ETOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
INITIAL CLOSING: JUNE 3, 1998
ETOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Series B Preferred Stock Purchase Agreement (the "AGREEMENT") is made
as of the 3rd day of June, 1998, by and between eToys Inc., a Delaware
corporation (the "COMPANY") and the investors listed on EXHIBIT A attached
hereto (each a "PURCHASER" and together the "PURCHASERS").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
1.1 SALE AND ISSUANCE OF SERIES B PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of State
of the State of Delaware on or before the Closing (as defined below) the Second
Amended and Restated Certificate of Incorporation in the form attached hereto as
EXHIBIT B (the "RESTATED CERTIFICATE").
(b) Subject to the terms and conditions of this Agreement, each
Purchaser agrees to purchase at the Closing and the Company agrees to sell and
issue to each Purchaser at the Closing that number of shares of Series B
Preferred Stock set forth opposite each such Purchaser's name on EXHIBIT A
attached hereto at a purchase price of $2.1032 per share. The shares of
Series B Preferred Stock issued to the Purchaser pursuant to this Agreement
shall be hereinafter referred to as the "STOCK."
1.2 CLOSING; DELIVERY.
(a) The purchase and sale of the Stock shall take place at the
offices of Venture Law Group, 0000 Xxxx Xxxx Xxxx, Xxxxx Xxxx, Xxxxxxxxxx, at
12:00 p.m., on June 3, 1998, or at such other time and place as the Company and
the Purchasers purchasing a majority of the shares of Stock mutually agree upon,
orally or in writing (which time and place are designated as the "CLOSING").
(b) At the Closing, the Company shall deliver to each Purchaser
a certificate representing the Stock being purchased thereby against payment of
the purchase price therefor by check payable to the Company, wire transfer to
the Company's bank account, cancellation of indebtedness, or any combination
thereof. In the event that payment by a Purchaser is made, in whole or in part,
by cancellation of indebtedness, then such Investor shall surrender to the
Company for cancellation at the Closing any evidence of such indebtedness or
shall executed an instrument of cancellation in form and substance acceptable to
the Company.
(c) If the full number of the authorized shares of Series B
Preferred Stock of the Company is not sold at the Closing, the Company shall
have the right, at any time prior to June 17, 1998, to sell the remaining
authorized but unissued shares of Series B Preferred Stock to one or more
additional purchasers as determined by the Company, or to any Purchaser
hereunder who wishes to acquire additional shares of Series B Preferred Stock at
the price and on the terms set forth herein, provided that any such additional
purchaser shall be required to execute an Addendum Agreement substantially in
the form attached hereto as EXHIBIT H. Any additional purchaser so acquiring
shares of Series B Preferred Stock shall be considered a "Purchaser" for
purposes of this Agreement, and any Series B Preferred Stock so acquired by such
additional purchaser shall be considered "Stock" for purposes of this Agreement
and all other agreements contemplated hereby.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as EXHIBIT C, which exceptions shall be
deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business. The Company is duly qualified to transact business and
is in good standing in each jurisdiction in which the failure so to qualify
would have a material adverse effect on its business or properties.
2.2 CAPITALIZATION. The authorized capital of the Company consists,
or will consist, immediately prior to the Closing, of:
(a) Eighteen Million Nine Hundred Twenty-Six Thousand Four
Hundred Twenty-Three (18,926,423) shares of Preferred Stock, Seven Million
Thirty-Nine Thousand Seven Hundred Seventy-Four (7,039,774) shares of which have
been designated Series A Preferred Stock, of which Six Million Three Hundred
Eighteen Thousand Seventeen (6,318,017) shares are issued and outstanding; and
Eleven Million Eight Hundred Eighty-Six Thousand Six Hundred Forty-Nine
(11,886,649) shares of Series B Preferred Stock, none of which are issued and
outstanding immediately prior to the Closing. The rights, privileges and
preferences of the Preferred Stock are as stated in the Restated Certificate.
(b) Fifty Million (50,000,000) shares of Common Stock, Eleven
Million Seven Thousand Two Hundred Fifty-Nine (11,007,259) shares of which are
issued and outstanding immediately prior to the Closing. All of the outstanding
shares of Common Stock have been duly authorized, fully paid and are
nonassessable and issued in compliance with all applicable federal and state
securities laws. The Company has reserved Eleven Million Eight Hundred Eighty-
Six Thousand Six Hundred Forty-Nine (11,886,649) shares of Common Stock for
issuance upon conversion of the Series B Preferred Stock.
(c) The Company has reserved Five Million Eight Hundred Thousand
(5,800,000) shares of Common Stock for issuance to officers, directors,
employees and consultants of the Company pursuant to its 1997 Stock Option Plan
duly adopted by the Board of Directors and approved by the Company stockholders
(the "STOCK PLAN"). Of such reserved shares of Common Stock, options to
purchase One Million Nine Hundred Three Thousand (1,903,000) shares have been
granted and are currently outstanding, options to purchase Seventy-Four Thousand
One Hundred Sixty-Seven (74,167) shares have been exercised, and Three
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Million Eight Hundred Twenty-Two Thousand Eight Hundred Thirty-Three (3,822,833)
shares of Common Stock remain available for issuance to officers, directors,
employees and consultants pursuant to the Stock Plan.
(d) Except for currently outstanding options issued pursuant to
the Stock Plan, warrants to purchase 721,757 shares of Series A Preferred Stock,
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal or similar rights) or agreements,
orally or in writing, for the purchase or acquisition from the Company of any
shares of its capital stock. The Company is not a party or subject to any
agreement or understanding, and, to the best of the Company's knowledge, there
is no agreement or understanding between any persons and/or entities, which
effects or relates to the voting or giving of written consents with respect to
any security or by a director of the Company.
2.3 SUBSIDIARIES. The Company does not currently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the Amended and Restated Investors'
Rights Agreement, in the form attached hereto as EXHIBIT D (the "INVESTORS'
RIGHTS AGREEMENT"), the Amended and Restated Right of First Refusal and Co-Sale
Agreement in the form attached hereto as EXHIBIT E (the "CO-SALE AGREEMENT"),
and the Amended and Restated Voting Agreement in the form attached hereto as
EXHIBIT F (the "VOTING AGREEMENT") and the Letter Agreement between Intel
Corporation in the form attached hereto as EXHIBIT I (the "INTEL LETTER
AGREEMENT") and collectively with this Agreement, the Investors' Rights
Agreement, the Co-Sale Agreement and the Voting Agreement (the "AGREEMENTS"),
the performance of all obligations of the Company hereunder and thereunder and
the authorization, issuance and delivery of the Stock and the Common Stock
issuable upon conversion of the Stock (together, the "SECURITIES") has been
taken or will be taken prior to the Closing, and the Agreements, when executed
and delivered by the Company, shall constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditors' rights generally, as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies, or (ii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
2.5 VALID ISSUANCE OF SECURITIES. The Stock that is being issued to
the Purchasers hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under this Agreement, the Investors' Rights
Agreement and applicable state and federal securities laws. Based in part upon
the representations of the Purchasers in this Agreement and subject to the
provisions of Section 2.7 below, the Stock will be issued in compliance with all
applicable federal and state
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securities laws. The Common Stock issuable upon conversion of the Stock has
been duly and validly reserved for issuance, and upon issuance in accordance
with the terms of the Restated Certificate, shall be duly and validly issued,
fully paid and nonassessable and free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Investors' Rights Agreement
and applicable federal and state securities laws and will be issued in
compliance with all applicable federal and state securities laws.
2.6 OFFERING. Subject in part to the truth and accuracy of each
Purchaser's representations set forth in Section 3 of the Agreement, the offer,
sale and issuance of the Series B Preferred Stock as contemplated by this
Agreement are exempt from the registration requirements of any applicable stock
and federal securities laws, and neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
2.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to Section 25102(f)
of the California Corporate Securities Law of 1968, as amended, and the rules
thereunder, other applicable state securities laws and Regulation D of the
Securities Act of 1933, as amended (the "SECURITIES ACT").
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries that questions the validity of
the Agreements or the right of the Company to enter into them, or to consummate
the transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse changes in the assets,
condition or affairs of the Company, financially or otherwise, or any change in
the current equity ownership of the Company, nor is the Company aware that there
is any basis for the foregoing. Neither the Company nor any of its subsidiaries
is a party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company or any of its
subsidiaries currently pending or which the Company or any of its subsidiaries
intends to initiate.
2.9 PATENTS AND TRADEMARKS. To its knowledge, the Company owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
tradenames, copyrights, trade secrets, licenses, information and proprietary
rights and processes and, to its knowledge, all patent rights necessary for its
business without any conflict with, or infringement of, the rights of others.
There are no outstanding options, licenses or agreements of any kind relating to
the foregoing, nor is the Company bound by or a party to any options, licenses
or agreements of any kind with respect to the patents, trademarks, servicemarks,
tradenames, copyrights, trade secrets, licenses, information, proprietary rights
and processes of any other person or entity. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed to be conducted in the Business Plan (as defined in
Section 2.12), would violate any of the patents, trademarks, service marks,
tradenames,
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copyrights, trade secrets or other proprietary rights or processes of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interest of the Company or that would
conflict with the Company's business as proposed to be conducted in the Business
Plan. Neither the execution or delivery of this Agreement or the agreements,
nor the carrying on of the Company's business by the employees of the Company,
nor the conduct of the Company's business as proposed in the Business Plan,
will, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions, or provisions of, or constitute a default under, any
contract, covenant or instrument under which any such employee is now obligated.
