preferred Shares set forth opposite
such Buyer's name on the Schedule of Buyers, along with the related Warrants
(the "CLOSING"). The purchase price (the "PURCHASE PRICE") of each Preferred
Share and the related Warrants at the Closing shall be an aggregate of $10,000,
plus $10.00 from each Buyer for the related Warrant. "BUSINESS DAYS" means any
day other than Saturday, Sunday or other day on which commercial banks in The
City of New York are authorized or required by law to remain closed.
b. THE CLOSING DATE. The date and time of the Closing (the
"CLOSING DATE") shall be 10:00 a.m. Central Time, within two (2) Business Days
following the date hereof, subject to the satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7 (or such later date as
is mutually agreed to by the Company and the Buyers). The Closing shall occur on
the Closing Date at the offices of Xxxxxx Xxxxxx Xxxxx, 000 Xxxx Xxxxxx Xxxxxx,
Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000-0000.
c. FORM OF PAYMENT. On the Closing Date, (A) each Buyer shall
pay the Purchase Price to the Company for the Preferred Shares and the related
Warrants to be issued and sold to such Buyer by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, less
any amount withheld for expenses pursuant to Section 4(h), and (B) the Company
shall deliver to each Buyer, stock certificates (in the denominations as such
Buyer shall request) (the "PREFERRED STOCK CERTIFICATES") representing such
number of the Preferred Shares which such Buyer is then purchasing hereunder
along with warrants representing the related Warrants, duly executed on behalf
of the Company and registered in the name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. INVESTMENT PURPOSE. Such Buyer (i) is acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares then issuable and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares issuable upon exercise thereof (the
Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "SECURITIES"), for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
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for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act. Such Buyer is not purchasing the
Securities with the intent of participating in the formulation of the basic
business decisions of the Company. As of the date hereof, such Buyer does not
own more than 9.99% of the Common Stock outstanding as the date hereof.
b. ACCREDITED INVESTOR STATUS. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c. RELIANCE ON EXEMPTIONS. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire the Securities.
d. INFORMATION. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(m) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
e. NO GOVERNMENTAL REVIEW. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. TRANSFER OR RESALE. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule thereto) ("RULE 144"); (ii) any sale of the
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Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 0000 Xxx) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register the Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. Notwithstanding the foregoing, the
Securities may be pledged in connection with a bona fide margin account or other
loan secured by the Securities. Such Buyer shall not transfer either the
Preferred Shares or the Warrants without the transferee representing to the
Company that such transferee is not purchasing such Preferred Shares or Warrants
with the intent of participating in the formulation of the basic business
decisions of the Company.
g. LEGENDS. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II)
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144 without
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any restriction as to the number of securities acquired as of a particular date
that can then be immediately sold.
h. AUTHORIZATION; ENFORCEMENT; VALIDITY. This Agreement and
the Registration Rights Agreement have been duly and validly authorized,
executed and delivered on behalf of such Buyer and are valid and binding
agreements of such Buyer enforceable against such Buyer in accordance with their
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. RESIDENCY. Such Buyer is a resident of that country
specified in its address on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that
as of the date hereof and as of the Closing Date:
a. ORGANIZATION AND QUALIFICATION. The Company and its
"SUBSIDIARIES" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns a majority of the capital stock or
holds a majority of the equity or similar interest) are duly organized and
validly existing in good standing under the laws of the jurisdiction in which
they are organized, and have the requisite power and authority to own their
properties and to carry on their business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE
EFFECT" means any material adverse effect on the business, properties, assets,
operations, results of operations, financial condition or prospects (in so far
as they may reasonably be foreseen) of the Company and its Subsidiaries, taken
as a whole, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below) or the
Certificate of Designations. The Company does not, directly or indirectly, own
the capital stock or hold an equity or similar interest in any entity, except as
set forth on SCHEDULE 3(a), which schedule along with all other schedules
required by this Agreement shall be provided to the Buyers separately on or
prior to the date hereof.
b. AUTHORIZATION; ENFORCEMENT; VALIDITY. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5), the Warrants
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "TRANSACTION DOCUMENTS"), and to issue the Securities in accordance with the
terms hereof and thereof. The
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execution and delivery of the Transaction Documents by the Company and the
execution and filing of the Certificate of Designations by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Preferred Shares and the
Warrants and the reservation for issuance and the issuance of the Conversion
Shares and the Warrant Shares issuable upon conversion or exercise thereof, have
been duly authorized by the Company's Board of Directors and no further consent
or authorization is presently required by the Company, its Board of Directors or
its stockholders (except to the extent that stockholder approval may be required
pursuant to the rules of the Nasdaq National Market for the issuance of a number
of Conversion Shares greater than 19.99% of the number of shares of Common Stock
outstanding immediately prior to the Initial Closing Date the "20% APPROVAL").
The Transaction Documents have been duly executed and delivered by the Company.
The Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies. The Certificate of Designations has been filed prior to the
Closing Date with the Secretary of State of the State of Delaware and will be in
full force and effect, enforceable against the Company in accordance with its
terms and shall not have been amended unless in compliance with its terms.
c. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 600,000,000 shares of Common Stock,
of which as of the date hereof 121,592,444 shares are issued and outstanding,
52,814,922 shares are reserved for issuance pursuant to the Company's stock
option and purchase plans, the Company's $150 million of 6.25% Convertible
Subordinated Notes due December 1, 2004 and two Xxxxx Xxxxx warrants and
30,576,827 shares are issuable and reserved for issuance pursuant to securities
(other than the Preferred Stock and the Warrants) exercisable or exchangeable
for, or convertible into, shares of Common Stock and (ii) 10,000,000 shares of
preferred stock, of which as of the date hereof, none are issued and
outstanding. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed in
SCHEDULE 3(c), (A) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
granted or created by the Company; (B) there are no outstanding debt securities
issued by the Company; (C) 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, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (D) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement); (E) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments,
6
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (F) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; and (G) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement. The Company has furnished to each Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), and the
Company's By-laws, as amended and as in effect on the date hereof (the
"BY-LAWS"), and unless otherwise available on the XXXXX system, the terms of all
securities convertible into or exercisable or exchangeable for Common Stock and
the material rights of the holders thereof in respect thereto.
d. ISSUANCE OF SECURITIES. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issuance thereof and (iii) entitled to the
rights and preferences set forth in the Certificate of Designations. At least
35,787,526 shares of Common Stock (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below) have been duly authorized
and reserved for issuance upon conversion of the Preferred Shares and upon
exercise of the Warrants. Upon conversion or exercise in accordance with the
Certificate of Designations or the Warrants, as the case may be, the Conversion
Shares and the Warrant Shares will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. The issuance by the Company of the Securities is exempt
from registration under the 1933 Act.
e. NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designations and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the reservation for issuance and issuance of the Conversion Shares
and the Warrant Shares) will not (i) result in a violation of the Certificate of
Incorporation or the By-laws; (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party; (iii) result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
Principal Market (as defined below)) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Neither the Company nor its Subsidiaries is
in violation of any term of its Certificate of Incorporation or its By-laws or
their organizational charter or by-laws, respectively. Except as disclosed in
SCHEDULE 3(e), neither the Company or any of its Subsidiaries is in violation of
any term of or in default under any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except where such
7
violations and defaults would not result, either individually or in the
aggregate, in a Material Adverse Effect. The business of the Company and its
Subsidiaries is not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
Except as specifically contemplated by this Agreement and as required under the
1933 Act and other than the 20% Approval and Blue Sky filings, the Company is
not currently required to obtain any consent, authorization or order of, or make
any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents or to perform its obligations under the Certificate of Designations in
accordance with the terms hereof or thereof. Except as disclosed in SCHEDULE
3(e), all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company is not in violation of the listing
requirements of the Principal Market, including, without limitation, the
requirements set forth in Rule 4310(c)(25)(H)(i) of The Nasdaq Stock Market's
Marketplace Rules and has no actual knowledge of any facts which would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future.
f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since May 20, 1999,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). A complete list of the Company's SEC Documents is set forth on
SCHEDULE 3(f). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents.
None of the SEC Documents, at the time they were filed with the SEC, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company 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 SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, 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 audit
adjustments). Neither the Company nor any of its Subsidiaries nor any of their
officers, directors, employees or agents have provided the
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Buyers with any material, nonpublic information. The Company meets the
requirements for use of Form S-3 for registration of the resale of Registrable
Securities (as defined in the Registration Rights Agreement).
g. ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE
3(g), since March 31, 2000, there has been no material adverse change and no
material adverse development in the business, properties, assets, operations,
results of operations, financial conditions, or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
Except as disclosed in SCHEDULE 3(g), since March 31, 2000, the Company has not
declared or paid any dividends, sold any assets, individually or in the
aggregate, in excess of $500,000 outside of the ordinary course of business or
had capital expenditures, individually or in the aggregate, in excess of
$19,000,000.
h. ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, except as expressly set forth in SCHEDULE 3(h). Except
as set forth in SCHEDULE 3(h), to the knowledge of the Company none of the
directors or officers of the Company have been involved in securities related
litigation during the past five years.
i. ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF PREFERRED
SHARES. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the Certificate of Designations and the transactions
contemplated hereby and thereby. The Company further acknowledges that each
Buyer is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
Certificate of Designations and the transactions contemplated hereby and thereby
and any advice given by any of the Buyers or any of their respective
representatives or agents in connection with the Transaction Documents and the
Certificate of Designations and the transactions contemplated hereby and thereby
is merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. Except for the issuance of the Preferred Stock and Warrants
contemplated by this Agreement, no event, liability, development or circumstance
has occurred or exists, or is contemplated to occur, with respect to the Company
or its Subsidiaries or their respective business, properties, prospects,
9
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement on Form S-1
filed with the SEC relating to an issuance and sale by the Company of its Common
Stock and which has not been publicly disclosed.
k. NO GENERAL SOLICITATION. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Securities.
l. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
issuance by the Company of any of the Securities under the 1933 Act or cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of the
Company are listed or designated, nor will the Company or any of its
Subsidiaries take any action or steps that would require registration of the
issuance by the Company of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
m. DILUTIVE EFFECT. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances. Subject to Sections 5 and 16 of the
Certificate of Designations, the first paragraph of the Warrants and Section 13
of the Warrants, the Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Preferred Shares in accordance with
this Agreement and the Certificate of Designations and its obligation to issue
the Warrant Shares upon exercise of the Warrants in accordance with this
Agreement and the Warrants, is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.
