BABYUNIVERSE, INC. REGISTRATION RIGHTS AGREEMENT
Exhibit
99.2
BABYUNIVERSE,
INC.
REGISTRATION
RIGHTS AGREEMENT, dated as of October 12, 2007 (the “Agreement”),
among
the investors listed on Schedule I hereto (the “Former
eToys Investors”),
the
investors listed on Schedule II hereto (the “Wyndcrest
Affiliated Investors”,
and
together with the Former eToys Investors, the “Investors”)
and
BabyUniverse, Inc., a Florida corporation (the “Company”).
R
E C
I T A L S
WHEREAS,
the Former eToys Investors acquired, pursuant to the terms of that certain
Agreement and Plan of Merger, dated as of March 13, 2007, by and among the
Company, Baby Acquisition Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company, and eToys Direct, Inc., a Delaware corporation
(“eToys”),
as
amended by that First Amendment to Agreement and Plan of Merger, dated as of
September 12, 2007, and that Second Amendment to Agreement and Plan of Merger,
dated as of September 20, 2007 (as so amended, the “Merger
Agreement”),
an
aggregate of 15,522,081 shares of common stock, par value $0.001 per share,
of
the Company (the “Common
Stock”);
WHEREAS,
as of the date hereof, the Wyndcrest Affiliated Investors own beneficially
and
as of record an aggregate of 2,070,525 shares of Common Stock;
WHEREAS,
the Company has agreed, as a condition precedent to eToys' obligations under
the
Merger Agreement, to grant the Investors certain registration rights;
and
WHEREAS,
the Company and the Investors desire to define the registration and certain
other rights of the Investors on the terms and subject to the conditions
hereinafter set forth.
NOW,
THEREFORE, in consideration of the foregoing premises and for other good and
valuable consideration, the parties hereby agree as follows:
SECTION
1. DEFINITIONS
As
used
in this Agreement, the following terms have the respective meanings set forth
below:
Agreement:
shall
mean this Registration Rights Agreement among the Investors and the
Company;
Commission:
shall
mean the Securities and Exchange Commission or any other federal agency at
the
time administering the Securities Act;
Common
Stock:
shall
have the meaning set forth in the Recitals hereto;
Controlling
Former eToys Investors:
shall
mean D.E. Shaw Laminar Acquisition Holdings 3, L.L.C. and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇.
Demanding
Holders:
shall
have the meaning set forth in Section 2(b)(iii) hereof;
eToys:
shall
have the meaning set forth in the Recitals hereto;
eToys
Holder:
shall
mean any holder of eToys Registrable Securities;
eToys
Registrable Securities:
shall
mean the shares of Common Stock and any stock of the Company issued as a
dividend or other distribution with respect to, or in exchange for or in
replacement of, such shares of Common Stock, in each case now or hereafter
owned
beneficially and of record by the Former eToys Investors;
Exchange
Act:
shall
mean the Securities Exchange Act of 1934, as amended (or any successor act),
and
the rules and regulations promulgated thereunder;
Former
eToys Investors:
shall
have the meaning set forth in the Preamble hereto;
Holder:
shall
mean any eToys Holder or any Wyndcrest Holder;
Indemnified
Party:
shall
have the meaning set forth in Section 2(e) (iii) hereof;
Indemnifying
Party:
shall
have the meaning set forth in Section 2(e) (iii) hereof;
Initiating
eToys Holder:
shall
mean any Holder or Holders who in the aggregate are Holders of more than 50%
of
the then outstanding eToys Registrable Securities;
Initiating
Holder:
shall
mean an Initiating eToys Holder or an Initiating Wyndcrest Holder;
Initiating
Wyndcrest Holder:
shall
mean any Holder or Holders who in the aggregate are Holders of more than 50%
of
the then outstanding Wyndcrest Registrable Securities;
Investors:
shall
have the meaning set forth in the Preamble hereto;
Merger
Agreement:
shall
have the meaning set forth in the Recitals hereto;
Other
Stockholders:
shall
have the meaning set forth in Section 2(a)(i) hereof;
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Participating
Holder:
shall
have the meaning set forth in Section 2(d) hereof;
Person:
shall
mean an individual, partnership, joint-stock company, corporation, limited
liability company, trust or unincorporated organization, and a government or
agency or political subdivision thereof;
Register,
Registered
and
Registration:
shall
mean, or have reference to, a registration effected by preparing and filing
a
registration statement in compliance with the Securities Act (and any
post-effective amendments filed or required to be filed) and the declaration
or
ordering of effectiveness of such registration statement;
Registrable
Securities:
shall
mean the eToys Registrable Securities and the Wyndcrest Registrable Securities;
Registration
Expenses:
shall
mean all expenses incurred by the Company in compliance with Section 2(a),
(b)
and (c) hereof, including, without limitation, all registration and filing
fees,
printing expenses, fees and disbursements of counsel for the Company, reasonable
fees and expenses of one counsel for all the Holders, blue sky fees and expenses
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company);
Restricted
Period:
shall
mean the
period beginning on the date hereof and ending on the earliest to occur of
(i)
the date that is two (2) years from the date hereof or (ii) the receipt by
the
Former eToys Investors of an aggregate of $40 million in proceeds from the
sale(s) of shares of Common Stock;
Rule
144:
shall
have the meaning set forth in Section 2(g) hereof;
security,
securities:
shall
have the meaning set forth in Section 2(1) of the Securities Act;
Securities
Act:
shall
mean the Securities Act of 1933, as amended (or any successor act), and the
rules and regulations promulgated thereunder;
Selling
eToys Holder:
shall
have the meaning set forth in Section 3(b) hereof;
Selling
Expenses:
shall
