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EXHIBIT 4.1
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.
ETOYS INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: Number of Shares:
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Date of Issuance: June 12, 2000
eToys Inc., a Delaware corporation (the "COMPANY"), hereby certifies that,
for Ten United States Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
____________________, the registered holder hereof or its permitted assigns,
is entitled, subject to the terms set forth below, to purchase from the
Company upon surrender of this Warrant, at any time or times on or after the
date hereof, but not after 11:59 P.M. New York City Time on the Expiration
Date (as defined herein) __________________________________) [THE NUMBER OF
PREFERRED SHARES HELD BY THE HOLDER OF THIS WARRANT MULTIPLIED BY $3,000 THEN
DIVIDED BY THE AVERAGE OF THE CLOSING BID PRICES FOR THE 10 CONSECUTIVE TRADING
DAYS IMMEDIATELY PRECEDING THE CLOSING DATE (AS DEFINED IN THE SECURITIES
PURCHASE AGREEMENT)] fully paid nonassessable shares of Common Stock (as
defined herein) of the Company (the "WARRANT SHARES") at the purchase price
per share provided in Section 1(b) below; provided, however, that the Company
shall not effect the exercise of this Warrant and no holder of this Warrant
shall have the right to exercise this Warrant to the extent that after giving
effect to such exercise, such Person (together with such Person's affiliates)
would have acquired, through exercise of this warrant or otherwise,
beneficial ownership of a number of shares of Common Stock during the 60-day
period ending on and including the date this Warrant was exercised (the "60
DAY PERIOD"), that, when added to the number of shares of Common Stock
beneficially owned by such Person (together with such Person's affiliates) at
the beginning of the 60 Day Period, exceeds 9.99% of the number of shares of
Common Stock outstanding
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immediately after giving effect to such exercise. For purposes of the
foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned by such Person and its affiliates shall include the number
of shares of Common Stock issuable upon exercise of this Warrant with respect
to which the determination of such sentence is being made, but shall exclude
shares of Common Stock which would be issuable upon (i) exercise of the
remaining, unexercised portion of this Warrant beneficially owned by such
Person and its affiliates and (ii) exercise or conversion of the unexercised
or unconverted portion of any other securities of the Company beneficially
owned by such Person and its affiliates (including, without limitation, any
convertible notes or preferred stock) subject to a limitation on conversion
or exercise analogous to the limitation contained herein. Except as set
forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. Upon the written request of any
holder, the Company shall promptly, but in no event later than two (2)
Business Days following the receipt of such notice, confirm in writing to any
such holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined
after giving effect to conversions of Preferred Shares (as defined below) and
exercise of Warrants (as defined below) by such holder and its affiliates.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
Warrants (the "PREFERRED SHARE WARRANTS") issued pursuant to Section 1 of
that certain Securities Purchase Agreement dated as of June 12, 2000, among
the Company and the Persons referred to therein (the "SECURITIES PURCHASE
AGREEMENT").
(b) Definitions. The following words and terms as used in
this Warrant shall have the following meanings:
(i) "APPROVED STOCK PLAN" means any employee benefit
plan which has been approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer or director for services provided to the Company.
(ii) "BUSINESS DAY" means any day other than Saturday,
Sunday or other day on which commercial banks in the City of New York are
authorized or required by law to remain closed.
(iii) "CERTIFICATE OF DESIGNATIONS" means the Company's
Certificate of Designations, Preferences and Rights of the Series D
Convertible Preferred Stock.
(iv) "CLOSING BID PRICE" means, for any security as of
any date, the last closing bid price for such security on the Principal
Market (as defined below) as reported by Bloomberg Financial Markets
("BLOOMBERG"), or if the Principal Market begins to operate on an
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extended hours basis, and does not designate the closing bid price, then the
last bid price at 4:00 p.m. New York City Time as reported by Bloomberg, or
if the foregoing do not apply, the last closing bid price of such security in
the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no closing bid price is reported
for such security by Bloomberg, the last closing trade price for such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market
value as mutually determined by the Company and the holders of the Preferred
Share Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the Preferred Shares Warrants then outstanding.
If the Company and the holders of the Preferred Share Warrants are unable to
agree upon the fair market value of the Common Stock, then such dispute shall
be resolved pursuant to Section 2(a) of this Warrant with the term "Closing
Bid Price" being substituted for the term "Market Price." All such
determinations to be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period.
