EXHIBIT 10.5
ETOYS INC.
STOCK AND NOTE PURCHASE AGREEMENT
This Stock and Note Purchase Agreement (the "Agreement") is made as of
the 27th day of June, 1997 by and between eToys Inc., a Delaware
corporation (the "Company"), and idealab!, a Delaware corporation (the
"Purchaser").
In consideration of the mutual covenants and representations herein set
forth, the Company and Purchaser agree as follows:
1. PURCHASE. Subject to the terms and conditions of this Agreement,
the Company hereby agrees to issue to Purchaser and Purchaser agrees to
acquire from the Company on the Closing Date (as defined below), (i)
6,467,000 shares of the Company's Common Stock (the "Stock") at a price of
$0.015 per share, for the aggregate purchase price of $97,015 (the "Purchase
Price") and (ii) Convertible Promissory Notes in substantially the form
attached hereto as Exhibit A (the "Note" or collectively the "Notes") which
may be issued in one or more Notes for up to an aggregate principal amount of
$100,000. The Purchase Price for the Stock and the principal amounts of the
Notes shall be paid by check or wire transfer or the cancellation of existing
indebtedness or a combination thereof.
2. CLOSING. The purchase and sale of the Stock and Notes shall occur
at a Closing or Closings to be held at such times and places (the "Closing
Dates"), as designated by the Company no less than two business days prior to
such Closing Date. The Closings will take place at the principal office of
the Company or at such other place as shall be designated by the Company. At
the Closing on June 27, 1997 (the "Initial Closing"), the Company will issue
the Stock registered in the name of Purchaser and the Company acknowledges
receipt of $97,000 in payment of the Purchase Price for the Stock prior to
the date of this Agreement. At subsequent Closings at times to be determined
by the Company and the Purchaser, Purchaser shall deliver to the Company the
consideration to be paid for the Note or Notes and the Company will deliver
to Purchaser a Note or Notes in the principal amounts(s) equal to the
consideration paid by Purchaser for such Note or Notes.
3. COMPANY'S REPRESENTATIONS AND WARRANTIES. Except as set forth on
Exhibit B attached hereto, the Company represents and warrants to Purchaser
as follows:
(a) The Company is a Corporation duly organized and validly
existing under, and by virtue of, the laws of the State of Delaware and is in
good standing under such laws. The Company has requisite corporate power and
authority to own and operate its properties and assets, and to carry on its
business as presently conducted and as proposed to be conducted. The Company
is not presently qualified to do business as a foreign corporation in any
jurisdiction, and the failure
to be so qualified will not have a material adverse affect on the Company's
business as now conducted or as now proposed to be conducted.
(b) The Company will have at the Closing all requisite legal and
corporate power and authority to execute and deliver this Agreement, to sell
and issue the Stock and the Note hereunder and to carry out and perform its
obligations under the terms of this Agreement.
(c) The authorized capital stock of the Company consists or will,
upon the filing of the Certificate, consist of 50,000,000 shares of Common
Stock and 25,000,000 shares of undesignated Preferred Stock. Immediately
prior to the Closing, no shares of common or capital stock will be
outstanding. The Stock, when issued pursuant to the terms of this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable.
(d) All corporate action on the part of the Company, its officers,
directors and stockholders necessary for the authorization, execution,
delivery and performance of the Agreement by the Company, the authorization,
sale, issuance and delivery of the Stock and the Note and the performance of
all of the Company's obligations under this Agreement has been taken or will
be taken prior to the Closing. This Agreement, when executed and delivered by
the Company, shall constitute a valid and binding obligation of the Company,
enforceable in accordance with its terms.
(e) The Company is not in violation or default of any term of its
Certificate or Bylaws, or in any material respect of any term or provision of
any material mortgage, indebtedness, indenture, contract, agreement,
instrument, judgement, order or decree, and to its knowledge is not in
violation of any statute, rule or regulation applicable to the Company where
such violation would materially and adversely affect the Company.
(f) The Company has not incurred, and will not incur, directly or
indirectly, as a result of any action taken by the Company, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement.