n. EMPLOYEE RELATIONS. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union which relates to
such employee's relationship with the Company, neither the Company nor any of
its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relations with their employees
are good. Except as set forth on SCHEDULE 3(n), no executive officer (as defined
in Rule 501(f) of the 0000 Xxx) has notified the Company that such officer
intends to leave the Company or otherwise terminate such officer's employment
with the Company. No executive officer, to the best knowledge of the Company and
its Subsidiaries, is, or is now expected to be, in violation of
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any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing matters.
o. INTELLECTUAL PROPERTY RIGHTS. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service xxxx registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights necessary
to conduct their respective businesses as now conducted, except where the
failure to own or possess such rights would not result, either individual or in
the aggregate, in a Material Adverse Effect. Except as set forth on SCHEDULE
3(o), none of the Company's trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses (other than licences for commercially available software), approvals,
governmental authorizations, trade secrets or other intellectual property rights
have expired or terminated, or are expected to expire or terminate within two
years from the date of this Agreement, except where such expiration or
termination would not result, either individually or in the aggregate, in a
Material Adverse Effect. The Company and its Subsidiaries do not have any
knowledge of any infringement by the Company or its Subsidiaries of trademarks,
trade names, service marks, service xxxx registrations, service names, patents,
patent rights, copyrights, inventions, licenses, trade secrets or other
intellectual property rights of others, or of any development of similar or
identical trade secrets or technical information by others and, except as set
forth on SCHEDULE 3(o), there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company or its Subsidiaries regarding its trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, trade secrets, or infringement of other
intellectual property rights; and the Company and its Subsidiaries are unaware
of any facts or circumstances which might give rise to any of the foregoing,
except where any of the foregoing would not result, either individually or in
the aggregate, in a Material Adverse Effect. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
p. ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would not result, either individually
or in the aggregate, in a Material Adverse Effect.
11
q. TITLE. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except for taxes not yet due and payable or such as do
not materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and facilities by the
Company and its Subsidiaries.
r. INSURANCE. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect, taken as a whole.
s. REGULATORY PERMITS. Except the absence of which would not
result, either individually or in the aggregate, in a Material Adverse Effect,
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, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
t. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
u. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
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v. TAX STATUS. The Company and each of its Subsidiaries (i)
has made or filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes), (ii) has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and for which the Company has made appropriate reserves for on its
books, and (iii) has set aside on its books provisions reasonably adequate for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations (referred to in clause (i) above) apply. There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
w. TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 3(w) and in the SEC Documents filed at least three days prior to the
date hereof, and other than the grant of stock options disclosed on SCHEDULE
3(c) or transactions involving less than $60,000 individually or $500,000 in the
aggregate, none of the officers, directors or employees of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(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 such officer, director or
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any such officer, director, or employee has a
substantial interest or is an officer, director, trustee or partner.
x. APPLICATION OF TAKEOVER PROTECTIONS. 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, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the Buyers
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and the Buyers'
ownership of the Securities.
y. RIGHTS AGREEMENT. The Company has not adopted a shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.
z. NO OTHER AGREEMENTS. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents or the Placement Agent Agreement
between the Company and Promethean Capital Group, LLC.
13
4. COVENANTS.
a. REASONABLE BEST EFFORTS. Each party shall use its
reasonable best efforts to timely satisfy each of the conditions to be satisfied
by it as provided in Sections 6 and 7 of this Agreement.
b. FORM D AND BLUE SKY. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for, sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date. The Company shall make all filings and reports
relating to the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Closing Date.
c. REPORTING STATUS. Until the later of (i) the date which is
one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto) and (ii) the date which is five (5) years from
the Closing Date to occur (the "REPORTING PERIOD"), the Company shall file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.
d. USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in SCHEDULE 4(d).
e. FINANCIAL INFORMATION. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Reporting Period: (i) upon such Investor's request, after
the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, provided that if any such report is not filed with the SEC through
XXXXX then the Company shall deliver a copy of such report to each Investor by
facsimile on the same day it is filed with the SEC; (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries; and (iii) copies of any notices and other information
made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
14
f. RESERVATION OF SHARES. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the number of shares of Common Stock needed to
provide for the issuance of the shares of Common Stock upon conversion of all
outstanding Preferred Shares (without regard to any limitations on conversions)
and 100% of the number of shares of Common Stock needed to provide for the
issuance of the shares of Common Stock upon exercise of all outstanding Warrants
(without regard to any limitations on exercises).
g. LISTING. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents and the
Certificate of Designations. The Company shall use reasonable best efforts to
maintain the Common Stock's authorization for quotation on the Nasdaq National
Market ("NASDAQ") or listing on The New York Stock Exchange, Inc.("NYSE") (as
applicable, the "PRINCIPAL MARKET"). Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock from the Principal Market
other than pursuant to the Certificate of Designations. The Company shall
promptly, and in no event later than the following Business Day, offer to
provide to each Buyer copies of any notices it receives from the Principal
Market regarding the continued eligibility of the Common Stock for listing on
such automated quotation system or securities exchange. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(g).
h. EXPENSES. Subject to Section 9(l) below, at the Closing,
the Company shall pay an expense allowance of $30,000 (of which $15,000 has
previously been paid) to HFTP Investment L.L.C. (a Buyer), which amount, less
any amount paid prior to the Closing, shall be withheld by such Buyer from its
Purchase Price to be paid at the Closing.