(v) "CLOSING SALE PRICE" means, for any security as of
any date, the last closing trade price for such security on the Principal
Market as reported by Bloomberg, or if the Principal Market begins to operate
on an extended hours basis, and does not designate the closing trade price,
then the last trade price at 4:00 p.m., New York City Time, as reported by
Bloomberg, or if the foregoing do not apply, the last closing trade price of
such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no last closing trade
price is reported for such security by Bloomberg, the last closing ask price
of such security as reported by Bloomberg, or, if no last closing ask price
is reported for such security by Bloomberg, the average of the highest bid
price and the lowest ask price of any market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Sale Price cannot be calculated for such security on such date on any
of the foregoing bases, the Closing Sale Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
holders of the Preferred Share Warrants representing at least a majority of
the shares of Common Stock obtainable upon exercise of the Preferred Shares
Warrants then outstanding. If the Company and the holders of Preferred Share
Warrants are unable to agree upon the fair market value of the Common Stock,
then such dispute shall be resolved pursuant to Section 2(a) below with the
term "Closing Sale Price" being substituted for the term "Market Price". All
such determinations to be appropriately adjusted for any stock dividend,
stock split or other similar transaction during such period.
(vi) "COMMON STOCK" means (i)the Company's common stock,
par value $0.0001 per share, and (ii)any capital stock into which such Common
Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
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(vi) "COMMON STOCK DEEMED OUTSTANDING" means, at any
given time, the number of shares of Common Stock actually outstanding at such
time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to Sections 8(b)(i) and 8(b)(ii) hereof regardless of whether the
Options or Convertible Securities are actually exercisable at such time, but
excluding any shares of Common Stock owned or held by or for the account of
the Company or issuable upon conversion of the Preferred Shares or exercise
of the Warrants.
(vii) "CONVERTIBLE SECURITIES" means any stock or
securities (other than Options) directly or indirectly convertible into or
exchangeable or exercisable for Common Stock.
(viii) "EXCLUDED SECURITIES" means (A) options to purchase
shares of Common Stock granted to consultants, provided (I) such options are
approved by the Board of Directors of the Company or an appropriately
designated committee of the Board of Directors, (II) the total number of
options granted to consultants during any 12-month period does not exceed 5%
of the number of all options granted pursuant to all Approved Stock Plans
during the same period and (III) the exercise price of such options is not
less than the market price of the Common Stock on the date of issuance of
such options; (B) up to 250,000 shares of Common Stock to be issued as part
of the consideration for the acquisition of eParties, Inc., a Delaware
corporation, or certain of its assets; (C) the issuance of either shares of
Common Stock or warrants to purchase Common Stock at a purchase price or
exercise price, respectively, not less than the market price of the Common
Stock on the date of such issuance, in connection with any strategic
marketing, vendor, lease or similar arrangement (the primary purpose of which
is not to raise equity capital), provided that the number of shares of Common
Stock or shares subject to warrants which the Company may issue pursuant to
this subclause (C) during any calendar year shall not exceed 500,000 shares
of Common Stock (subject to adjustment for stock splits, stock dividends,
stock combinations and other similar transactions), provided that the Company
shall be permitted to carry forward any such shares not used pursuant to this
subclause (C) during the prior calendar year in subsequent calendar years;
and (D) the issuance of up to 2,000,000 shares of Common Stock (subject to
adjustment for stock splits, stock dividends, stock combinations and other
similar transactions) per calendar year by the Company as consideration for
mergers or consolidations or the acquisition of businesses, products,
licenses, or other assets of other Persons or entities, provided that the
Company shall be permitted to carry forward any such shares not used pursuant
to this subclause (D) during the prior calendar year in subsequent calendar
years.
(ix) "EXPIRATION DATE" means the date three (3) years
from the date of this Warrant or, if such date does not fall on a Business
Day or on a day on which trading takes place on the principal exchange or
automated quotation system on which the Common Stock is traded, then the next
date Business Day.
(x) "MARKET PRICE" means, with respect to any security
for any date of determination, that price which shall be computed as the
arithmetic average of the Closing Bid Prices for such security on each of the
ten (10) trading days immediately preceding such date of
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determination. All such determinations to be appropriately adjusted for any
stock dividend, stock split or other similar transaction during the pricing
period.
