SECURITIES PURCHASE AGREEMENT
EXHIBIT 99.4
THIS SECURITIES PURCHASE AGREEMENT is made as of May 24, 2007, by and between BabyUniverse,
Inc. (the “Company”), a corporation organized under the laws of the State of Florida, with its
principal offices at 000 Xxxxx X.X. Xxxxxxx Xxx, Xxxxx 000, Xxxxxxx, Xxxxxxx 00000, and the
purchaser whose name and address is set forth on the signature pages hereof (the “Purchaser”).
IN CONSIDERATION of the mutual covenants contained in this Agreement, the Company and the
Purchaser agree as follows:
SECTION 1. Authorization of Sale of the Securities. Subject to the terms and
conditions of this Agreement, the Company has authorized the issuance and sale of (i) that number
of shares (the “Shares”) of Series A Convertible Preferred Stock, par value $0.001 per share (the
“Convertible Preferred Stock”), of the Company, which is equal to (x) $1,799,996.88 divided by (y)
U.S.$7.88, the closing sale price of the common stock, par value $0.001 per share, of the Company
(the “Common Stock”), on The Nasdaq Capital Market as of the date hereof (the “Purchase Price Per
Share”), which Shares shall convert into shares (the “Conversion Shares”) of Common Stock, (a) at
the holder’s option, at any time after the issuance of such Shares, initially (subject to
adjustment) at a conversion ratio of 1:1, and (b) automatically, at an initial (subject to
adjustment) conversion ratio of 1:1, on the date on or prior to December 31, 2007 that the eToys
Merger (as defined below) is effective, all as more fully described in the Certificate of
Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock, Par
Value $0.001 per Share, of BabyUniverse, Inc. attached hereto at Exhibit A (the “Certificate of
Designation”); and (ii) that number of warrants (the “Warrants” and, together with the Shares, the
“Securities”), each representing the right to purchase one share of Common Stock (collectively, the
“Warrant Shares”) at an initial exercise price per share (subject to adjustment) equal to the
Purchase Price Per Share, which is equal to 25% of such aggregate number of Shares. The Company
reserves the right to increase the number of Shares and the number of Warrants sold in this private
placement prior to the Closing Date (as defined below) for the purpose of including therein the
Other Purchasers (as defined below). The “eToys Merger” means the merger of the Company with eToys
Direct, Inc., as discussed in the Memorandum (as defined below).
SECTION 2. Agreement to Sell and Purchase the Securities.
2.1 At the Closing (as defined below), the Company will, subject to the terms and conditions
of this Agreement, issue and sell to the Purchaser, and the Purchaser will buy from the Company,
upon the terms and conditions hereinafter set forth, the number of Shares and Warrants referenced
in Section 1, for an aggregate purchase price equal to the number of Shares so issued and sold to
the Purchaser, multiplied by the Purchase Price Per Share.
2.2 The Company may, in its sole and absolute discretion, enter into the same form of
purchase agreement with certain other investors (the “Other Purchasers”) and may, in its sole and absolute discretion, complete sales of additional Securities to
them.
The Purchaser and such Other Purchasers, if any, are hereinafter sometimes collectively
referred to as the “Purchasers,” and this Agreement and the agreements executed by such Other
Purchasers, if any, are hereinafter sometimes collectively referred to as the “Agreements.” The
term “Placement Agent” shall mean CIBC World Markets Corp.
2.3 In the event that the Company shall not have received on or prior to October 15, 2007
gross cash proceeds from issuances and sales of additional Securities to Other Purchasers in an
aggregate amount equal to at least $8,000,000 (which amount, for the avoidance of doubt, shall
not include any amounts received by the Company from the issuance and sale of Securities to the
Purchaser or any of its affiliates), then the Company shall issue and deliver to the Purchaser,
on October 16, 2007, at no additional cost to the Purchaser, 34,264 shares (as appropriately
adjusted for any stock split, stock dividend or other similar event affecting the number of
outstanding shares of Common Stock) of Common Stock (the “Minimum Offering Condition Shares”);
provided, however, that to the extent, but only to the extent, that such issuance
of shares of Common Stock requires (taking into account all factors deemed relevant by Nasdaq,
including, without limitation, the integration of such issuance with other issuances of
securities by the Company) the approval of the Company’s shareholders pursuant to Nasdaq
Marketplace Rule 4350(i)(D) (the shares with respect to which such approval is required, the
“Excess 2.3 Shares”), such Excess 2.3 Shares shall be issued to the Purchaser only after such
issuance has been approved by the Company’s shareholders as required by such Rule. In such
event, the Company shall promptly exert its commercially reasonable efforts in good faith to
procure such shareholder approval.
2.4 In the event that the eToys Merger shall not have been consummated by the Company on the
terms set forth in, and as otherwise described in, the Memorandum on or prior to October 15,
2007, then the Company shall issue and deliver to the Purchaser, on October 16, 2007, at no
additional cost to the Purchaser, an additional 22,843 shares (as appropriately adjusted for any
stock split, stock dividend or other similar event affecting the number of outstanding shares of
Common Stock) of Common Stock (the “Merger Condition Shares”, and together with the Minimum
Offering Condition Shares, the “Condition Shares”); provided, however, that to
the extent, but only to the extent, that such issuance of shares of Common Stock requires (taking
into account all factors deemed relevant by Nasdaq, including, without limitation, the
integration of such issuance with other issuances of securities by the Company) the approval of
the Company’s shareholders pursuant to Nasdaq Marketplace Rule 4350(i)(C)(ii) (the shares with
respect to which such approval is required, the “Excess 2.4 Shares”), such Excess 2.4 Shares
shall be issued to the Purchaser only after such issuance has been approved by the Company’s
shareholders as required by such Rule. In such event, the Company shall promptly exert its
commercially reasonable efforts in good faith to procure such shareholder approval.
SECTION 3. Delivery of the Securities at the Closing. The completion of the purchase
and sale of the Securities by the Purchaser (the “Closing”) shall occur at the offices of Xxxxxxxx
& Xxxxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 as soon as practicable and as
agreed to by the parties hereto, on a date within three business days following the execution and
mutual delivery of this Agreement, or on such later date or at such different location as the
parties shall agree in writing, but not prior to the date that the conditions
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for Closing set forth below have been satisfied or waived by the appropriate party (the
“Closing Date”).
At the Closing, the Company shall deliver to the Purchaser (i) one or more stock certificates
registered in the name of the Purchaser, or, if so indicated on the Securities Certificate
Questionnaire attached hereto as Appendix I, in such nominee name(s) as designated by the
Purchaser, representing the number of Shares referenced in Section 1 and (ii) one or more warrant
certificates registered in the name of the Purchaser, or, if so indicated on the Securities
Certificate Questionnaire attached hereto as Appendix I, in such nominee name(s) as designated by
the Purchaser, representing the number of Warrants referenced in Section 1, each bearing an
appropriate legend referring to the fact that such Securities were sold in reliance upon the
exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”)
provided by Section 4(2) thereof and Rule 506 thereunder. The name(s) in which the certificates
are to be registered are set forth in the Securities Certificate Questionnaire attached hereto as
Appendix I. At the Closing, (a) the Purchaser shall deliver to the Company same-day funds in the
full amount of the aggregate purchase price for the Securities being purchased by the Purchaser
hereunder, and (b) the Company shall also deliver to the Purchaser (i) a legal opinion in a form
reasonably satisfactory to counsel to the Purchaser and (ii) a certificate executed by the chief
executive officer and the chief financial or accounting officer of the Company, dated as of the
Closing Date, to the effect that the representations and warranties of the Company set forth herein
are true and correct as of such Closing Date and that the Company has complied with all the
agreements and satisfied all the conditions herein on its part to be performed or satisfied on or
prior to such Closing Date.
SECTION 4. Representations, Warranties and Covenants of the Company. The Company
hereby represents and warrants to, and covenants with, the Purchaser, as of the date hereof and as
of the Closing Date, as follows:
4.1 Organization; Good Standing. The Company has two material subsidiaries, Huta
Duna, Inc. (d/b/a, XxxxxxxxxXxxx.xxx), a California corporation, and Posh Tots, Inc., a Virginia
corporation (the “Subsidiaries”). The Company and each of the Subsidiaries are duly organized,
validly existing and in good standing under the laws of their respective jurisdictions of
incorporation or organization. The Company and each of its Subsidiaries is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction in which the
nature of the business conducted by it or location of the assets or properties owned, leased or
licensed by it requires such qualification, except for such jurisdictions where the failure to so
qualify individually or in the aggregate would not have a material adverse effect on the assets,
properties, condition, financial or otherwise, or in the results of operations, business affairs
or business prospects of the Company and its subsidiaries considered as a whole (a “Material
Adverse Effect”); and to the Company’s knowledge, no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power
and authority or qualification.
