SUBSCRIPTION AND LOAN SATISFACTION AGREEMENT
EXHIBIT 99.10
This Subscription and Loan Satisfaction Agreement (this “Agreement”) is entered into as of
September 5, 2007 by and between BabyUniverse, Inc., a Florida corporation (the “Company”), and
Lydian Trust Company (“Lydian”). Capitalized terms used but not otherwise defined herein shall have
the meanings set forth in Section 5.1.
RECITALS
WHEREAS, Lydian Private Bank (the “Bank”) and the Company entered into that certain Loan
Agreement dated as of December 31, 2006 (the “Loan Agreement”), which sets forth the terms of a
loan by the Bank to the Company in the principal amount of Two Million Dollars ($2,000,000.00) (the
“Loan”).
WHEREAS, the Bank has, immediately prior to the execution hereof, transferred to Lydian the
Loan and all of the Bank’s rights, title and interest in and to the Loan Agreement and all
ancillary instruments and documents executed and delivered in connection therewith, including a
promissory note. The Loan Agreement, such promissory note and the other ancillary instruments and
documents executed and delivered in connection therewith are hereinafter collectively referred to
as the “Loan Documents”.
WHEREAS, Lydian and the Company have mutually agreed that, upon completion of the Company’s
proposed merger transaction with eToys Direct, Inc. (the “Merger”), the Company shall pay the
entire amount owing under the Loan Documents in cash and in shares of the Common Stock, par value
$0.001 per share, of the Company (the “Common Stock”), as set forth hereinbelow.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual representations and warranties, covenants and
agreements contained herein, the parties hereto hereby agree as follows:
1. SATISFACTION OF LOAN; CASH PAYMENTS AND ISSUANCE OF COMMON STOCK.
1.1 Loan Satisfaction and Cancellation. Lydian acknowledges and agrees
that, notwithstanding the terms of the Loan Documents, in consideration of the Company’s (a) cash
payments to Lydian set forth in Section 1.2 and (b) issuance to Lydian of such number of shares of
Common Stock as is set forth in Section 1.3, (i) the Company’s entire obligation to repay Lydian
the Loan and all other amounts owing under the Loan Documents shall thereupon be automatically
canceled, satisfied and extinguished in full, (ii) the Loan Documents and all of Lydian’s rights
under such Loan Documents (and the documents, instruments and opinions (including legal opinions)
incident thereto) shall thereupon be deemed indefeasibly canceled, satisfied, of no further force
or effect and no longer outstanding and (iii) neither the Company nor Lydian shall thereupon have
any further rights, duties, obligations or liabilities under such Loan Documents (and the
documents, instruments and opinions (including legal opinions) incident thereto).
1.2 Payment of Cash and Fees at Closing. At the Closing (as defined in
Section 1.4 hereof), the Company will, subject to the terms and conditions of this Agreement, pay
to Lydian the following amounts in cash:
(a) All accrued but unpaid interest on the Loan as of the Closing;
(b) One Million United States Dollars (US$1,000,000.00), which amount shall be applied by
Lydian to the outstanding principal balance of the Loan; and
(c) Xxx Xxxxxxx Xxxxxxxx Xxxxxx Xxxxxx Dollars (US$100,000.00), which amount shall be deemed
to be a transaction origination fee.
1.3 Agreement to Sell and Purchase Shares at Closing. At the Closing, the
Company will, subject to the terms and conditions of this Agreement, issue and transfer to Lydian,
and Lydian will acquire from the Company, in satisfaction and cancellation of all remaining
principal due under the Loan (after crediting the $1,000,000.00 principal repayment made by the
Company under Section 1.2(b) hereof), upon the terms and conditions hereinafter set forth, 145,985
shares (the “Shares”) of Common Stock. At no time will the Shares represent an ownership position
in the Common Stock greater than five percent (5%) of the total outstanding shares of Common Stock
on a fully diluted basis.
1.4 Closing. The completion of the transactions contemplated by Section 1.2
and Section 1.3 above (the “Closing”) shall be contingent upon the closing of the Merger and shall
occur as soon as practicable and as agreed to by the parties hereto, during the period between the
closing of the Merger and the effective time of the Merger under Delaware law, but not prior to the
time that the conditions for the Closing set forth in clauses (i) and (ii) below have been
satisfied or waived by Lydian (the date thereof, the “Closing Date”). At the Closing, the Company
shall (i) deliver to Lydian (a) cash in the amount set forth in Section 1.2 hereof and (b) one or
more stock certificates representing the Shares, registered in Lydian’s name, bearing the legend
referred to in Section 1.5 infra, and (ii) cause to be delivered to Lydian a legal opinion
in a form reasonably satisfactory to counsel for Lydian and typical for a transaction of this
nature. In the event that the Closing does not, for any reason occur on or before December 31,
2007, the Agreement shall thereupon cease to be of any further force or effect.
1.5 Legend. Any certificate or certificates representing the Shares shall
bear the following legend, in addition to any legend that may be required by any Requirements of
Law:
“THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.
THE SHARES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS AND THE
SECURITIES LAWS OF OTHER JURISDICTIONS, AND IN THE CASE OF A
TRANSACTION EXEMPT FROM REGISTRATION,
2
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE
REGISTRATION UNDER THE SECURITIES ACT AND SUCH OTHER APPLICABLE
LAWS.”