The Company does not believe it is or will be necessary to utilize any
inventions of (i) idealab! and (ii) any of the Company's employees or people it
currently intends to hire made prior to or outside the scope of their employment
by the Company. No employee of idealab! has developed any technology which
constitutes a material portion of any of the Company's products, and, to the
best of the Company's knowledge, no current or former stockholder, employee,
officer, director or consultant of the Company has (directly or indirectly) any
right, title or interest in any intellectual property necessary for the
operation of the business of the Company as presently conducted or as proposed
to be conducted in the Business Plan.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS. As of the date of the
Closing, the Company is not in violation or default of any provisions of its
Restated Certificate or Bylaws or of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound or, to its
knowledge, of any provision of federal or state statute, rule or regulation
applicable to the Company. The execution, delivery and performance of the
Agreements and the consummation of the transactions contemplated hereby or
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any material permit, license,
authorization applicable to the Company, its business or operations or any of
its assets or properties, which suspension, revocation, impairment, forfeiture
or nonrenewal will have a material adverse effect on the Company's financial
condition, operating results, business or operations.
2.11 AGREEMENTS; ACTION.
(a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof.
(b) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company or any of its subsidiaries is a party
or by which it is bound that involve (i) obligations (contingent or otherwise)
of, or payments to, the Company or any of its subsidiaries in excess of,
$10,000, (ii) the license of any patent, copyright, trade secret or other
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proprietary right to or from the Company or any of its subsidiaries, (iii) the
grant of rights to manufacture, produce, assemble, license, market, or sell its
products to any other person or affect the Company's exclusive right to develop,
manufacture, assemble, distribute, market or sell its products, or
(iv) indemnification by the Company with respect to infringements of proprietary
rights.
(c) Neither the Company nor any of its subsidiaries has
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $10,000 or in excess of $25,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, the
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity shall be
aggregated for the purpose of meeting the individual minimum dollar amounts with
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or, at the time of Closing, subject to any
restriction under its Restated Certificate or Bylaws, that adversely affects its
business, its properties or its financial condition.
2.12 DISCLOSURE. The Company has fully provided the Purchasers with
all the information that the Purchasers have requested for deciding whether to
acquire the Stock and all information that the Company believes is reasonably
necessary to enable the Purchasers to make such a decision, including certain of
the Company's projections describing its proposed business (collectively, the
"BUSINESS PLAN"). To the Company's knowledge, no representation or warranty of
the Company contained in this Agreement and the exhibits attached hereto, any
certificate furnished or to be furnished to Purchasers at the Closing, or the
Business Plan (when read together) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. The Business Plan and the financial and other projections
contained in the Business Plan concerning the Company were prepared in good
faith; however, the Company does not warrant that it will achieve such
projections.
2.13 NO CONFLICT OF INTEREST. The Company is not indebted, directly
or indirectly, to any (i) of its officers or directors or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
relocation expenses of employees and (ii) affiliate of the Company. To the
Company's knowledge, none of the Company's officers or directors, or any members
of their immediate families, or any affiliate of the Company, are, directly or
indirectly, indebted to the Company (other than in connection with purchases of
the Company's stock) or have any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or
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corporation which competes with the Company except that officers, directors
and/or stockholders of the Company may own stock in (but not exceeding two
percent of the outstanding capital stock of) any publicly traded companies that
may compete with the Company. To the Company's knowledge, none of the Company's
officers or directors or any members of their immediate families, or any
affiliate of the Company, are, directly or indirectly, interested in any
material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
2.14 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as contemplated
in the Investors' Rights Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity. To the Company's knowledge, except as contemplated in the Voting
Agreement, no stockholder of the Company has entered into any agreements with
respect to the voting of capital shares of the Company.
2.15 PRIVATE PLACEMENT. Subject in part to the truth and accuracy of
the Purchasers' representations set forth in this Agreement, the offer, sale and
issuance of the Securities as contemplated by this Agreement is exempt from the
registration requirements of the Securities Act.
2.16 TITLE TO PROPERTY AND ASSETS. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
2.17 FINANCIAL STATEMENTS. The Company has made available to each
Purchaser its unaudited financial statements (including balance sheet and profit
and loss statement) as of and for the twelve-month period ended March 31, 1998
(collectively, the "FINANCIAL STATEMENTS"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated, except that the unaudited
Financial Statements may not contain all footnotes required by generally
accepted accounting principles. The Financial Statements fairly present the
financial condition and operating results of the Company as of the dates, and
for the periods, indicated therein, subject, in the case of the unaudited
Financial Statements, to normal year-end audit adjustments, which individually
or in the aggregate will not be material to the financial condition or operating
results of the Company. Except as set forth in the Financial Statements, the
Company has no material liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
March 31, 1998 and (ii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Financial Statements, which, in
both cases, individually or in the aggregate are not material to the financial
condition or operating results of the Company. Except as disclosed in the
Financial Statements, the Company is not a guarantor or indemnity of any
indebtedness of any other person, firm or corporation. The
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Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
2.18 CHANGES. Since March 31, 1998, there has not been:
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted in the Business Plan);
(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer
or key employee of the Company; and the Company does not know of any impending
resignation or termination of employment of any such officer or key employee;
(i) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
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(l) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(m) to the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties, prospects or financial condition of the Company (as such
business is presently conducted and as it is proposed to be conducted in the
Business Plan); or
(n) any arrangement or commitment by the Company to do any of
the things described in this Section 2.18.
2.19 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.20 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all
tax returns and reports (including information returns and reports) as required
by law. These returns and reports are true and correct in all material
respects. The Company has paid all taxes and other assessments due, except
those contested by it in good faith that are listed in the Schedule of
Exceptions. The provision for taxes of the Company as shown in the Financial
Statements is adequate for taxes due or accrued as of the date thereof. The
Company has not elected pursuant to the Internal Revenue Code of 1986, as
amended (the "CODE"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material effect on the Company, its financial
condition, its business as presently conducted or proposed to be conducted or
any of its properties or material assets. The Company has never had any tax
deficiency proposed or assessed against it and has not executed any waiver of
any statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's federal income tax returns and none
of its state income or franchise tax or sales or use tax returns have ever been
audited by governmental authorities. Since the date of the Financial
Statements, the Company has not incurred any taxes, assessments or governmental
charges other than in the ordinary course of business and the Company has made
adequate provisions on its books or accounts for all taxes, assessments and
governmental charges with respect to its business, properties and operations for
such period. The Company has withheld or collected from each payment made to
each of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositories.
2.21 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed; and the Company has insurance against other
hazards, risks and liabilities to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated.
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2.22 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The Company is not aware
that any officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have any
present intention to terminate the employment of any of the foregoing. The
employment of each officer and employee of the Company is terminable at the will
of the Company, without the obligation to pay any severance or other
compensation. To its knowledge, the Company has complied in all material
respects with all applicable state and federal equal employment opportunity laws
and with other laws related to employment. The Company is not a party to or
bound to any currently effective employment contract, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement
or other employee compensation agreement.
2.23 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENTS.
Each former and current employee, consultant and officer of the Company has
executed an agreement with the Company regarding confidentiality and proprietary
information substantially in the form or forms delivered to the counsel for the
Purchasers. The Company is not aware that any of its former and current
employees or consultants is in violation thereof, and the Company will use its
best efforts to prevent any such violation. All consultants to or vendors of
the Company with access to confidential information of the Company are parties
to a written agreement substantially in the form or forms provided to counsel
for the Purchasers under which, among other things, each such consultant or
vendor is obligated to maintain the confidentiality of confidential information
of the Company. The Company is not aware that any of its consultants or vendors
are in violation thereof, and the Company will use its best efforts to prevent
any such violation.
2.24 PERMITS. The Company and each of its subsidiaries has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business, the lack of which could materially and adversely affect
the business, properties, prospects, or financial condition of the Company. The
Company is not in default in any material respect under any of such franchises,
permits, licenses or other similar authority.
2.25 CORPORATE DOCUMENTS. The Restated Certificate and Bylaws of the
Company are in the form provided to counsel for the Purchasers. The copy of the
minute books of the Company provided to the Purchasers' counsel contains minutes
of all meetings of directors and stockholders and all actions by written consent
without a meeting by the directors and stockholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
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2.26 SECTION 83(b) ELECTIONS. To the best of the Company's knowledge,
all individuals who have purchased unvested shares of the Company's Common Stock
have timely filed elections under Section 83(b) of the Code.
2.27 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No major customer or
supplier as of the date the Financial Statements has materially reduced or
threatened to terminate or materially reduce its purchases from or provision of
products or services to the Company, as the case may be.
2.28 QUALIFIED SMALL BUSINESS STOCK. As of the Closing, (i) the
Company will be an eligible corporation as defined in Section 1202(e)(4) of the
Code, (ii) the Company will not have made any purchases of its own stock during
the one-year period proceeding the Closing having an aggregate value exceeding
five percent (5%) of the aggregate value of all its stock as of the beginning of
such period and (iii) the Company's aggregate gross assets, as defined by Code
Section 1202(d)(2), at no time since incorporation and through the Closing have
exceeded or will exceed $50 million, taking into account the assets of any
corporations required to be aggregated with the Company in accordance with the
Code Section 1202(d)(3).
2.29 REAL PROPERTY HOLDING COMPANY. The Company is not a real
property holding company within the meaning of Section 897 of the Code.