4.2 Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock and 10,000,000 shares of preferred stock,
par value $0.001 per share (the “Preferred Stock”), of the Company. As of the date hereof: (i)
5,694,914 shares of Common Stock are issued and outstanding and no
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shares of Preferred Stock are issued and outstanding; (ii) 268,748 shares of Common Stock
are reserved for issuance and issuable upon exercise of outstanding options to purchase Common
Stock; and (iii) 334,667 shares of Common Stock are reserved for issuance and issuable upon
exercise of outstanding warrants to purchase Common Stock, and there are no other rights to
purchase from the Company any shares of its capital stock other than pursuant to this Agreement.
The certificates evidencing the Shares, the Conversion Shares, the Warrants and the Condition
Shares issued or issuable to the Purchaser are (or will be) in due and proper legal form and have
been duly authorized for issuance by the Company. All of the issued and outstanding shares of
Common Stock have been duly and validly issued and are fully paid and nonassessable. There are
no statutory preemptive or other similar rights to subscribe for or to purchase or acquire any
shares of Common Stock of the Company or any of its subsidiaries or any such rights pursuant to
its Articles of Incorporation or Certificate of Incorporation or by-laws or any agreement or
instrument to or by which the Company or any of its subsidiaries is a party or bound. 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. The Company has reserved from its duly
authorized capital stock (x) the maximum number of shares of Common Stock issuable pursuant to
the conversion of the Shares into the Conversion Shares and upon exercise of the Warrants and (y)
the maximum number of Condition Shares that may be required to be issued by the Company pursuant
to Sections 2.3 and 2.4. The Warrants, 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. The
Conversion Shares, when issued and delivered and paid for as provided herein, will be duly
authorized, validly issued, fully paid and nonassessable and will be issued free and clear of any
security interests, liens, encumbrances, equities or claims. The Warrant Shares, when issued and
delivered upon exercise of the Warrants in accordance with their terms, will be duly authorized,
validly issued, fully paid and nonassessable and will be issued free and clear of any security
interests, liens, encumbrances, equities or claims. The Condition Shares, when issued and
delivered pursuant to Sections 2.3 and 2.4, will be duly authorized, validly issued, fully paid
and nonassessable and will be issued free and clear of any security interests, liens,
encumbrances, equities or claims. Except as disclosed in the Confidential Private Placement
Memorandum, dated May 8, 2007 and attached hereto as Annex A, relating to the offering of the
Securities, including all exhibits thereto, documents expressly incorporated by reference therein
and annexes thereto, as the same was supplemented pursuant to the Supplement No. 1 to
Confidential Private Placement Memorandum, dated May 24, 2007 and attached hereto as Annex B (the
“Memorandum”), or this Agreement, there is no outstanding option, warrant or other right calling
for the issuance of, and there is no commitment, plan or arrangement to issue, any share of stock
of the Company or any of its subsidiaries or any security convertible into, or exercisable or
exchangeable for, such stock. The Common Stock, the Shares and the Warrants conform in all
material respects to all statements in relation thereto contained in the Memorandum. All
outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and
validly issued, and are fully paid and nonassessable and are owned directly by the Company or by
another wholly-owned subsidiary of the Company free and clear of any security interests, liens,
encumbrances, equities or claims.
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4.3 Due Authorization. This Agreement has been duly authorized, executed and
delivered by the Company and, assuming execution by each of the other parties thereto, constitute
the legal, valid and binding obligation of the Company, enforceable in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to the enforcement of
creditor’s rights and the application of equitable principles relating to the availability of
remedies, and except as rights to indemnity or contribution, including, but not limited to, the
indemnification provisions contained in Section 7.3 of this Agreement, may be limited by federal
or state securities laws or the public policy underlying such laws. All necessary corporate
action has been duly and validly taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the Securities, the Conversion Shares,
the Warrant Shares and the Condition Shares by the Company.
4.4 No Default or Consents. Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation by the Company of any of the transactions
contemplated hereby (including, without limitation, the issuance and sale by the Company of the
Securities, the Conversion Shares, the Warrant Shares and the Condition Shares) will give rise to
a right to terminate or accelerate the due date of any payment due under, or conflict with or
result in the breach of any term or provision of, or constitute a default (or an event which with
notice or lapse of time or both would constitute a default) under, or require any consent or
waiver under, or result in the execution or imposition of any lien, charge or encumbrance upon
any properties or assets of the Company or its subsidiaries pursuant to the terms of, any
indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which either the Company or its subsidiaries or any of their
properties or businesses is bound, or any franchise, license, permit, judgment, decree, order,
statute, rule or regulation applicable to the Company or any of its subsidiaries or violate any
provision of the charter or by-laws of the Company or any of its subsidiaries, except for such
consents or waivers which have already been obtained and are in full force and effect.
4.5 Permits. The Company and each of the Subsidiaries has all requisite corporate
power and authority, and all necessary authorizations, approvals, consents, orders, licenses,
certificates and permits of and from all governmental or regulatory bodies or any other person or
entity (collectively, the “Permits”), to own, lease and license its assets and properties and
conduct its business, all of which are valid and in full force and effect, except where the lack
of such Permits, individually or in the aggregate, would not have a Material Adverse Effect. The
Company and each of the Subsidiaries has fulfilled and performed in all material respects all of
its material obligations with respect to such Permits and no event has occurred that allows, or
after notice or lapse of time would allow, revocation or termination thereof or results in any
other material impairment of the rights of the Company thereunder. Except as may be required as
to the Company under the Securities Act and state Blue Sky laws, no other Permits are required to
enter into, deliver and perform this Agreement and to issue and sell the Securities to the
Purchaser.
4.6 Real and Personal Property. The Company and each of the Subsidiaries has good
and marketable title in fee simple to all real property, and good and
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marketable title to all other property, owned by it, in each case free and clear of all
liens, encumbrances, claims, security interests and defects, except such as are disclosed in the
SEC Documents (as defined below), or do not materially affect the value of such property and do
not materially interfere with the use made or proposed to be made of such property by the Company
and the Subsidiaries. All property held under lease by the Company and the Subsidiaries is held
by them under valid, existing and enforceable leases, free and clear of all liens, encumbrances,
claims, security interests and defects, except such as are disclosed in the SEC Documents (as
defined below), or have arisen in the ordinary course of business of the Company and its
subsidiaries and do not materially interfere with the use made or proposed to be made of such
property by the Company and the Subsidiaries.
4.7 Material Contracts. Each contract, document or other agreement described in the
Memorandum which is material to the current business of the Company is in full force and effect
and is valid and enforceable by and against the Company or any of its subsidiaries, as the case
may be, in accordance with its terms. Neither the Company nor any of its subsidiaries, if a
subsidiary is a party, nor to the Company’s knowledge, any other party, is in default in the
observance or performance of any term or obligation to be performed by it under any such
agreement, except to the extent that any such default or event, individually or in the aggregate,
would not have a Material Adverse Effect.
4.8 No Violation. Neither the Company nor its subsidiaries is in violation of its
any term of its charter or by-laws or of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation, where the consequences of such violation, individually or in the
aggregate, would have a Material Adverse Effect.
4.9 Consents and Approvals. Each approval, consent, order, authorization,
designation, declaration or filing of, by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the Company of this
Agreement and the consummation of the transactions herein contemplated required to be obtained or
performed by the Company on or prior to the date hereof has been so obtained or performed.
4.10 No Material Misstatement. The Memorandum (excluding for purposes of this
Section 4.10 the exhibits and annexes thereto and the documents incorporated by reference
therein) did not, as of its date, does not as of the date hereof, and will not as of the Closing
Date, contain any untrue statement of a material fact or omit to state any 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.
4.11 Incorporated Documents.
(a) The documents incorporated by reference in the Memorandum or attached as exhibits thereto,
at the time (if applicable) they became effective or were filed with the Securities and Exchange
Commission (the “Commission”), as the case may be, complied in all material respects with the
requirements of the Securities Act or the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), as applicable, and the rules and regulations of the Commission thereunder (the
“Rules and Regulations”), and none of such documents included
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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.
(b) In the past 12 calendar months, the Company has filed all documents required to be filed
by it prior to the date hereof with the Commission pursuant to the reporting requirements of the
Exchange Act (the “SEC Documents”).
4.12 Financial Statements. The financial statements of the Company (including all
notes and schedules thereto) included or incorporated by reference in the Memorandum present
fairly the financial position of the Company and its consolidated subsidiaries at the dates
indicated and the statement of operations, stockholders’ equity and cash flows of the Company and
its consolidated subsidiaries for the periods specified; and such financial statements and
related schedules and notes thereto, and the unaudited financial information included or
incorporated by reference in the Memorandum have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the periods involved. The summary
financial data included in the Memorandum present fairly the information shown therein as at the
respective dates and for the respective periods specified and have been presented on a basis
consistent with the consolidated financial statements and other financial information set forth
in the Memorandum. There are no material off-balance sheet arrangements (as defined in Item 303
of the Commission’s Regulation S-K) that have or are reasonably likely to have a material current
or future effect on the Company’s financial condition, revenues or expenses, changes in financial
condition, results of operations, liquidity, capital expenditures or capital resources.