2. REPRESENTATIONS AND WARRANTIES OF LYDIAN.
As a material inducement to the Company entering into this Agreement and issuing the Shares to
Lydian, Lydian represents and warrants to the Company, as of the date hereof and as of the Closing
Date, and covenants with the Company, as follows:
2.1 Power and Authority. Lydian is an entity duly organized, validly existing and in
good standing under the laws of the state of its incorporation or formation. Lydian has the
corporate power and authority under applicable law to execute and deliver this Agreement and
consummate the transactions contemplated hereby, and has all necessary authority to execute,
deliver and perform its obligations under this Agreement and to consummate the transactions
contemplated hereby. Lydian has taken all necessary action to authorize the execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
2.2 Consents/Approvals. No consents, filings, authorizations or actions of any
Governmental Authority are required for Lydian’s execution, delivery and performance of this
Agreement. No consent, approval, waiver or other actions by any Person under any contract,
agreement or instrument to which Lydian is a party or by which Lydian or any of its properties or
assets are bound is required or necessary for the execution, delivery and performance by Lydian of
this Agreement and the consummation by Lydian of the transactions contemplated hereby.
2.3 Enforceability. This Agreement has been duly executed and delivered by Lydian and
(assuming it has been duly authorized, executed, and delivered by the Company) constitutes a legal,
valid and binding obligation of Lydian, enforceable against Lydian in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditor’s rights generally, or general
equitable principles, regardless of whether enforceability is considered in a proceeding at law or
in equity, and except as to rights to indemnity or contribution, including, but not limited to,
pursuant to the indemnification provisions contained in Section 4.6 of this Agreement, that may be
limited by federal or state securities laws or the public policy underlying such laws.
2.4 Investment Intent. Lydian is acquiring the Shares hereunder for its own account
and with no present intention of distributing or selling such Shares and further agrees not to
transfer such Shares in violation of the Securities Act or any applicable state securities law, and
no one other than Lydian will have any beneficial interest in the Shares. Lydian agrees that it
will not sell or otherwise dispose of any of the Shares unless such sale or other disposition has
been registered under the Securities Act or, in the opinion of counsel reasonably acceptable to the
Company, is exempt from registration under the Securities Act, and has been registered or qualified
or, in the opinion of such counsel reasonably acceptable to the Company, is exempt from
registration or qualification under applicable state securities laws. Lydian understands that the
offer and sale by the Company of the Shares being acquired by Lydian hereunder has not been
registered under the Securities Act by reason of their contemplated issuance in transactions exempt
from the registration and prospectus delivery requirements of the Securities Act pursuant
3
to Section 4(2) thereof, and that the reliance of the Company on such exemption from registration
is predicated in part on these representations and warranties of Lydian. Lydian acknowledges that
pursuant to Section 1.5 of this Agreement a restrictive legend consistent with the foregoing has
been or will be placed on the certificates for the Shares.
2.5 Accredited Investor. Lydian is an “accredited investor”, as such term is defined
in Rule 501(a) of Regulation D promulgated under the Securities Act, and has such knowledge and
experience in financial and business matters that it is capable of evaluating the merits and risks
of the investment to be made by it hereunder.
2.6 Adequate Information. Lydian has received from the Company, and has reviewed, such
information which Lydian considers necessary or appropriate to evaluate the risks and merits of an
investment in the Shares.
2.7 Opportunity to Question. Lydian has had the opportunity to question, and has
questioned, to the extent deemed necessary or appropriate, representatives of the Company so as to
receive answers and verify information obtained in Lydian’s examination of the Company, including
the information that Lydian has received and reviewed as referenced in Section 2.6 hereof in
relation to its investment in the Shares.
2.8 No Other Representations. No oral or written material representations have been
made to Lydian in connection with Lydian’s acquisition of the Shares which were in any way
inconsistent with the information reviewed by Lydian.
2.9 Knowledge and Experience. Lydian has such knowledge and experience in financial,
tax and business matters, including substantial experience in evaluating and investing in common
stock and other securities (including the common stock and other securities of speculative
companies), so as to enable Lydian to utilize the information referred to in Section 2.6 hereof and
any other information made available by the Company to Lydian in order to evaluate the merits and
risks of an investment in the Shares and to make an informed investment decision with respect
thereto.
2.10 Independent Decision. Lydian is not relying on the Company or on any legal or
other opinion in the materials reviewed by Lydian with respect to the financial or tax
considerations of Lydian relating to its investment in the Shares. Lydian has relied solely on its
examination and independent investigation of the Company in making its decision to acquire the
Shares.
2.11 Commissions. Lydian has not incurred any obligation for any finder’s or broker’s
or agent’s fees or commissions in connection with the transactions contemplated hereby.
2.12 Independent Acquisition. Lydian is acquiring from the Company for its own
account, and is making an independent investment decision in subscribing for, the Shares.
2A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As a material inducement to Lydian entering into this Agreement, the Company represents and
warrants to Lydian, as of the date hereof and as of the Closing Date, and covenants with Lydian, as
follows:
4
2A.1 Power and Authority. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of Florida. The Company has the corporate
power and authority under applicable law to execute and deliver this Agreement and consummate the
transactions contemplated hereby, and has all necessary authority to execute, deliver and perform
its obligations under this Agreement and to consummate the transactions contemplated hereby. The
Company has taken all necessary action to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby.