(xi) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(xii) "OTHER SECURITIES" means (i) those warrants of the
Company issued prior to, and outstanding on, the date of issuance of this
Warrant, (ii) the Preferred Shares and (iii)the shares of Common Stock issued
upon conversion of the Preferred Shares or exercise of the Preferred Share
Warrants.
(xiii) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xiv) "PREFERRED SHARES" means the shares of the
Company's Series D Convertible Preferred Stock issued pursuant to the
Securities Purchase Agreement.
(xv) "PRINCIPAL MARKET" means the Nasdaq National
Market or if the Common Stock is not traded on the Nasdaq National Market,
then the principal securities exchange or trading market for the Common Stock.
(xvi) "REGISTRATION RIGHTS AGREEMENT" means that
registration rights agreement dated June 12, 2000 by and among the Company
and the Persons referred to therein.
(xvii) "SECURITIES ACT" means the Securities Act of 1933,
as amended.
(xviii) "WARRANT" means this Warrant and all Warrants
issued in exchange, transfer or replacement thereof.
(xix) "WARRANT EXERCISE PRICE" shall be equal to
$7.17375, subject to further adjustment as hereinafter provided.
(xx) "WEIGHTED AVERAGE PRICE" means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market as reported by Bloomberg through its "Volume at Price"
function or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if
no dollar volume-weighted average price is reported for such security by
Bloomberg, the average of the bid prices of each of the market makers for
such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Weighted Average Price cannot be calculated for such
security on such date on any of the foregoing bases, the Weighted Average
Price of such security on such date shall be the fair market value as
mutually determined by the Company and the holders of the
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Preferred Share Warrants representing at least a majority of the shares of
Common Stock obtainable upon exercise of the Preferred Share Warrants then
outstanding. If the Company and the holders of the Preferred Share Warrants
are unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(a) below with the term
"Weighted Average Price" being substituted for the term "Market Price." All
such determinations to be appropriately adjusted for any stock dividend,
stock split or other similar transaction during such period.
Section 2. EXERCISE OF WARRANT.
(a) Subject to the terms and conditions hereof, this Warrant
may be exercised by the holder hereof then registered on the books of the
Company, in whole or in part, at any time on any Business Day on or after the
opening of business on the date hereof and prior to 11:59 P.M., New York City
Time, on the Expiration Date by (i)delivery of a written notice, in the form
of the subscription notice attached as EXHIBIT A hereto (the "EXERCISE
NOTICE"), of such holder's election to exercise this Warrant, which notice
shall specify the number of Warrant Shares to be purchased, (ii)(A) payment
to the Company of an amount equal to the Warrant Exercise Price multiplied by
the number of Warrant Shares as to which this Warrant is being exercised (the
"AGGREGATE EXERCISE PRICE") in cash or wire transfer of immediately available
funds or (B) by notifying the Company that this Warrant is being exercised
pursuant to a Cashless Exercise (as defined in Section 2(e)), and (iii)the
surrender to a common carrier for overnight delivery to the Company as soon
as practicable following such date, this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction); provided, that if such Warrant Shares are to be issued in any
name other than that of the registered holder of this Warrant, such issuance
shall be deemed a transfer and the provisions of Section 7 shall be
applicable. In the event of any exercise of the rights represented by this
Warrant in compliance with this Section 2(a), the Company shall on the second
(2nd) Business Day (the "WARRANT SHARE DELIVERY DATE") following the date of
its receipt of the Exercise Notice, the Aggregate Exercise Price (or notice
of Cashless Exercise) and this Warrant (or an indemnification undertaking
with respect to this Warrant in the case of its loss, theft or destruction)
(the "EXERCISE DELIVERY DOCUMENTS"), (A) provided the transfer agent is
participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program and provided that the holder is eligible to
receive shares through DTC, credit such aggregate number of shares of Common
Stock to which the holder shall be entitled to the holder's or its designee's
balance account with DTC through its Deposit Withdrawal Agent Commission
system or (B) issue and deliver to the address as specified in the Exercise
Notice, a certificate, registered in the name of the holder or its designee,
for the number of shares of Common Stock to which the holder shall be
entitled. Upon delivery of the Exercise Notice and Aggregate Exercise Price
referred to in clause (ii)(A) above or notification to the Company of a
Cashless Exercise referred to in Section 2(e), the holder of this Warrant
shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of this Warrant as required
by
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clause (iii) above or the certificates evidencing such Warrant Shares. In
the case of a dispute as to the determination of the Warrant Exercise Price,
the Market Price of a security or the arithmetic calculation of the number of
Warrant Shares, the Company shall promptly issue to the holder the number of
shares of Common Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the holder via facsimile within
one (1) Business Day of receipt of the holder's subscription notice. If the
holder and the Company are unable to agree upon the determination of the
Warrant Exercise Price, the Market Price or arithmetic calculation of the
number of Warrant Shares within one (1) Business Day of such disputed
determination or arithmetic calculation being submitted to the holder, then
the Company shall immediately submit via facsimile (i) the disputed
determination of the Warrant Exercise Price or the Market Price to an
independent, reputable investment banking firm or (ii) the disputed
arithmetic calculation of the number of Warrant Shares to its independent,
outside accountant. The Company shall cause the investment banking firm or
the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results no later
than two (2) Business Days from the time it receives the disputed
determinations or calculations. Such investment banking firm's or
accountant's determination or calculation, as the case may be, shall be
deemed conclusive absent manifest error.
