ETOYS INC.
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made this 27th day of June 1997 between eToys Inc., a
Delaware corporation (the "Company"), and Xxxxxx X. Xxxx (the "Purchaser").
In consideration of the mutual covenants and representations herein set
forth, the Company and the Purchaser agree as follows:
1. SALE OF STOCK. The Company hereby agrees to sell to the Purchaser and
the Purchaser hereby agrees to purchase an aggregate of 1,250,000 shares of the
Company's Common Stock (the "Shares"), at the price of $0.015 per Share for an
aggregate purchase price of $18,750.
2. PAYMENT OF PURCHASE PRICE. The purchase price for the Shares shall be
paid by delivery to the Company at the time of execution of this Agreement of
(a) a check in the amount of the purchase price or (b) a promissory note and
pledge agreement in the form attached hereto as EXHIBIT A.
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's repurchase option and right of first refusal except in
compliance with the provisions of this Section 3.
(a) REPURCHASE OPTION. In the event of the voluntary or involuntary
termination of employment of Purchaser with the Company for any reason, with or
without cause (including death or disability) (a "Termination"), the Company
shall, upon the date of such termination, have an irrevocable, exclusive option
(the "Repurchase Option") for a period of 180 days from such date to repurchase
from Purchaser, at the original purchase price per Share (the "Repurchase
Price"), all or any portion of the Shares held by Purchaser as of such date, to
the extent such Shares have not yet been released from the Company's Repurchase
Option. The Repurchase Option shall be exercised by the Company by written
notice to Purchaser or his executor and, at the Company's option, (i) by
delivery to the Purchaser or his executor, with such Notice, of a check in the
amount of the purchase price for the Shares being repurchased, or (ii) in the
event the Purchaser is indebted to the Company, by cancellation by the Company
of an amount of such indebtedness equal to the Repurchase Price for the Shares
being repurchased, or (iii) by a combination of (i) and (ii) so that the
combined payment and cancellation of indebtedness equals such Repurchase Price.
Upon delivery of such notice and payment of the Repurchase Price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
If a Termination occurs at any time after the date hereof and
prior to the last day of the twelfth full calendar month December 1, 1996 (the
"Initial Period"), the Repurchase Option shall apply to 100% of the Shares. On
the last day of the Initial Period, 12/48ths of the Shares shall be released
from the Repurchase Option and 1/48th of the Shares shall be released from the
Repurchase Option on the last day of each calendar month thereafter, provided in
each case the Purchaser is an employee of the Company on the date of each said
release. Fractional shares shall be rounded to the nearest whole share.
Notwithstanding the foregoing, all Shares shall be released from the
Company's Repurchase Option under Section 3 immediately upon a merger or
consolidation of the Company with or into any other corporation or other entity,
or a sale of all or substantially all of the assets of the Company, unless the
stockholders of the Company immediately prior to such transaction hold at least
50% of the outstanding equity securities of the equity surviving such merger or
consolidation or the entity purchasing such assets, or the sale or transfer of
more than 50% of the Company's Common Stock to a person or persons acting as a
group, who is or are not controlled directly or indirectly by the Company, in a
single transaction or series of related transactions.
(b) RIGHT OF FIRST REFUSAL. Before any Shares may be sold or
transferred (including transfer by operation of law), such Shares shall first be
offered to the Company (the "Right of First Refusal").
(i) In the event the Purchaser wishes to sell the Shares,
Purchaser shall deliver a notice ("Notice") to the Company stating (A) his bona
fide intention to sell or transfer such Shares, (B) the number of such Shares to
be sold or transferred, (C) the price for which he proposes to sell or transfer
such Shares, and (D) the name of the proposed purchaser or transferee.
(ii) Within thirty (30) days after receipt of the Notice, the
Company or its assignee may elect to purchase all or none of the Shares to which
the Notice refers, at the price per Share specified in the Notice. The purchase
of the Shares in either such event shall occur at a closing held at the
Company's principal office at a mutually agreed upon time which in no event
shall be more than thirty (30) days following the end of the time period in
which the Company had to elect to purchase such Shares.
(iii) If all of the Shares to which the Notice refers are not
elected to be purchased, as provided in Section 3(b) hereof, Purchaser may
sell the Shares to any person named in the Notice at the price specified in
the Notice or at a higher price, provided that such sale or transfer is
consummated within sixty (60) days of the date of said Notice to the Company,
and provided, further, that any such sale is in accordance with all the terms
and conditions hereof.