2A.2 Fully-Paid Shares. The Shares, when issued and delivered and paid for as
provided herein, will be duly and validly issued and will be fully paid and nonassessable and will
be issued free and clear of any security interests, liens, encumbrances, equities or claims.
2A.3 Consents/Approvals. No consents, filings, authorizations or actions of any
Governmental Authority are required for the Company’s execution, delivery and performance of this
Agreement. No consent, approval, waiver or other actions by any Person under any contract,
agreement or instrument to which the Company is a party or by which the Company or any of its
properties or assets are bound is required or necessary for the execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the transactions
contemplated hereby.
2A.4 Enforceability. This Agreement has been duly executed and delivered by the
Company and (assuming it has been duly authorized, executed, and delivered by Lydian) constitutes a
legal, valid and binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of creditor’s rights
generally, or general equitable principles, regardless of whether enforceability is considered in a
proceeding at law or in equity, and except as to rights to indemnity or contribution, including,
but not limited to, pursuant to the indemnification provisions contained in Section 4.6 of this
Agreement, that may be limited by federal or state securities laws or the public policy underlying
such laws.
2A.5 SEC Filings. All of the Company’s filings with the SEC within the prior 12
months, at the time (if applicable) they became effective or were filed with the Commission, as the
case may be, complied in all material respects with the requirements of the Securities Act or the
Exchange Act, as applicable, and the rules and regulations of the SEC thereunder, and none of such
documents included any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading as of their respective filing or
effective dates, or if amended, as so amended.
3. COVENANTS.
3.1 Public Announcements. Lydian agrees not to make any public announcement or issue
any press release or otherwise publicly disseminate any information about the subject matter of
this Agreement, without the prior consent of the Company. [The Company shall file after the date
hereof a Current Report on Form 8-K with the SEC in respect of the transactions contemplated by
this Agreement within the time period prescribed by that Form and in form and substance reasonably
acceptable to Lydian.] The Company may issue an initial press release relating to the transactions
contemplated by this Agreement, but shall not identify Lydian in such press release without the
consent of Lydian, except as may be required by any Requirement of
5
Law or rule of any exchange on which the Company’s securities are listed and in such form and
substance as is reasonably acceptable to Lydian.
3.2 Further Assurances. Each party shall execute and deliver such additional
instruments and other documents and shall take such further actions as may be reasonably necessary
or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the
transactions contemplated hereby. Each of Lydian and the Company shall make on a prompt and timely
basis all governmental or regulatory notifications and filings required to be made by it with or to
any Governmental Authority in connection with the consummation of the transactions contemplated
hereby. The Company and Lydian each agrees to cooperate with the other in the preparation and
filing of all forms, notifications, reports and information, if any, required or reasonably deemed
advisable pursuant to any Requirement of Law or the rules of The NASDAQ Capital Market in
connection with the transactions contemplated by this Agreement and to use their respective
commercially reasonable efforts to agree jointly on a method to overcome any objections by any
Governmental Authority to any such transactions. Except as may be specifically required hereunder,
neither of the parties hereto or their respective Affiliates shall be required to agree to take any
action that in the reasonable opinion of such party would result in or produce a Material Adverse
Effect on such party.
4. REGISTRATION OF THE SHARES; RULE 144.
4.1 Certain Definitions.
(a) “Holder” means any holder of Registrable Securities who is a party to this
Agreement.
(b) “Other Registrable Securities” means any and all shares of the Common Stock and
other securities issued by the Company that are covered by piggyback registration rights similar to
those conferred on the Holder pursuant to the terms of Section 4.2 hereof (but which may include
rights of priority with respect to inclusion in piggyback registrations of the Company’s
securities).
(c) “Registrable Securities” means any and all of the (i) Shares purchased by Lydian
pursuant to this Agreement; (ii) equity securities issued in respect of such Shares in any
reorganization; and (iii) equity securities issued in respect of the securities referred to in the
preceding clauses (i) and (ii) as the result of a stock split, stock dividend, recapitalization or
combination.
(d) “Registration Expenses” means all expenses incident to the Company’s performance
of or compliance with Section 4.4 of this Agreement, including, without limitation, all: (i)
registration and filing fees, (ii) fees and expenses relating to compliance with securities or blue
sky laws (including fees and expenses of counsel in connection with blue sky qualifications of the
securities registered), (iii) printing, messenger and delivery expenses, (iv) internal expenses of
the Company (including all salaries and expenses of its officers and employees performing legal or
accounting duties), (v) fees and expenses of counsel for the Company and fees and expenses for
independent certified public accountants retained by the Company (including the expenses of any
comfort letters or costs associated with the delivery by independent certified public accountants
of a comfort letter or comfort letters), (vi) fees and expenses of any special experts retained by
the Company in connection with such registration, (vii) reasonable fees and expenses of a single
counsel for the holders of Registrable Securities and
6
Other Registrable Securities participating in the subject offering selected by the holders of a
majority of the Registrable Securities and Other Registrable Securities offered therein, (viii)
fees and expenses in connection with any review of underwriting arrangements by the Financial
Industry Regulatory Authority (as the successor to the National Association of Securities Dealers,
Inc.) and (ix) fees and expenses of underwriters customarily paid by issuers or sellers of
securities (but not including any underwriting discounts or commissions attributable to the sale of
Registrable Securities).