mean all underwriting discounts and selling commissions applicable to the sale
of Registrable Securities and all fees and disbursements of counsel for each
of
the Holders other than the reasonable fees and expenses of one counsel for
all
the Holders;
Selling
Wyndcrest Holder:
shall
have the meaning set forth in Section 3(a)(iii)(A) hereof;
Tag-Along
eToys Holders:
shall
have the meaning set forth in Section 3(a)(iii)(A) hereof;
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▇▇▇-▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ Holders:
shall
have the meaning set forth in Section 3(b) hereof;
Transfer:
shall
have the meaning set forth in Section 3(a) hereof;
Wyndcrest
Affiliated Investors:
shall
have the meaning set forth in the Preamble hereto;
Wyndcrest
Holder:
shall
mean any holder of Wyndcrest Registrable Securities; and
Wyndcrest
Registrable Securities:
shall
mean the shares of Common Stock and any stock of the Company issued as a
dividend or other distribution with respect to, or in exchange for or in
replacement of, such shares of Common Stock, in each case now or hereafter
owned
beneficially and of record by the Wyndcrest Affiliated Investors.
SECTION
2. REGISTRATION
RIGHTS
(a) Requested
Registration.
(i) Request
for Registration.
If the
Company shall receive from an eToys Initiating Holder or a Wyndcrest Initiating
Holder (subject to Section 3(a)(i) hereof), at any time, a written request
that
the Company effect any registration with respect to all or a part of the eToys
Registrable Securities or the Wyndcrest Registrable Securities, as applicable,
the Company will:
(1) promptly
give written notice of the proposed registration to all other Holders;
and
(2) as
soon
as practicable, use its reasonable best efforts to effect such registration
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification and other compliance under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) and take such
further actions (including, without limitation, undertaking a “road show” and
other customary marketing efforts) as may be so requested and as would permit
or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within ten (10)
business days after written notice from the Company is given under Section
2(a)(i)(1) above, subject to Section 3(a)(i) hereof; provided
that the
Company shall not be obligated to effect, or take any action to effect, any
such
registration pursuant to this Section 2(a):
(A) In
any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration (or related
state-law qualification or other compliance), unless the Company is already
(or
is required to be) subject to service in such jurisdiction and except as may
be
required by the Securities Act or applicable rules or regulations
thereunder;
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(B) After
the
Company has effected (x) with respect to the eToys Holders, three (3) such
registrations at the request of the eToys Holders or (y) with respect to the
Wyndcrest Holders, two (2) such registrations at the request of the Wyndcrest
Holders, in each case, pursuant to this Section 2(a), and such registrations
have been declared or ordered effective and the sales of the Registrable
Securities included in such registration shall have closed;
(C) If
the
Registrable Securities requested by all Holders to be registered pursuant to
such request do not have an anticipated aggregate public offering price (before
any underwriting discounts and commissions) of not less than $2,000,000;
provided, however, that the foregoing limitation shall not apply to the last
registration effected by the Company at the request of each of the eToys Holders
or the Wyndcrest Holders;
(D) During
the period starting with the date sixty (60) days prior to the Company’s good
faith estimate of the date of filing of, and ending on the date six (6) months
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction under the Securities Act or with respect to an
employee benefit plan), provided that the Company is actively employing in
good
faith all reasonable efforts to cause such registration statement to become
effective; provided,
however,
that
the Company may only delay an offering pursuant to this Section 2(a)(i)(2)(D)
for a period of not more than sixty (60) days, if a filing of any other such
registration statement is not made within that period, and the Company may
only
exercise this right once in any twelve (12)-month period; and, provided further,
that
the Company shall not register any securities for the account of any other
stockholder of the Company (other than a registration of securities in a Rule
145 transaction under the Securities Act or with respect to an employee benefit
plan) during such sixty (60) day period; or
(E) If
the
Company shall furnish to the eToys Initiating Holders or the Wyndcrest
Initiating Holders, as applicable, a certificate signed by the President of
the
Company stating that in the good faith judgment of the Board of Directors of
the
Company it would be seriously detrimental to the Company and its stockholders
for a registration statement to be filed in the near future, because such action
would (i) materially interfere with a significant acquisition, corporate
reorganization or other similar transaction involving the Company, (ii) require
premature disclosure of material information that the Company has a bona fide
business
purpose for treating as confidential or (iii) render the Company unable to
comply with requirements under the Securities Act or the Exchange Act, then
the
Company’s obligation to use its reasonable best efforts to comply with this
Section 2(a) shall be deferred for a period not to exceed sixty (60) days from
the date of its receipt of the written request from such Holders; provided,
however,
that
the Company shall not exercise such right more than once in any twelve
(12)-month period.