4.13 Intellectual Property. The Company and each of the Subsidiaries owns or
possesses legally enforceable rights to use all patents, patent rights, inventions, trademarks,
trademark applications, trade names, service marks, copyrights, copyright applications, licenses,
know-how and other similar rights and proprietary knowledge (collectively, “Intangibles”)
necessary for the conduct of its current business. Neither the Company nor either of the
Subsidiaries has received any notice of, and is not aware of, any infringement of or conflict
with asserted rights of others with respect to any Intangibles, except for any such infringement
or conflict that would not result in a Material Adverse Effect.
4.14 No Material Adverse Change. Since the date of the most recent financial
statements of the Company included or incorporated by reference in the Memorandum (the “Financial
Statements”) and except as otherwise discussed in the Memorandum, (i) there has not been any
material adverse change in the business, properties, management, financial position,
stockholders’ equity, results of operations or prospects of the Company and its subsidiaries
taken as a whole; (ii) neither the Company nor either of the Subsidiaries has sustained any
material loss or interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor disturbance or dispute or any action,
order or decree of any court or arbitrator or governmental or regulatory authority; and (iii)
since the date of the latest balance sheet included in the Financial Statements, neither the
Company nor either of the Subsidiaries has (A) issued or incurred any liability or obligation,
direct or contingent, for borrowed money, except such
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liabilities or obligations incurred in the ordinary course of business or (B) entered into
any transaction not in the ordinary course of business.
4.15 No Registration Rights. No holder of any security of the Company has any
right, which has not been irrevocably waived, to have any security owned by such holder included
in the offering of Securities contemplated by the Memorandum or in the registration statement to
be filed by the Company pursuant to Section 7.1 (the “Registration Statement”) with the
Commission or to demand registration of any such security owned by such holder for a period of
180 days after the date of this Agreement.
4.16 Legal Proceedings. Except as described in the Memorandum, there are no legal
or governmental proceedings pending to which the Company or any of its subsidiaries is a party or
of which any property of the Company or any of its subsidiaries is the subject which the Company
believes will have a Material Adverse Effect.
4.17 Employees. Neither the Company nor any of its subsidiaries is involved in any
labor dispute nor, to the knowledge of the Company, is any such dispute threatened, which dispute
would have a Material Adverse Effect. The Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers or contractors which would have a
Material Adverse Effect. The Company is not aware of any threatened or pending litigation between
the Company or its subsidiaries and any of its executive officers which, if adversely determined,
could have a Material Adverse Effect and has no reason to believe that such officers will not
remain in the employment of the Company.
4.18 Taxes. The Company and each of its Subsidiaries has filed all Federal, state,
local and foreign tax returns which are required to be filed through the date hereof, which
returns are true and correct in all material respects or has received timely extensions thereof,
and has paid all taxes shown on such returns and all assessments received by it to the extent
that the same are material and have become due. There are no tax audits or investigations
pending, which if adversely determined would have a Material Adverse Effect; nor are there any
material proposed additional tax assessments against the Company or either of the Subsidiaries.
4.19 Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as are
customary in the businesses in which they are engaged or propose to engage after giving effect to
the transactions described in the Memorandum; all policies of insurance and fidelity or surety
bonds insuring the Company or either of the Subsidiaries or the Company’s or the Subsidiaries’
respective businesses, assets, employees, officers and directors are in full force and effect;
the Company and each of the Subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and neither the Company nor any subsidiary of the Company
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 is not materially greater than the current
cost. Neither the Company nor either of the
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Subsidiaries has been denied any insurance coverage which it has sought or for which it has
applied.
4.20 Environmental Laws. (i) Each of the Company and its subsidiaries is in
compliance in all material respects with all rules, laws and regulation relating to the use,
treatment, storage and disposal of toxic substances and protection of health or the environment
(“Environmental Laws”) which are applicable to its business; (ii) neither the Company nor its
subsidiaries has received any notice from any governmental authority or third party of an
asserted claim under Environmental Laws; (iii) each of the Company and its subsidiaries has
received all permits, licenses or other approvals required of it under applicable Environmental
Laws to conduct its business and is in compliance with all material terms and conditions of any
such permit, license or approval; (iv) to the Company’s knowledge, no facts currently exist that
will require the Company or any of its subsidiaries to make future material capital expenditures
to comply with Environmental Laws; and (v) no property which is or has been owned, leased or
occupied by the Company or its subsidiaries has been designated as a Superfund site pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Section 9601, et. seq.) (“CERCLA”) or otherwise designated as a contaminated site under
applicable state or local law. Neither the Company nor any of its subsidiaries has been named as
a “potentially responsible party” under CERCLA.
4.21 Listing Compliance. The Company is in compliance with the requirements of The
Nasdaq Capital Market for continued quotation of the Common Stock thereon. The Company has taken
no action designed to, or likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act or the quotation of the Common Stock on The Nasdaq Capital
Market, nor has the Company received any notification that the Commission or The Nasdaq Capital
Market is contemplating terminating such registration or quotation. The transactions
contemplated by this Agreement will not contravene the rules and regulations of The Nasdaq
Capital Market. The Company will use commercially reasonable efforts to continue the listing and
trading of its Common Stock on The Nasdaq Capital Market and to comply in all material respects
with the Company’s reporting, filing and other obligations under the rules of The Nasdaq Capital
Market. The Company covenants to file the appropriate additional listing application with The
Nasdaq Capital Market within three business days of the Closing Date, in order that the
Conversion Shares, the Warrant Shares and the Condition Shares be duly authorized for quotation
on The Nasdaq Capital Market.
4.22 Market Stabilization. The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be expected to cause or result in,
or which has constituted or which might reasonably be expected to constitute, the stabilization
or manipulation of the price of the Common Stock or any security of the Company to facilitate the
sale or resale of any of the Shares, the Conversion Shares, the Warrant Shares or the Condition
Shares.
4.23 Independent Accountants. Singer, Lewak, Xxxxxxxxx and Xxxxxxxxx, LLP and
Xxxxxxxxx & Associates, P.A., whose reports are incorporated by reference in the Memorandum, are
and, during the periods covered by their reports, were,
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independent certified public accountants as required by the Securities Act, and the Rules
and Regulations and have not been engaged by the Company to perform any “prohibited activities”
(as defined in Section 10A of the Exchange Act).
4.24 Internal Controls. The books, records and accounts of the Company and the
Subsidiaries accurately and fairly reflect, in reasonable detail, the transactions in, and
dispositions of, the assets of, and the results of operations of, the Company and its
subsidiaries. The Company has established and maintains disclosure controls and procedures (as
such term is defined in Rule 13a-15 and 15d-14 under the Exchange Act), which: (i) are designed
to ensure that material information relating to the Company is made known to the Company’s
principal executive officer and its principal financial officer by others within the Company,
particularly during the periods in which the periodic reports required under the Exchange Act are
required to be prepared; (ii) provide for the periodic evaluation of the effectiveness of such
disclosure controls and procedures at the end of the periods in which the periodic reports are
required to be prepared; and (iii) are effective in all material respects to perform the
functions for which they were established. The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are executed in
accordance with management’s general or specific authorization; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (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 existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
4.25 Xxxxxxxx-Xxxxx Compliance. The Company is in compliance with all applicable
provisions of the Xxxxxxxx-Xxxxx Act of 2002, any related rules and regulations promulgated by
the Commission and applicable corporate governance requirements under the NASD Rules (as defined
below). The Company’s Board of Directors has validly appointed an audit committee whose
composition satisfies the requirements of Rule 4350(d)(2) of the Rules of the National
Association of Securities Dealers (the “NASD Rules”) and the Board of Directors and/or the audit
committee has adopted a charter that satisfies the requirements of Rule 4350(d)(1) of the NASD
Rules.
4.26 Foreign Corrupt Practices Act. The Company or any other person associated with
or acting on behalf of the Company including, without limitation, any director, officer, agent or
employee of the Company or its subsidiaries, has not, directly or indirectly, while acting on
behalf of the Company or its subsidiaries (i) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to political activity;
(ii) made any unlawful payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns from corporate funds; (iii) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any similar
unlawful payment.
4.27 Foreign Transactions Reporting Act. The operations of the Company and its
subsidiaries are and have been conducted at all times in compliance with applicable financial
recordkeeping and reporting requirements of the Currency and Foreign
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Transactions Reporting Act of 1970, as amended, the money laundering statutes of all
jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations
or guidelines, issued, administered or enforced by any governmental agency (collectively, the
“Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental
agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with
respect to the Money Laundering Laws is pending, or to the best knowledge of the Company,
threatened.
4.28 OFAC. Neither the Company nor any of its subsidiaries nor, to the knowledge of
the Company, any director, officer, agent, employee or affiliate of the Company or any of its
subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign
Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or
indirectly use the proceeds of the offering of the Securities, or lend, contribute or otherwise
make available such proceeds to any subsidiary, joint venture partner or other person or entity,
for the purpose of financing the activities of any person currently subject to any U.S. sanctions
administered by OFAC.