2.30 MANUFACTURING AND MARKETING RIGHTS. The Company has not granted
rights to manufacture, produce, assemble, lease, market or sell its products to
any other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute market or sell its
products.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company that:
3.1 AUTHORIZATION. The Agreements, when executed and delivered by
the Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the indemnification provisions contained in the Investors'
Rights Agreement may be limited by applicable federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any
-11-
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities. The Purchaser represents that it
has full power and authority to enter into this Agreement. The Purchaser has
not been formed for the specific purpose of acquiring the Securities.
3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an opportunity
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Stock with the Company's management and
has had an opportunity to review the Company's facilities. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the Purchasers to rely
thereon.
3.4 RESTRICTED SECURITIES. The Purchaser understands that the
Securities have not been registered under the Securities Act, by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of the Purchaser's representations as expressed herein. The
Purchaser understands that the Securities are "restricted securities" under
applicable U.S. federal and state securities laws and that, pursuant to these
laws, the Purchaser must hold the Securities indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. The Purchaser acknowledges that the Company has no
obligation to register or qualify the Securities for resale except as set forth
in the Investors' Rights Agreement. The Purchaser further acknowledges that if
an exemption from registration or qualification is available, it may be
conditioned on various requirements including, but not limited to, the time and
manner of sale, the holding period for the Securities, and on requirements
relating to the Company which are outside of the Purchaser's control, and which
the Company is under no obligation and may not be able to satisfy.
3.5 NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 LEGENDS. The Purchaser understands that the Securities and any
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the other Agreements.
-12-
(c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.7 ACCREDITED INVESTOR. The Purchaser is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the Act.
3.8 FOREIGN INVESTORS. If the Purchaser is not a United States
person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986,
as amended), such Purchaser hereby represents that it has satisfied itself as to
the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Stock or any use of this Agreement, including
(i) the legal requirements within its jurisdiction for the purchase of the
Stock, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other consents that may need to be obtained, and
(iv) the income tax and other tax consequences, if any, that may be relevant to
the purchase, holding, redemption, sale, or transfer of the Stock. Such
Purchaser's subscription and payment for and continued beneficial ownership of
the Stock, will not violate any applicable securities or other laws of the
Purchaser's jurisdiction.
4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to the Purchasers at the Closing a certificate certifying that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating
that there shall have been no adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since the
date of the Financial Statements.
4.4 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchasers' special counsel, and they
-13-
shall have received all such counterpart and certified or other copies of such
documents as they may reasonably request.
4.6 OPINION OF COMPANY COUNSEL. The Purchasers shall have received
from Venture Law Group, A Professional Corporation, counsel for the Company, an
opinion, dated as of the Closing, in substantially the form of EXHIBIT G.
4.7 BOARD OF DIRECTORS. As of the Closing, the size of the Company's
Board of Directors shall be increased to six (6) members. As of the Closing,
the holders of a majority of the outstanding Series A Preferred Stock will have
the right to designate one (1) board seat, which designee shall initially be a
representative of DynaFund, the holders of a majority of the outstanding
Series B Preferred Stock will have the right to designate two (2) board seats,
one such designee shall initially be a representative of Highland Capital
Partners and the second designee shall initially be a representative of Sequoia
Capital, and the holders of a majority of the outstanding Common Stock will have
the right to designate two (2) board seats, which designees shall initially be
Xxxxxxx Xxxxx and Xxxxxx X. Xxxx. The remaining directors of the Company shall
be designated by the holders of a majority of the outstanding Common and
Preferred Stock, voting together as a single class, and as of the Closing such
designee shall be Xxxxx Xxxx.
4.8 INVESTORS' RIGHTS AGREEMENT. The Company, each Purchaser and
each Founder shall have executed and delivered the Investors' Rights Agreement
in substantially the form attached as EXHIBIT D.
4.9 CO-SALE AGREEMENT. The Company, each Purchaser, and each Founder
shall have executed and delivered the Co-Sale Agreement in substantially the
form attached as EXHIBIT E.
4.10 VOTING AGREEMENT. The Company and each Purchaser shall have
executed and delivered the Voting Agreement in substantially the form attached
as EXHIBIT F.
4.11 RESTATED CERTIFICATE. The Company shall have filed the Restated
Certificate with the Secretary of State of Delaware on or prior to the Closing
Date, which shall continue to be in full force and effect as of the Closing
Date.
4.12 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. The
Company and each of its employees shall have entered into the Company's standard
form Confidential Information and Invention Assignment Agreement, in
substantially the form provided to the Purchasers.
4.13 HIGHLAND CERTIFICATE. The Company shall have provided to
Highland Capital Partners III Limited Partnership ("HIGHLAND") a certificate of
the direct and indirect holdings of securities of the Company by certain persons
designated by Highland as required by Highland's governing documents.
4.14 INTEL LETTER AGREEMENT. Each Purchaser shall have executed and
delivered the Intel Letter Agreement in substantially the form attached as
EXHIBIT I.
-14-
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 PERFORMANCE. All covenants, agreements and conditions contained
in this Agreement to be performed by the Purchasers on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Purchasers or the Company.
6.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.3 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
6.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
6.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
-15-
6.6 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such
party's address as set forth below or on EXHIBIT A hereto, or as subsequently
modified by written notice, and (a) if to the Company, with a copy to Venture
Law Group, A Professional Corporation, 0000 Xxxx Xxxx Xxxx, Xxxxx Xxxx,
Xxxxxxxxxx 00000, Attention: Xxxx X. Xxx Xxxxxx or (b) if to Highland Capital
Partners, with a copy to Xxxxxxxx, Xxxxxxx & Xxxxxxx, A Professional
Corporation, 000 Xxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, Attention: Xxxxxxx
X. Xxxxxx, Xx.
6.7 FINDER'S FEE. Each party represents that it neither is nor will
be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation
in the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
6.8 FEES AND EXPENSES. The Company shall pay at Closing the
reasonable fees and expenses of Xxxxxxxx, Xxxxxxx & Xxxxxxx, A Professional
Corporation, the counsel for the Purchasers, incurred with respect to this
Agreement, the documents referred to herein and the transactions contemplated
hereby and thereby, provided such fees and expenses do not exceed $15,000.
6.9 ATTORNEY'S FEES. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
6.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended with the written consent of the Company and the holders of at least
66 2/3% of the Common Stock issued or issuable upon conversion of the Stock.
Any amendment or waiver effected in accordance with this Section 6.10 shall
be binding upon the Purchasers and each transferee of the Stock (or the
Common Stock issuable upon conversion thereof), each future holder of all
such securities, and the Company.
6.11 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
-16-
6.12 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
6.13 ENTIRE AGREEMENT. This Agreement, the documents referred to
herein and certain side letter agreements between the Company and Intel
Corporation and the Company and the DynaFund entities concerning Board
visitation rights constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof, and any and all other written or oral
agreements relating to the subject matter hereof existing between the parties
hereto are expressly canceled.
6.14 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
6.15 CONFIDENTIALITY. Each party hereto agrees that, except with the
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder. Without granting any right or license,
each party agrees that the foregoing clauses shall not apply with respect to any
information after five (5) years following the disclosure thereof or any
information that the other party can document (i) is or becomes (through no
improper action or inaction by such party or any affiliate, agent, consultant or
employee) generally available to the public, (ii) was in its possession known by
it prior to receipt from the other party, or (iii) was rightfully disclosed to
it by a third party without restriction. The provisions of this Section 6.15
shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by the parties hereto with respect to
the transactions contemplated hereby, including, without limitation, the Intel
Letter Agreement.
-17-
6.16 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable to any other Purchaser for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
purchase of the Securities.
6.17 WAIVER OF CONFLICTS. Each party to this Agreement acknowledges
that Venture Law Group, counsel for the Company, has in the past performed and
may continue to perform legal services for certain of the Purchasers in matters
unrelated to the transactions described in this Agreement, including the
representation of such Purchasers in venture capital financings and other
matters. Accordingly, each party to this Agreement hereby (a) acknowledges that
they have had an opportunity to ask for information relevant to this disclosure;
and (b) gives its informed consent to Venture Law Group's representation of
certain of the Purchasers in such unrelated matters and to Venture Law Group's
representation of the Company in connection with this Agreement and the
transactions contemplated hereby.
[Signature Pages Follow]
-18-
The parties have executed this Series B Preferred Stock Purchase Agreement
as of the date first written above.
COMPANY:
eTOYS INC.
By: /s/ Xxxxxx X. Xxxx
----------------------------------------
Xxxxxx X. Xxxx
President and Chief Executive officer
Address: 0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxxx, XX 00000
SIGNATURE PAGE TO eTOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASERS:
DYNAFUND LP
By: /s/ Xxxxx X. X. Ko
------------------------------------------
Name: Xxxxx X. X. Ko
----------------------------------------
(print)
Title: General Partner
---------------------------------------
Address: Illegible
-------------------------------------
Illegible
-------------------------------------
DYNAFUND INTERNATIONAL LP
By: /s/ Xxxxx X. X. Ko
------------------------------------------
Name: Xxxxx X. X. Ko
----------------------------------------
(print)
Title: General Partner
---------------------------------------
Address: Illegible
-------------------------------------
Illegible
-------------------------------------
SIGNATURE PAGE TO eTOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASER:
INTEL CORPORATION
By: /s/ Illegible
------------------------------------------
Name:
----------------------------------------
(print)
Title:
---------------------------------------
Address: 0000 Xxxxxxx Xxxxxxx Xxxx.