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The
registration statement filed pursuant to this Section 2(a)(i) may, subject
to
the provisions of Section 2(a)(ii) below, include other securities of the
Company which are held by Persons who, by virtue of agreements with the Company
other than this Agreement, are entitled to include their securities in any
such
registration (“Other
Stockholders”).
In
the event any Initiating Holder requests a registration pursuant to this Section
2(a)(i) in connection with a distribution of Registrable Securities to its
partners or members, the registration shall provide for the resale by such
partners or members, if requested by such Initiating Holder.
The
registration rights set forth in this Section 2 may be assigned, in whole or
in
part, to any transferee of Registrable Securities (who shall be bound by all
obligations of this Agreement).
(ii) Underwriting.
If the
eToys Initiating Holders or the Wyndcrest Initiating Holders, as applicable,
intend to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a part of their
request made pursuant to Section 2(a)(i) hereof.
If
Other
Stockholders request inclusion of their securities in the underwriting, the
Initiating Holders shall offer to include the securities of such Other
Stockholders in the underwriting and may condition such offer on the acceptance
by such Other Stockholders of the further applicable provisions of this Section
2. The Holders whose shares are to be included in such registration and the
Company shall (together with all Other Stockholders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the representative of the underwriter or underwriters
selected for such underwriting by the eToys Initiating Holders or the Wyndcrest
Initiating Holders, as applicable, and reasonably acceptable to the Company;
provided,
however,
that
such underwriting agreement shall not provide for indemnification or
contribution obligations on the part of the Holders materially greater than
the
obligations of the Holders under Section 2(e)(ii) hereof. Notwithstanding any
other provision of this Section 2(a), if the representative advises the Holders
in writing that marketing factors require a limitation on the number of shares
to be underwritten, the securities of the Company held by Other Stockholders
shall be excluded from such registration to the extent so required by such
limitation. If, after the exclusion of such shares, further reductions are
still
required, the number of shares included in the registration by each Holder
shall
be reduced on a pro rata basis (based on the number of shares held by such
Holder), by such minimum number of shares as is necessary to comply with such
request. No Registrable Securities or any other securities excluded from the
underwriting by reason of the underwriter’s marketing limitation shall be
included in such registration. If any Other Stockholder who has requested
inclusion in such registration as provided above disapproves of the terms of
the
underwriting, such Person may elect to withdraw therefrom by providing written
notice to the Company, the underwriter and the Holders. The securities so
withdrawn shall also be withdrawn from registration. If the underwriter has
not
limited the number of Registrable Securities or other securities to be
underwritten, the Company and the officers and directors of the Company (to
the
extent such persons are not otherwise Holders) may include its or their
securities for its or their own account in such registration if the
representative so agrees and if the number of Registrable Securities and other
securities which would otherwise have been included in such registration and
underwriting will not thereby be limited.
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(b) Company
Registration.
(i) If
the
Company shall determine to register any of its equity securities either for
its
own account or for the account of an Other Stockholder, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Rule 145 transaction under the Securities Act, or a
registration on any registration form which does not permit secondary sales
or
does not include substantially the same information as would be required to
be
included in a registration statement covering the sale of Registrable
Securities, the Company will:
(1) promptly
give to each of the Holders a written notice thereof (which shall include a
list
of the jurisdictions in which the Company intends to attempt to qualify such
securities under the applicable blue sky or other state securities laws);
and
(2) include
in such registration (and any related qualification under blue sky laws or
other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests (subject to Section
3(a)(i) hereof), made by the Holders within fifteen (15) days after receipt
of
the written notice from the Company described in clause (1) above, except as
set
forth in Section 2(b)(iii) below. Such written request may specify all or a
part
of the Holders’ Registrable Securities. In the event any Holder requests
inclusion in a registration pursuant to this Section 2(b) in connection with
a
distribution of Registrable Securities to its partners or members, the
registration shall provide for the resale by such partners or members, if
requested by such Holder.