4.29 ERISA. The Company has fulfilled its obligations, if any, under the minimum
funding standards of Section 302 of the U.S. Employee Retirement Income Security Act of 1974
(“ERISA”) and the regulations and published interpretations thereunder with respect to each
“plan” as defined in Section 3(3) of ERISA (and such regulations and published interpretations)
in which its employees are eligible to participate and each such plan is in compliance in all
material respects with the presently applicable provisions of ERISA and such regulations and
published interpretations. No “Reportable Event” (as defined in ERISA) has occurred with respect
to any “Pension Plan” (as defined in ERISA) for which the Company could have any liability.
4.30 Investment Company. The Company is not, and after giving effect to the
offering and sale of the Securities and the application of the proceeds thereof as described in
the Memorandum will not be, an “investment company” or an entity “controlled” by an “investment
company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder.
4.31 Brokers or Finders. No broker, investment banker, financial advisor or other
individual, corporation, general or limited partnership, limited liability company, firm, joint
venture, association, enterprise, joint securities company, trust, unincorporated organization or
other entity, other than the Placement Agent, the fees and expenses of which will be paid by the
Company, is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or
commission in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
4.32 Use of Proceeds. The Company intends to use the net proceeds from the sale of
the Securities as described in the Memorandum.
4.33 No Restrictions on Subsidiaries. The subsidiaries of the Company are not
currently prohibited, directly or indirectly, under any agreement or other instrument to which
any such subsidiary is a party or is subject, from paying any dividends to
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the Company, from making any other distribution on the subsidiary’s capital stock, from
repaying to the Company any loans or advances to the subsidiary from the Company or from
transferring any of such subsidiary’s properties or assets to the Company.
4.34 Form S-3. The Company is not an “ineligible issuer” (as defined in Rule 405
promulgated under the Securities Act) and is eligible to register the Conversion Shares for
resale by the Purchaser on a registration statement on Form S-3 under the Securities Act.
Provided that the Purchaser is not deemed to be an underwriter with respect to any shares, to the
Company’s knowledge, there exist no facts or circumstances (including without limitation any
required approvals or waivers or any circumstances that may delay or prevent the obtaining of
accountant’s consents) that reasonably could be expected to prohibit or delay the preparation and
filing of a registration statement on Form S-3 that will be available for the resale of the
Conversion Shares, the Warrant Shares and the Condition Shares by the Purchaser.
4.35 Related Party Transactions. Except for those transactions that are not
required to be disclosed by the Company pursuant to the Rules and Regulations under the Exchange
Act, no transaction has occurred during the time periods covered by the SEC Documents between or
among the Company or its subsidiaries and any of its officers or directors, shareholders or any
affiliate or affiliates of any such officer or director or shareholder that is not described in
the Memorandum or the SEC Documents.
SECTION 5. Representations, Warranties and Covenants of the Purchaser. The Purchaser
represents and warrants to, and covenants with, the Company, as of the date hereof and as of the
Closing Date, that:
5.1 Experience. (i) The Purchaser is knowledgeable, sophisticated and experienced
in financial and business matters, and in making, and is qualified to make, decisions with
respect to investments in shares representing an investment decision like that involved in the
purchase of the Securities, including investments in securities issued by the Company and/or
comparable entities, has the ability to bear the economic risks of an investment in the
Securities and has reviewed carefully the information in the Memorandum and has had the
opportunity to request, receive, review and consider all information it deems relevant in making
an informed decision to purchase the Securities; (ii) the Purchaser is acquiring the number of
Shares and Warrants set forth on the signature pages hereto in the ordinary course of its
business and for its own account for investment only and with no present intention of
distributing any of such Securities and subject to no arrangement or understanding with any other
persons regarding the distribution of such Securities (this representation and warranty not
limiting the Purchaser’s right to sell pursuant to the Registration Statement or otherwise in
compliance with the Securities Act and the Rules and Regulations, or, other than with respect to
any claims arising out of a breach of this representation and warranty, the Purchaser’s right to
indemnification under Section 7.3); (iii) the Purchaser will not, directly or indirectly, offer,
sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) any of the Securities, except in compliance with the
Securities Act and the Rules and Regulations, any applicable state securities laws and Section
5.10 hereof; (iv) the Purchaser has completed or caused to be completed the Registration
Statement Questionnaire attached hereto as part of Appendix I, for use in
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preparation of the Registration Statement, and the answers thereto are true and correct as
of the date hereof and will be true and correct as of the effective date of the Registration
Statement and the Purchaser will promptly notify the Company of any material change in any such
information provided in the Registration Statement Questionnaire until such time as the Purchaser
has sold all of its Securities, Conversion Shares, Warrant Shares and Condition Shares or until
the Company is no longer required to keep the Registration Statement effective; (v) the Purchaser
has, in connection with its decision to purchase the number of Shares and Warrants set forth on
the signature pages hereto, relied solely upon the Memorandum and the representations and
warranties of the Company contained herein; (vi) the Purchaser has had an opportunity to discuss
this investment with representatives of the Company and ask questions of them; and (vii) the
Purchaser is an “accredited investor” within the meaning of Rule 501(a) of Regulation D
promulgated under the Securities Act.
5.2 Reliance on Exemptions. The Purchaser understands that the Securities are being
offered and sold to it in reliance upon specific exemptions from the registration requirements of
the Securities Act, the Rules and Regulations and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Purchaser’s compliance with, the representations,
warranties, covenants, agreements, acknowledgments and understandings of the Purchaser set forth
herein in order to determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Securities.
5.3 Confidentiality. The Purchaser understands that the information contained in
the Memorandum is strictly confidential and proprietary to the Company and has been prepared from
the Company’s publicly available documents and other information and is being submitted to the
Purchaser solely for the Purchaser’s confidential use. The Purchaser agrees to use the
information contained in the Memorandum for the sole purpose of evaluating a possible investment
in the Securities and the Purchaser acknowledges that it is prohibited from reproducing or
distributing the Memorandum, this Agreement, or any other offering materials or other information
provided by the Company in connection with the Purchaser’s consideration of its investment in the
Company, in whole or in part, or divulging or discussing any of their contents, except to its
financial, investment or legal advisors who need to know such contents in connection with its
proposed investment in the Securities and who are informed of the confidentiality obligations set
forth in this Section 5.3. Further, the existence and nature of all conversations and
presentations, if any, regarding the Company and this offering must be kept strictly
confidential. The Purchaser understands that the federal securities laws impose restrictions on
trading based on material non-public information regarding the Company. In addition, the
Purchaser hereby acknowledges that unauthorized disclosure of information regarding this offering
may result in a violation of the Commission’s Regulation FD. In addition to the above, the
Purchaser shall maintain in confidence the receipt and content of any notice of a Suspension (as
defined in Section 5.8). The foregoing agreements shall not apply to any information that is or
becomes publicly available through no fault of the Purchaser, or that the Purchaser is required
to disclose pursuant to law or legal process; provided, however, that if the Purchaser is
requested or ordered to disclose any such information pursuant to any court or other government
order or any other applicable legal procedure, it shall provide the Company with prompt notice of
any such request or order in time sufficient to enable the Company to seek an appropriate
protective order.
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5.4 Investment Decision. The Purchaser understands that nothing in this Agreement
or any other materials presented to the Purchaser in connection with the purchase and sale of the
Securities constitutes legal, tax or investment advice. The Purchaser has consulted such legal,
tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of the Securities.
5.5 Risk of Loss. The Purchaser understands that its investment in the Securities
involves a significant degree of risk, including a risk of total loss of the Purchaser’s
investment, and the Purchaser has full cognizance of and understands all of the risk factors
related to the Purchaser’s purchase of the Securities, including, but not limited to, those set
forth under the caption “Risk Factors” in the Memorandum. The Purchaser understands that the
market price of the Common Stock can be volatile and that no representation is being made as to
the future value of the Common Stock.
5.6 Legend. The Purchaser understands that, until such time as the Registration
Statement has been declared effective or the Securities, the Conversion Shares and the Warrant
Shares may be sold pursuant to Rule 144 under the Securities Act without any restriction as to
the number of securities as of a particular date that can then be immediately sold thereon, the
Securities, the Conversion Shares and the Warrant Shares will bear a restrictive legend in
substantially the following form:
“THE SECURITIES 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 SECURITIES 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, 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.”
5.7 Residency. The Purchaser’s principal executive offices are in the jurisdiction
set forth immediately below the Purchaser’s name on the signature pages hereto.