Xxxxx Xxxxx, XX 00000
Attn: Treasurer
SIGNATURE PAGE TO eTOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASERS:
/s/ Xxxx X. Xxx Xxxxxx
---------------------------------------------
Xxxx X. Xxx Xxxxxx
Address: c/o Venture Law Group
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
---------------------------------------------
Xxxxx X. Xxxxx
Address: c/o Venture Law Group
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
SIGNATURE PAGE TO eTOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASERS:
HIGHLAND CAPITAL PARTNERS III LIMITED
PARTNERSHIP
By: Highland Management Partners III
Limited Partnership, its General Partner
By: /s/ Xxxxxx X. Nova
------------------------------------------
Name: Xxxxxx X. Nova
----------------------------------------
(print)
Title: General Partner
---------------------------------------
Address: c/o Highland Capital Partners
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
HIGHLAND ENTREPRENEURS' FUND III
LIMITED PARTNERSHIP
By: HEF III, LLC, its General Partner
By: /s/ Xxxxxx X. Nova
------------------------------------------
Name: Xxxxxx X. Nova
----------------------------------------
(print)
Title: Member
---------------------------------------
Address: c/o Highland Capital Partners
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
SIGNATURE PAGE TO eTOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASERS:
idealab! CAPITAL PARTNERS I-A, LP
By its General Partner,
idealab! Capital Management I, LLC
By: /s/ Xxxxxxx Xxxxx
------------------------------------------
Name: Xxxxxxx Xxxxx
----------------------------------------
(print)
Title: Managing Member
---------------------------------------
Address: c/o idealab! Capital Partners
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
idealab! CAPITAL PARTNERS I-B, LP
By its General Partner,
idealab! Capital Management I, LLC
By: /s/ Xxxxxx Xxxxx
------------------------------------------
Name: Xxxxxxx Xxxxx
----------------------------------------
(print)
Title: Managing Member
---------------------------------------
Address: c/o idealab! Capital Partners
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
SIGNATURE PAGE TO eTOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASERS:
BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co. LLC, General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
------------------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Manager
Address: 0000 Xxx Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxx, XX 00000
BESSEMER VENTURE INVESTORS L.P.
By: Deer IV & Co. LLC, General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
------------------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Manager
Address: 0000 Xxx Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxx, XX 00000
BESSEC VENTURES IV L.P.
By: Deer IV & Co. LLC, General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
------------------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Manager
Address: 0000 Xxx Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxx, XX 00000
SIGNATURE PAGE TO eTOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASERS:
XXXXX GLOBAL INVESTMENTS, LTD.
By: Xxxxx Capital Management, Inc.
Its: Trading Advisor
By: /s/ Xxxxxx Xxxxxxxxxx
------------------------------------------
Name: Savvis Savvinidis
----------------------------------------
(print)
Title: Director of Operations
---------------------------------------
Address: c/o Citco Fund Services (Bahamas),
Ltd.
Bahamas Financial Center
Charlotte & Xxxxxxx Street
P.O. Box CB 13136
Nassau, Bahamas
REMINGTON INVESTMENTS STRATEGIES, L.P.
By: Xxxxx Capital Advisors, L.L.C.
Its: General Partner
By: /s/ Xxxxxx Xxxxxxxxxx
------------------------------------------
Name: Xxxxxx Xxxxxxxxxx
----------------------------------------
(print)
Title: Director of Operations
---------------------------------------
Address: 1251 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000
SIGNATURE PAGE TO eTOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASERS:
MULTI-STRATEGIES FUND, L.P.
By: Xxxxx Capital Advisors, L.L.C.
Its: General Partner
By: /s/ Xxxxxx Xxxxxxxxxx
------------------------------------------
Name: Xxxxxx Xxxxxxxxxx
----------------------------------------
(print)
Title: Director of Operations
---------------------------------------
Address: 0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
MULTI-STRATEGIES FUND LTD.
By: Xxxxx Capital Management, Inc.
Its: Trading Advisor
By: /s/ Xxxxxx Xxxxxxxxxx
------------------------------------------
Name: Xxxxxx Xxxxxxxxxx
----------------------------------------
(print)
Title: Director of Operations
---------------------------------------
Address: c/o Citco Fund Services (Bahamas),
Ltd.
Bahamas Financial Center
Charlotte & Xxxxxxx Street
P.O. Box CB 13136
Nassau, Bahamas
SIGNATURE PAGE TO eTOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASER:
SEQUOIA CAPITAL VIII
SEQUOIA INTERNATIONAL
TECHNOLOGY PARTNERS
SEQUOIA INTERNATIONAL
TECHNOLOGY PARTNERS Q
CMS
SEQUOIA 1997
By: /s/ Xxxxxxx Xxxxxx
------------------------------------------
Name: Xxxxxxx Xxxxxx
----------------------------------------
(print)
Title:
---------------------------------------
Address: 0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
SIGNATURE PAGE TO eTOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASERS:
VLG INVESTMENTS 1998
By: /s/ Xxxxxx Xxxxxx
------------------------------------------
Name: Xxxxxx Xxxxxx
----------------------------------------
(print)
Title: Partner
---------------------------------------
Address: c/o Venture Law Group
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
PURCHASER:
/s/ Xxxx X. Xxx Xxxxxx
---------------------------------------------
Xxxx X. Xxx Xxxxxx
Address: c/o Venture Law Group
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
SIGNATURE PAGE TO eTOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
PURCHASER:
By: /s/ Xxxxxx X. Xxxxxxxxx
------------------------------------------
Name: Xxxxxx X. Xxxxxxxxx
----------------------------------------
(print)
Title:
---------------------------------------
Address:c/o CD Radio Inc.
-------------------------------------
1180 Avenue of the Americas
-------------------------------------
Xxx Xxxx, XX 00000
PURCHASER:
By: /s/ Xxxxx X. Hoddess
------------------------------------------
Name: Xxxxx Xxxxxxx
----------------------------------------
(print)
Title:
---------------------------------------
Address: 9925 Xxxxxxx
-------------------------------------
90212
-------------------------------------
PURCHASER:
By: /s/ Xxxxxxx Xxxxxx
------------------------------------------
Name: Xxxxxxx Xxxxxx
----------------------------------------
(print)
Title:
---------------------------------------
Address:
-------------------------------------
-------------------------------------
PURCHASER:
By: /s/ Xxxxxx Xxxxxxx
------------------------------------------
Name: Xxxxxx Xxxxxxx
----------------------------------------
(print)
Title:
---------------------------------------
Address: Illegible
-------------------------------------
-------------------------------------
PURCHASER:
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------------
Name: Xxxxxx X. Xxxxxx
----------------------------------------
(print)
Title:
---------------------------------------
Address:
-------------------------------------
-------------------------------------
PURCHASER:
By: /s/ Xxxxxx Xxxx
------------------------------------------
Name: Xxxxxx Xxxx
----------------------------------------
(print)
Title:
---------------------------------------
Address: 000 Xxxxxxx Xxxx
-------------------------------------
Xxxxx Xxxxxx, XX 00000
-------------------------------------
PURCHASER:
By: /s/ Xxxxxxx X. Xxxxxx, Xx.
------------------------------------------
Name: Xxxxxxx X. Xxxxxx, Xx.
----------------------------------------
(print)
Title:
---------------------------------------
Address: 000 Xxxxxxx Xxxxxx
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Xxxxxx, XX 00000
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PURCHASER:
By: /s/ Xxxxxxx X. Xxxx
------------------------------------------
Name: Xxxxxxx X. Xxxx
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(print)
---------------------------------------
Address: 000 Xxxxx Xxxxx Xxxx
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Xxxxxx, XX 00000
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PURCHASER:
SLK I PARTNERS
By: /s/ Xxxxxxx X. Xxxx
------------------------------------------
Name: Xxxxxxx X. Xxxx
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Title: Partner
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Address: 000 Xxxxx Xxxxx Xxxx
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Xxxxxx, XX 00000
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SIGNATURE PAGE TO eTOYS INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
EXHIBITS
Exhibit A - Schedule of Purchasers
Exhibit B - Form of Second Amended and Restated Certificate of Incorporation
Exhibit C - Schedule of Exceptions to Representations and Warranties
Exhibit D - Form of Amended and Restated Investors' Rights Agreement
Exhibit E - Form of Amended and Restated Right of First Refusal and Co-Sale
Agreement
Exhibit F - Form of Amended and Restated Voting Agreement
Exhibit G - Form of Legal Opinion of Venture Law Group
Exhibit H - Form of Addendum Agreement
Exhibit I - Form of Intel Letter Agreement
EXHIBIT A
SCHEDULE OF PURCHASERS
EXHIBIT A
SCHEDULE OF PURCHASERS
SERIES B PREFERRED
NAME STOCK PURCHASE PRICE
(SHARES) (CASH/WIRE TRANSFER)
Highland Capital Partners III Limited Partnership 3,651,579 $ 7,680,000.95
Highland Entrepreneurs' Fund III Limited Partnership 152,149 $ 319,999.78
DynaFund L.P. 419,406 $ 882,094.70
DynaFund International L.P. 531,526 $ 1,117,905.48
idealab! Capital Partners I-A, LP 574,550 $ 1,208,393.56
idealab! Capital Partners I-B, LP 138,648 $ 291,604.47
Entities Affiliated with Bessemer Venture Partners 1,426,397 $ 2,999,998.17
Entities Affiliated with Sequoia Capital 2,377,330 $ 5,000,000.46
----------------- ---------------------------
SUBTOTAL: 9,271,585 $ 19,499,997.57
SERIES B PREFERRED
NAME STOCK PURCHASE PRICE
(SHARES) (CASH/WIRE TRANSFER)
Xxxxx Global Investments, Ltd. 760,697 $ 1,599,897.93
Remington Investment Strategies, L.P. 108,292 $ 227,759.73
Multi-Strategies Fund, L.P. 60,162 $ 126,532.72
Multi-Strategies Fund Ltd. 274,101 $ 576,489.22
----------------- ---------------------------
SUBTOTAL: 1,203,252 $ 2,530,679.61
TOTAL: 10,474,837.00 $ 22,030,677.18
----------------- ---------------------------
----------------- ---------------------------
EXHIBIT B
FORM OF SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
(See Exhibit 3.1)
EXHIBIT C
SCHEDULE OF EXCEPTIONS TO
REPRESENTATIONS AND WARRANTIES
SCHEDULE OF EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
June 4, 1998
This confidential Schedule of Exceptions (the "SCHEDULE") is delivered
pursuant to Section 2 of the Series B Preferred Stock Purchase Agreement (the
"AGREEMENT") by and between eToys Inc., a Delaware corporation ("eTOYS" or the
"COMPANY") and the purchasers listed on EXHIBIT A to the Agreement (the
"PURCHASERS").