(b) Unless the rights represented by this Warrant shall
have expired or shall have been fully exercised, the Company shall, as soon
as practicable and in no event later than five (5) Business Days after any
exercise (the "WARRANT DELIVERY DATE") and at its own expense, issue a new
Warrant identical in all respects to this Warrant exercised except it shall
represent rights to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant exercised, less the
number of Warrant Shares with respect to which such Warrant is exercised.
(c) No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but rather the number of shares of
Common Stock issued upon exercise of this Warrant shall be rounded up or down
to the nearest whole number.
(d) If the Company shall fail for any reason or for no
reason to issue to the holder within five (5) Business Days of receipt of the
Exercise Delivery Documents, a certificate for the number of shares of Common
Stock to which the holder is entitled or to credit the holder's balance
account with DTC for such number of shares of Common Stock to which the
holder is entitled upon the holder's exercise of this Warrant or a new
Warrant for the number of shares of Common Stock to which such holder is
entitled pursuant to Section 2(b) hereof, the Company shall, in addition to
any other remedies under this Warrant or the Securities Purchase Agreement or
otherwise available to such holder, including any indemnification under
Section 8 of the Securities Purchase Agreement, pay as additional damages in
cash to such holder on each day after the Warrant Share Delivery Date such
exercise is not timely effected and/or each day after the Warrant Delivery
Date such Warrant is not delivered, as the case may be, in an amount equal to
0.5% of the product of (I) the sum of the number of shares of Common Stock
not issued to the holder on or prior to the Warrant Share Delivery Date and
to which such holder is entitled and,
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in the event the Company has failed to deliver a Warrant to the holder on or
prior to the Warrant Delivery Date, the number of shares of Common Stock
issuable upon exercise of the Warrant as of the Warrant Delivery Date and
(II) the Closing Bid Price of the Common Stock on the Warrant Share Delivery
Date, in the case of the failure to deliver Common Stock, or the Warrant
Delivery Date, in the case of failure to deliver a Warrant, as the case may
be. The foregoing notwithstanding, the damages set forth in this Section
2(d) shall be stayed with respect to the number of shares of Common Stock
and, if applicable, the Warrant for which there is a good faith dispute being
resolved pursuant to, and within the time periods provided for in, Section
2(a), pending the resolution of such dispute.
(e) If, despite the Company's obligations under the
Securities Purchase Agreement and the Registration Rights Agreement, the
Warrant Shares to be issued are not registered and available for resale
pursuant to a registration statement in accordance with the Registration
Rights Agreement, including during a Grace Period (as defined in the
Registration Rights Agreement), then notwithstanding anything contained
herein to the contrary, the holder of this Warrant may, at its election
exercised in its sole discretion, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to
the Company upon such exercise in payment of the Aggregate Exercise Price,
elect instead to receive upon such exercise the "Net Number" of shares of
Common Stock determined according to the following formula (a "CASHLESS
EXERCISE"):
Net Number = (A x B) - (A x C)
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B
For purposes of the foregoing formula:
A= the total number of shares with respect to which this
Warrant is then being exercised.
B= the Closing Sale Price of the Common Stock on the trading
day immediately preceding the date of the Exercise Notice.
C= the Warrant Exercise Price then in effect for the
applicable Warrant Shares at the time of such exercise.