4.2 Piggyback Registration Rights.
(a) Whenever the Company proposes to register the offer and sale of any of the
Common Stock under the Securities Act (other than pursuant to a registration statement on Form S-8
or S-4 or any similar form or in connection with a registration the primary purpose of which is to
register debt securities) and the registration form to be used may be used for the registration of
Registrable Securities, the Company will give prompt written notice to each Holder of Registrable
Securities of its intention to effect such a registration and will include (subject to the priority
provisions described hereinbelow) in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein (a “Piggyback Registration”)
within 20 days after the delivery of the Company’s notice; provided, that (x) if such
registration involves an underwritten public offering, all holders of Registrable Securities must
sell their Registrable Securities included therein to the underwriters on the same terms and
conditions as applicable to the Company and the other holders of the Company’s securities included
therein and (y) if, at any time after giving written notice of its intention to register any Common
Stock pursuant to this Section 4.2(a) and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any reason not to
register such Common Stock at such time, the Company shall give written notice thereof to each such
Holder of Registrable Securities and, thereupon, shall be relieved of its obligation to register
any Registrable Securities in connection with such registration. The Company covenants that it
shall, not later than ten (10) days following the closing of the Merger, prepare and file with the
SEC a Registration Statement on Form S-3 (or, if permissible under the SEC’s rules and regulations,
a post-effective amendment to a then effective registration statement on such form), in which the
Shares will be eligible for inclusion, subject to the terms and conditions herein contained.
(b) The Registration Expenses of each Holder of Registrable Securities will be paid
by the Company in all Piggyback Registrations (including, without limitation, the expenses of any
withdrawn registration pursuant to Section 4.2(a)(y) above).
(c) If a Piggyback Registration is an underwritten primary registration on behalf of
the Company, the Company will include in such registration all Registrable Securities timely
requested to be included in such registration; provided, that if the managing underwriters
advise the Company in writing that in their good faith opinion the inclusion of any Registrable
Securities in such offering would adversely affect the marketability of the offering, then such
Registrable Securities shall not be permitted to be included; and provided,
further, that if in connection with such offering, the managing underwriters advise the
Company in writing that in their opinion the total number of securities requested to be included in
such registration exceeds the number which can be sold in such offering without adversely affecting
the marketability of the offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell, and (ii) second, the Registrable Securities and Other
Registrable Securities requested to be included in such registration reduced pro rata among the
holders of such Registrable Securities and Other Registrable Securities on the basis of the
7
respective number of shares of such Registrable Securities and Other Registrable Securities so
requested to be included therein.
(d) If a Piggyback Registration is an underwritten secondary registration on behalf
of holders of the Company’s securities other than Registrable Securities, and the managing
underwriters advise the Company in writing that in their good faith opinion the inclusion of any
Registrable Securities in the offering would adversely affect the marketability of the offering,
then such Registrable Securities shall not be permitted to be included. Additionally, if in
connection with such an offering, the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the marketability of the
offering, the Company will include in such registration (i) first, the securities requested to be
included therein by the holders requesting such registration, and (ii) second, the Registrable
Securities and Other Registrable Securities requested to be included in such registration reduced
pro rata among the holders of such Registrable Securities and Other Registrable Securities on the
basis of the number of shares of such Registrable Securities and Other Registrable Securities so
requested to be included therein.
4.3 Lock-up. Intentionally Omitted.
4.4 Registration Procedure. Whenever the holders of Registrable Securities have
requested that any Registrable Securities be included in a Piggyback Registration pursuant to
Section 4.2 hereof, the Company shall, subject to the provisions hereof, use its reasonable best
efforts to effect the registration and the sale of such Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company shall:
(a) prepare and file with the SEC a registration statement (a “Registration
Statement”) with respect to such Registrable Securities and use its reasonable best efforts to
cause such Registration Statement to become effective (provided that before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company will furnish to the
counsel selected by the holders of a majority of the Registrable Securities and Other Registrable
Securities covered by such Registration Statement copies of all such documents proposed to be
filed);
(b) prepare and file with the SEC such amendments and supplements to such
Registration Statement and the prospectus used in connection therewith as may be necessary to keep
such Registration Statement effective until the earliest of (i) two years after the effective date
of the Registration Statement, or (ii) such time as the Registrable Securities become eligible for
resale by non-affiliates pursuant to Rule 144(k) promulgated under the Securities Act or any other
rule of similar effect, or (iii) such time as all of the Registrable Securities have been sold
pursuant to the Registration Statement, but in no event for a period of less than 180 days;
provided, however, that such 180 day period shall be extended for a period of time
equal to the period that each Holder of Registrable Securities refrains from selling any securities
included in any underwritten registration at the request of the managing underwriters; and comply
with the provisions of the Securities Act with respect to the disposition of all securities covered
by such Registration Statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement;
(c) furnish to each Holder of Registrable Securities included therein such number of