4. PURCHASER'S REPRESENTATIONS AND WARRANTIES. In connection with the
purchase of the Stock and the Note, Purchaser hereby represents and warrants
to the Company:
(a) Purchaser has substantial experience in investing in
newly-formed technology companies or in evaluating and investing in private
placement transactions, so Purchaser is capable of evaluating the merits and
risks of Purchaser's investment in the Company. Purchaser, by reason of
Purchaser's business or financial experience or the business or financial
experience of Purchaser's professional advisors who are unaffiliated with the
Company or any affiliate or selling agent of the Company, directly or
indirectly, has the capacity to protect Purchaser's own interests in
connection with the purchase of the Stock, the Note and the common stock
issuable upon conversion of the Note (the "Securities").
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(b) Purchaser is acquiring or will be acquiring the Stock and the
Note for investment for Purchaser's own account, not as a nominee or agent
and not with the view to, or for resale in connection with, any distribution
thereof Purchaser understands that the Stock and the Note have not been, and
will not be, registered under the Securities Act of 1933 (the "Securities
Act") by reason of a specific exemption from the registration provisions of
the Securities Act that depends upon, among other things, the bona fide
nature of the investment intent and the accuracy of such Purchaser's
representations as expressed herein. Purchaser has not been formed for the
specific purpose of acquiring the Stock and the Note. Purchaser further
understands that the Company shall have no obligation to register the Stock
or the Securities issuable upon conversion of the Note under the Securities
Act on behalf of Purchaser.
(c) Purchaser acknowledges that the Stock and the Securities
issuable upon conversion of the Note must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available. Purchaser is aware of the provisions of Rule 144
promulgated under the Securities Act, which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including (except as limited by Rule 144(k)), among other things,
the existence of a public market for the shares, the availability of certain
current public information about the Company, the resale occurring not less
than one year after a party has purchased and paid for the security to be
sold, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker" (as provided by Rule 144(f)) and
the number of shares being sold during any three-month period not exceeding
specified limitations.
(d) Purchaser understands that no public market now exists for any
of the securities issued by the Company, that the Company has made no
assurances that a public market will ever exist for the Stock or the
Securities issuable upon conversion of the Note and that, even if such a
public market exists at some future time, the Company may not then be
satisfying the current public information requirements of Rule 144.
(e) Purchaser and Purchaser's representatives have had the
opportunity to ask questions of, and receive answers from, representatives of
the Company concerning the Company and the terms and conditions of this
transaction as well as to obtain any information requested by Purchaser. Any
questions raised by Purchaser or Purchaser's representatives concerning the
transaction have been answered to the satisfaction of Purchaser and
Purchaser's representatives. Purchaser's decision to enter into the
transactions contemplated hereby is based in part on the answers to such
questions as Purchaser and Purchaser's representatives have raised concerning
the transaction and on Purchaser's own evaluation of the risks and merits of
the purchase and the Company's proposed business activities.
(f) All corporate or partnership action, if applicable, on the part
of Purchaser, its directors, partners and its stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by
Purchaser has been taken. This Agreement, when executed and
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delivered by Purchaser, will constitute a valid and legally binding obligation
of Purchaser, enforceable in accordance with its terms.
(g) Purchaser has not incurred, and will not incur, directly or
indirectly, as a result of any action taken by such Purchaser, any liability
for brokerage or finders' fees or agents' commissions or any similar charges
in connection with this Agreement.
(h) Purchaser has reviewed with its own tax advisors the federal,
state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on
such advisors and not on any statements or representations of the Company or
any of its agents and understands that Purchaser (and not the Company) shall
be responsible for Purchaser's own tax liability that may arise as a result
of this investment or the transactions contemplated by this Agreement.
5. RESTRICTION ON TRANSFER; RIGHT OF FIRST REFUSAL
(a) Before any shares of Stock registered in the name of Purchaser
may be sold or transferred (including transfer by operation of law), such
shares shall first be offered to the Company.
(i) Purchaser shall deliver a notice ("Notice") to the
Company stating (A) Purchaser's 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 30 days after receipt of the Notice, the Company
or its assignee may elect to purchase all (but not less than all) shares to
which the Notice refers, at the price per share specified in the Notice. Full
payment for all the shares to which the Notice refers shall be made by the
Company or its assignee to Purchaser by cash.