(c) TERMINATION OF RESTRICTIONS. Notwithstanding the provisions of
Section 3(b) above, the Company's Right of First Refusal shall terminate
immediately as to all Shares upon the occurrence of the first to occur of the
following events:
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(i) the acquisition of the Company by another entity by means of
the merger or consolidation of the Company with or into another corporation in
which the stockholders of the Company own less that 50% of the voting securities
of the surviving entity,
(ii) the sale of all or substantially all of the assets of the
Company, or
(iii) the date upon which a public market exists for the
Company's capital stock (or any other stock issued to purchasers in exchange
for the Shares purchased under this Agreement). For the purpose of this
Agreement, a "Public Market" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the
Securities Exchange Act of 1934) or (ii) such stock is traded on the
over-the-counter market and prices are published daily on business days in a
recognized financial journal.
(d) ASSIGNMENT. Whenever the Company shall have the right to purchase
Shares under this Section 3, the Company may designate and assign one or more
employees, officers, directors or stockholders of the Company or other persons
or organizations to exercise all of the Company's purchase rights under this
Agreement and purchase all of such Shares; provided that if the fair market
value of the Shares to be purchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the purchase price of the Shares
(determined as described hereinabove) to be purchased, then each such designee
or assignee shall pay the Company cash equal to the difference between the
Repurchase FMV and the purchase price of the Shares which such designee or
assignee shall have the right to purchase.
(e) EXEMPT TRANSFERS. The provisions of this Section 3 shall not
apply to a transfer of any Shares by Purchaser, either during his lifetime or on
death by will or intestacy to his ancestors, descendants or spouse, or any
custodian or trustee for the account of Purchaser or Purchaser's ancestors,
descendants or spouse; provided, in each such case that the transferee shall
receive and hold such Shares subject to all of the provisions of this Section 3
and there shall be no further transfer of such Shares except in accordance
herewith.
4. STANDOFF AGREEMENT. Purchaser agrees, in connection with the Company's
initial public offering of its equity securities, not to sell, make any short
sale of, loan, grant any option for the purchase of or otherwise dispose of any
Shares (other than those included in the registration, if any) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed one hundred eighty (180) days) from the
effective date of such registration as may be requested by the Company or such
underwriters; provided, that the officers and directors of the Company who own
stock of the Company also agree to such restrictions.
5. NO TRANSFER EXCEPT IN COMPLIANCE WITH THE RESTRICTIONS HEREIN. The
Company shall not be required (i) to transfer on its books any Shares which
shall have been sold or transferred in violation of any of the provisions set
forth in this Agreement, or (ii) to treat as owner of such Shares or to accord
the right to vote as such owner or to pay dividends to any transferee to whom
such Shares shall have been so transferred. Purchaser shall not sell, transfer,
pledge, hypothecate or
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otherwise dispose of any shares which remain subject to the restrictions on
transfer set forth in Section 3 hereof.
6. LEGENDS. All certificates representing any of the Shares subject to
the provisions of this Agreement shall have endorsed thereon the following
legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS UPON TRANSFER, RIGHTS OF FIRST REFUSAL AND RIGHTS OF
REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE
REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION."
(b) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) Any legend required to be placed thereon by the applicable blue
sky laws of any state.
7. ESCROW.
(a) The Shares issued under this Agreement shall be held by an escrow
holder designated by the Company (the "Escrow Holder"), along with a stock
assignment executed by the Purchaser in blank, until the expiration of the
Company's options and right of first refusal with respect to such Shares as set
forth above.
(b) The Escrow Holder is hereby directed to permit transfer of the
Shares only in accordance with this Agreement or instructions signed by both
parties. In the event further instructions are desired by the Escrow Holder, he
shall be entitled to rely upon directions executed by a majority of the
authorized number of the Company's Board of Directors. The Escrow Holder shall
have no liability for any act or omission hereunder while acting in good faith
in the exercise of his own judgment.
(c) If the Company or any assignee exercises its Repurchase Option or
Right of First Refusal hereunder, the Escrow Holder, upon receipt of written
notice of such exercise from the proposed transferee, shall take all steps
necessary to accomplish such transfer.