copies of such Registration Statement, each amendment and supplement thereto, the prospectus
included in such Registration Statement (including each preliminary prospectus)
8
and such other documents as such Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Holder;
(d) use its reasonable best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such U.S. state jurisdictions as each
Holder thereof reasonably requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Holder to consummate the disposition in such jurisdictions of
the Registrable Securities owned by such Holder (provided that the Company will not be required to
(i) qualify generally to do business in any jurisdiction where it would not otherwise be required
to qualify but for this subsection, (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process (i.e., service of process which is not limited solely
to securities law violations) in any such jurisdiction);
(e) notify each Holder of such Registrable Securities, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such Registration Statement contains an
untrue statement of a material fact or omits any fact necessary to make the statements therein, in
the context in which they were made, not misleading, and, at the request of any such Holder,
promptly prepare a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement
of a material fact or omit to state any fact necessary to make the statements therein, in the
context in which they were made, not misleading;
(f) cause all such Registrable Securities to be listed on each securities exchange
on which similar securities issued by the Company are then listed;
(g) provide a transfer agent, registrar and CUSIP number for all such Registrable
Securities not later than the effective date of such Registration Statement;
(h) enter into such customary agreements (including, in the case of underwritten
offerings, underwriting agreements in customary form with the managing underwriter(s) approved by
the Company, but not including any lock-up provision with respect to the Shares) and take all such
other actions as the holders of a majority of the Registrable Securities and Other Registrable
Securities being sold or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities and Other Registrable Securities;
(i) make available for inspection by each Holder of such Registrable Securities, any
underwriter participating in any disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such Holder or underwriter, all financial and
other records, pertinent corporate documents and properties of the Company, and cause the Company’s
officers, directors, employees and independent accountants to supply all information reasonably
requested by such Holder, underwriter, attorney, accountant or agent in connection with such
registration statement;
(j) otherwise use its reasonable best efforts to comply with all applicable rules
and regulations of the SEC in connection with such registration, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the period of at least
twelve months beginning with the first day of the Company’s first full calendar quarter after the
effective date of the Registration Statement, which earnings statement
9
shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated
thereunder;
(k) permit each Holder of Registrable Securities, that is or might reasonably be
deemed to be an underwriter or a controlling person of the Company, to participate in the
preparation of such Registration Statement and to require the insertion therein of material,
furnished to the Company in writing, which in the reasonable judgment of such Holder and its
counsel should be included therein;
(l) in the event of the issuance of any stop order suspending the effectiveness of
the Registration Statement, or of any order suspending or preventing the use of any related
prospectus or suspending the qualification of any securities included in such Registration
Statement for sale in any U.S. jurisdiction, use its reasonable best efforts promptly to obtain the
withdrawal of such order;
(m) use its reasonable best efforts to cause such Registrable Securities covered by
such Registration Statement to be registered with or approved by such other U.S. federal or state
governmental agencies or authorities as may be necessary to enable the holders thereof to
consummate the disposition of such Registrable Securities;
(n) obtain a “cold comfort” letter from the Company’s independent public accountants
in customary form and covering such matters of the type customarily covered by “cold comfort”
letters as the holders of a majority of the Registrable Securities and Other Registrable Securities
being sold reasonably request; and
(o) to the extent required under the Securities Act and the rules and regulations
promulgated thereunder, in each case as interpreted by the Staff of the SEC under currently
operative no-action letters, in order for a Broker-Dealer Holder (as defined infra) to
resell any Registrable Securities pursuant to the Registration Statement, include in the “Plan of
Distribution” section of the Prospectus (as defined below) contained in the Registration Statement
a statement to the effect that any Holder which is a broker or dealer registered under the Exchange
Act (“Broker-Dealer”) and which is a Broker-Dealer Holder, may sell such Registrable Securities
pursuant to the Registration Statement. Such “Plan of Distribution” section shall also contain all
other information with respect to such sales by such Broker-Dealer that the SEC may require in
order to permit such sales pursuant thereto, but such “Plan of Distribution” section shall not name
any such Broker-Dealer or disclose the amount of Registrable Securities held by such Broker-Dealer,
except to the extent required under the Securities Act or the rules and regulations promulgated
thereunder, or by the SEC. For purposes of this Section 4.4(o), “Broker-Dealer Holder” means a
Holder, which is a Broker-Dealer and which holds Registrable Securities that were acquired for its
account as a result of market-making activities or other trading activities.
4.5 Transfer of Shares. Each Holder agrees that it will not effect any disposition of
the Shares or its right to purchase the Shares that would constitute a sale within the meaning of
the Securities Act or any applicable state securities laws, except as contemplated in a
Registration Statement referred to in Section 4.4 hereof or as otherwise permitted by law.
4.6 Indemnification. For the purpose of this Section 4.6, the term “Holder/Affiliate”
shall mean any Affiliate of the Holder, and any person who controls the Holder or any such
Affiliate of the Holder within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act.