(ii) For
the
avoidance of doubt, to the extent the Company registers any of its equity
securities for the account of any Initiating Holder in connection with an
underwritten offering pursuant to Section 2(a)(ii), the “cutback” provisions of
Section 2(a)(ii) (and not the “cutback” provisions of Section 2(b)(iii)) shall
apply to the inclusion of Holders’ Registrable Securities and any securities of
any Other Stockholder in such offering.
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(iii) Underwriting.
If the
registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise each of the
Holders as a part of the written notice given pursuant to Section 2(b)(i)(1)
above. In such event, the right of each of the Holders to registration pursuant
to this Section 2(b) shall be conditioned upon such Holder’s participation in
such underwriting and the inclusion of such Holder’s Registrable Securities in
the underwriting to the extent provided herein. The Holders whose shares are
to
be included in such registration shall (together with the Company and the Other
Stockholders distributing their securities through such underwriting) enter
into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for underwriting by the Company;
provided,
however,
that
such underwriting agreement shall not provide for indemnification or
contribution obligations on the part of the Holders materially greater than
the
obligations of the Holders under Section 2(e)(ii) hereof. Notwithstanding any
other provision of this Section 2(b), if the representative determines that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the allocation priority set
forth below) limit the number of Registrable Securities to be included in the
registration and underwriting to not less than twenty five percent (25%) of
the
total number of shares (including Registrable Securities) included therein.
The
Company shall promptly advise all holders of securities requesting registration
of such limitation, and the number of shares that are entitled to be included
in
the registration and underwriting shall be allocated in the following manner:
the securities of the Company held by officers, directors and Other Stockholders
of the Company (other than Registrable Securities and other than securities
with
respect to which any such Person demanded such registration pursuant to a
contractual right (“Demanding
Holders”))
shall
be excluded from such registration and underwriting to the extent required
by
such limitation, and, if a limitation on the number of shares is still required,
the number of shares that may be included in the registration and underwriting
by each of the Holders and Demanding Holders shall be reduced, on a pro rata
basis (based on the number of all shares held by such holder), by such minimum
number of shares as is necessary to comply with such limitation, provided that,
in no event shall the number of Registrable Securities included in the
registration and underwriting be reduced to a number that is less than
twenty-five percent (25%) of the total number of shares (including Registrable
Securities) included therein. If any of the Holders or any officer, director
or
Other Stockholder disapproves of the terms of any such underwriting, he she
or
it may elect to withdraw therefrom by providing written notice to the Company
and the underwriter. Any Registrable Securities or other securities excluded
or
withdrawn from such underwriting shall be withdrawn from such
registration.
(c) Expenses
of Registration.
All
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to this Section 2 shall be borne by the
Company, and all Selling Expenses shall be borne by the Holders of the
securities so registered pro rata on the basis of the number of their shares
so
registered, except that all fees and disbursements of any counsel separately
retained by any such Holder shall be borne by such Holder; provided, however,
that if, as a result of the withdrawal of a request for registration by any
of
the Holders, the registration statement does not become effective, the Holders
and Other Stockholders requesting registration may elect to bear the
Registration Expenses (pro rata on the basis of the number of their shares
so
included in the registration request, or on such other basis as such Holders
and
Other Stockholders may agree), in which case such registration shall not be
counted as a registration pursuant to Section 2(a)(i) hereof.
(d) Registration
Procedures.
In the
case of each registration effected by the Company pursuant to this Section
2,
the Company will keep each Holder of Registrable Securities covered by such
registration (a “Participating
Holder”)
advised in writing as to the initiation of such registration and as to the
completion thereof. At its expense, the Company will:
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(i) keep
such
registration effective for a period of one hundred twenty (120) days or until
the Participating Holders (or in the case of a distribution to the partners
or
members of any such Participating Holder, such partners or members, as
applicable) have completed the distribution described in the registration
statement relating thereto, whichever first occurs; provided,
however,
that in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such one hundred and
twenty (120)-day period shall be extended until all such Registrable Securities
are sold, provided that Rule 415, or any successor rule under the Securities
Act, permits such an offering on a continuous or delayed basis;
(ii) furnish
such number of prospectuses and other documents incident thereto as each of
the
Participating Holders from time to time may reasonably request;
(iii) notify
each Participating Holder at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement,
as
then in effect, includes an untrue statement of a material fact or omits to
state a 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;
(iv) furnish,
on the date that such Registrable Securities are delivered to the underwriters
for sale, if such securities are being sold through underwriters or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (1)
an
opinion, dated as of such date, of the counsel representing the Company for
the
purposes of such registration, in form and substance as is customarily given
to
underwriters in an underwritten public offering and reasonably satisfactory
to a
majority in interest of the Participating Holders, addressed to the
underwriters, if any, and to the Participating Holders, and (2) a “cold comfort”
letter, dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the Participating
Holders, addressed to the underwriters, if any, and if permitted by applicable
accounting standards, to the Participating Holders;
(v) use
reasonable best efforts to cause all Registrable Securities covered by such
registration to be listed on the principal stock exchange or Nasdaq, as
applicable, on which the Common Stock is then listed or quoted;
(vi) provide
a
transfer agent and registrar for all such Registrable Securities not later
than
the effective date of such registration statement;
(vii) make
available for inspection by any seller of Registrable Securities, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all pertinent financial and other records, pertinent
organizational documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
reasonably available information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement;
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(viii) permit
any holder of Registrable Securities, which holder, in its good faith judgment
(based on the advice of counsel), could reasonably be expected to be deemed
to
be an underwriter or a controlling Person of the Company, to participate in
the
preparation of such registration statement and to require the insertion therein
of material, furnished to the Company in writing, which in the reasonable
judgment of such holder and its counsel should be included therein;
(ix) in
the
event of the issuance of any stop order suspending the effectiveness of a
registration statement, or of any order suspending or preventing the use of
any
related prospectus or suspending the qualification of any equity securities
included in such registration statement for sale in any jurisdiction, the
Company shall use its reasonable best efforts promptly to obtain the withdrawal
of such order;
(x) make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning
with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy
the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
and
(xi) use
its
reasonable best efforts to take all other customary and reasonable steps
necessary or advisable to effect the registration of the Registrable Securities
as contemplated hereby.