5.8 Public Sale or Distribution. The Purchaser hereby covenants with the Company
not to make any sale of the Conversion Shares, the Warrant Shares or the Condition Shares under
the Registration Statement without complying with the provisions of
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this Agreement and without effectively causing any applicable prospectus delivery
requirement under the Securities Act to be satisfied (whether physically or through compliance
with Rule 172 under the Securities Act or any similar rule. The Purchaser acknowledges that (i)
upon the making of any request by the Commission or any other federal or state governmental
authority for amendments or supplements to the Registration Statement or the prospectus included
therein (“Prospectus”) or for additional information, (ii) upon the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose, (iii) upon the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose, (iv) upon the occurrence of any event or passage of time that makes
the financial statements included in the Registration Statement ineligible for inclusion therein
or any statement made in such Registration Statement or Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect, or (v) in light
of the existence of material non-public information regarding the Company which the Board of
Directors of the Company reasonably determines not to be in the best interests of the Company to
disclose, including a significant business opportunity (including, but not limited to, the
acquisition or disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or similar transaction) available to the Company, but which
would be required to be disclosed in a Registration Statement, the Company may be required to
suspend the use of the Prospectus (a “Suspension”) until such time as an amendment to the
Registration Statement has been filed by the Company and declared effective by the Commission, or
until such time as the Company has filed an appropriate report with the Commission pursuant to
the Exchange Act. Without the Company’s prior written consent, which consent shall not
unreasonably be withheld or delayed, the Purchaser shall not use any written materials to offer
the Conversion Shares, Warrant Shares or Condition Shares for resale other than the Prospectus,
including any “free writing prospectus” as defined in Rule 405 under the Securities Act. The
Purchaser hereby covenants that it will not sell any Conversion Shares, Warrant Shares or
Condition Shares pursuant to said Prospectus during the period commencing at the time at which
the Company gives the Purchaser written notice of the Suspension of the use of said Prospectus
and ending at the time the Company gives the Purchaser written notice that the Purchaser may
thereafter effect sales pursuant to said Prospectus. Notwithstanding the foregoing, the Company
agrees that no Suspension shall be for a period of longer than 60 consecutive days, and no
Suspension shall be for a period of an aggregate in any 365-day period of longer than 90 days.
5.9 Organization; Validity; Enforcement. The Purchaser further represents and
warrants to, and covenants with, the Company that (i) the Purchaser has full right, power,
authority and capacity to enter into this Agreement and to consummate the transactions
contemplated hereby and has taken all necessary action to authorize the execution, delivery and
performance of this Agreement, (ii) the making and performance of this Agreement by the Purchaser
and the consummation of the transactions herein contemplated will not violate any provision of
the organizational documents of the Purchaser or conflict with, result in the breach or violation
of, or constitute, either by itself or upon notice or the passage of time or both, a default
under any material agreement, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument to which the Purchaser
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is a party, or any statute or any authorization, judgment, decree, order, rule or regulation
of any court or any regulatory body, administrative agency or other governmental agency or body
applicable to the Purchaser, (iii) no consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental agency or body is required on
the part of the Purchaser for the execution and delivery of this Agreement or the consummation of
the transactions contemplated by this Agreement, (iv) upon the execution and delivery of this
Agreement, this Agreement shall constitute a legal, valid and binding obligation of the
Purchaser, enforceable in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to the enforcement of creditor’s rights and the application of equitable
principles relating to the availability of remedies, and except as rights to indemnity or
contribution, including, but not limited to, the indemnification provisions set forth in Section
7.3 of this Agreement, may be limited by federal or state securities laws or the public policy
underlying such laws, and (v) there is not in effect any order enjoining or restraining the
Purchaser from entering into or engaging in any of the transactions contemplated by this
Agreement.
5.10 Short Sales. Notwithstanding any term to the contrary herein, (x) during the
30-day period ending on the Closing Date (the “Prior Period”) the Purchaser has not taken, and
for a period of 30 days commencing with the Closing Date the Purchaser shall not take, any action
that has caused or will cause the Purchaser to have, directly or indirectly, effected any short
sale of the Common Stock, whether or not against the box, established any “put equivalent
position” (as defined in Rule 16a-1(h) under the Exchange Act with respect to the Common Stock,
granted any other right (including, without limitation, any put or call option) with respect to
the Common Stock or with respect to any security that includes, relates to or derived any
significant part of its value from the Common Stock; and (y) during the Prior Period the
Purchaser has not sold or agreed to sell, directly or indirectly, any shares of Common Stock.
SECTION 6. Survival of Representations, Warranties and Agreements. Notwithstanding
any investigation made by any party to this Agreement or by the Placement Agent, all covenants and
agreements made by the Company and the Purchaser herein and in the certificates for the Shares and
Warrants delivered pursuant hereto shall survive the execution of this Agreement, the delivery to
the Purchaser of the Securities being purchased and the payment therefor. All representations and
warranties made by the Company and the Purchaser herein and in the certificates for the Securities
delivered pursuant hereto shall survive for a period of one year following the later of the
execution of this Agreement, the delivery to the Purchaser of the Securities being purchased and
the payment therefor.
SECTION 7. Registration of the Securities; Compliance with the Securities Act.
7.1 Registration Procedures and Expenses. The Company shall:
(a) as soon as practicable, but in no event later than fifteen days following the Closing Date
(the “Filing Deadline”), prepare and file with the Commission a Registration Statement on Form S-3
relating to the resale of (x) the Conversion Shares, the
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Warrant Shares and the Condition Shares and (y) any shares of Common Stock issued or issuable
directly or indirectly with respect to the securities referred to in clause (x) by way of stock
dividend or stock split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization (together, for purposes of this Section 7, the “Registrable
Securities”) by the Purchaser and the Other Purchasers from time to time on The Nasdaq Capital
Market, or the facilities of any other national securities exchange on which the Common Stock is
then traded or in privately-negotiated transactions;
(b) use its reasonable best efforts, subject to receipt of necessary information from the
Purchasers, to cause the Commission to declare the Registration Statement effective within 30 days
after the Closing Date or, if the Commission reviews the Registration Statement, within 120 days
after the Closing Date (the “Effective Deadline”);
(c) promptly prepare and file with the Commission such amendments and supplements to the
Registration Statement and the Prospectus as may be necessary to keep the Registration Statement
effective until (the “Effectiveness Period”) 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) 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;
(d) so long as the Registration Statement is effective covering the resale of the Registrable
Securities owned by the Purchaser, furnish to the Purchaser with respect to the Conversion Shares,
Warrant Shares and Condition Shares registered under the Registration Statement (and to each
underwriter, if any, of such Conversion Shares, Warrant Shares and Condition Shares) such number of
copies of prospectuses and such other documents as the Purchaser may reasonably request, in order
to facilitate the public sale or other disposition of all or any of the Registrable Securities by
the Purchaser;
(e) file documents required of the Company for normal Blue Sky clearance in states specified
in writing by the Purchaser; provided, however, that the Company shall not be
required to qualify to do business or consent to service of process in any jurisdiction in which it
is not now so qualified or has not so consented;
(f) bear all expenses in connection with the procedures in paragraphs (a) through (e) of this
Section 7.1 and the registration of the Registrable Securities pursuant to the Registration
Statement, other than fees and expenses, if any, of counsel or other advisers to the Purchaser or
the Other Purchasers (in each case except as otherwise provided herein) or underwriting discounts,
brokerage fees and commissions incurred by the Purchaser or the Other Purchasers, if any, in
connection with the offering of the Registrable Securities pursuant to the Registration Statement;
(g) file a Form D with respect to offer and sale of the Securities to the Purchaser as
required under Regulation D under the Securities Act and to provide a copy thereof to the Purchaser
promptly after filing; and
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(h) file, not later than the next business day after the Closing Date, a Current Report on
Form 8-K with the Commission disclosing all material terms of the transactions contemplated hereby
in accordance with the applicable Rules and Regulations.
The Company understands that the Purchaser disclaims being an underwriter, but the Purchaser
being deemed an underwriter shall not relieve the Company of any obligations it has hereunder. A
questionnaire related to the Registration Statement to be completed by the Purchaser is attached
hereto as part of Appendix I.
7.2 Transfer of Securities. The Purchaser agrees that it will not effect any
disposition of the Securities (as well as any Conversion Shares, Warrant Shares or Condition
Shares) or its right to purchase the Securities (as well as any Conversion Shares, Warrant Shares
or Condition Shares) that would constitute a sale within the meaning of the Securities Act or any
applicable state securities laws, except as contemplated in the Registration Statement (in the
case of the Conversion Shares, the Warrant Shares and the Condition Shares) or as otherwise
permitted by law, and that it will promptly notify the Company of any changes in the information
set forth in the Registration Statement regarding the Purchaser or its plan of distribution.
7.3 Indemnification. For the purpose of this Section 7.3:
(i) the term “Purchaser/Affiliate” shall mean any affiliate of
the Purchaser, including a transferee of the Securities from
the Purchaser who is an affiliate of the Purchaser, and any
person who controls the Purchaser or any affiliate of the
Purchaser within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act; and
(ii) the term “Registration Statement” shall include any
preliminary prospectus, final prospectus, free writing
prospectus, exhibit, supplement or amendment included in or
relating to, and any document incorporated by reference in, the
Registration Statement.