(f) ADJUSTMENT TO WARRANT EXERCISE PRICE -- MARKET PRICE
OF COMMON STOCK. In addition to any other adjustment to the Warrant Exercise
Price provided for in this Warrant, in the event that the Market Price of the
Common Stock on the date which is one (1) year after the Warrant Date (the
"Reset Date") is less than the Warrant Exercise Price in effect immediately
prior to such Reset Date, then from and after such Reset Date the Warrant
Exercise Price shall be equal to the Market Price of the Common Stock on the
Reset Date, subject to further adjustment as provided herein.
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Section 3. COVENANTS AS TO COMMON STOCK. The Company hereby covenants
and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution
for or replacement of this Warrant will upon issuance be, duly authorized and
validly issued.
(b) All Warrant Shares which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges created by or through the Company with respect to the issue thereof.
(c) During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have authorized
and reserved at least 100% of the number of shares of Common Stock needed to
provide for the exercise of the rights then represented by this Warrant and
the par value of said shares will at all times be less than or equal to the
applicable Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the shares
of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares
of Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other
shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on
such national securities exchange or automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed by it hereunder. Without limiting
the generality of the foregoing, the Company (i)will not increase the par
value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Warrant Exercise Price then in effect, and (ii)will take
all such actions as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to
the Company by merger, consolidation or acquisition of all or substantially
all of the Company's assets.
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Section 4. TAXES. The Company shall pay any and all documentary,
stamp, transfer and other similar taxes which may be payable with respect to
the issuance and delivery of Warrant Shares upon exercise of this Warrant.
Section 5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as
otherwise specifically provided herein, no holder, as such, of this Warrant
shall be entitled to vote or receive dividends or be deemed the holder of
shares of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which he or she is then entitled to receive upon the due exercise of
this Warrant. In addition, nothing contained in this Warrant shall be
construed as imposing any liabilities on such holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 5, the Company will
provide the holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
Section 6. REPRESENTATIONS OF HOLDER. The holder of this Warrant, by
the acceptance hereof, represents that it is acquiring this Warrant and the
Warrant Shares for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution of
this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant or any
of the Warrant Shares for any minimum or other specific term and reserves the
right to dispose of this Warrant and the Warrant Shares at any time in
accordance with or pursuant to a registration statement or an exemption under
the Securities Act. The holder of this Warrant further represents, by
acceptance hereof, that, as of this date, such holder is an "accredited
investor" as such term is defined in Rule 501(a)(3) of Regulation D
promulgated by the Securities and Exchange Commission under the Securities
Act (an "ACCREDITED INVESTOR"). Upon exercise of this Warrant, other than
pursuant to a Cashless Exercise, the holder shall, if requested by the
Company, confirm in writing, in a form satisfactory to the Company,
representations concerning the Warrant Shares in substantially the form of
the first sentence of this Section 6. If such holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder's exercise of this Warrant, other than pursuant to a
Cashless Exercise, that the Company receive such other representations as the
Company considers reasonably necessary to assure the Company that the
issuance of its securities upon exercise of this Warrant shall not violate
any United States or state securities laws.
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Section 7. OWNERSHIP AND TRANSFER.
(a) The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee.
The Company may treat the person in whose name any Warrant is registered on
the register as the owner and holder thereof for all purposes,
notwithstanding any notice to the contrary, but in all events recognizing any
transfers made in accordance with the terms of this Warrant.
(b) This Warrant shall be assignable and transferable by the
holder hereof without the consent of the Company.
(c) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
and the initial holder of this Warrant (and certain assignees thereof) is
entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.
Section 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES.