(e) Indemnification.
(i) The
Company will indemnify each of the Holders participating in such registration,
each of such Holder’s officers, directors and partners and members, and each
Person controlling such Holder, with respect to each registration which has
been
effected pursuant to this Section 2, and each underwriter of the Company’s
securities covered by such registration, if any, and each Person who controls
any such underwriter, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, issuer free-writing prospectus, notification or the like) incident
to
any such registration (or related state-law qualification or compliance), or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or the
Exchange Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration (or related
state-law qualification or compliance), and will reimburse each of such Holders,
each of its officers, directors and partners and members, and each Person
controlling each of such Holders, each such underwriter and each Person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided
that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or action arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company
by
the Holders or underwriter and stated to be specifically for use therein;
provided,
further,
that
the foregoing shall not limit the obligations of the Company to any party that
did not provide such written information.
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(ii) Each
of
the Holders will, if Registrable Securities held by it are included in the
securities as to which such registration (or related state-law qualification
or
compliance) is being effected, indemnify the Company, each of its directors
and
officers and each underwriter, if any, of the Company’s securities covered by
such registration, each Person who controls the Company or such underwriter,
each other Holder and each Other Stockholder participating in such registration
and each of their respective officers, directors, partners and members, and
each
Person controlling such other Holders or Other Stockholders, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out
of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any related registration statement, prospectus, issuer
free-writing prospectus, offering circular or other document made by such Holder
in writing, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements by such
Holder therein not misleading, and will reimburse the Company, the underwriters,
and such other Holders and Other Stockholders, and their respective directors,
officers, partners, members, Persons or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder
and
stated to be specifically for use therein; provided, however, that the
obligations of each of the Holders hereunder shall be limited to an amount
equal
to the net proceeds to such Holder of securities sold in such registration
as
contemplated herein.
(iii) Each
party entitled to indemnification under this Section 2(e) (the “Indemnified
Party”)
shall
give notice to the party required to provide indemnification (the “Indemnifying
Party”)
promptly after such Indemnified Party has actual knowledge of any claim as
to
which indemnity may be sought hereunder, and shall permit the Indemnifying
Party
to assume the defense of any such claim or any litigation resulting therefrom;
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld) and the
Indemnified Party may participate in such defense at such party’s expense
(unless the Indemnified Party shall have reasonably concluded that there may
be
a conflict of interest between the Indemnifying Party and the Indemnified Party
in such action, in which case the fees and expenses of counsel for the
Indemnified Party shall be at the expense of the Indemnifying Party), and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 2(e) unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or litigation
shall, except with the prior written consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include
as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim
or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense
of
such claim and litigation resulting therefrom.
-11-
(iv) If
the
indemnification provided for in this Section 2(e) is held by a court of
competent jurisdiction to be unavailable to an Indemnified Party with respect
to
any loss, liability, claim, damage or expense referred to herein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder,
shall contribute to the amount paid or payable by such Indemnified Party as
a
result of such loss, liability, claim, damage, action or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions (or alleged statements or omissions) which
resulted in such loss, liability, claim, damage, action or expense, as well
as
any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether the untrue (or alleged untrue) statement of
a
material fact or the omission (or alleged omission) to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. In no event shall
any contribution by a Holder under this Section 2(e)(iv) exceed the amount
of
the net proceeds to such Holder of securities sold in such registration as
contemplated herein, less any amounts paid by such Holder pursuant to Section
2(e)(ii).