(d) When the Repurchase Option or Right of First Refusal have been
exercised or expire unexercised or a portion of the Shares has been released
from the provisions of Section 3 hereof, upon Purchaser's request the Escrow
Holder shall promptly cause a new certificate to be issued for such released
Shares and shall deliver such certificate to the Purchaser.
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(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a stockholder with respect to such Shares while they are held in
escrow, including without limitation, the right to vote the Shares and receive
any cash dividends declared thereon. If, from time to time during the term of
the provisions of Section 3, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of his ownership of the Shares shall be immediately subject to this
escrow, deposited with the Escrow Holder and included thereafter as "Shares" for
purposes of this Agreement and the Company's Repurchase Option or Right of First
Refusal.
8. INVESTMENT REPRESENTATIONS. In connection with the purchase of the
Shares, the Purchaser shall, concurrently with the purchase of the Shares,
deliver to the Company his Investment Representation Statement attached hereto
as Exhibit B.
9. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
10. TAX CONSEQUENCES. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement (including any
tax consequences that may result under recently enacted tax legislation). The
Purchaser is relying solely on such advisors and not on any statements or
representations of the Company or any of its agents. The Purchaser understands
that the Purchaser (and not the Company) shall be responsible for the
Purchaser's own tax liability that may arise as a result of this investment or
the transactions contemplated by this Agreement. The Purchaser understands that
Section 83 of the Internal Revenue Code, as amended (the "Code"), taxes as
ordinary income both (i) the difference between the fair market value of the
Shares when the Company granted the Purchaser the right to purchase the Shares
and the fair market value of the Shares on the date of this Agreement and (ii)
the difference between the amount paid for the Shares and the fair market value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" includes the right of the Company to buy back the Shares
pursuant to certain of its rights under Section 3.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY
AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF
THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
THE PURCHASER'S BEHALF.
11. TERMINATION OF EMPLOYMENT. Purchaser understands and acknowledges that
Purchaser's employment relationship with the Company is at the will of either
party and that nothing in this Agreement, shall confer any right upon Purchaser
with respect to continuation of employment by the Company, nor shall it
interfere in any way with his right or the Company's right to terminate
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his employment at any time, with or without cause. This Agreement does not
constitute an express or implied promise of continued employment for any period.
12. GENERAL PROVISIONS.
(a) GOVERNING LAW. This Agreement shall be governed by the laws of
the State of California. This Agreement represents the entire agreement between
the parties with respect to the purchase of Common Stock by the Purchaser and
may only be modified or amended in writing signed by both parties.
(b) NOTICES. Any notice, demand or request required or permitted to
be given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party not sending the notice.
(c) ASSIGNMENT. The rights and benefits of the Company under this
Agreement shall be transferable to any one or more persons or entities, and all
covenants and agreements hereunder shall inure to the benefit of, and be
enforceable by the Company's successors and assigns. The rights and obligations
of the Purchaser under this Agreement may only be assigned with the prior
written consent of the Company.
(d) WAIVER. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor prevent that party thereafter from
enforcing each and every other provision of this Agreement. The rights granted
both parties herein are cumulative and shall not constitute a waiver of either
party's right to assert all other legal remedies available to it under the
circumstances.
(e) ADDITIONAL ACTIONS. The Purchaser agrees upon request to execute
any further documents or instruments necessary or desirable to carry out the
purposes or intent of this Agreement.
(f) ARBITRATION. At the option of either party, any and all
disputes or controversies, whether of law or in equity, and of any nature
whatsoever arising from or respecting this Agreement, unless otherwise expressly
provided herein, shall be decided by arbitration by the American Arbitration
Association in accordance with the rules and regulations of that Association.
(i) The arbitrators shall be selected as follows: In the event
the Company and Purchaser agree on one arbitrator, the arbitration shall be
conducted by such arbitrator. In the event the Company and Purchaser do not so
agree, the Company and Purchaser shall each select one independent, qualified
arbitrator and these two arbitrators shall select a third arbitrator. The
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Company reserves the right to reject any individual arbitrator who shall be
employed by or affiliated with a competing organization.