(iii) If the shares to which the Notice refers are not
elected to be purchased, as provided in subparagraph 5(a)(ii), 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 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. Any sale or transfer after such 60 day period or on terms
more favorable to the proposed purchaser or transferee then described in the
Notice shall be subject again to this subparagraph 5(a).
(iv) The provisions of this subparagraph 5(a) shall terminate
on the earlier of (A) the effective date of a registration statement filed by
the Company under the Securities Act, with respect to an underwritten public
offering of Common Stock of the Company (an "Initial Public Offering") or (B)
the closing date of a sale of assets or merger of the Company pursuant to
which
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stockholders of this Company received securities of a buyer whose shares are
publicly traded. The provisions of this subparagraph 5(a) shall not apply to
a transfer of any shares of Stock by Purchaser, either during its lifetime or
on death by will or intestacy to its other ancestors, descendents or spouse,
or any custodian or trustee for the account of Purchaser or Purchaser's
ancestors, descendents or spouse; provided, in each such case a transferee
shall receive and hold such shares subject to the provisions of this
paragraph 5 and there shall be no further transfer of such shares except in
accordance herewith.
(b) Purchaser agrees in connection with the Company's Initial
Public Offering, not to sell, make any short sale of, loan, grant any option
for the purchase of or otherwise dispose of any shares of Stock without the
prior written consent of Company or its underwriters, for such period of
time (not to exceed 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.
(c) The Company shall not be required (i) to transfer on its
books any shares of Stock 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 which such shares shall have been so
transferred.
6. LEGENDS. All certificates representing any of the shares of Stock
subject to the provisions of this Agreement shall have endorsed thereon
legends substantially in the following form:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THIS CERTIFICATE MUST BE
SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO
THE SALE, PLEDGE OR OTHER TRANSFER OF ANY INTEREST IN ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE."
(b) "THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN STOCK
PURCHASE AGREEMENT CONTAINING A RIGHT OF FIRST REFUSAL, COPIES OF WHICH MAY
BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO THE SECRETARY OF THE
COMPANY."
(c) Any legend required to be placed thereon by the California
Commissioner of Corporations, or required by applicable blue sky laws of any
state.
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7. MISCELLANEOUS
(a) The parties agree to execute such further instruments and
to take such further action as may reasonably be necessary to carry out the
intent of this Agreement.
(b) Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post Office, by regular or certified mail
with postage and fees prepaid, addressed to Purchaser at its address shown on
the Company's records and to the Company at the address of its principal
corporate offices (attention: President) or at such other address as such
party may designate by ten days' advance written notice to the other party
hereto.
(c) The Company may assign its rights and delegate its duties
under this Agreement. If any such assignment or delegation requires consent
of the California Commissioner of Corporations, the parties agree to cooperate
in requesting such consent. This Agreement shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon Purchaser, its heirs, executors,
administrators, successors and assigns.
(d) Purchaser hereby authorizes and directs the Secretary or
Transfer Agent of the Company to transfer the Stock as to which the right of
first refusal has been exercised from Purchaser to the Company.
(e) This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of California.
8. ARBITRATION. At the option of either party, any and all
disputes or controversies whether of law or fact and of any nature whatsoever
arising from or respecting this Agreement shall be decided by arbitration by
the American Arbitration Association in accordance with the commercial rules
and regulations of that Association.
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 the two arbitrators so selected shall select the
third arbitrator. The Company reserves the right to object to any individual
arbitrator who shall be employed by or affiliated with a competing
organization.
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 the utmost secrecy; in
such case all documents, testimony and records shall be received, heard and
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maintained by the arbitrators in secrecy under seal, available for the
inspection only of the Company or 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
arbitrator, 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 and/or a permanent injunction,
and shall also be able to award damages, with or without an accounting and
costs. The decree or judgment of an award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
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 those authorized representatives shall have the
right to attend and/or participate in all the arbitration hearings in such
manner as the law shall require.
IN WITNESS THEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the day and year first above written.