The section numbers in the Schedule correspond to the section numbers in
the Agreement; however, any information reasonably disclosed under any section
number of the Schedule shall be deemed to be disclosed and incorporated into any
other section number under the Agreement to which it pertains, whether or not
the specific section numbers are indicated below. All capitalized terms herein
shall have the meanings given them in the Agreement, unless otherwise indicated
in the Schedule.
Copies of agreements, plans, policies and other documents referred to
herein (the "DOCUMENTS") have been made available to the Purchasers. The
foregoing, however, does not modify or limit the representations and warranties
of the Company in Section 2 of the Agreement or the right of the Purchasers to
rely thereon.
2.2
As of May 6, 1998, the Company issued certain convertible promissory notes
to Xxxxx Global Investments, Ltd., Remington Investments Strategies, L.P.,
Multi-Strategies Fund Ltd. and Multi-Strategies Fund, L.P. (the "SERIES B
CONVERTIBLE NOTES").
The Company has an agreement to issue Xxxxxxx Xxxx an option to acquire
125,000 shares of Common Stock. In addition, the Company has agreed to sell Xx.
Xxxx 50,000 shares of the Company's Common Stock at 50,000 shares of the
Company's Series B Preferred Stock.
2.7
The filing of the Restated Certificate will be necessary to consummate the
transactions contemplated by the Agreement.
2.8
[intentionally omitted]
2.9
The Company has filed an application for trademark registration with the
United States Patent and Trademark Office for the xxxx "ETOYS." The Company is
in the process of preparing an application for trademark registration with the
United States Patent and Trademark Office for the xxxx "TOYSEARCH."
Pursuant to a Letter Agreement, dated March 14, 1997, by and between
idealab! and Xxxxxx Xxxxxxxx Productions, Xxxxxx Xxxxxxxx Productions agreed to
transfer to idealab! the domain names "xXxxx.xxx" and "x-xxxx.xxx" for certain
consideration. In March 1997, the Company entered into an agreement with
idealab! pursuant to which the rights to these domain names were transferred and
assigned by idealab! to eToys.
[intentionally omitted]
2.10
The Company did not timely file notices under the securities laws of the
states of Colorado, Maryland and Washington in connection with the issuance and
sale of promissory notes and warrants. These issuances were made to two
purchasers in the state of Colorado and to one purchaser in the states of
Maryland and Washington, respectively. The Company is currently in the process
of making these notice filings.
-2-
2.11 (a)
In June 1997, the Company issued and sold 2,500,000 shares of Common Stock
to Xxxx Xxxx pursuant to a Stock Purchase Agreement.
In June 1997, the Company issued and sold an aggregate of 833,334 shares of
Common Stock to Xxxxx Xxx pursuant to two Stock Purchase Agreements.
In June 1997, the Company issued and sold 6,466,667 shares of Common Stock
to idealab!, an affiliate of the Company. In November 1997, pursuant to a
letter agreement, idealab! returned 360,000 shares of Common Stock of the
Company to the Company in the form of a capital contribution.
Each of the Company's officers and directors have entered into proprietary
information and inventions agreements with the Company.
During 1997, the Company reimbursed Xxxxx Xxx for approximately $10,000 in
expenses incurred by Xx. Xxx on behalf of the Company.
During 1997, the Company reimbursed Xxxx Xxxx for approximately $15,000 in
expenses incurred by Xx. Xxxx on behalf of the Company.
The Company has entered into an indemnification agreement with each of its
current directors and with Xxxxx Xxx.
The Company has an informal policy of reimbursing Xxxxx Xxxx, a director of
the Company, for travel expenses associated with his attendance at Board of
Director meetings. In addition, the Company has an informal agreement with
Xxxxx Xxxx pursuant to which Xx. Xxxx provides consulting services to the
Company in exchange for monthly option grants for 3,500 shares of Common Stock
and cash compensation of $6,500 per month.
2.11 (b)
The Company is party to the following contracts that that involve
(i) obligations (contingent or otherwise) of, or payments to, the Company in
excess of, $10,000 , (ii) the license of a patent, copyright, trade secret or
other proprietary right to or from the Company, or (iii) the grant of rights to
manufacture, produce, assemble, license, market, or sell its products to any
other person or affect the Company's exclusive right to develop, manufacture,
assemble, distribute, market or sell its products:
Engagement Letter, dated July 9, 1997, by and between the Company and
Alexander Communications, Inc., as amended.
-3-
Lease, dated July 15, 1997, by and between the Company and E.A. Three, Ltd.
(the "WAREHOUSE LEASE").
Client Agreement, dated July 24, 1997, by and between Digital Boardwalk,
Inc. and the Company.
Lease, dated August 21, 1997, by and between the Company and Xxxxxx X.
Xxxxxxx and Xxx Xxxxxxx (the "OFFICE LEASE").
Lease, dated September 29, 1997, by and between the Company and IKON Office
Solutions (copier lease) (the "COPIER LEASE").
Content License Agreement, dated October 1, 1997, by and between the
Company and Xx. Xxxxxxxx Xxxxxxxx.
Interactive Marketing Agreement, dated as of October 1, 1997, by and
between the Company and America Online, Inc.
Network Advertising Agreement, effective as of November 1, 1997, by and
between the Company and Excite.
Content and Services Agreement, dated as of October 1, 1997, by and between
WebTV Network, Inc. and the Company.
Shopping Development - Merchant Services Agreement, dated as of
November 10, 1997, by and between GTE Media Ventures Incorporated and the
Company.
Market Square Agreement, effective as of October 27, 1997, by and between
AT&T Corp. and the Company.
The Company is a party to an agreement with FoneMart pursuant to which the
Company rents its phone system on a month to month basis (the "PHONE SYSTEM
LEASE").
The Company is a party to an agreement with Worldcom pursuant to which the
Company is provided with long distance telephone service and internet
access on a monthly basis.
Advertising Insertion Orders No. 6964 and 6979, dated as of July 9, 1997
and July 10, 1997, respectively, by and between the Company and Yahoo! Inc.
Sponsorship Agreement, dated as of July 17, 1997, by and between the
Company and Netscape Communications Corporation.
Internet Advertising Insertion Orders, dated as of July 17, 1997, by and
between the Company and SOFTBANK Interactive Marketing, Inc.
-4-
Advertiser Agreements, dated as of July 10, 1997, July 16, 1997, and
July 16, 1997, by and between the Company and Infoseek.
Global Center Service Order No. E-Toys 0001.1.
Master Service Agreement, dated as of November 26, 1997, by and between
Global Center, Inc. and the Company.
[intentionally omitted]
Yahoo! Insertion Order #9945 dated as of November 1, 1997.
Netscape Sponsorship Agreement dated as of February 18, 1998.
Be Free Affiliate Provider Agreement dated as of March 10, 1998.
Lycos Advertising Contract dated as of March 25, 1998.
Xxx, Xxxxxx & Associates On Target Advertising Agreement dated as of
March 30, 1998.
Letter Agreement with Xxxxx & Savage Advertising dated as of April 8, 1998.
Offer Letter to Xxxxxx Xxxx dated May 22, 1998.
The Company enters into purchase orders in the ordinary course of business
pursuant to which it purchases inventory for ultimate resale to customers.
The dollar amounts of such purchase orders exceed $25,000 in the aggregate
and in some cases exceed $10,000 individually.
The Company enters into affiliate license agreements in the ordinary course
of business pursuant to which it supplies the affiliate with artwork and
text that can be placed on the affiliate's site and can act as a link to
the Company's site. The dollar amounts covered by such license agreements
exceed $25,000 in the aggregate and in some cases exceed $10,000
individually.
The Company has advanced the salaries of certain employees in an amount of
approximately $10,000 in the aggregate.
2.11 (c)
Since the Company's inception, idealab! has paid for $100,000 in expenses
incurred by the Company. In November 1997, the Company and idealab! entered
into a
-5-
letter agreement pursuant to which idealab! agreed to forgive the Company's
repayment of such $100,000 amount.