(v) Notwithstanding
the foregoing, to the extent that the provisions relating to indemnification
and
contribution contained in the underwriting agreement entered into in connection
with any underwritten public offering contemplated by this Agreement are in
conflict with the foregoing provisions, the provisions in such underwriting
agreement shall be controlling.
(f) Information
by the Holders.
(i) Each
of
the Holders holding securities included in any registration referred to in
this
Section 2 shall furnish to the Company such information regarding such Holder
and the distribution proposed by such Holder as the Company may reasonably
request in writing and as shall be reasonably required in connection with such
registration (and related state-law qualification or compliance).
-12-
(ii) In
the
event that, either immediately prior to or subsequent to the effectiveness
of
any registration statement covering any Registrable Securities, any Holder
shall
distribute such Registrable Securities to its partners or members, such Holder
shall promptly so advise the Company and provide such information as shall
be
necessary to permit the timely making of an amendment to such registration
statement to provide information with respect to such partners or members,
as
selling security holders. Promptly following receipt of such information, the
Company shall file an appropriate amendment to such registration statement
reflecting the information so provided. Any incremental expense to the Company
resulting from such amendment shall be borne by such Holder.
(g) Rule
144 Reporting.
With
a
view to making available the benefits of certain rules and regulations of the
Commission which may permit the sale by the Holders of restricted securities
to
the public without registration, the Company agrees to:
(i) make
and
keep current public information available as those terms are understood and
defined in Rule 144 under the Securities Act (“Rule
144”),
at
all times from and after the date hereof;
(ii) use
its
best efforts to file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(iii) so
long
as a Holder owns any Registrable Securities, furnish to such Holder forthwith
upon its request, a written statement by the Company as to its compliance with
the reporting requirements of Rule 144, and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company filed with the Commission, and such other reports and documents so
filed
as such Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Holder to sell any such securities
without registration.
(h) Termination.
The
registration rights set forth in this Section 2 shall not be available to any
Holder if, (i) in the written opinion of counsel to the Company, all of the
Registrable Securities then owned by such Holder could be sold in any ninety
(90)-day period pursuant to Rule 144 (without giving effect to the provisions
of
Rule 144(k)) or (ii) all of the Registrable Securities held by such Holder
have
been sold in a registration pursuant to the Securities Act or pursuant to Rule
144.
SECTION
3. SALES
OF SECURITIES BY THE WYNDCREST AFFILIATED INVESTORS; NEGOTIATED SALES BY
CONTROLLING FORMER ETOYS INVESTORS
(a) Notwithstanding
anything herein to the contrary, during the Restricted Period, none of the
Wyndcrest Affiliated Investors shall sell
(including any short sale or entering into any puts, calls, or other similar
options to sell or acquire shares of Common Stock), transfer, tender, assign,
hypothecate or otherwise dispose of, other than as incident to the granting
of a
security interest in shares of Common Stock pursuant to a bona fide
lending
transaction in which a Wyndcrest Affiliated Investor is the borrower
(“Transfer”),
or
offer or agree to do any of the foregoing, any shares of Common Stock owned
beneficially or of record by such Wyndcrest Affiliated Investors,
except:
-13-
(i) Pursuant
to Section 2 hereof, beginning on the date that is twelve (12) months following
the date hereof;
(ii) Pursuant
to Rule 144 (without giving effect to the provisions of Rule 144(k)), beginning
on the date that is six (6) months following the date hereof; or
(iii) Pursuant
to negotiated private sales in accordance with the Securities Act, beginning
on
the date that is six (6) months following the date hereof, provided that:
(A) If
any
Wyndcrest Affiliated Investor desires to Transfer any of its shares of Common
Stock (a “Selling
Wyndcrest Holder”)
to a
third party, such Selling Wyndcrest Holder shall notify the eToys Holders (the
“Tag-Along
eToys Holders”),
in
writing, of such proposed Transfer and its terms and conditions. Within ten
(10)
business days of the date of such notice, each Tag-Along eToys Holder shall
notify the Selling Wyndcrest Holder if it elects to participate in such
Transfer. Any Tag-Along eToys Holder that fails to notify the Selling Wyndcrest
Holder within such ten (10) business day period shall be deemed to have waived
its rights hereunder with respect to such Transfer. Each Tag-Along eToys Holder
that so notifies the Selling Wyndcrest Holder shall have the right to sell
in
such transaction, at the same purchase price and on the same terms and
conditions as the Selling Wyndcrest Holder, an amount of shares of Common Stock
equal to the total number of shares of Common Stock such third party actually
proposes to purchase multiplied by a fraction, the numerator of which shall
be
the number of shares of Common Stock owned by such Tag-Along eToys Holder and
the denominator of which shall be the aggregate number of shares of Common
Stock
owned by the Selling Wyndcrest Holder and each Tag-Along eToys Holder exercising
its rights under this Section 3(a)(iii) with respect to such Transfer;
and
(B) Notwithstanding
anything contained in this Section 3(a)(iii), in the event that all or a portion
of such purchase price consists of securities and the sale of such securities
to
the Tag-Along eToys Holders would require either a registration under the
Securities Act or the preparation of a disclosure document pursuant to
Regulation D under the Securities Act (or any successor regulation) or a similar
provision of any state securities law, then, at the option of the Selling
Wyndcrest Holder, any one or more of the Tag-Along eToys Holders may receive,
in
lieu of such securities, the fair market value of such securities in cash,
as
determined in good faith by the board of directors of the Company.