The Warrant Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) ADJUSTMENT OF WARRANT EXERCISE PRICE UPON ISSUANCE OF
COMMON STOCK. If and whenever on or after the date of issuance of this
Warrant, the Company issues or sells, or is deemed to have issued or sold,
any shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company, but
excluding (A) the Excluded Securities and (B) shares of Common Stock issued
or deemed to have been issued by the Company in connection with an Approved
Stock Plan or upon exercise or conversion of the Other Securities) for a
consideration per share less than a price (the "APPLICABLE PRICE") equal to
the Warrant Exercise Price in effect immediately prior to such issuance or
sale, then immediately after such issue or sale the Warrant Exercise Price
then in effect shall be reduced to an amount equal to the product of (x) the
Warrant Exercise Price in effect immediately prior to such issue or sale and
(y) the quotient determined by dividing (1) the sum of (I) the product
derived by multiplying the Applicable Price by the number of shares of Common
Stock Deemed Outstanding immediately prior to such issue or sale, plus (II)
the consideration, if any, received by the Company upon such issue or sale,
by (2) the product derived by multiplying the (I) Applicable Price by (II)
the number of shares of Common Stock Deemed Outstanding immediately after
such issue or sale; provided, however, that the Warrant Exercise Price shall
not be reduced pursuant to this Section 8(a) at any time that the amount of
such reduction would be an amount less than 2% of the Warrant Exercise Price
immediately preceding such reduction, but any such amount shall be carried
forward and a reduction in the Warrant Exercise Price pursuant to this
Section 8(a) shall be made when those amounts which have been carried forward
pursuant to this
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proviso together with the most recent reduction pursuant to this section 8(a)
shall aggregate 2% or more of the Warrant Exercise Price immediately
preceding the last such reduction.
(b) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Warrant Exercise Price under Section
8(a) above, the following shall be applicable:
(i) ISSUANCE OF OPTIONS. If the Company in any manner
grants any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion, exchange or exercise of any Convertible Securities issuable upon
exercise of any such Option is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the granting or sale of such
Option for such price per share. For purposes of this Section 8(b)(i), the
"lowest price per share for which one share of Common Stock is issuable upon
exercise of any such Option or upon conversion, exchange or exercise of any
Convertible Securities issuable upon exercise of any such Option" shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon
the granting or sale of the Option, upon exercise of the Option and upon
conversion, exchange or exercise of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Warrant Exercise Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion, exchange or exercise of such
Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company
in any manner issues or sells any Convertible Securities and the lowest price
per share for which one share of Common Stock is issuable upon such
conversion, exchange or exercise thereof is less than the Applicable Price,
then such share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the issuance or sale of
such Convertible Securities for such price per share. For the purposes of
this Section 8(b)(ii), the "lowest price per share for which one share of
Common Stock is issuable upon such conversion, exchange or exercise" shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion, exchange or
exercise of such Convertible Security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock
upon conversion, exchange or exercise of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise
of any Options for which adjustment of the Warrant Exercise Price had been or
are to be made pursuant to other provisions of this Section 8(b), no further
adjustment of the Warrant Exercise Price shall be made by reason of such
issue or sale.
(iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue,
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conversion, exchange or exercise of any Convertible Securities, or the rate
at which any Convertible Securities are convertible into or exchangeable or
exercisable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant
Exercise Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold and the number of shares of Common
Stock acquirable hereunder shall be correspondingly readjusted. For purposes
of this Section 8(b)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of this Warrant are changed
in the manner described in the immediately preceding sentence, then such
Option or Convertible Security and the Common Stock deemed issuable upon
conversion, exchange or exercise thereof shall be deemed to have been issued
as of the date of such change. No adjustment shall be made if such
adjustment would result in an increase of the Warrant Exercise Price then in
effect.
(c) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Warrant Exercise Price under Sections
8(a) and 8(b), the following shall be applicable:
(i) CALCULATION OF CONSIDERATION RECEIVED. In case any
Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for a consideration of $.01.
If any Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the gross amount received by the Company
therefor, less expenses in excess of 5% of the gross amount received. If any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration received by
the Company will be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company will be the Market Price of such
securities on the date of receipt of such securities. If any Common Stock,
Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is
the surviving entity, the amount of consideration therefor will be deemed to
be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined by the Company
and the holders of Preferred Share Warrants representing at least a majority
of the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation
(the "VALUATION EVENT"), the fair value of such consideration will be
determined within five (5) Business Days after the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser selected by the
Company from the list of approved appraisers agreed to by the Company and the
holders of the Preferred Shares on or prior to the
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<PAGE>
Issuance Date. The determination of such appraiser shall be final and
binding upon all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.
(ii) RECORD DATE. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1)to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2)to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be. If after the occurrence of
such record date the transaction or event for which such record date was set
is abandoned or terminated, then any adjustments resulting from this Section
2(c)(ii) as it relates to such terminated or abandoned transaction or event
shall be reversed as if such record date had never occurred.