(a) The Company agrees to indemnify and hold harmless the Purchaser and each
Purchaser/Affiliate against any losses, claims, damages, liabilities or expenses, joint or several,
to which the Purchaser or Purchaser/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), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the Registration Statement,
including the Prospectus, financial statements and schedules, and all other documents filed as a
part thereof, as amended at the time of effectiveness of the 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, of the Rules and Regulations, or the
Prospectus, in the form first filed with the
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Commission pursuant to Rule 424(b) of the Rules and Regulations, or filed as part of the
Registration Statement at the time of effectiveness if no Rule 424(b) filing is required, or any
amendment or supplement thereto, or arise out of or are based upon 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 arise out of or are based in whole or in part on any breach by the Company of the
representations or warranties of the Company contained in this Agreement, or any failure of the
Company to perform its obligations hereunder or under law, and will promptly reimburse the
Purchaser and each such Purchaser/Affiliate for any legal and other expenses as such expenses are
reasonably incurred by the Purchaser or such Purchaser/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 the Registration Statement, the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the Company by the Purchaser
expressly for use therein, or (ii) the failure of the Purchaser to comply with the covenants and
agreements contained in Sections 5 or 7.2, or (iii) the breach by the Purchaser of any
representation or warranty made by the Purchaser herein, or (iv) any statement or omission in any
Prospectus that is corrected in any subsequent Prospectus that was delivered to the Purchaser prior
to the pertinent sale or sales by the Purchaser, or (v) any violation by the Purchaser of any
applicable federal or state securities laws, rule or regulations.
(b) The Purchaser will severally, but not jointly with the Other Purchasers, indemnify and
hold harmless the Company, each of its directors, each of its officers, including such officers who
signed the 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 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 the Purchaser) insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or are based upon (i)
any failure to comply with the covenants and agreements contained in Sections 5 or 7.2 hereof, or
(ii) the breach by the Purchaser of any representation or warranty made by the Purchaser herein, or
(iii) any untrue or alleged untrue statement of any material fact contained in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make the
statements in the Registration Statement, the Prospectus or any amendment or supplement thereto not
misleading in 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 the Registration Statement, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information furnished to the
Company by the Purchaser
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expressly for use therein, and will 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 Purchaser’s aggregate liability
under this Section 7 shall not exceed the amount of proceeds received by the Purchaser on the sale
of the Registrable Securities pursuant to the Registration Statement (“Proceeds”).
(c) Promptly after receipt by an indemnified party under this Section 7.3 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 7.3,
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 7.3 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 7.3 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
such 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 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.
-20-
(d) If the indemnification provided for in this Section 7.3 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
7.3 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 Purchaser from the private placement of Securities hereunder 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 Purchaser in connection with the statements or omissions or
inaccuracies in the representations and warranties in this Agreement and/or the 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 Purchaser on the other shall be deemed to be in the same proportion as the
amount paid by such Purchaser to the Company pursuant to this Agreement for the Shares purchased by
such Purchaser that were sold pursuant to the Registration Statement bears to the difference
between the amount such Purchaser paid for the Shares that were sold pursuant to the Registration
Statement and the amount received by such Purchaser from such sale. The relative fault of the
Company, on the one hand, and each Purchaser 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 Purchaser
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 7.3, 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 7.3 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 each Purchaser agree
that it would not be just and equitable if contribution pursuant to this Section 7.3 were
determined solely by pro rata allocation (even if the Purchasers 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. Notwithstanding the provisions of this Section 7.3,
the Purchaser shall not be required to contribute any amount in excess of the amount by which the
Proceeds exceed the amount of any damages that such Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged omission. 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. The Purchaser’s obligation to contribute pursuant to this Section 7.3 is
several and not joint with the Other Purchasers.
7.4 Termination of Conditions and Obligations. The restrictions imposed by Section 5
or this Section 7 upon the transferability of the Securities (as well as the
-21-
Conversion Shares, the Warrant Shares and the Condition Shares) shall cease and terminate as
to any particular number of the Securities (as well as the Conversion Shares, the Warrant Shares
and the Condition Shares) upon the earlier of (i) in the case of the Conversion Shares, the Warrant
Shares and the Condition Shares, the passage of two years from the effective date of the
Registration Statement covering such Registrable Securities (unless the Purchaser is then, or was
during the preceding three months, an affiliate (as defined in Rule 144 promulgated under the
Securities Act) of the Company and (ii) such time as an opinion of counsel satisfactory in form and
substance to the Company shall have been rendered to the effect that such conditions are not
necessary in order to comply with the Securities Act.
7.5 Information Available. The Company, upon the reasonable request of the Purchaser
and with prior notice, will be available to the Purchaser or a representative thereof at the
Company’s headquarters to discuss information relevant for disclosure in the Registration Statement
covering the Conversion Shares, the Warrant Shares and the Condition Shares and will otherwise
cooperate with the Purchaser when conducting an investigation for the purpose of reducing or
eliminating the Purchaser’s exposure to liability under the Securities Act, including the
reasonable production of information at the Company’s headquarters, subject to appropriate
confidentiality limitations.
7.6 Delay in Filing or Effectiveness of Registration Statement. If the Registration
Statement is not filed by the Company with the Commission on or prior to the Filing Deadline, then
for each day following the Filing Deadline, until but excluding the date the Registration Statement
is filed, or if the Registration Statement is not declared effective by the Commission by the
Effective Deadline, then for each day following the Effective Deadline, until but excluding the
date the Commission declares the Registration Statement effective, or if after its effective date,
without regard for the reason therefor or efforts with respect thereto, the Registration Statement
or the Prospectus ceases, for any reason (including by reason of any Suspension), to be effective
and available to the Purchaser as the holder of Registrable Securities as to all of its Registrable
Securities at any time prior to the expiration or the Effectiveness Period, then for each day
following the Registration Statement or Prospectus ceasing to be so effective and available (which,
for the avoidance of doubt, shall include each day of any Suspension period) until the Registration
Statement and Prospectus shall thereafter become effective and available, the Company shall pay the
Purchaser with respect to any such failure or event, as liquidated damages and not as a penalty, an
amount per 30-day period equal to 1.0% (prorated for a period of less than 30 days) of the purchase
price paid by the Purchaser for its Securities purchased pursuant to this Agreement; and for any
such 30-day period, such payment shall be made no later than three business days following such
30-day period. Any payments made pursuant to this Section 7.6 shall not constitute the Purchaser’s
exclusive remedy for such events. Notwithstanding the foregoing provisions, in no event shall the
Company be obligated to pay any liquidated damages pursuant to this Section 7.6 (i) to more than
one Purchaser in respect of the same Securities for the same period of time or (ii) in an aggregate
amount that exceeds 10% of the purchase price paid by the Purchasers for the Securities purchased
pursuant to the Agreements. Such payments shall be made to the Purchasers in cash.
SECTION 8. Register. The Company shall keep at its principal executive office a
register for the registration and registration of transfers of the Shares. The name and address of
each holder of the Shares, each transfer thereof and the name and address of
-22-
each transferee of the Shares shall be registered in such register. Prior to due presentment
for registration of transfer, the person in whose name any Shares shall be registered shall be
deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall
not be affected by any notice or knowledge to the contrary.
SECTION 9. Covenants With Respect to the Shares. Unless the holders of a majority of
the Shares shall otherwise agree (which majority must include the Purchaser), the Company shall not
(i) alter or change in any manner adverse to the interests of the holders of the Shares (whether
pursuant to an amendment to the Company’s articles of incorporation or any certificate of
designation or in connection with any merger, reclassification or consolidation or otherwise) the
designated powers, rights, preferences or privileges, or impair the conversion rights, of the
Shares or (ii) from and after the MFN Period Expiration Date (as defined in Section 23), authorize
or create (by reclassification or otherwise) any class or series of preferred stock, or any
indebtedness that is convertible into any class of stock of the Company, of the Company with
powers, rights, preferences and privileges senior to the Convertible Preferred Stock. The
Purchaser hereby acknowledges that nothing in this Agreement is intended to restrict the Company’s
ability to issue at any time any securities (including such convertible indebtedness) ranking
pari passu with, or junior to, the Convertible Preferred Stock.
SECTION 10. Broker’s Fee. The Purchaser acknowledges that the Company intends to pay
to the Placement Agent a fee in respect of the sale of the Securities to the Purchaser. The
Purchaser and the Company hereby agree that the Purchaser shall not be responsible for such fee and
that the Company will indemnify and hold harmless the Purchaser and each Purchaser/Affiliate
against any losses, claims, damages, liabilities or expenses, joint or several, to which the
Purchaser or Purchaser/Affiliate may become subject with respect to such fee. Each of the parties
hereto hereby represents that, on the basis of any actions and agreements by it, there are no other
brokers or finders entitled to compensation in connection with the sale of the Securities to the
Purchaser.