(ii) Arbitration shall take place in Pasadena, California, or any
other location mutually agreeable to the parties. At the request of either
party, arbitration proceedings will be conducted in secrecy. In such case all
documents, testimony, and records shall be received, heard, and maintained by
the arbitrators in secrecy under seal, available for inspection only by the
Company and the Purchaser and their respective attorneys and their respective
experts who shall agree in advance and in writing to receive all such
information confidentially and to maintain such information in secrecy until
such information shall become generally known. The arbitrators, who shall act by
majority vote, shall be able to decree any and all relief of an equitable
nature, including but not limited to such relief as a temporary restraining
order, a temporary or a permanent injunction, or both, and shall also be able to
award damages (with or without an accounting), costs, and reasonable attorneys'
fees. The decree or judgment of an award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
(iii) Reasonable notice of the time and place of arbitration
shall be given to all persons, other than the parties, as shall be required by
law, in which case such persons or their authorized representatives shall have
the right to attend and participate in all the arbitration hearings to the
extent and in such manner as the law shall require.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first set forth above.
ETOYS INC. PURCHASER:
a Delaware corporation
By: /s/ Xxxxxx X. Xxxx /s/ Xxxxxx X. Xxxx
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Title: President Xxxxxx X. Xxxx
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ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, Xxxxxx X. Xxxx, hereby sell, assign and transfer
unto_____________________(__________________) shares of the Common Stock of
eToys Inc. standing in my name of the books of said corporation represented by
Certificate No. __________ herewith and do hereby irrevocably constitute and
appoint ________________________, attorney, to transfer the said stock on the
books of the within named corporation with full power of substitution in the
premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between eToys Inc. and the undersigned dated June 27,
1997.
Dated: Signature: /s/ Xxxxxx X. Xxxx
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Name: Xxxxxx X. Xxxx
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EXHIBIT A
PLEDGE AGREEMENT
This Agreement is entered into as of June 27, 1997, by and between ETOYS
INC., a Delaware corporation (the "Company") and Xxxxxx X. Xxxx ("Pledgor").
WHEREAS, in exchange for Pledgor's Full Recourse Promissory Note dated of
even date herewith (the "Note"), the Company has issued and sold to Pledgor
1,250,000 shares of its Common Stock evidenced by the Company's Common Stock
Certificate No. 6 (the "Shares") pursuant to the terms and conditions of that
certain Common Stock Purchase Agreement ("Stock Purchase Agreement") entered
into by the Company and Pledgor of even date herewith;
WHEREAS, Pledgor has agreed that repayment of the Note will be secured by
the pledge of the Shares;
NOW, THEREFORE, the parties agree as follows:
1. CREATION OF SECURITY INTEREST. Pursuant to the provisions of the
California Commercial Code, Pledgor hereby grants to the Company, and the
Company hereby accepts, a present security interest in the Shares as collateral
to secure the payment of Pledgor's obligation to the Company under the Note.
Pledgor herewith delivers to the Company Common Stock Certificate No. 6,
representing a total of 1,250,000 shares of the Company's Common Stock, together
with one stock power for each certificate in the form attached as an Exhibit to
the Stock Purchase Agreement, duly executed (with the date and number of shares
left blank) by Pledgor and Pledgor's spouse, if any. For purposes of this
Agreement, the Shares pledged hereby shall hereinafter be collectively referred
to as the "Collateral".
2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and warrants
to the Company that Pledgor has good title (both of record and beneficially) to
the Collateral, free and clear of all claims, pledges and liens or encumbrances
of every nature whatsoever, and that Pledgor has the right to pledge the
Collateral as provided herein. Pledgor further agrees not to grant or create,
nor attempt to grant or create, any security interest, claim, lien, pledge or
other encumbrance with respect to the Collateral until the entire principal sum
and accrued interest due under the Note has been paid in full.
3. RIGHTS ON DEFAULT. In the event of default by Pledgor under the Note,
the Company and its assigns shall have full power to sell, assign and deliver
the whole or any part of the Collateral at any broker's exchange or elsewhere,
at public or private sale, at the option of the Company or its assigns, in order
to satisfy any part of the obligations of Pledgor now existing or hereinafter
arising under the Note should payment of such obligations be in default. On any
such public sale, the Company and its assigns may purchase all or any part of
the Collateral. In addition, at its sole
option, the Company may elect to retain the Collateral in satisfaction of
Pledgor's obligation under the Note, in accordance with the provisions and
procedures set forth in the California Commercial Code.
