ETOYS INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
MARCH 24, 1999
ETOYS INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (the "AGREEMENT") is
made as of the 24th day of March, 1999, 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 C 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 Third 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 C Preferred Stock set forth opposite each such Purchaser's name on
EXHIBIT A attached hereto at a purchase price of $30.00 per share. The
shares of Series C 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 March 24 1999, 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, 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 or shall executed an instrument
of cancellation in form and substance acceptable to the Company.
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 delivered separately to the Purchasers, 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) Nineteen Million Five Hundred Ninety-Three Thousand
Eighty-Nine (19,593,089) 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 Seven Million Seven Thousand
Four Hundred Ninety-Five (7,007,495) shares are issued and outstanding;
Eleven Million Eight Hundred Eighty-Six Thousand Six Hundred Forty-Nine
(11,886,649) shares of Series B Preferred Stock, all of which are issued and
outstanding immediately prior to the Closing; and Six Hundred Sixty-Six
Thousand Six Hundred Sixty-Six (666,666) shares of Series C 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 Five Hundred Eighty-Two Thousand Nine Hundred Seventy-Seven
(11,582,977) shares of which are issued and outstanding as of February 28,
1999. 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
Six Hundred Sixty-Six Thousand Six Hundred Sixty-Six (666,666) shares of
Common Stock for issuance upon conversion of the Series C 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").
(d) Except for currently outstanding options issued pursuant
to the Stock Plan, warrants to purchase 32,279 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.
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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 Second Amended
and Restated Investors' Rights Agreement, in the form attached hereto as
EXHIBIT C (the "INVESTORS' RIGHTS AGREEMENT"), the Second Amended and
Restated Right of First Refusal and Co-Sale Agreement in the form attached
hereto as EXHIBIT D (the "CO-SALE AGREEMENT"), and the Second Amended and
Restated Voting Agreement in the form attached hereto as EXHIBIT E (the
"VOTING AGREEMENT") and collectively with this Agreement, the Investors'
Rights Agreement and the Co-Sale 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 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 C 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
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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, 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
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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 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.
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(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 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.
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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
December 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 December 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 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 December 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);
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(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;
(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
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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.
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
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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.
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 REAL PROPERTY HOLDING COMPANY. The Company is not a real
property holding company within the meaning of Section 897 of the Code.
2.29 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:
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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
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.
-11-
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.
(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 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.
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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 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.
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.
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 Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP,
High Street Tower, 000 Xxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, Attention:
Xxxxxxx X. Xxxxxxx, Xx.
-13-
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 Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP, the counsel
for entities affiliated with Highland Capital, 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.
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
-14-
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.
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.
-15-
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]
-16-
The parties have executed this Series C 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 Xxxx Xxxxxxxxx
Xxxxx 000
Xxxxx Xxxxxx, XX 00000
SIGNATURE PAGE TO eTOYS INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
PURCHASERS:
HIGHLAND CAPITAL PARTNERS IV LIMITED
PARTNERSHIP
By:
By: /s/ Xxxxxx X. Nova
-----------------------------------
Name: Xxxxxx X. Nova
---------------------------------
(print)
Title: Member
--------------------------------
Address: c/o Highland Capital Partners
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
PURCHASERS:
HIGHLAND ENTREPRENEURS' FUND IV
LIMITED PARTNERSHIP
By:
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 C PREFERRED STOCK PURCHASE AGREEMENT
PURCHASER:
SEQUOIA CAPITAL FRANCHISE FUND
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 C PREFERRED STOCK PURCHASE AGREEMENT
EXHIBITS
Exhibit A - Schedule of Purchasers
Exhibit B - Form of Third Amended and Restated Certificate of
Incorporation
Exhibit C - Form of Second Amended and Restated Investors' Rights
Agreement
Exhibit D - Form of Second Amended and Restated Right of First Refusal
and Co-Sale Agreement
Exhibit E - Form of Second Amended and Restated Voting Agreement
EXHIBIT A
SCHEDULE OF PURCHASERS
NUMBER OF SHARES OF PURCHASE PRICE
NAME SERIES C PREFERRED (CASH/WIRE TRANSFER)
-------------------------- ------------------ --------------------
Highland Capital Partners 320,000 $9,600,000
IV Limited Partnership
Highland Entrepreneurs' 13,333 $399,990
Fund IV Limited Partnership
Sequoia Capital Franchise 333,333 $9,999,990
Fund
EXHIBIT B
FORM OF THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
(SEE EXHIBIT 3.5)
EXHIBIT C
FORM OF SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
(SEE EXHIBIT 10.24)
EXHIBIT D
FORM OF SECOND AMENDED AND RESTATED RIGHT OF FIRST REFUSAL
AND CO-SALE AGREEMENT
(SEE EXHIBIT 10.26)
EXHIBIT E
FORM OF SECOND AMENDED AND RESTATED VOTING AGREEMENT
(SEE EXHIBIT 10.25)