-14-
(iv) In
the
case of each of Wyndcrest BabyUniverse Holdings II, LLC and Wyndcrest
BabyUniverse Holdings III, LLC, pursuant to a Transfer to one or more of its
members, upon a request by such member for an in-kind distribution of securities
held by such Wyndcrest Affiliated Investor in accordance with the operating
agreement or other organizational document of such Wyndcrest Affiliated
Investor; provided, however, that it shall be a condition to such Transfer
that
such member executes a joinder to this Agreement, which shall be in customary
form, pursuant to which such member (A) consents
and agrees to become a party to and be bound by and subject to all of the terms,
liabilities and obligations pertaining to the Wyndcrest Affiliated Investors
in
this Agreement as if it were an original signatory hereto with respect to such
terms, liabilities and obligations, (B) consents and agrees to the placement
of
a stop
transfer order during the Restricted Period with the transfer agent and
registrar for the Common Stock against the certificate or certificates
representing the shares of Common Stock received by such member in such Transfer
as to the restrictions arising under this paragraph (iv) and (C) consents and
agrees that it shall not be the beneficiary of any of the registration rights
or
tag-along rights granted to the Wyndcrest Affiliated Investors or the Wyndcrest
Holders pursuant to Sections 2 and 3(b) of this Agreement.
(b) If
any
Controlling Former eToys Investor desires to Transfer (other than any Transfer
to a fund which is an affiliate of such Controlling Former eToys Investor)
in a
negotiated private sale in accordance with the Securities Act, during the
Restricted Period, any of its shares of Common Stock (a “Selling eToys Holder”)
to a third party, such Selling eToys Holder shall notify the Wyndcrest
Affiliated Investors (the “Tag-Along Wyndcrest Holders”), in writing, of such
proposed Transfer and its terms and conditions. Within ten (10) business days
of
the date of such notice, each Tag-Along Wyndcrest Holder shall notify the
Selling eToys Holder if it elects to participate in such Transfer. Any Tag-Along
Wyndcrest Holder that fails to notify the Selling eToys Holder within such
ten
(10) business day period shall be deemed to have waived its rights hereunder
with respect to such Transfer. Each Tag-Along Wyndcrest Holder that so notifies
the Selling eToys Holder shall have the right to sell in such transaction,
at
the same purchase price and on the same terms and conditions as the Selling
eToys Holder, an amount of shares of Common Stock equal to the total number
of
the shares of Common Stock such third party actually proposes to purchase
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock owned by such Tag-Along Wyndcrest Holder and the denominator
of
which shall be the aggregate number of shares of Common Stock owned by the
Selling eToys Holder and each Tag-Along Wyndcrest Holder exercising its rights
under this Section 3(b) with respect to such Transfer. Notwithstanding the
foregoing, the provisions of this Section 3(b) shall only apply to such a
Transfer if, following such Transfer, the transferee would (i) be the largest
stockholder of the Company and (ii) beneficially own in excess of 30% of the
outstanding shares of Common Stock.
SECTION
4. MISCELLANEOUS
(a) Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Delaware applicable to contracts made and to be performed entirely
within such State without regard to conflicts of law principles.
-15-
(b) Section
Headings.
The
headings of the sections and subsections of this Agreement are inserted for
convenience of reference only and shall not be deemed to constitute a part
thereof.
(c) Notices.
(i) All
communications under this Agreement shall be in writing and shall be delivered
by hand or facsimile or sent by overnight courier or mailed by registered or
certified mail, postage prepaid:
(1) if
to the
Company, to ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Chief Executive Officer
(facsimile: (▇▇▇) ▇▇▇-▇▇▇▇), or at such other address or facsimile number as
the
Company may have furnished in writing to the Holders.
(2) if
to the
eToys Holders, at the respective addresses or facsimile numbers listed on
Schedule I hereto, or at such other address or facsimile number as any such
eToys Holder may have furnished in writing to the Company, with a copy to
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
(facsimile: (▇▇▇) ▇▇▇-▇▇▇▇), Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq. and ▇▇▇▇▇▇▇
▇.
▇▇▇▇, Esq.
(3) if
to the
Wyndcrest Holders, at the respective addresses or facsimile numbers listed
on
Schedule II hereto, or at such other address or facsimile number as any such
Wyndcrest Holder may have furnished in writing to the Company, with a copy
to
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (facsimile: (▇▇▇) ▇▇▇-▇▇▇▇), Attention: ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇,
Esq.