4. ADDITIONAL REMEDIES. The rights and remedies granted to the Company
herein upon default shall be in addition to all the rights, powers and remedies
of the Company under the California Commercial Code and applicable law and such
rights, powers and remedies shall be exercisable by the Company with respect to
all of the Collateral. The Company's reasonable expenses of holding the
Collateral, preparing it for resale or other disposition, and selling or
otherwise disposing of the Collateral, including attorneys' fees and other legal
expenses, will be deducted from the proceeds of any sale or other disposition
and will be included in the amounts Pledgor must tender to redeem the
Collateral. All rights, powers and remedies of the Company shall be cumulative
and not alternative. Any forbearance or failure or delay by the Company in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of any such right, power or remedy and any single or partial exercise of
any such right, power or remedy hereunder shall not preclude the further
exercise thereof.
5. DIVIDENDS; VOTING. All dividends hereinafter declared on or payable
with respect to the Collateral during the term of this pledge (excluding only
ordinary cash dividends, which shall be payable to Pledgor so long as Pledgor
is not in default under this Note) shall be immediately delivered to the Company
to be held in pledge hereunder. Pledgor shall be entitled to receive cash
dividends so long as Pledgor is not in default under the Note. Notwithstanding
anything to the contrary contained in this Agreement, Pledgor shall be entitled
to vote any shares comprising the Collateral, subject to any proxies granted by
Pledgor.
6. ADJUSTMENTS. In the event that during the term of this pledge, any
stock dividend, reclassification, readjustment, stock split or other change is
declared or made with respect to the Collateral, or if warrants or any other
rights or options are issued in connection with the Collateral, all new,
substituted and/or additional shares or other securities issued by reason of
such change or by reason of the exercise of such warrants, rights or options,
shall be immediately pledged to the Company to be held under the terms of this
Agreement in the same manner as the Collateral is held hereunder.
7. RULE 144 HOLDING PERIOD. PLEDGOR UNDERSTANDS THAT THE HOLDING PERIOD
SPECIFIED UNDER RULE 144(d) WILL NOT BEGIN TO RUN WITH RESPECT TO THE PURCHASED
SHARES UNTIL EITHER (A) THE NOTE IS PAID IN FULL OR (B) THE NOTE IS SECURED BY
COLLATERAL, OTHER THAN THE PURCHASED SHARES, HAVING A FAIR MARKET VALUE AT LEAST
EQUAL TO THE AMOUNT OF PLEDGOR'S THEN OUTSTANDING OBLIGATION UNDER THE NOTE
(INCLUDING ACCRUED INTEREST).
8. REDELIVERY OF COLLATERAL. Upon payment in full of the entire principal
sum and accrued interest due under the Note, and subject to the terms and
conditions of the Stock Purchase Agreement, the Company shall immediately
redeliver the Collateral pledged hereunder to Pledgor, duly
endorsed, and this Agreement shall terminate; provided, however, that all rights
of the Company to retain possession of the Shares pursuant to the Stock Purchase
Agreement shall survive termination of this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the respective heirs, personal representatives, successors and assigns of the
parties hereto.
10. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by the
construed in accordance with the laws of the State of California, excluding that
body of law relating to conflicts of law. Should one or more of the provisions
of this Agreement be determined by a court of law to be illegal or
unenforceable, the other provisions nevertheless shall remain effective and
shall be enforceable.
11. MODIFICATION. This Agreement shall not be amended without the written
consent of both parties hereto.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings related to such subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
ETOYS INC. PLEDGOR
By: /s/ Xxxxxx X. Xxxx /s/ Xxxxxx X. Xxxx
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Title: President (signature)
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Xxxxxx X. Xxxx
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(print or type name)
FULL RECOURSE PROMISSORY NOTE
Pasadena, California
$18,750.00 June 27, 1997
1. OBLIGATION. In exchange for 1,250,000 shares (the "Shares") of the
Common Stock of ETOYS INC., a Delaware corporation (the "Company"), represented
by Common Stock Certificate No. 6, receipt of which is hereby acknowledged, the
undersigned hereby promises to pay to the order of the Company on or before June
27, 2002, or upon termination of employment for any reason, whichever occurs
earlier, at the Company's office at 000 X. Xxxxxxxx Xxxx., Xxxxx 000, Xxxxxxxx,
XX 00000, or at such other place as the Company may direct, the principal sum
of Eighteen Thousand Seven Hundred Fifty Dollars ($18,750.00) together with
interest on unpaid principal at the rate of 6.80% per annum from the date hereof
until paid.