i. FILING OF FORM 8-K. On or before the second (2nd) Business
Day following the Closing Date the Company shall file a Current Report on Form
8-K with the SEC describing the terms of the transactions contemplated by the
Transaction Documents and including as exhibits to such Current Report on Form
8-K this Agreement (including the Schedule of Buyers attached hereto but
excluding the other schedules hereto), the Certificate of Designations, the
Registration Rights Agreement and the Form of Warrant, in the form required by
the 1934 Act.
j. PROXY STATEMENT. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which
meeting shall occur on or before September 30, 2000 (the "STOCKHOLDER MEETING
DEADLINE"), a proxy statement, which has been previously reviewed by the Buyers
and Legal Counsel (as defined in the Registration Rights Agreement), soliciting
each such stockholder's affirmative vote at such annual stockholder meeting for
approval of the Company's issuance of all of the Securities as described in this
Agreement in
15
accordance with applicable law and the rules and regulations of the Principal
Market (such affirmative approval being referred to herein as the "STOCKHOLDER
APPROVAL"), and the Company shall use its reasonable best efforts to solicit its
stockholders' approval of such issuance of the Securities and to cause the Board
of Directors of the Company to recommend to the stockholders that they approve
such proposal. If the Company fails to hold a meeting of its stockholders by the
Stockholder Meeting Deadline, then, as partial relief (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Preferred Shares an amount in cash per Preferred
Share equal to the product of (i) the Purchase Price multiplied by (ii) 0.015;
multiplied by (iii) the quotient of (x) the number of days after the Stockholder
Meeting Deadline and prior to the date that a meeting of the Company's
stockholders seeking Stockholder Approval is held, divided by (y) 30. The
Company shall make the payments referred to in the immediately preceding
sentence within five days of the earlier of (I) the holding of the meeting of
the Company's stockholders, the failure of which resulted in the requirement to
make such payments, and (II) the last day of each 30-day period beginning on the
Stockholder Meeting Deadline. In the event the Company fails to make such
payments in a timely manner, such payments shall bear interest at the rate of
1.5% per month (pro rated for partial months) (or if lower, the maximum amount
allowed by applicable law) until paid in full.
k. CORPORATE EXISTENCE. So long as a Buyer beneficially owns
any Preferred Stock or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on Nasdaq or NYSE.
l. RESTRICTION ON SHORT SALES. Each Buyer agrees that, subject
to the exceptions described below, during the period beginning on the Closing
Date and ending on the earlier of (i) the first date on which such Buyer no
longer holds any Preferred Shares and (ii) the date which is one (1) year after
the Closing Date, neither such Buyer nor any of its affiliates shall engage in
any transaction constituting a "short sale" (as defined in Rule 3b-3 of the 0000
Xxx) of the Common Stock (collectively, "SHORT SALES"); provided, however, that
each Buyer and its affiliates are entitled to engage in transactions which
constitute Short Sales to the extent that following such transaction the
aggregate short position of such Buyer and its affiliates does not exceed the
sum of (A) the number of shares of Common Stock equal to the aggregate number of
shares of Common Stock which such Buyer and its affiliates have the right to
acquire upon exercise of the Warrants held by such Buyer and its affiliates
(without regard to any limitations on exercises of the Warrants), plus (B)
during the period beginning on and including the first day of a Company's
Mandatory Conversion Period (as defined in Section 7 of the Certificate of
Designations) and ending on and including the date which is the later of (I) the
last day of such Company's Mandatory Conversion Period and (II) the date on
which the Company has delivered all Conversion Shares relating to all Conversion
Notices submitted during such Mandatory Conversion Period, that number of shares
of Common Stock equal to the quotient of (i) the
16
Conversion Amount with respect to the number of Preferred Shares set forth in a
Company's Conversion Election Notice (as defined in Section 7 of the Certificate
of Designations) for such Buyer and its affiliates with respect to such
Company's Mandatory Conversion Period, divided by (ii) the lowest Conversion
Price (as defined in the Certificate of Designations) during the period
beginning on and including the first day of such Company's Mandatory Conversion
Period and ending on and including the last trading day of such Company's
Mandatory Conversion Period. Notwithstanding the foregoing, the restriction on
Short Sales set forth in the first sentence of this Section 4(l) shall not apply
(a) on and after the first date on which there shall have occurred a Triggering
Event (as defined in Section 3(b) of the Certificate of Designations) or an
event that with the passage of time and without being cured would constitute a
Triggering Event; (b) on or after the first date on which a Change of Control
(as defined in Section 4(b) of the Certificate of Designations) shall have been
consummated or the public announcement of a pending, proposed or intended Change
of Control; (c) on and after the first date which is at least 90 days after the
Closing Date on which the Closing Sale Price (as defined in the Certificate of
Designations) of the Common Stock is less than $3.00 per share (subject to
adjustment for stock splits, stock dividends, stock combinations and other
similar transactions) for any ten (10) trading days during the fifteen (15)
consecutive trading days immediately preceding such date of determination; (d)
on and after the first date which is at least 90 days after the Closing Date on
which the Closing Sale Price of the Common Stock is less than $2.30 per share
(subject to adjustment for stock splits, stock dividends, stock combinations,
and other similar transactions) for any three (3) consecutive trading days
preceding such date of determination; (e) with respect to a Short Sale so long
as such Buyer delivers a Conversion Notice (as defined in the Certificate of
Designations) within two (2) Business Days of such Short Sale entitling such
Buyer to receive a number of shares of Common Stock at least equal to the number
of shares of Common Stock sold in such Short Sale; (f) with respect to any
transaction involving options on the Common Stock; or (g) on and after the first
date on which the Company shall have failed to be in compliance with the
Certificate of Designations, this Agreement, the Warrants and the Registration
Rights Agreement.
m. MANDATORY CONVERSION OR REDEMPTION. The Company shall
deliver a Company's Conversion Election Notice (as defined in the Certificate of
Designations) and/or a Notice of Redemption at Company's Election (as defined in
the Certificate of Designations) to convert and/or redeem, respectively, the
amounts of Preferred Shares on each of August 31, 2000, September 29, 2000,
October 31, 2000, November 30, 2000, and December 29, 2000 (each a "MANDATORY
ELECTION DATE") as further specified below.