10
(a) The Company agrees to indemnify and hold harmless each Holder and each
Holder/Affiliate against any losses, claims, damages, liabilities or reasonable expenses, joint or
several, to which the Holder or Holder/Affiliate may become subject, under the Securities Act, the
Exchange Act, or any other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is effected with the prior
written consent of the Company (which consent shall not be unreasonably withheld or delayed)),
insofar as such losses, claims, damages, liabilities or reasonable expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in a Registration Statement, including the
prospectus (the “Prospectus”), financial statements and schedules, and all other documents filed as
a part thereof, as amended at the time of effectiveness of a Registration Statement, including any
information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b)
of Rule 430A, or pursuant to Rules 430B, 430C or 434 promulgated under the Securities Act, or the
Prospectus, in the form first filed with the SEC pursuant to Rule 424(b) promulgated under the
Securities Act, or filed as part of a Registration Statement at the time of effectiveness if no
Rule 424(b) filing is required, or any amendment or supplement thereto, or the omission or alleged
omission to state in any of them a material fact required to be stated therein or necessary to make
the statements in any of them, in light of the circumstances under which they were made, not
misleading, or (ii) any failure of the Company to perform its obligations hereunder or under
applicable federal or state securities law, and will promptly reimburse each such Holder and each
such Holder/Affiliate for any legal and other expenses as such expenses are reasonably incurred by
such Holder or such Holder/Affiliate in connection with investigating, defending or preparing to
defend, settling, compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the Company will not be liable for amounts paid in
settlement of any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company, which consent shall not be unreasonably withheld, and,
provided, further, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage, liability, action or expense arises out of or is based
upon (i) an untrue statement or alleged untrue statement or omission or alleged omission made in a
Registration Statement, the Prospectus or any amendment or supplement thereto in reliance upon and
in conformity with written information furnished to the Company by or on behalf of the Holder
expressly for use therein, or (ii) the breach by the Holder of any representation or warranty made
by the Holder herein, or (iii) any statement or omission in any Prospectus that is corrected in any
subsequent Prospectus that was delivered to the Holder prior to the pertinent sale or sales by the
Holder, or (iv) a violation by the Holder of any provision of federal or state securities law
applicable to the Holder.
(b) Each Holder will indemnify and hold harmless the Company, each of its directors,
each of its officers, including such officers who signed a Registration Statement, and each person,
if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, against any losses, claims, damages, liabilities or reasonable expenses to
which the Company, each of its directors, each of its officers and each such controlling person may
become subject, under the Securities Act, the Exchange Act, or any other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any litigation, but
only if such settlement is effected with the written consent of such Holder (which consent shall
not be unreasonably withheld or delayed)), insofar as such losses, claims, damages, liabilities or
reasonable expenses (or actions in respect thereof as contemplated below) arise out of or are based
upon (i) the breach by the Holder of any representation or warranty made by the Holder herein, or
(ii) any untrue or alleged untrue statement of any material fact contained in a Registration
Statement, the Prospectus, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material
11
fact required to be stated therein or necessary to make the statements in a Registration Statement,
the Prospectus or any amendment or supplement thereto not misleading in the light of the
circumstances under which they were made, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged omission was made in a
Registration Statement, the Prospectus, or any amendment or supplement thereto, in reliance upon
and in conformity with written information furnished to the Company by or on behalf of the Holder
expressly for use therein, and will promptly reimburse the Company, each of its directors, each of
its officers and each such controlling person for any legal and other expense reasonably incurred
by the Company, each of its directors, each of its officers and each such controlling person in
connection with investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that the Holder’s
aggregate liability under this Section 4.6 (including paragraphs (c) and (d) hereof, but excluding
clause (i) of this Section 4.6(b) and related indemnification liability) shall not exceed the
amount of proceeds (the “Proceeds”) received by such Holder from the sale of the Shares pursuant to
a Registration Statement; and provided, further, that the Holder will not be liable
in any such case to the extent that any such loss, claim, damage, liability, action or expense
arises out of or is based upon (i) the breach by the Company of any representation or warranty made
by the Company herein, or (ii) a violation by the Company of any provision of federal or state
securities law applicable to the Company.
(c) Promptly after receipt by an indemnified party under this Section 4.6 of notice
of the threat or commencement of any action indemnifiable hereunder, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying party under this Section 4.6,
promptly notify the indemnifying party in writing thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to any indemnified
party for contribution or otherwise under the indemnity agreement contained in this Section 4.6 to
the extent it is not prejudiced as a result of such failure. In case any such action is brought
against any indemnified party and such indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent
that it may wish, jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded, based on an opinion
of counsel reasonably satisfactory to the indemnifying party, that there may be a conflict of
interest between the positions of the indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such indemnified party
under this Section 4.6 for any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in connection with the assumption of legal defenses in accordance with the proviso
to the preceding sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel, reasonably satisfactory to such
indemnifying party, representing all of the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a reasonable time after notice of
commencement of action, in each of which cases
12
the reasonable fees and expenses of counsel shall be at the expense of the indemnifying party. In
no event shall any indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved in writing the terms of such settlement;
provided, that such consent shall not be unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or could have been a
party and indemnification could have been sought hereunder by such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in this Section 4.6 is required by its terms
but is for any reason held by a court of competent jurisdiction to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b) or (c) of this Section
4.6 in respect to any losses, claims, damages, liabilities or expenses referred to herein, then