2.12
The Company has entered into letter agreements with both Intel Corporation
and the DynaFund entities providing for certain Board visitation rights. In
connection with the Series B Convertible Note financing, the Company agreed that
if Xxxxx Global Investments, Ltd., Remington Investments Strategies, L.P.,
Multi-Strategies Fund, L.P. and Multi-Strategies Fund Ltd. (collectively, the
"BRIDGE INVESTORS") collectively were to convert at least $4,000,000 of the
outstanding principal amount of the Series B Convertible Notes into shares of
the Company's capital, the Company will permit one representative (the
"OBSERVER") on behalf of the Bridge Investors, collectively, to attend all
meetings of the Company's Board of Directors and all committees thereof (whether
in person, telephonic or other) in a non-voting, observer capacity. The Company
anticipates that it will grant Board visitation rights to certain of the
Purchasers.
2.13
Since the Company's inception, idealab! has paid for $100,000 in expenses
incurred by the Company. In November 1997, the Company and idealab! entered
into a letter agreement pursuant to which idealab! agreed to forgive the
Company's repayment of such $100,000 amount.
2.16
The Company leases certain warehouse space under the Warehouse Lease and
office space under the Office Lease. The Company also leases a copier and its
phone system under the Copier Lease and the Phone System Lease.
2.17
The Company's financial statements have not been prepared in accordance
with generally accepted accounting principles.
2.18 (n)
[intentionally omitted]
The Company has recently hired Xxxxxx Xxxx as the Company's Vice President
of Business Development, commencing June 1, 1998. Pursuant to the terms of Mr.
Paul's offer letter, the Company will loan Xx. Xxxx the necessary funds to
enable him to purchase up to 175,00 shares of Common Stock and up to 50,000
shares of Series B
-6-
Preferred Stock, subject to subject to the execution of full recourse promissory
notes in favor of the Company that accrue interest at the minimum applicable
federal rate.
2.21
The Company does not currently have in effect fire insurance and receives
casualty coverage through idealab!
2.22
The Company has adopted a stock option plan.
The restricted stock grants to Xxxxxx Xxxx, Xxxxx Xxx and Xxxx Xxxxxxxxx
each accelerate in full upon a change of control. The restricted stock grant to
Xxxxxx Xxxx accelerates with respect to one year of vesting upon termination
without cause following a change of control.
-7-
EXHIBIT D
FORM OF AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
(See Exhibit 10.9)
EXHIBIT E
FORM OF AMENDED AND RESTATED RIGHT OF FIRST REFUSAL
AND CO-SALE AGREEMENT
(see Exhibit 10.11)
EXHIBIT F
FORM OF AMENDED AND RESTATED VOTING AGREEMENT
(See Exhibit 10.10)
EXHIBIT G
FORM OF LEGAL OPINION
OF
VENTURE LAW GROUP
June 17, 1998
To the Purchasers of Series B Preferred
Stock of eToys, Inc. Listed
on EXHIBIT A to the Series B Preferred Stock
Addendum Agreement
Ladies and Gentlemen:
We have acted as counsel for eToys Inc., a Delaware corporation (the
"COMPANY"), in connection with the sale by the Company to you of 1,411,812
shares of the Company's Series B Preferred Stock (the "SHARES") pursuant to the
Series B Preferred Stock Addendum Agreement (the "PURCHASE AGREEMENT") dated
June 17, 1998 among the Company and the persons listed on EXHIBIT A attached
thereto (the "PURCHASERS"), and the negotiation, execution and delivery by the
Company of the Amended and Restated Investors' Rights Agreement dated June 4,
1998 (the "INVESTORS' RIGHTS AGREEMENT"), the Amended and Restated Right of
First Refusal and Co-Sale Agreement dated June 4, 1998 (the "CO-SALE AGREEMENT")
and the Amended and Restated Voting Agreement dated June 4, 1998. This opinion
is given to you in compliance with Section 5.3 of the Purchase Agreement. The
Purchase Agreement, the Investors' Rights Agreement, the Co-Sale Agreement and
the Voting Agreement are referred to herein collectively as the "AGREEMENTS."
Unless defined herein, capitalized terms have the meaning given them in the
Agreements.
In rendering this opinion, we have made such legal and factual examinations
and inquiries as we have deemed advisable or necessary for the purpose of
rendering this opinion. In addition, we have examined originals or copies of
documents, corporate records and other writings which we consider relevant for
the purposes of this opinion. In such examination, we have assumed the
genuineness of all signatures on original documents, the conformity to original
documents of all copies submitted to us and the due execution and delivery of
all documents where due execution and delivery are a prerequisite to the
effectiveness thereof. In making our examination of documents executed by
entities other than the Company, we have assumed that each other entity had the
power to enter into and perform all its obligations thereunder and we also have
assumed the due authorization by each such other entity of all requisite actions
and the due execution and delivery of such documents by each such other entity.
Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based on our knowledge or belief, it is intended to
signify that in the course of our representation of the Company in connection
with the transactions referred to in the first paragraph hereof, no information
has come to the attention of Xxxx X. Xxx Xxxxxx or
Page 2
Xxxxxxxx X. Xxxxxx (the only lawyers at Venture Law Group working on this
transaction) that would give them actual knowledge of the existence or absence
of such facts. We have not undertaken any independent investigation to
determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our representation of the Company.
In rendering the opinion set forth in paragraph (c) below relating to the
fully paid status of all of the issued shares of capital stock of the Company,
we have relied without independent verification on the Management Certificate of
the President of the Company (the "OPINION CERTIFICATE"), to the effect that the
Company has received the consideration approved by the Board of Directors for
all of the issued shares of capital stock of the Company.
In rendering the opinion set forth in paragraph (c) below to the extent
they relate to the status of the capitalization of the Company, we have relied
without further investigation on our review of the stock records of the Company
and statements in the Opinion Certificate relating to the capitalization of the
Company.
In rendering the opinion set forth in paragraph (a) below, (a) in order to
determine in which states qualification is appropriate, we have assumed that
qualification may be required only in those states in which the Company own or
lease real property, maintain offices or have employees, and we have relied on
the Company's listing of those states in the Opinion Certificate, and (b) as to
the qualification and good standing of the Company in the states so identified
in such Opinion Certificate, we have relied exclusively on certificates of
public officials, although we have not obtained tax good standing certificates
(other than a Delaware long-form good standing certificate and a California
franchise tax certificate for the Company) and no opinion is provided with
respect to tax good standing (other than with respect to the Company in
California).
In rendering the opinion in paragraph (e) below, we have reviewed and are
providing an opinion only with respect to those Contractual Obligations (as
defined in the Opinion Certificate), judgments and orders set forth in the
Opinion Certificate, and have assumed that the governing law (exclusive of
California laws relating to conflicts of laws) of each such Contractual
Obligation is California. We have not, however, reviewed the covenants in the
Contractual Obligations that contain financial ratios and other similar
financial restrictions, and no opinion is provided with respect thereto.
In rendering the opinion expressed in paragraph (h) below, we have assumed
and express no opinion with respect to the following: (a) that the
representations and warranties of the Purchasers set forth in the Agreements are
true and complete; and (b) the accuracy and
Page 3
completeness of the information provided by the Company to the Purchasers in
connection with such offer and sale. We have also assumed the accuracy of, and
have relied upon, the Company's representations to us that the Company has made
no offer to sell the Shares by means of any "GENERAL SOLICITATION," as defined
in Regulation D under the Securities Act or the "PUBLICATION OF ANY
ADVERTISEMENT" (as defined under the California Corporate Securities Law of
1968, as amended, and the regulations thereunder) and that no offer or sale of
the Shares has been made or will be made in any states other than California and
New York.
The opinions hereinafter expressed are subject to the following further
qualifications:
(i) Our opinions are qualified by the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
relating to or affecting the rights of creditors generally, including, without
limitation, laws relating to fraudulent transfers or conveyances, preferences
and equitable subordination;
(ii) Our opinions are qualified by the limitations imposed by
general principles of equity upon the availability of equitable remedies or the
enforcement of provisions of the Agreements; and the effect of judicial
decisions which have held that certain provisions are unenforceable when their
enforcement would violate the implied covenant of good faith and fair dealing,
or would be commercially unreasonable, or where their breach is not material;
(iii) A requirement that provisions of the Agreements may only be
waived in writing will not be enforced to the extent an oral agreement has been
executed modifying provisions of the Agreements;
(iv) Our opinion is based upon current statutes, rules,
regulations, cases and official interpretive opinions, and it covers certain
items that are not directly or definitively addressed by such authorities;
(v) The effect of judicial decisions which may permit the
introduction of extrinsic evidence to modify the terms or the interpretation of
the Agreements;
(vi) The enforceability of provisions of the Agreements providing
for arbitration of disputes to the extent that arbitration of a particular
dispute would be against public policy;
(vii) The enforceability of provisions of the Agreements which
purport to establish evidentiary standards or to make determinations conclusive;
Page 4
(viii) The enforceability of provisions of the Agreements which
purport to establish particular courts as the forum for the adjudication of any
controversy relating to the Agreements;
(ix) The enforceability of provisions of the Agreements expressly
or by implication waiving broadly or vaguely stated rights, or waiving rights
granted by law where such waivers are against public policy;
(x) The enforceability of provisions of the Agreements providing
that rights or remedies are not exclusive, that every right or remedy is
cumulative, or that the election of a particular remedy or remedies does not
preclude recourse to one or more other remedies.