(i) On August 31, 2000, the Company shall deliver
to each Buyer either (A) a Company's Conversion Election Notice for the
conversion of a number of Preferred Shares equal to at least the product of
(I) the difference of (y) 10% less (z) the August Excess Percentage (as
defined below) (such difference to be referred to as the "SEPTEMBER MANDATORY
PERCENTAGE") multiplied by (II) such Buyer's Original Preferred Shares (as
defined below) or (B) a Notice of Redemption at Company's Election for the
redemption of a number of Preferred Shares equal to at least the product of
(I) the September Mandatory Percentage multiplied by (II) such Buyer's
Original Preferred Shares or (C) a combination of a Company's Conversion
Election Notice and
17
a Notice of Redemption at Company's Election for the conversion and redemption,
respectively, of an aggregate number of Preferred Shares equal to at least the
product of (I) the September Mandatory Percentage multiplied by (II) such
Buyer's Original Preferred Shares; provided, however, if the September Mandatory
Percentage is less than or equal to zero, then the Company will not be required
to deliver a Company's Conversion Election Notice and/or a Notice of Redemption
at Company's Election to convert and/or redeem, respectively, any Preferred
Shares pursuant to this Section 4(m)(i).
(ii) On September 29, 2000, the Company shall
deliver to each Buyer either (A) a Company's Conversion Election Notice for
the conversion of a number of Preferred Shares equal to at least the product
of (I) the difference of (x) 20% less (y) the August Excess Percentage less
(z) the Actual Converted Percentage (as defined below) (such difference to be
referred to as the "OCTOBER MANDATORY PERCENTAGE") multiplied by (II) such
Buyer's Original Preferred Shares or (B) a Notice of Redemption at Company's
Election for the redemption of a number of Preferred Shares equal to at least
the product of (I) the October Mandatory Percentage multiplied by (II) such
Buyer's Original Preferred Shares or (C) a combination of a Company's
Conversion Election Notice and a Notice of Redemption at Company's Election
for the conversion and redemption, respectively, of an aggregate number of
Preferred Shares equal to at least the product of (I) the October Mandatory
Percentage multiplied by (II) such Buyer's Original Preferred Shares;
provided, however, if the October Mandatory Percentage is less than or equal
to zero, then the Company will not be required to deliver a Company's
Conversion Election Notice and/or a Notice of Redemption at Company's
Election to convert and/or redeem, respectively, any Preferred Shares
pursuant to this Section 4(m)(ii).
(iii) On October 31, 2000, the Company shall
deliver to each Buyer either (A) a Company's Conversion Election Notice for
the conversion of a number of Preferred Shares equal to at least the product
of (I) the difference of (x) 30% less (y) the August Excess Percentage less
(z) the Actual Converted Percentage (such difference to be referred to as the
"NOVEMBER MANDATORY PERCENTAGE") multiplied by (II) such Buyer's Original
Preferred Shares or (B) a Notice of Redemption at Company's Election for the
redemption of a number of Preferred Shares equal to at least the product of
(I) the November Mandatory Percentage multiplied by (II) such Buyer's
Original Preferred Shares or (C) a combination of a Company's Conversion
Election Notice and a Notice of Redemption at Company's Election for the
conversion and redemption, respectively, of an aggregate number of Preferred
Shares equal to at least the product of (I) the November Mandatory Percentage
multiplied by (II) such Buyer's Original Preferred Shares; provided, however,
if the November Mandatory Percentage is less than or equal to zero, then the
Company will not be required to deliver a Company's Conversion Election
Notice and/or a Notice of Redemption at Company's Election to convert and/or
redeem, respectively, any Preferred Shares pursuant to this Section 4(m)(iii).
(iv) On November 30, 2000, the Company shall
deliver to each Buyer either (A) a Company's Conversion Election Notice for
the conversion of a number of Preferred Shares equal to at least the product
of (I) the difference of (x) 40% less (y) the August Excess
18
Percentage less (z) the Actual Converted Percentage (such difference to be
referred to as the "DECEMBER MANDATORY PERCENTAGE") multiplied by (II) such
Buyer's Original Preferred Shares or (B) a Notice of Redemption at Company's
Election for the redemption of a number of Preferred Shares equal to at least
the product of (I) the December Mandatory Percentage multiplied by (II) such
Buyer's Original Preferred Shares or (C) a combination of a Company's Conversion
Election Notice and a Notice of Redemption at Company's Election for the
conversion and redemption, respectively, of an aggregate number of Preferred
Shares equal to at least the product of (I) the December Mandatory Percentage
multiplied by (II) such Buyer's Original Preferred Shares; provided, however, if
the December Mandatory Percentage is less than or equal to zero, then the
Company will not be required to deliver a Company's Conversion Election Notice
and/or a Notice of Redemption at Company's Election to convert and/or redeem,
respectively, any Preferred Shares pursuant to this Section 4(m)(iv).