(ii) Any
notice so addressed shall be deemed to be given: if delivered by hand, on the
date of such delivery; if delivered by facsimile, on the date of transmission
upon receipt of appropriate mechanical confirmation, if sent by overnight
courier, on the first business day following the date of its delivery to the
courier; and if mailed by registered or certified mail, postage prepaid, on
the
third business day after the date of such mailing.
(d) Reproduction
of Documents.
This
Agreement and all documents relating thereto, including, without limitation,
any
consents, waivers and modifications which may hereafter be executed, may be
reproduced by the Holders by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and the Holders
may
destroy any original document so reproduced. The parties hereto agree and
stipulate that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not
the
original is in existence and whether or not such reproduction was made by the
Holders in the regular course of business) and that any enlargement, facsimile
or further reproduction of such reproduction shall likewise be admissible in
evidence.
(e) Successors
and Assigns.
This
Agreement shall inure to the benefit of and be binding upon the successors
and
assigns of each of the parties.
-16-
(f) Entire
Agreement; Amendment and Waiver.
This
Agreement constitutes the entire understanding of the parties hereto relating
to
the subject matter hereof and supersedes all prior understandings among such
parties. This Agreement may be amended, and the observance of any term of this
Agreement may be waived, with (and only with) the written consent of the
Company, the eToys Holders holding a majority of the then outstanding eToys
Registrable Securities and the Wyndcrest Holders holding a majority of the
then
outstanding Wyndcrest Registrable Securities. Any amendment or waiver effected
in accordance with this Section 4(f) shall be binding upon each Holder of
Registrable Securities then outstanding (whether or not such Holder consented
to
any such amendment or waiver).
(g) Severability.
In the
event that any part or parts of this Agreement shall be held illegal or
unenforceable by any court or administrative body of competent jurisdiction,
such determination shall not affect the remaining provisions of this Agreement,
which shall remain in full force and effect.
(h) Interpretation.
Where
any provision in this Agreement refers to an action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such
Person.
(i) Counterparts.
This
Agreement may be executed in two or more counterparts (including by facsimile),
each of which shall be deemed an original and all of which together shall be
considered one and the same agreement.
(j) Specific
Performance; Injunctive Relief.
The
Company and the Holders hereby declare that it is impossible to measure in
money
the damages which will accrue to the parties hereto by reason of the failure
of
any party hereto to perform any of its obligations set forth in this Agreement.
Therefore, the Company and the Holders shall have the right to specific
performance of such obligations, and if any party hereto shall institute any
action or proceeding to enforce the provisions hereof, each of the Company
and
the Holders hereby waive the claim or defense that the party instituting such
action or proceeding has an adequate remedy at law.
[Remainder
of Page Intentionally Left Blank]
-17-
IN
WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date first set forth above.
| BABYUNIVERSE, INC. | ||
| |
|
|
| By: | /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇ | |
|
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇ |
||
| Title: Chief Executive Officer | ||
Former
eToys Investors
By:
▇. ▇.
▇▇▇▇ & Co., L.L.C., as Manager
By:
/s/
▇▇▇▇▇▇ ▇▇▇▇▇▇
Name:
▇▇▇▇▇▇ ▇▇▇▇▇▇
Title:
Managing Director
/s/
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
Wyndcrest
Affiliated Investors
/s/
▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇
▇.
▇▇▇▇▇▇
WYNDCREST
BABYUNIVERSE HOLDINGS, LLC
By:
/s/
▇▇▇▇ ▇. ▇▇▇▇▇▇
Name:
▇▇▇▇ ▇. ▇▇▇▇▇▇
Title:
President of Managing Member
WYNDCREST
BABYUNIVERSE HOLDINGS II, LLC
By:_/s/
▇▇▇▇ ▇. Textor_____________________
Name:
▇▇▇▇ ▇. ▇▇▇▇▇▇
Title:
President of Managing Member
WYNDCREST
BABYUNIVERSE HOLDINGS III, LLC
By:_/s/
▇▇▇▇ ▇. Textor____________________
Name:
▇▇▇▇ ▇. ▇▇▇▇▇▇
Title:
President of Managing Member
-18-
Schedule
I
Former
eToys Investors
|
Investor
Name and Address
|
|
▇▇▇
▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇
▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
c/o
eToys Direct, Inc.
▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
|
-19-
Schedule
II
Wyndcrest
Affiliated Investors
|
Investor
Name and Address
|
|
▇▇▇▇
▇. ▇▇▇▇▇▇
▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇
Wyndcrest
BabyUniverse Holdings, LLC
▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇
Wyndcrest
BabyUniverse Holdings II, LLC
▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇
Wyndcrest
BabyUniverse Holdings III, LLC
▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇
|
-20-