(xi) We express no opinion as to compliance with applicable
antifraud statutes, rules or regulations of applicable state and federal laws
concerning the issuance or sale of securities; and
(xii) Provisions in the Investors' Rights Agreement purporting to
provide for indemnification and contribution under certain circumstances may be
unenforceable.
(xiii) We express no opinion as to the enforceability of the Voting
Agreement.
Based upon and subject to the foregoing, and except as set forth in
the Schedule of Exceptions, we are of the opinion that:
(a) The Company is a corporation duly organized and existing under the
laws of the State of Delaware, and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted. The Company is
qualified to do business as a foreign corporation in each state in which the
failure to be so qualified would have a material adverse effect on the Company.
(b) The Company has the requisite corporate power and authority to execute
and deliver the Agreements, to sell and issue the Shares thereunder, to issue
the Common Stock issuable upon conversion of the Shares and to carry out and
perform its obligations under the terms of the Agreements.
(c) The authorized capital stock of the Company consists or will, upon the
filing of the Amended and Restated Certificate of Incorporation (the "RESTATED
CERTIFICATE"), consist of 50,000,000 shares of Common Stock, par value $0.0001
per share, 11,007,259 of which are issued and outstanding prior to the Closing
Date, and 18,926,423 shares of Preferred Stock, par
Page 5
value $0.0001 per share, 7,039,744 of which have been designated Series A
Preferred Stock (the "SERIES A PREFERRED"), 6,318,017 of which are issued and
outstanding prior to the Closing Date, and 11,886,649 of which have been
designated Series B Preferred Stock ("SERIES B PREFERRED"), 8,097,507 of which
are issued and outstanding prior to the Closing. All of such issued and
outstanding shares are validly issued, fully paid and nonassessable. The
Company has reserved 18,926,423 shares of Common Stock for issuance upon
conversion of Preferred Stock and 721,757 shares of Series A Preferred for
issuance upon the exercise of outstanding warrants (the "SERIES A WARRANTS").
There are options outstanding for the purchase of 1,903,000 shares of Common
Stock under the Company's 1997 Stock Option Plan, 74,167 shares have been
exercised thereunder and 3,822,833 shares of Common Stock are available for
issuance thereunder. To our knowledge, except as described above, there are no
preemptive rights, options or warrants or other conversion privileges or rights
presently outstanding to purchase any of the authorized but unissued stock of
the Company, other than the rights of first refusal set forth in Section 2.3 of
the Investors' Rights Agreement, which rights of first refusal have been waived
with respect to the issuance of the Stock.
(d) All corporate action on the part of the Company, its directors and
stockholders necessary for the authorization, execution, delivery and
performance of the Agreements by the Company, the authorization, sale, issuance
and delivery of the Shares (and the Common Stock issuable upon conversion
thereof) and the performance of all of the Company's obligations under the
Agreements, including, without limitation, the execution and filing with the
Secretary of State of the State of Delaware of the Restated Certificate, has
been taken. The Agreements constitute valid and binding obligations of the
Company enforceable in accordance with their terms. The Shares have been
validly issued, and are fully paid and nonassessable and have the rights,
preferences and privileges described in the Restated Certificate; the shares of
Common Stock issuable upon conversion of the Shares have been duly and validly
reserved and, when issued in compliance with the provisions of the Purchase
Agreement and the Restated Certificate, will be validly issued, fully paid and
nonassessable.
(e) The execution, delivery and performance of and compliance with the
Agreements, and the issuance of the Shares and the Common Stock issuable upon
conversion of the Shares, have not resulted and will not result in any material
violation of, or conflict with, or constitute a material default under (i) the
Restated Certificate or the Company's Bylaws, (ii) any Contractual Obligation to
which the Company is a party or by which it is bound or (iii) any statute, rule
or regulation known to us of Federal or California law or Delaware corporate
law, or any judgment or order set forth in the Opinion Certificate.
(f) To our knowledge, there are no actions, suits, proceedings or
investigations pending or threatened against the Company, or its properties
before any court or governmental
Page 6
agency that, either in any case or in the aggregate, might result in any
materially adverse change in the business or financial condition of the Company
or any of its properties or assets, or in any material impairment of the right
or ability of the Company to carry on its business as now conducted, or in any
material liability on the part of the Company, and none that questions the
validity of the Agreements or any action taken or to be taken in connection
therewith.
(g) No consent, approval or authorization of or designation,
qualification, regulation, declaration or filing with, any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of the Agreements, or the offer, sale or issuance of the
Shares (and the Common Stock issuable upon conversion thereof), or the
consummation of any other transaction contemplated by the Agreements, except the
notice filing required by Section 25102(f) of the California Corporate
Securities Law of 1968, as amended.
(h) The offer, sale and issuance of the Shares to be issued in conformity
with the terms of the Purchase Agreement and the issuance of the Common Stock,
if any, to be issued upon conversion thereof, constitute transactions exempt
from the registration requirements of Section 5 of the Securities Act and exempt
from the qualification requirements of the California Corporate Securities Law
of 1968, as amended.
We express no opinion as to matters governed by any laws other than the laws of
the State of California, the general corporate law of the State of Delaware and
the federal law of the United States of America. We express no opinion as to
whether the laws of any particular jurisdiction apply, and no opinion to the
extent that the laws of any jurisdiction other than those identified above are
applicable to the Agreements or the transactions contemplated thereby.
Page 7
This opinion is furnished to you pursuant to Section 5.3 of the Purchase
Agreement and is solely for your benefit and may not be relied on by, nor may
copies be delivered to, any other person without our prior written consent. We
assume no obligation to inform you of any facts, circumstances, events or
changes in the law that may hereafter be brought to our attention that may
alter, affect or modify the opinion expressed herein.
Sincerely,
VENTURE LAW GROUP,
A Professional Corporation
GVL
EXHIBIT H
FORM OF ADDENDUM AGREEMENT
eTOYS INC.
ADDENDUM TO SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
This Addendum to Series B Preferred Stock Purchase Agreement (the
"ADDENDUM") is made as of the 17th day of June, 1998 by and among eToys Inc., a
Delaware corporation (the "COMPANY"), and the individuals and entities listed on
the signature page attached hereto (the "ADDITIONAL PURCHASERS").
RECITALS
On June 3, 1998, the Company entered into a Series B Preferred Stock
Purchase Agreement (the "PURCHASE AGREEMENT") with certain investors set forth
on EXHIBIT A attached thereto. The Purchase Agreement provides in
Section 1.2(c) thereof that additional investors may, under conditions set forth
therein, become parties to the Purchase Agreement at any time on or before June
17, 1998.
AGREEMENT
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
1. AUTHORIZATION AND SALE OF PREFERRED STOCK.
1.1 AUTHORIZATION OF PREFERRED STOCK. The Company will, prior to the
Closing (as defined in Section 2.1 below), authorize the issuance pursuant to
this Addendum of up to 1,411,812 shares of its Series B Preferred Stock (the
"ADDITIONAL SHARES"). The rights, preferences, privileges and restrictions of
the Series B Preferred Stock are as set forth in the Company's First Amended and
Restated Certificate of Incorporation attached as EXHIBIT B to the Purchase
Agreement (the "RESTATED CERTIFICATE").
1.2 SALE OF PREFERRED STOCK. Subject to the terms and conditions
hereof, at the Closing (as defined in Section 2.1 hereof) the Company will issue
and sell to each Additional Purchaser, and each Additional Purchaser severally
agrees to purchase from the Company, that number of Additional Shares specified
opposite such Additional Purchaser's name on EXHIBIT A hereto, at a cash
purchase price of $2.1032 per share. Each of the Additional Purchasers, by
their signatures hereto, shall hereby (i) become parties to the Purchase
Agreement, (ii) be considered a "PURCHASER" for all purposes under the Purchase
Agreement and (iii) have all the rights and obligations of a Purchaser
thereunder. The Additional Shares acquired by the Additional Purchasers
hereunder shall be considered "STOCK" for all purposes under the Purchase
Agreement, as amended.
2. CLOSING; DELIVERY.
2.1 CLOSING. The closing of the purchase and sale of the Additional
Shares hereunder (the "CLOSING") shall be held at the offices of Venture Law
Group, Menlo Park, California, at 12:00 p.m., on June 17, 1998, or at such other
time and place as the Company and the Additional Purchasers may agree.
2.2 DELIVERY. At the Closing, the Company will deliver to each
Additional Purchaser a certificate representing the number of Additional Shares
set forth opposite such Additional Purchaser's name on EXHIBIT A, against
payment of the purchase price therefor by each Additional Purchaser by wire
transfer to the Company.
3. DISCLOSURE; CAPITALIZATION.
3.1 DISCLOSURE. Each Additional Purchaser hereby acknowledges
receipt of the Purchase Agreement and the exhibits thereto. The Company affirms
to each Additional Purchaser that:
(i) The representations and warranties of the Company set
forth in Section 2 of the Purchase Agreement were true and accurate when made;
(ii) Those representations and warranties, which are
incorporated herein by this reference and made a part hereof, remain true and
accurate in all material respects as of the date hereof, except (A) for changes
resulting from the transactions contemplated in the Purchase Agreement and
(B) as set forth in the Schedule of Exceptions to Representations and Warranties
attached hereto as EXHIBIT B.
(iii) The conditions to closing set forth in Section 4 of the
Purchase Agreement and in Section 5 hereof have been satisfied, provided that
the conditions set forth in Section 4.1 of the Purchase Agreement shall include
references to changes in the Company's representations and warranties and the
Company's status, respectively, as set forth herein and in the Exhibits attached
hereto, and resulting from the consummation of the transactions contemplated by
the Purchase Agreement.