(v) On December 29, 2000, the Company shall
deliver to each Buyer either (A) a Company's Conversion Election Notice for
the conversion of a number of Preferred Shares equal to at least the product
of (I) the difference of (x) 50% less (y) the August Excess Percentage less
(z) the Actual Converted Percentage (such difference to be referred to as the
"JANUARY MANDATORY PERCENTAGE") multiplied by (II) such Buyer's Original
Preferred Shares or (B) a Notice of Redemption at Company's Election for the
redemption of a number of Preferred Shares equal to at least the product of
(I) the January Mandatory Percentage multiplied by (II) such Buyer's Original
Preferred Shares or (C) a combination of a Company's Conversion Election
Notice and a Notice of Redemption at Company's Election for the conversion
and redemption, respectively, of an aggregate number of Preferred Shares
equal to at least the product of (I) the January Mandatory Percentage
multiplied by (II) such Buyer's Original Preferred Shares; provided, however,
if the January Mandatory Percentage is less than or equal to zero, then the
Company will not be required to deliver a Company's Conversion Election
Notice and/or a Notice of Redemption at Company's Election to convert and/or
redeem, respectively, any Preferred Shares pursuant to this Section 4(m)(v).
(vi) A Company's Conversion Election Notice
delivered pursuant to this Section 4(m) shall specify in such notice a
Company Election Conversion Date (as defined in the Certificate of
Designations) which is 20 Business Days after the applicable Mandatory
Election Date. A Notice of Redemption at Company's Election delivered
pursuant to this Section 4(m) shall specify in such notice a Company Election
Redemption Date (as defined in the Certificate of Designations) which is not
less than 10 Business Days and not more than 20 Business Days after the
applicable Mandatory Election Date. In connection with giving a Company's
Conversion Election Notice and/or a Notice of Redemption at Company's
Election pursuant to this Section 4(m), the Company shall comply with its
obligations under and must satisfy the conditions of (or have such conditions
waived by all the holders of the Preferred Shares then outstanding) Sections
7 and 6, respectively, of the Certificate of Designations with respect to
such Company's Conversion Election Notice and/or Notice of Redemption at
Company's Election, respectively. For the avoidance of doubt, if the Company
does not satisfy the Conditions to Conversion at Company's Election on a
Mandatory Election Date, the Company must deliver a Notice of
19
Redemption at Company's Election on such Mandatory Election Date for the number
of Preferred Shares determined pursuant to Section 4(m)(i) through 4(m)(v).
(vii) The following terms shall have the following
definitions:
(I) "ORIGINAL PREFERRED SHARES" means
that number of Preferred Shares purchased by or allocated to each holder of
Preferred Shares purchased by a Buyer on the Issuance Date. In the event that
any initial Buyer of the Preferred Shares shall sell or otherwise transfer
any of such Buyer's Preferred Shares, the transferee shall be allocated a pro
rata portion of such Buyer's Original Preferred Shares.
(II) "AUGUST EXCESS PERCENTAGE" shall
equal the quotient of (A) the sum of (y) for each Company's Conversion
Election Notice which has not resulted in a Rejection Notice (as defined in
the Certificate of Designations) from any holder of the Preferred Shares and
which has a Company's Election Conversion Date on or prior to August 30,
2000, the sum of all Preferred Shares which actually have been converted
pursuant to and as a result of each such Company's Conversion Election Notice
and (z) for each Notice of Redemption at Company's Election which has a
Company's Election Redemption Date on or prior to August 30, 2000, the sum of
all Preferred Shares which actually have been redeemed pursuant to and as a
result of each such Notice of Redemption at Company's Election divided by (B)
the number of Preferred Shares initially purchased by all the Buyers on the
Closing Date.
(III) "ACTUAL CONVERTED PERCENTAGE" shall
equal on each Mandatory Election Date, the quotient of (A) the sum of (y) for
each Company's Conversion Election Notice which has a Company's Conversion
Election Notice Date on any Mandatory Election Date which is prior to the
Mandatory Election Date for which this calculation is being made, the sum of
all Preferred Shares which the Company has elected to convert pursuant to
each such Company's Conversion Election Notice and (z) for each Notice of
Redemption at Company's Election which has a Redemption at Company's Election
Notice Date on any Mandatory Election Date which is prior to the Mandatory
Election Date for which this calculation is being made, the sum of all
Preferred Shares which actually have been redeemed pursuant to and as a
result of each such Notice of Redemption at Company's Election divided by (B)
the number of Preferred Shares initially purchased by all the Buyers on the
Closing Date.
(n) PLEDGE OF SECURITIES. The Company acknowledges and agrees
that the Securities may be pledged by an Investor (as defined in the
Registration Rights Agreement) in connection with a bona fide margin agreement
or other loan secured by the Securities. The pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no
Investor effecting a pledge of Securities shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement, any other Transaction Document or the Certificate of
Designations, including without limitation, Section 2(f) of this Agreement;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment
20
of Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company upon conversion of the Preferred Shares or
exercise of the Warrants (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"), a form
of which is attached as Exhibit E hereto. Prior to registration of the
Conversion Shares and the Warrant Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares and the Warrant Shares, prior to registration of the
Conversion Shares and the Warrant Shares under the 0000 Xxx) will be given by
the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. If a Buyer
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that a public sale, assignment or transfer of Securities may be
made without registration under the 1933 Act or the Buyer provides the Company
with reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Buyer and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5, that the
Buyers shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company to issue and sell the Preferred
Shares and the Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
21
(i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
(ii) The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware;
(iii) Such Buyer shall have delivered to the Company the
Purchase Price (less in the case of HFTP Investment L.L.C., the amounts
withheld pursuant to Section 4(h)) for the Preferred Shares and the
Warrants being purchased by such Buyer at the Closing by wire transfer
of immediately available funds pursuant to the wire instructions
provided by the Company.