PURCHASER COMPANY
Xxxx Xxxxx' idealab! eToys Inc.,
a California corporation a Delaware corporation
By: /s/ Xxxx Xxxxx By: /s/ Xxxxxx X. Xxxx
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Name: Xxxx Xxxxx Name: Xxxxxx X. Xxxx
-------------------- -------------------------
Title: Chairman Title: President
------------------- ------------------------
Address: 000 X. Xxxxxxxx Xxxx
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Xxxxxxxx, XX 00000
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EXHIBIT A
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 A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
INTEREST BEARING
CONVERTIBLE PROMISSORY NOTE
$________ _________, 0000
Xxxxxxxx, Xxxxxxxxxx
FOR VALUE RECEIVED, eToys, Inc., a Delaware corporation (the "Company"),
hereby promises to pay to idealab! ("Lender") the principal sum of
____________________________ dollars ($___________) on _________________,1998
(the "Maturity Date") at the offices of the Company, or at such other address
as Lender may specify in writing.
1. Interest shall accrue on the unpaid principal amount of this
Note at a rate of eight percent (8%) per annum, computed on the basis of the
actual number of days elapsed and a year of 365 days.
2. In the event that the Company, at any time after the date of this
Note and prior to the Maturity Date, shall issue and sell shares of its
Common Stock or Series A Preferred Stock to any investors (the "Investors")
for aggregate proceeds to the Company of at least One Million Dollars
($1,000,000), excluding the principal and accrued interest of this Note and
any similar notes which the holders have elected to convert into the
Securities, (the "Financing"), then the entire unpaid principal amount of
this Note (the "Unpaid Principal") and, at the option of Lender, the accrued
and unpaid interest on this Note, if any (the "Accrued Interest"), shall at
the closing of such Financing and at the option of Lender be either (i)
repaid in full in cash or (ii) converted into shares of the Company's Common
Stock (the "Securities"); PROVIDED, HOWEVER, that if the price per share of
the securities sold in the Financing is $0.25 or greater, then this Note
shall be repaid in full in cash upon the closing of such Financing and Lender
shall not have the option to convert this Notes into Securities.
3. The number of shares of Securities issuable to Lender upon
conversion of the Unpaid Principal, and Accrued Interest, if any, shall equal
that number of shares as is obtained by dividing the amount of Unpaid
Principal and Accrued Interest, if any, to be converted by the price per
share of $0.20.
4. The Unpaid Principal amount of this Note, together with Accrued
Interest to date, shall become immediately due and payable upon _________,
1998.
5. Any conversion by Lender of the Note into the Securities shall be
pursuant to a stock purchase agreement (the "Stock Agreement") which shall
contain customary terms and conditions. Lender shall provide the Company
with written notice of its election to exercise its conversion right
hereunder and the Company shall immediately thereafter undertake all
necessary action to enable such conversion to occur, but the Note shall
remain outstanding until such time as the Securities are actually issued to
Lender.
6. Acceptance by Lender of any partial payment shall not be deemed to
constitute a waiver by Lender to require prompt payment of the Note upon
demand.
7. In the event of any action to enforce payment of this Note, in
addition to all other relief, the prevailing party in such action shall be
entitled to reasonable attorneys' fees and expenses.
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8. The Company hereby waives presentment, protest and demand, notice of
protest, demand, nonpayment or dishonor.
9. This Note is to be governed by and construed in accordance with the
laws of the State of California.
eToys Inc.
By:__________________________________
Title:_______________________________
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EXHIBIT B
SCHEDULE OF EXCEPTIONS TO THE COMPANIES REPRESENTATIONS AND WARRANTIES
In addition to the 6,466,667 shares of Common Stock being issued under this
Stock and Note Purchase Agreement, the Company has agreed to issue 1,866,667
shares of Common Stock to certain founders and employees of the Company
pursuant to Stock Purchase Agreements and 2,026,667 shares of Common Stock to
certain founders and employees of the Company pursuant to Restricted Stock
Purchase Agreements and such shares shall be issued as of the same date of
this Stock and Note Purchase Agreement. Forms of such Stock Purchase
Agreements and Restricted Stock Purchase Agreements have been previously
provided to counsel for idealab!