3.2 CAPITALIZATION. Immediately prior to the Closing, the authorized
capital of the Company shall consist of:
(i) 18,926,423 shares of Preferred Stock, of which 7,039,774
shares have been designated Series A Preferred Stock, 6,318,017 shares of which
are issued and outstanding and 11,886,649 shares of Series B Preferred Stock, of
which 8,097,507 shares are issued and outstanding. The rights, privileges and
preferences of the Preferred Stock are as stated in the Restated Certificate.
All of the outstanding shares of Preferred Stock have been duly authorized and
fully paid and are nonassessable and issued in compliance with all applicable
securities laws.
-2-
(ii) 50,000,000 shares of Common Stock, 11,007,259 shares of
which are issued and outstanding, and all such shares have been duly authorized
and fully paid and are nonassessable and issued in compliance with all
applicable securities laws.
(iii) Based in part upon the representations of each Purchaser
in this Addendum and subject to the provisions of Section 2.6 of the Purchase
Agreement, the Stock (and the Common Stock issuable upon conversion thereof) has
been issued or will be issued in compliance with all applicable federal and
state securities laws.
(iv) Except for (A) conversion privileges of the Preferred
Stock, (B) outstanding options to purchase 1,903,000 shares of Common Stock
granted to certain employees of the Company pursuant to the terms of the
Company's 1997 Stock Plan duly adopted by the Board of Directors (the "STOCK
PLAN") and (C) a warrants to purchase 721,757 shares of Series A Preferred Stock
issued to certain investors, there are no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements, orally or in writing,
for the purchase or acquisition from the Company of any shares of its capital
stock. The Company has reserved 5,800,000 shares of Common Stock for issuance
upon exercise of options under the Stock Plan. Options to purchase 3,822,833
shares of Common Stock are currently available for grant, at the discretion of
the Board of Directors, to officers, directors, employees and consultants
pursuant to the Stock Plan. Except as otherwise contemplated herein, the
Company is not a party or subject to any agreement or understanding, and, to the
best of the Company's knowledge, there is no agreement or understanding between
any persons that affects or relates to the voting or giving of written consents
with respect to any security or the voting by a director of the Company.
4. REPRESENTATIONS AND WARRANTIES OF ADDITIONAL PURCHASERS. Each
Additional Purchaser acknowledges that such Additional Purchaser has reviewed
the representations and warranties set forth in Section 3 of the Purchase
Agreement and agrees with the Company that such representations and warranties,
which are incorporated herein by this reference and made a part hereof, are true
and correct as of the date hereof as they relate to such Additional Purchaser's
purchase of the Additional Shares hereunder.
5. CONDITIONS TO ADDITIONAL PURCHASERS' OBLIGATIONS AT CLOSING. The
obligation of each Additional Purchaser to purchase the Additional Shares at the
Closing is subject to the fulfillment to such Additional Purchaser's
satisfaction at or prior to the Closing of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section
3 hereof shall be true and correct when made, and shall be true and correct on
the date of the Closing with the same force and effect as if they had been made
on and as of said date, subject to changes contemplated by this Addendum; and
the Company shall have performed all obligations and conditions herein required
to be performed or observed by it at or prior to the Closing.
-3-
5.2 CONSENTS AND WAIVERS. The Company shall have obtained any and
all consents and waivers necessary or appropriate for consummation of the
transactions contemplated by this Addendum.
5.3 LEGAL OPINION. Upon request, each of the Additional Purchasers
will be entitled to receive from Venture Law Group, A Professional Corporation,
legal counsel for the Company, a legal opinion substantially in the form
delivered to the investors pursuant to Section 4.6 of the Purchase Agreement.
6. CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company under Sections 1.1 and 1.2 of this Addendum are subject to the
fulfillment at or before the Closing of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Additional Purchaser contained in Section 4 hereof shall be
true at the Closing.
6.2 CONSENTS AND WAIVERS. The Company shall have obtained any and
all consents and waivers necessary or appropriate for the Purchasers to become
parties to the Investors' Rights Agreement, the Voting Agreement and the Co-Sale
Agreement and for the consummation of the transactions contemplated by this
Addendum.
7. MISCELLANEOUS.
7.1 INCORPORATION BY REFERENCE. The provisions set forth in Section
6 of the Purchase Agreement (other than Section 6.6) are incorporated herein by
this reference and made a part hereof.
7.2 NOTICES. Any notice required or permitted by this Addendum shall
be in writing and shall be deemed sufficient upon delivery, when delivered
personally or sent by overnight courier telegram or fax, or forty-eight (48)
hours after being deposited in the U.S. mail, as certified or fax number (as set
forth below or in the Purchase Agreement or on Exhibit A hereto or thereto, or
as subsequently modified by written notice) and (a) if to the Company, with a
copy to Venture Law Group, A Professional Corporation, 0000 Xxxx Xxxx Xxxx,
Xxxxx Xxxx, Xxxxxxxxxx 00000, Attention Xxxx X. Xxx Xxxxxx or (b) if to the
Purchasers, with a copy to Xxxxxxxx, Xxxxxxx & Xxxxxxx, A Professional
Corporation, 000 Xxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx, 00000, Attention:
Xxxxxxx X. Xxxxxx, Xx.
7.3 COUNTERPARTS. This Addendum may be executed in any number of
counterparts, each of which may be executed by less than all of the Additional
Purchasers, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
[Signature Page Follows]
-4-
The parties hereto have executed this Addendum as of the date first set
forth above.
eTOYS, INC.
By:
----------------------------------------
Xxxxxx X. Xxxx
Title: President and Chief Executive Officer
Address:
Fax Number:
SIGNATURE PAGE TO eTOYS INC.
ADDENDUM TO PURCHASE AGREEMENT
ADDITIONAL PURCHASERS:
By:
----------------------------------------
Name:
----------------------------------------
(Print)
Title:
---------------------------------------
(If applicable)
Address:
-----------------------------------
-----------------------------------
Fax:
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SIGNATURE PAGE TO eTOYS INC.
ADDENDUM TO PURCHASE AGREEMENT
EXHIBIT A
SCHEDULE OF ADDITIONAL PURCHASERS
NAME SHARES PURCHASE PRICE
Xxxxxx X. Xxxxxxxxxx 23,773 $ 49,999.37
Xxxxx X. Xxxxxx 11,886 $ 24,998.64
Xxxxxxx Xxxxxx 47,546 $ 99,998.75
Xxxxxx Xxxxxxx 23,773 $ 49,999.37
Xxxxxx X. Xxxxxx 17,829 $ 37,497.95
Xxxxxx Xxxx 23,773 $ 49,999.37
Xxxx X. Xxx Xxxxxx 1,188 $ 2,498.60
VLG Investments 1998 9,510 $ 20,001.43
Xxxxxxx X. Xxxxxx, Xx. 4,754 $ 9,998.61
SLK I Partners 118,866 $ 249,998.97
Intel Corporation 950,931 $ 1,999,998.08
Xxxxxxx X. Xxxx 50,000 $ 105,160.00
Xxxxx Global Investments, Ltd. 80,911 $ 170,172.00
Remington Investments Strategies, L.P. 11,518 $ 24,224.65
Multi-Strategies Fund, L.P. 6,399 $ 13,458.38
Multi-Strategies Fund Ltd. 29,155 $ 61,318.80
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TOTAL: 1,411,812 $ 2,969,322.97
--------- --------------
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EXHIBIT B
SCHEDULE OF EXCEPTIONS
All exceptions listed from the Schedule of Exceptions dated June 4, 1998 are
expressly incorporated herein.
EXHIBIT I
FORM OF INTEL LETTER AGREEMENT
INTEL CORPORATION
June __, 1998
To: The Parties Listed Below
Re: SERIES B PREFERRED STOCK FINANCING OF eTOYS INC.
Ladies and Gentlemen:
Reference is made to (i) the Series B Preferred Stock Purchase Agreement,
dated as of June __, 1998, by and among eToys Inc. (the "COMPANY") and certain
investors (the "NEW INVESTORS") listed on EXHIBIT A thereto (the "PURCHASE
AGREEMENT") and (ii) the Amended and Restated Investors' Rights Agreement, dated
as of June __, 1998, by and among the Company, the New Investors, certain prior
investors (the "PRIOR INVESTORS") listed on EXHIBIT B thereto, Xxxxxx X. Xxxx
and Xxxxx X. Xxx (THE "RIGHTS AGREEMENT").
On December 19, 1997, the Company and the Prior Investors entered into the
"INTEL LETTER AGREEMENT" in the form attached hereto as EXHIBIT A. The New
Investors hereby agree that by their signature hereto, they shall become parties
to, and obligated by, the Intel Letter Agreement; provided, however, that
nothing in this Agreement shall prevent the New Investors from disclosing any
non-proprietary information learned about the Company to such New Investors'
limited partners or other investors, consistent with such New Investors'
disclosure obligations to such limited partners or other investors.
All exhibits to this letter are incorporated herein and made a part hereof.
Please indicate your acceptance of this letter as a part of the Purchase
Agreement and the Rights Agreement by countersigning in the space provided
below.
AGREED AND ACCEPTED:
NEW INVESTORS:
[Signatures intentionally omitted. See
signature pages to Series B Preferred
Stock Purchase Agreement.]
SIGNATURE PAGE TO INTEL LETTER AGREEMENT
eTOYS INC. SERIES B PREFERRED FINANCING