(iv) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties
that speak as of a specific date), and such Buyer shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the
Preferred Shares and the Warrants from the Company at the Closing is subject to
the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion by providing the
Company with prior written notice thereof:
(i) The Company shall have executed each of the Transaction
Documents and delivered the same to such Buyer.
(ii) The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware, and a copy
thereof certified by the Secretary of State of the State of Delaware
shall have been delivered to such Buyer.
(iii) The Common Stock (x) shall be designated for quotation
or listed on the Principal Market and (y) shall not have been suspended
by the SEC or the Principal Market from trading on the Principal Market
nor shall suspension by the SEC or the Principal Market have been
threatened either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum listing maintenance requirements of
the Principal Market; and the Conversion Shares and the Warrant Shares
issuable upon conversion or exercise of the Preferred Shares and the
related Warrants, as the case may be shall be listed upon the Principal
Market.
22
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Closing Date
as though made at that time (except for representations and warranties
that speak as of a specific date) and the Company shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by the Company at or prior to the Closing Date. Such
Buyer shall have received a certificate, executed by the Chief
Executive Officer or the Chief Financial Officer of the Company, dated
as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer, including,
without limitation, an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of Skadden,
Arps, Slate, Xxxxxxx & Xxxx LLP, dated as of the Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer in
substantially the form of EXHIBIT D, attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Preferred Stock Certificates and the Warrants (in such
denominations as such Buyer shall request) for the Preferred Shares and
the Warrants being purchased by such Buyer at the Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b) above and in a form reasonably
acceptable to such Buyer (the "RESOLUTIONS").
(viii) As of the Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Preferred Shares and the exercise of
the Warrants, at least 35,787,526 shares of Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form
of EXHIBIT E attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each United States Subsidiary in such entity's state of
incorporation or organization issued by the Secretary of State of such
state of incorporation or organization as of a date within ten days of
the Closing Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of the Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware as of a date within ten
days of the Closing Date.
23
(xii) The Company shall have delivered to such Buyer a
secretary's certificate, dated as of the Closing Date, certifying as to
(A) the Resolutions, (B) the Certificate of Incorporation and (C) the
By-laws, each as in effect at the Closing.
(xiii) The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate
the issuance of the Securities pursuant to this Agreement in compliance
with such laws.
(xiv) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Closing
Date.
(xv) The Company shall have delivered to the Buyers such other
documents relating to the transactions contemplated by the Transaction
Documents as the Buyers or their counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Designations, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(c) any cause of action, suit or claim brought or made against such Indemnitee
(other than a cause of action, suit or claim which is (x) brought or made by the
Company and (y) is not a shareholder derivative suit) and arising out of or
resulting from (i) the Company's execution, delivery or performance of or
Indemnitees' enforcement of any terms of the Transaction Documents or the
Certificate of Designations against the Company or (ii) any transaction financed
or to be financed in whole or in part, directly or indirectly, with the proceeds
of the issuance of the Securities. To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 8 shall be the same as
24
those set forth in Sections 6(a) and (d) of the Registration Rights Agreement,
including, without limitation, those procedures with respect to the settlement
of claims and the Company's rights to assume the defense of claims.
9. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW; JURISDICTION; JURY TRIAL. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(other than Section 5-1401 of the New York General Obligations Law and whether
of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than 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 of New York, borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, 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 for such 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. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
b. COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
25
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all
other prior oral or written agreements between each Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds (2/3) of the Preferred Shares on
the Closing Date or, if prior to the Closing Date, the Buyers listed on the
Schedule of Buyers as being obligated to purchase at least two-thirds (2/3) of
the Preferred Shares, and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Preferred Shares or Warrants then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents or
the Certificate of Designations unless the same consideration also is offered to
all of the parties to the Transaction Documents or holders of Preferred Shares,
as the case may be.
f. NOTICES. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. If notice is to be
sent to the Company, the Buyer shall use its reasonable best efforts to provide
additional copies to the individuals listed below; provided, however, that the
failure of such Buyer to send such additional copies shall in no way limit the
effectiveness of any notice sent to the Company to the attention of the General
Counsel as provided for below. The addresses and facsimile numbers for such
communications shall be:
If to the Company (such correspondence identified as "URGENT" to):
eToys Inc.
0000 Xxxxx Xxxx Xxxx., Xxxxx 000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Attention: General Counsel
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
26
With additional copies of any written notice to:
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Attention: Chief Financial Officer
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Attention: Vice President, Administration
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
With a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxx, Esq.