2. ACCELERATION OF OBLIGATION. The principal sum of this Note, together
with all interest accrued thereon, shall immediately become due and payable in
full upon any transfer of any of the Shares.
3. REMEDIES ON DEFAULT. Payment of this Note is secured by shares of the
Company's Common Stock pursuant to a Pledge Agreement dated as of even date
herewith between the Company and the undersigned. Upon any default of the
undersigned under this Note, the Company shall have, in addition to its rights
and remedies under the Pledge Agreement, full recourse against any real,
personal, tangible or intangible assets of the undersigned, and may pursue any
legal or equitable remedies that are available to it.
4. GOVERNING LAW; WAIVER. The validity, construction and performance of
this Note shall be governed by the laws of the State of California, excluding
that body of law pertaining to conflicts of law. The undersigned waives
presentment, notice of nonpayment, notice of dishonor, protest, demand and
diligence.
5. ATTORNEYS' FEES. If suit is brought for collection of this Note, the
undersigned agrees to pay all reasonable expenses, including attorneys' fees,
incurred by the holder in connection therewith whether or not such suit is
prosecuted to judgment.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as
of the date and year first above written.
/s/ Xxxxxx X. Xxxx
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Xxxxxx X. Xxxx
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: XXXXXX X. XXXX
COMPANY : ETOYS INC.
SECURITY : COMMON STOCK
AMOUNT : 1,250,000 SHARES
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Company the following:
(a) I am sufficiently aware of the Company's business affairs and
financial condition to reach an informed and knowledgeable decision to acquire
the Securities. I am purchasing these Securities for my own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof for purposes of the Securities Act of 1933, as
amended (the "Securities Act").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission (the "SEC"), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available (such as Rule 144 or the resale
provisions of Rule 701 under the Securities Act). Moreover, I understand that
the Company is under no obligation to register the Securities. In addition, I
understand that the certificate evidencing the Securities will be imprinted with
a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
(d) I am familiar with the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired,
directly or indirectly, from the issuer thereof (or from an affiliate of such
issuer), in a non-public offering subject to the satisfaction of certain
conditions, including, among other things: (1) the availability of certain
public information about the Company; (2) the resale occurring not less than one
year after the party has purchased, and made full payment for, within the
meaning of Rule 144, the securities to be sold; and, in the case of an
affiliate, or of a non-affiliate who has held the securities less than two
years, (3) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker, as said term is
defined under the Securities Exchange Act of 1934 (the "Exchange Act") and the
amount of securities being sold during any three month period not exceeding the
specified limitations stated therein, if applicable. The Purchaser further
understands that the resale provisions of Rule 701 will not apply until 90 days
after the Company becomes subject to the reporting obligations under the
Exchange Act (typically upon the effective date of a company's initial public
offerings). There can be no assurances that the requirements of Rule 144 or Rule
701 will be met, or that the Securities will ever be saleable.
(e) I further understand that at the time I wish to sell the Securities
there may be no public market upon which to make such a sale, and that, even if
such a public market then exists, the Company may not be satisfying the current
public information requirements of Rule 144, and that, in such event, I would be
precluded from selling the Securities under Rule 144 even if the one-year
minimum holding period had been satisfied.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 are not satisfied, or that the resale provisions of
Rule 701 are not available, registration under the Securities Act, compliance
with Regulation A, compliance with some other registration exemption or the
notification to the Company of the proposed disposition by me and the furnishing
to the Company of (i) detailed information regarding the disposition, and (ii)
and opinion of my counsel to the effect that such disposition will not require
registration (I understand such counsel's opinion shall concur with the opinion
by counsel for the Company and I shall have been informed of such compliance)
will be required and that, notwithstanding the fact that Rule 144 is not
exclusive, the Staff of the SEC has expressed its opinion that persons proposing
to sell private placement securities other than in a registered offering and
otherwise than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Signature of Purchaser:
/s/ Xxxxxx X. Xxxx
------------------------------
Xxxxxx X. Xxxx
Date: June 27, 1997