SECTION 11. Independent Nature of Purchasers’ Obligations and Rights. The obligations
of the Purchaser under this Agreement are several and not joint with the obligations of any Other
Purchaser, and the Purchaser shall not be responsible in any way for the performance of the
obligations of any Other Purchaser under the Agreements. The decision of the Purchaser to purchase
the Securities pursuant to the Agreement has been made by the Purchaser independently of any Other
Purchaser. Nothing contained in this Agreement, and no action taken by the Purchaser pursuant
hereto, shall be deemed to constitute the Purchaser and the Other Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a presumption that the
Purchaser and the Other Purchasers are in any way acting in concert or as a group with respect to
such obligations or the transactions contemplated by this Agreement. The Purchaser acknowledges
that no Other Purchaser has acted as agent for the Purchaser in connection with making its
investment hereunder and that no Other Purchaser will be acting as agent of the Purchaser in
connection with monitoring its investment in the Securities or enforcing its rights under this
Agreement. The Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement, and it shall not be
necessary for any Other Purchaser to be joined as an additional party in any proceeding for such
purpose.
-23-
SECTION 12. Notices. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given: (i) upon personal delivery to the party to be notified; (ii)
when received by confirmed facsimile or (iii) one (1) business day after deposit with a nationally
recognized overnight carrier, specifying next business day delivery, with written verification of
receipt. All communications shall be sent to the Company and the Purchaser as follows or at such
other addresses as the Company or the Purchaser may designate upon five (5) days’ advance written
notice to the other party:
| (a) | if to the Company, to: | |||
| BabyUniverse, Inc. | ||||
| 000 Xxxxx X.X. Xxxxxxx Xxx, Xxxxx 000 | ||||
| Xxxxxxx, Xxxxxxx 00000 | ||||
| Attn: Xxxxxxxx Xxxxxxx | ||||
| Facsimile: (000) 000-0000 | ||||
| with a copy to: | ||||
| Xxxxxxxx & Xxxxxx, LLP | ||||
| 0000 Xxxxxxx Xxxxxx, Xxxxx 000 | ||||
| Xxxxx Xxxxxx, Xxxxxxxxxx 00000 | ||||
| Attn: D. Xxxxxx Xxxxxx | ||||
| Facsimile: (000) 000-0000 | ||||
| (b) | if to the Purchaser, at its address as set forth at the end of this Agreement. |
SECTION 13. Changes. This Agreement may not be modified or amended except pursuant to
an instrument in writing signed by the Company and the Purchaser. Any amendment or modification
effected in accordance with this Section 13 shall be binding upon each holder of any securities
purchased under this Agreement at the time outstanding, each future holder of all such securities,
and the Company.
SECTION 14. Headings. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be part of this
Agreement.
SECTION 15. Severability. In case any provision contained in this Agreement should be
held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or impaired thereby.
SECTION 16. Governing Law; Venue. This Agreement is to be construed in accordance
with and governed by the federal law of the United States of America and the internal laws of the
State of California without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the State of California
to the rights and duties of the parties. Each of the Company and the Purchaser submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
-24-
District of New York and of any New York State court sitting in New York City for purposes of
all legal proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby. Each of the Company and the Purchaser irrevocably waives, to the fullest
extent permitted by law, any objection that it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such proceeding brought in
such a court has been brought in an inconvenient forum.
SECTION 17. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken together, shall constitute
but one instrument, and shall become effective when one or more counterparts have been signed by
each party hereto and delivered (including by facsimile) to the other parties.
SECTION 18. Entire Agreement. 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 the
Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters.
SECTION 19. Fees and Expenses. Except as otherwise expressly set forth herein, each
of the Company and the Purchaser shall pay its respective fees and expenses related to the
transactions contemplated by this Agreement.
SECTION 20. Parties. This Agreement is made solely for the benefit of and is binding
upon the Purchaser and the Company and, to the extent provided in Section 7.3, any person
controlling the Company or the Purchaser, the officers and directors of the Company, and their
respective executors, administrators, successors and assigns, and, subject to the provisions of
Section 7.3, no other person shall acquire or have any right under or by virtue of this Agreement.
The term “successor and assigns” shall include any subsequent purchaser, as such purchaser, of the
Shares sold to the Purchaser pursuant to this Agreement, to the extent such subsequent purchaser is
a permitted assignee of the Purchaser pursuant to Section 21.
SECTION 21. Assignment. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the parties hereto and their respective
successors, assigns, heirs, executors and administrators. This Agreement and the rights of the
Purchaser hereunder may be assigned by the Purchaser only with the prior written consent of the
Company, except such consent shall not be required in the case of (i) any assignment by an
investment adviser to a fund for which it is the adviser or by or among funds that are under common
control, or (ii) subject to the restrictions on transfer of the Warrants as contained in Section 4
of the warrant certificate issued to the Purchaser, any assignment by any holder of Shares,
Warrants, Warrant Shares, Conversion Shares or Condition Shares to any transferee or assignee of
such securities to the extent such transfer of securities shall have not been consummated in
violation of the provisions of this Agreement, provided that, in each such case, such assignee
agrees in writing to be bound by the terms of this Agreement.
SECTION 22. Further Assurances. Each party agrees to cooperate fully with the other
party and to execute such further instruments, documents and agreements and to
-25-
give such further written assurance as may be reasonably requested by the other party to
evidence and reflect the transactions described herein and contemplated hereby and to carry into
effect the intents and purposes of this Agreement.
SECTION 23. Most Favored Nation. In the event that at any time on or prior to the
earlier to occur of the consummation of the eToys Merger or the public announcement by the Company
of the termination of the eToys Merger (the date thereof, as it may be definitionally extended for
purposes of Section 9 and this Section 23 by the Company in its sole discretion, the “MFN Period
Expiration Date”) the Company issues, or enters into any agreement to issue, any of its equity
securities, including any securities (including debt securities) that are convertible or
exercisable into, or exchangeable for, such equity securities, to one or more Other Purchasers, and
if, in connection with such issuance, the Other Purchasers to which such securities are issued (the
“Favored Issuees”) (A) receive any economic terms (including, without limitation, price, the
effective common stock conversion price, the percentage warrant coverage and the warrant exercise
price) incident to such issuance which are superior to the economic terms applicable to the
Purchaser’s purchase of securities pursuant to this Agreement, (B) are accorded investor rights
vis-à-vis the Company that are either (i) superior to similar rights accorded to the
Purchaser pursuant to this Agreement, or (ii) in addition to the corpus of such rights conferred on
the Purchaser pursuant to this Agreement, or (C) are issued securities with any powers, rights,
preferences or privileges senior to those of the Convertible Preferred Stock, then the Company
shall timely provide to the Purchaser the right to participate in such issuance, on the identical
terms and conditions as the Favored Issuees (based upon the Purchaser’s U.S.$1,799,996.88
investment hereunder), in exchange for the cancellation of all of the Purchaser’s rights under this
Agreement, the Warrants and the Certificate of Designation, other than the right of the Purchaser
to retain 50% of the Warrants purchased by the Purchaser pursuant to this Agreement (subject to the
original terms of such Warrants).
SECTION 24. Publicity. Notwithstanding anything to the contrary set forth herein, the
Company shall not publicly disclose the name of the Purchaser for marketing purposes or otherwise,
or include the name of the Purchaser in any filing with the SEC (other than the Registration
Statement and any exhibits to filings made in respect of this transaction in accordance with
periodic filing requirements under the Exchange Act) or any other regulatory agency or securities
exchange, without the prior written consent of the Purchaser, except to the extent such disclosure
is required by applicable laws, rules or regulations, in which case the Company shall provide the
Purchaser with prior notice of such disclosure; provided, further, that
notwithstanding the foregoing, the Company shall have the right to disclose the name of the
Purchaser in oral communications between the Company and its representatives and potential Other
Purchasers; provided, that, in connection with any disclosure pursuant to the foregoing proviso,
the Company shall only be permitted to disclose that the Purchaser has invested in the Convertible
Preferred Stock and shall not state or suggest that the Purchaser endorses, sponsors, promotes or
encourages an investment in the Company by any potential Other Purchaser.