If to the Transfer Agent:
Xxxxx Xxxxxx Shareholder Services
000 Xxxxx Xxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx Xxxxxxxxxxxxx, and
Xxxxx Xxxxxxxxx
(Exchange and Conversion Agent)
If to a Buyer, to it at the address and facsimile number set forth on
the Schedule of Buyers, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or at such other address and/or facsimile number
and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally
27
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of at least two-thirds (2/3) of the Preferred
Shares then outstanding, including by merger or consolidation, except pursuant
to a Change of Control (as defined in Section 4(b) of the Certificate of
Designations) with respect to which the Company is in compliance with Section 4
of the Certificate of Designations, Section 9 of the Warrant and Section 4(k) of
this Agreement. A Buyer may assign its rights hereunder without the consent of
the Company, provided, however, that any such assignment shall not release such
Buyer from its obligations hereunder unless such obligations are assumed by such
assignee and the Company has consented to such assignment and assumption, which
consent shall not be unreasonably withheld. Notwithstanding anything to the
contrary contained in the Transaction Documents, the Buyers shall be entitled to
pledge the Securities in connection with a bona fide margin account or other
loan secured by the Securities.
h. NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. SURVIVAL. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive the
Closing. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. PUBLICITY. The Company and each Buyer shall have the right
to approve before issuance any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to make
any press release or other public disclosure with respect to such transactions
as is required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
28
l. TERMINATION. In the event that the Closing shall not have
occurred with respect to a Buyer on or before ten (10) Business Days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse any
nonbreaching Buyer for the expenses described in Section 4(h) above.
m. PLACEMENT AGENT. The Company agrees and acknowledges that
it shall be responsible for the payment of any placement agent's fees or
brokers' commissions relating to or arising out of the transactions contemplated
hereby, including but not limited to, any placement agent fee owed to Promethean
Capital Group, LLC. The Company shall pay, and hold each Buyer harmless against,
any liability, loss or expense (including, without limitation, attorney's fees
and out-of-pocket expenses) arising in connection with any such claim.
n. NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. REMEDIES. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
the Certificate of Designations and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all of
the rights which such holders have under any law. Any person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to any Buyer hereunder or pursuant to the Registration
Rights Agreement, the Certificate of Designations or the Warrants or the Buyers
enforce or exercise their rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
* * * * * *
29
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY:
ETOYS INC.
By:
-------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Senior Vice President and
Chief Financial Officer
BUYERS:
HFTP INVESTMENT L.L.C.
By: Promethean Asset Management, L.L.C.
Its: Investment Manager
By:
-------------------------------
Name: Xxxxx X. X'Xxxxx
Title: Managing Member
XXXXXXXX, L.P.
By: Xxxxxx, Xxxxxx & Co., L.P.
Its: General Partner
By:
-------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Operating Officer
[PAGE 2 OF 2 OF THE SIGNATURE PAGES TO THE SECURITIES PURCHASE AGREEMENT]
XXXXXX CAPITAL LTD.
By:
-------------------------------
Name: Xxxxxx X. Xxxxxxx
Its: Authorized Signatory
XXXXXXX CAPITAL LTD.
By:
-------------------------------
Name: Xxxxxx X. Xxxxxxx
Its: Authorized Signatory
SCHEDULE OF BUYERS
NUMBER OF
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
---------------------- --------------------------------------- --------- ---------------------------------------
HFTP Investment L.L.C. c/o Promethean Asset Management, L.L.C. 2,500 Promethean Investment Group, L.L.C.
000 Xxxxxxxxx Xxxxxx, 00xx Floor 000 Xxxxxxxxx Xxx., 00xx Xxxxx
Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Attn: Xxxxx X. Xxxxxx Attn: Xxxxx X. Xxxxxx
Xxxx Xxxxxxx Xxxx Xxxxxxx
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Residence: New York
Xxxxxx Xxxxxx Zavis
000 X. Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Xxxxxxxx, L.P. c/o Xxxxxx, Xxxxxx & Co., L.P. 4,500 c/o Xxxxxx, Xxxxxx & Co., L.P.
000 Xxxx Xxxxxx - 26th Floor 000 Xxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxx Xxxxxx Attn: Xxx Xxxxxx
Xxxx Chill Xxxx Chill
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Residence: Cayman Islands
Xxxxxx Capital Ltd. c/o Citadel Investment Group, L.L.C. 1,950 Xxxxxx Xxxxxx Xxxxx
000 Xxxx Xxxxxxxxxx Xxxxxx 000 X. Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000 Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxx Attn: Xxxxxx X. Xxxxxxxx, Esq.
Xxxxxxx X. Simpler Telephone: (000) 000-0000
Telephone: (000) 000-0000 Facsimile: (000) 000-0000
Facsimile: (000) 000-0000
Residence: Cayman Islands
Xxxxxxx Capital Ltd. c/o Citadel Investment Group, L.L.C. 1,050 Xxxxxx Xxxxxx Xxxxx
000 Xxxx Xxxxxxxxxx Xxxxxx 000 X. Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000 Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxx Attn: Xxxxxx X. Xxxxxxxx, Esq.
Xxxxxxx X. Simpler Telephone: (000) 000-0000
Telephone: (000) 000-0000 Facsimile: (000) 000-0000
Facsimile: (000) 000-0000
Residence: Cayman Islands
SCHEDULES
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(f) - SEC Documents
Schedule 3(g) - Material Changes
Schedule 3(h) - Litigation
Schedule 3(n) - Employee Relations
Schedule 3(o) - Intellectual Property
Schedule 3(w) - Transactions with Affiliates
Schedule 4(d) - Use of Proceeds
EXHIBITS
Exhibit A - Form of Certificate of Designations
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Company Counsel Opinion
Exhibit E - Form of Irrevocable Transfer Agent Instructions