each applicable indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to
herein (i) in such proportion as is appropriate to reflect the relative benefits received by the
Company and the Holder from the purchase and sale of the Shares hereunder and the resale of the
Shares pursuant to a Registration Statement or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but the relative fault of the Company and the
Holder in connection with the statements or omissions or inaccuracies in the representations and
warranties in this Agreement and/or a Registration Statement which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable considerations. The
respective relative benefits received by the Company on the one hand and each Holder on the other
shall be deemed to be in the same proportion as the amount paid by such Holder for the Shares
purchased by such Holder that were sold pursuant to a Registration Statement bears to the
difference between the amount such Holder paid for such Shares that were sold pursuant to a
Registration Statement and the amount received by such Holder from such sale. The relative fault
of the Company, on the one hand, and each Holder on the other shall be determined by reference to,
among other things, whether the untrue or alleged statement of a material fact or the omission or
alleged omission to state a material fact or the inaccurate or the alleged inaccurate
representation and/or warranty relates to information supplied by the Company or by such Holder and
the parties’ relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in paragraph (c) of this Section 4.6, any legal or other fees
or expenses reasonably incurred by such party in connection with investigating or defending any
action or claim. The provisions set forth in paragraph (c) of this Section 4.6 with respect to the
notice of the threat or commencement of any threat or action shall apply if a claim for
contribution is to be made under this paragraph (d); provided, however, that no
additional notice shall be required with respect to any threat or action for which notice has been
given under paragraph (c) for purposes of indemnification. The Company and the Holder agree that
it would not be just and equitable if contribution pursuant to this Section 4.6 were determined
solely by pro rata allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable considerations
referred to in this paragraph; provided, further, that the Holder’s contribution,
if any, pursuant to this Section 4.6 shall not exceed the amount of the Proceeds. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
13
4.7 Participation in Underwritten Registrations. A Holder may not participate in any
Piggyback Registration hereunder which is underwritten unless the Holder (a) agrees to sell its
Registrable Securities on the basis provided in any underwriting arrangements approved by the
Company in connection therewith, and (b) completes and executes all customary questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements; provided, that the Holder, as a holder
of Registrable Securities included in any underwritten registration, shall not be required to make
any representations or warranties to the Company or the underwriters other than customary
representations and warranties regarding such Holder and such Holder’s intended method of
distribution.
4.8 Information Available. The Company, upon the reasonable request of the Holder and
with prior notice, will be available to the Holder or a representative thereof at the Company’s
headquarters to discuss information relevant for disclosure in the Registration Statement covering
the Registrable Securities owned by such Holder and will otherwise cooperate with the Holder
conducting an investigation for the purpose of reducing or eliminating the Holder’s exposure to
liability under the Securities Act with respect thereto, including the reasonable production of
information at the Company’s headquarters, subject to appropriate confidentiality limitations.
4.9 Reports Under Exchange Act. With a view to making available to the Holder the
benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the Company shall:
(a) make and keep available adequate current public information, as those terms are
understood and defined in Rule 144;
(b) use commercially reasonable efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to any Holder, so long as the Holder owns any Registrable Securities,
forthwith upon request (i) to the extent accurate, a written statement by the Company that it has
complied with the reporting requirements of Rule 144; (ii) a copy of the most recent annual or
quarterly report of the Company filed with the SEC and such other reports and documents so filed by
the Company; and (iii) such other information as may be reasonably requested in availing any Holder
of any rule or regulation of the SEC that permits the selling of any such securities without
registration.
5. MISCELLANEOUS.
5.1 Defined Terms. As used herein the following terms shall have the following
meanings:
(a) “Affiliate” shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date hereof.
(b) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
14
(c) “Governmental Authority” means any nation or government, any state or other political
subdivision thereof, and any entity or official exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
(d) “Material Adverse Effect” means a material and adverse change in, or effect on, the
financial condition, properties, assets, liabilities, rights, obligations, operations or business,
of a Person and its subsidiaries taken as a whole.
(e) “Person” means an individual, partnership, corporation, limited liability company,
business trust, joint stock company, estate, trust, unincorporated association, joint venture,
Governmental Authority or other entity, of whatever nature.
(f) “Requirements of Law” means as to any Person, the certificate of incorporation, by-laws or
other organizational or governing documents of such Person, and any domestic or foreign and
federal, state or local law, rule, regulation, statute or ordinance or determination of any
arbitrator or a court or other Governmental Authority, in each case applicable to, or binding upon,
such Person or any of its properties or to which such Person or any of its property is subject.
(g) “Rule 144” means Rule 144 promulgated under the Securities Act, as may be amended from
time to time.
(h) “SEC” means the Securities and Exchange Commission.
(i) “Securities Act” means the Securities Act of 1933, as amended.
5.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined meanings when used in any
certificates, reports or other documents made or delivered pursuant hereto or thereto, unless the
context otherwise requires.
(b) Terms defined in the singular shall have a comparable meaning when used in the plural, and
vice versa.
(c) All accounting terms shall have meanings determined in accordance with generally accepted
accounting principles in the United States.
(d) The words “hereof,” “herein” and “hereunder,” and words of similar import, when used in
this Agreement shall refer to this Agreement as a whole (including any exhibits and schedules
hereto) and not to any particular provision of this Agreement.
5.3 Notices. All notices, requests, demands, claims, and other communications
hereunder shall be in writing and shall be delivered by certified or registered mail (first class
postage pre-paid), guaranteed overnight delivery, or facsimile transmission if such transmission is
confirmed by delivery by certified or registered mail (first class postage pre-paid) or guaranteed
overnight delivery, to the following addresses and telecopy numbers (or to such other addresses or
telecopy numbers which such party shall subsequently designate in writing to the other party):
15
If to the Company to:
BabyUniverse, Inc.