[Remainder of Page Intentionally Left Blank]
-26-
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be
executed by their duly authorized representatives as of the day and year first above written.
| BabyUniverse, Inc. | ||||||
| By: | ||||||
| Name: Xxxx X. Xxxxxx | ||||||
| Title: Chief Executive Officer | ||||||
-27-
INVESTOR SIGNATURE PAGE
Print or Type:
| Name of Purchaser | ||||||
| (Individual or Institution): | ||||||
| Pequot DM Fund, L.P. | ||||||
| Name of Individual representing | ||||||
| Purchaser (if an Institution): | ||||||
| Title of Individual representing | ||||||
| Purchaser (if an Institution): | ||||||
Signature by: |
||||||
| Individual Purchaser or Individual | ||||||
| representing Purchaser: | ||||||
| Address: | ||||||
| Telephone: | ||||||
| Telecopier: | ||||||
| Number of Shares to | Number of Warrants | |||||
| Be | to Be | Price Per Share In | Aggregate | |||
| Purchased | Purchased | Dollars | Price | |||
| 228,426 | 57,107 | $7.88 | $1,799,996.88 |
-28-
SCHEDULE OF PURCHASERS
| Aggregate | ||||||||||||||||||||||||
| Number | ||||||||||||||||||||||||
| Aggregate | of | Purchase | Aggregate | |||||||||||||||||||||
| Purchaser | Taxpayer | Number | Warrant | Price per | Purchase | |||||||||||||||||||
| Purchaser Name | Address | ID | of Shares | Shares | Unit | Price | ||||||||||||||||||
APPENDIX I
SUMMARY INSTRUCTION SHEET FOR PURCHASER
(TO BE READ IN CONJUNCTION WITH THE ENTIRE
SECURITIES PURCHASE AGREEMENT WHICH THIS FOLLOWS)
SECURITIES PURCHASE AGREEMENT WHICH THIS FOLLOWS)
| A. | Complete the following items on the Securities Purchase Agreement (Please sign two originals): | |
| 1. | Investor Signature Page: |
(i) Name of Purchaser (Individual or Institution)
(ii) Name of Individual representing Purchaser (if an Institution)
(iii) Title of Individual representing Purchaser (if an Institution)
(iv) Signature of Individual Purchaser or Individual representing Purchaser
(v) Amount and Purchase Price of Securities to be Purchased
(ii) Name of Individual representing Purchaser (if an Institution)
(iii) Title of Individual representing Purchaser (if an Institution)
(iv) Signature of Individual Purchaser or Individual representing Purchaser
(v) Amount and Purchase Price of Securities to be Purchased
| 2. | Appendix I — Securities Certificate Questionnaire/Registration Statement Questionnaire: | |
| Provide the information requested by the Securities Certificate Questionnaire and the Registration Statement Questionnaire. | ||
| 3. | By 7:00 p.m. New York Time on Thursday, May 24, 2007, return one copy of the properly completed and signed Securities Purchase Agreement including the properly completed Appendix I (initially by facsimile with an original copy by overnight delivery) to each of: |
CIBC World Markets Corp.
000 Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxx
Phone: (000) 000-0000
Telecopy: (000) 000-0000
000 Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxx
Phone: (000) 000-0000
Telecopy: (000) 000-0000
Xxxxxxxx & Xxxxxxxx LLP
1290 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Ze’-ev Eiger, Esq.
Phone: (000) 000-0000
Telecopy: (000) 000-0000
1290 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Ze’-ev Eiger, Esq.
Phone: (000) 000-0000
Telecopy: (000) 000-0000
Please complete all of the information on the signature page of the Securities
Purchase Agreement to facilitate the Closing and the physical delivery of the
Securities.
| A copy of the Securities Purchase Agreement signed by the Company will be delivered to the Purchaser on the date delivered by the Purchaser. | ||
| B. | By 1:00 p.m. New York Time on Tuesday, May 29, 2007, the Purchaser shall wire the purchase price for the Securities to the Company’s account specified in and pursuant to the enclosed Wire Instructions. | |
| C. | Upon the resale of the Conversion Shares, the Warrant Shares or the Condition Shares by the Purchaser after the Registration Statement covering the Conversion Shares, the Warrant Shares and the Condition Shares is effective, as described in the Securities Purchase Agreement, the Purchaser must effectively cause the prospectus delivery requirement under the Securities Act to be satisfied (whether physically or through compliance with Rule 172 under the Securities Act or any similar rule). |
Wire Instructions
Lydian Bank and Trust
Palm Beach, Florida
ABA # 000-000-000
Account Name: BabyUniverse, Inc.
Account No.: 000-000-000
Palm Beach, Florida
ABA # 000-000-000
Account Name: BabyUniverse, Inc.
Account No.: 000-000-000
IMPORTANT: Please clearly indicate on the wire (i) the name of the originator (i.e., the
Purchaser) and (ii) the beneficiary, BabyUniverse, Inc. Please also coordinate with your financial
institution to ensure that transaction fees are not inadvertently deducted from the wired funds
prior to their receipt by [insert name of bank].
PLEASE NOTE: If you will be initiating a wire transfer from overseas, please call Xxxxxx
Xxxxx, to obtain the Swift code number. Funds may be wired in U.S. dollars only.
CONTACT:
Attention: Xxxxxx Xxxxx
Tel. No.: 000.000.0000
Tel. No.: 000.000.0000
APPENDIX I
(PAGE 1 OF 3)
(PAGE 1 OF 3)
SECURITIES CERTIFICATE QUESTIONNAIRE
Pursuant to Section 3 of the Agreement, please provide us with the following information:
1.
|
The exact name that your Securities are to be registered in (this is the name that will appear on your stock certificate(s) and warrants(s). You may use a nominee name if appropriate: | |||
2.
|
The relationship between the Purchaser of the Securities and the Registered Holder listed in response to item 1 above: | |||
3.
|
The mailing address of the Registered Holder listed in response to item 1 above: | |||
4.
|
The Social Security Number or Tax Identification Number of the Registered Holder listed in response to item 1 above: | |||
APPENDIX I
(PAGE 2 OF 3)
(PAGE 2 OF 3)
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement, please provide us with the
following information:
SECTION 1. Pursuant to the “Selling Stockholder” section of the Registration Statement, please
state your or your organization’s name exactly as it should appear in the Registration Statement:
SECTION 2. Please provide the number of Securities that you or your organization will own
immediately after Closing, including those Securities purchased by you or your organization
pursuant to this Agreement and those Securities purchased by you or your organization through other
transactions and provide the number of shares that you have or your organization has the right to
acquire within 60 days of Closing:
SECTION 3. Have you or your organization had any position, office or other material
relationship within the past three years with the Company or its affiliates?
_____ Yes _____ No
If yes, please indicate the nature of any such relationships below:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
SECTION 4. Are you (i) an NASD Member (see definition), (ii) a Controlling (see definition)
shareholder of an NASD Member, (iii) a Person Associated with a Member of the NASD (see
definition), or (iv) an Underwriter or a Related Person (see definition) with respect to the
proposed offering; or (b) do you own any shares or other securities of any NASD Member not
purchased in the open market; or (c) have you made any outstanding subordinated loans to any NASD
Member?
Answer: [ ] Yes [ ] No If “yes,” please describe below
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
APPENDIX I
(PAGE 3 OF 3)
(PAGE 3 OF 3)
NASD Member. The term “NASD member” means either any broker or dealer admitted to
membership in the National Association of Securities Dealers, Inc. (“NASD”). (NASD Manual, By-laws
Article I, Definitions)
Control. The term “control” (including the terms “controlling,” “controlled by” and
“under common control with”) means the possession, direct or indirect, of the power, either
individually or with others, to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract, or otherwise. (Rule 405
under the Securities Act of 1933, as amended)
Person Associated with a member of the NASD. The term “person associated with a
member of the NASD” means every sole proprietor, partner, officer, director, branch manager or
executive representative of any NASD Member, or any natural person occupying a similar status or
performing similar functions, or any natural person engaged in the investment banking or securities
business who is directly or indirectly controlling or controlled by a NASD Member, whether or not
such person is registered or exempt from registration with the NASD pursuant to its bylaws. (NASD
Manual, By-laws Article I, Definitions)
Underwriter or a Related Person. The term “underwriter or a related person” means,
with respect to a proposed offering, underwriters, underwriters’ counsel, financial consultants and
advisors, finders, members of the selling or distribution group, and any and all other persons
associated with or related to any of such persons. (NASD Interpretation)
APPENDIX II
[Transfer Agent]
Attention:
Attention:
PURCHASER’S CERTIFICATE OF SUBSEQUENT SALE
The undersigned, [an officer of, or other person duly authorized by]
hereby certifies
[fill in official name of individual or institution]
that he/she [said institution] is the Purchaser of the shares evidenced by the attached certificate, and as such, sold such shares on in
[date]
accordance with the terms of the Securities Purchase Agreement and in accordance with
Registration Statement number
or otherwise in
accordance with the Securities Act of 1933,
[fill in the number of or otherwise identify Registration Statement]
as amended, and, in the case of a transfer pursuant to the Registration Statement, the requirement of delivering a current prospectus by the
Company has been complied with in connection with such sale.
Print or Type:
| Name of Purchaser | ||||||
| (Individual or Institution): |
||||||
| Name of Individual representing | ||||||
| Purchaser (if an Institution) |
||||||
| Title of Individual representing | ||||||
| Purchaser (if an Institution): |
||||||
| Signature by: | ||||||
| Individual Purchaser or Individual repre- senting Purchaser: |
||||||
EXHIBIT A
CERTIFICATE OF DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK, PAR VALUE $0.001 PER SHARE,
OF BABYUNIVERSE, INC.
SERIES A CONVERTIBLE PREFERRED STOCK, PAR VALUE $0.001 PER SHARE,
OF BABYUNIVERSE, INC.
37
ANNEX A
FORM OF CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
38
ANNEX B
FORM OF SUPPLEMENT NO. 1 TO
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
39