000 Xxxxx XX Xxxxxxx Xxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxxxx Xxxxxxx
Telecopy: (000) 000-0000
000 Xxxxx XX Xxxxxxx Xxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxxxx Xxxxxxx
Telecopy: (000) 000-0000
If to Lydian to:
Lydian Trust Company
000 Xxxxx Xxxx Xxx
Xxxx Xxxxx, Xxxxxxx 00000
Attn: Xxxxxx Xxxxxxxxxxxx
Telecopy: (___) ____-____
000 Xxxxx Xxxx Xxx
Xxxx Xxxxx, Xxxxxxx 00000
Attn: Xxxxxx Xxxxxxxxxxxx
Telecopy: (___) ____-____
Each such notice or other communication shall for all purposes of this Agreement be treated as
effective or having been given when delivered if delivered by mail, by hand, by messenger or by
courier, or if sent by facsimile, upon confirmation of transmission as provided above.
5.4 Entire Agreement. This Agreement contains the entire understanding of the parties
in respect of its subject matter and supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
5.5 Expenses. All reasonable costs, expenses and fees incurred by Lydian to negotiate
and document this Agreement shall be paid by the Company. Except as provided in the immediately
preceding sentence and Section 4.2(b), each party shall pay all of its fees and expenses incurred
in connection with the transactions contemplated by this Agreement, including the fees and expenses
of its counsel.
5.6 Amendment; Waiver. This Agreement may not be modified, amended, supplemented,
canceled or discharged, except by a written instrument executed by the party to be bound. No
failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement
shall operate as a waiver, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude the exercise of any other right, power or privilege. No waiver of any
breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the
same or any other provision, nor shall any waiver be implied from any course of dealing between the
parties. No extension of time for performance of any obligations or other acts hereunder or under
any other agreement shall be deemed to be an extension of the time for performance of any other
obligations or any other acts. The rights and remedies of the parties under this Agreement are in
addition to all other rights and remedies, at law or in equity, that they may have against each
other.
5.7 Binding Effect; Assignment. The rights and obligations of this Agreement shall
bind and inure to the benefit of the parties and their respective successors and permitted assigns.
The rights and obligations of this Agreement may not be assigned by either party without the prior
written consent of the other party.
16
5.8 Counterparts; Facsimile Signature. This Agreement may be executed by facsimile
signature and in any number of counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument.
5.9 Headings. The headings contained in this Agreement are for convenience of
reference only and are not to be given any legal effect and shall not affect the meaning or
interpretation of this Agreement.
5.10 Governing Law; Interpretation. This Agreement shall be construed in accordance
with and governed for all purposes by the laws of the State of Florida applicable to contracts
executed and to be wholly performed within such State.
5.11 Severability. The parties stipulate that the terms and provisions of this
Agreement are fair and reasonable as of the date of this Agreement. However, if any provision of
this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If,
moreover, any of those provisions shall for any reason be determined by a court of competent
jurisdiction to be unenforceable because excessively broad or vague as to duration, activity or
subject, it shall be construed by limiting, reducing or defining it, so as to be enforceable.
5.12 Intent of the Parties. The parties to this Agreement intend that the transaction
described in this Agreement is an arms-length, good faith purchase and sale of the Shares and,
notwithstanding any other agreements to the contrary, is not intended to be, and shall not be, a
loan. It is the intention of the parties, however, that if a court were ever to construe the
transaction described herein to be a loan, that this transaction conform strictly to applicable
usury laws from time to time in force, and all agreements between the parties, whether now existing
or hereafter arising and whether oral or written, are hereby expressly limited so that in no
contingency or event whatsoever, shall the amount paid or agreed to be paid to Lydian, or collected
by Lydian, for the use, forbearance or detention of money, or for the payment or performance of any
covenants contained in this Agreement or in any other agreements, exceed the maximum amount
permissible under applicable usury laws. If under any circumstances whatsoever fulfillment of any
provision hereof or of any other agreements, at the time performance of such provision shall be
due, shall involve an amount or any portion thereof in excess of the limit of validity prescribed
by law, then ipso facto, the payment to be made or the amount to be delivered or to
be fulfilled shall be reduced to the limit of such validity; and if under any circumstances Lydian
shall ever receive an amount deemed interest, by applicable law, which would exceed the highest
lawful rate, such amount that would be excessive interest under applicable usury laws shall be
applied to the reduction of the principal amount deemed due and owing hereunder and not to the
payment of interest, or if such excessive interest exceeds the unpaid balance of principal and
other indebtedness, the excess shall be deemed to have been a payment made by mistake and shall be
refunded to the party making such payment.
[SIGNATURES ON NEXT PAGE]
17
IN WITNESS WHEREOF, the parties hereto have caused this Subscription and Loan Satisfaction
Agreement to be duly executed and delivered as of the date first set forth above.
| BABYUNIVERSE, INC. |
LYDIAN TRUST COMPANY |
||||||
| By: | By: | ||||||
| Name: | Name: | ||||||
| Title: | Title: | ||||||
18