(d) ADJUSTMENT OF WARRANT EXERCISE PRICE UPON SUBDIVISION OR
COMBINATION OF COMMON STOCK. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares
of Common Stock into a greater number of shares, the Warrant Exercise Price
in effect immediately prior to such subdivision will be proportionately
reduced and the number of shares of Common Stock obtainable upon exercise of
this Warrant will be proportionately increased. If the Company at any time
after the date of issuance of this Warrant combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Warrant Exercise Price in
effect immediately prior to such combination will be proportionately
increased and the number of shares of Common Stock obtainable upon exercise
of this Warrant will be proportionately decreased. Any adjustment under
this Section 8(d) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(e) DISTRIBUTION OF ASSETS. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire
its assets) to holders of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in
each such case:
(i) the Warrant Exercise Price in effect immediately
prior to the close of business on the record date fixed for the determination
of holders of Common Stock entitled to receive the Distribution shall be
reduced, effective as of the close of business on such record date, to a
price determined by multiplying such Warrant Exercise Price by a fraction of
which (A) the numerator shall be the Closing Bid Price of the Common Stock on
the trading day immediately preceding such record date minus the value of the
Distribution (as determined in good faith by the Company's Board of
Directors) applicable to one share of Common Stock, and (B) the
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<PAGE>
denominator shall be the Weighted Average Price of the Common Stock on the
trading day immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable
upon exercise of this Warrant shall be increased to a number of shares equal
to the number of shares of Common Stock obtainable immediately prior to the
close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding clause (i),
or (B) in the event that the Distribution is of common stock of a company
whose common stock is traded on a national securities exchange or a national
automated quotation system, then the holder of this Warrant shall receive an
additional warrant to purchase Common Stock, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be
exercisable into the amount of the assets that would have been payable to the
holder of this Warrant pursuant to the Distribution had the holder exercised
this Warrant immediately prior to such record date and with an exercise price
equal to the amount by which the exercise price of this Warrant was decreased
with respect to the Distribution pursuant to the terms of the immediately
preceding clause (i).
(f) CERTAIN EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 8 (as determined in good faith
by the board of directors of the Company) but not expressly provided for by
such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Warrant Exercise Price and the number of shares of Common
Stock obtainable upon exercise of this Warrant so as to protect the rights of
the holders of the Preferred Share Warrants; provided that no such adjustment
will increase the Warrant Exercise Price or decrease the number of shares of
Common Stock obtainable as otherwise determined pursuant to this Section 8.
(g) NOTICES.
(i) Immediately upon any adjustment of the Warrant
Exercise Price, the Company will give written notice thereof to the holder of
this Warrant, setting forth in reasonable detail, and certifying, the
calculation of such adjustment.
(ii) The Company will give written notice to the holder of
this Warrant at least ten (10) days prior to the date on which the Company
closes its books or takes a record (A)with respect to any dividend or
distribution upon the Common Stock, (B)with respect to any pro rata
subscription offer to holders of Common Stock or (C)for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
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<PAGE>
(iii) The Company will also give written notice to the
holder of this Warrant at least ten (10) days prior to the date on which any
Organic Change, dissolution or liquidation will take place, provided that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder.
Section 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION,
CONSOLIDATION, MERGER OR SALE. (a) In addition to any adjustments pursuant
to Section 8 above, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "PURCHASE RIGHTS"), then the holder of this Warrant will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are
to be determined for the grant, issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of
the Company's assets to another Person or other transaction which is effected
in such a way that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock (except an unsolicited tender
offer to which the Company is not a party) is referred to herein as "ORGANIC
CHANGE." Prior to the consummation of any (i) sale of all or substantially
all of the Company's assets to an acquiring Person or (ii) other Organic
Change following which the Company is not a surviving entity, the Company
will secure from the Person purchasing such assets or the successor resulting
from such Organic Change (in each case, the "ACQUIRING ENTITY") written
agreement (in form and substance reasonably satisfactory to the holders of
Preferred Share Warrants representing at least two-thirds (2/3) of the shares
of Common Stock obtainable upon exercise of the Preferred Share Warrants then
outstanding) to deliver to each holder of Preferred Share Warrants in
exchange for such Warrants, a security of the Acquiring Entity evidenced by a
written instrument substantially similar in form and substance to this
Warrant and reasonably satisfactory to the holders of the Preferred Share
Warrants (including, an adjusted warrant exercise price equal to the value
for the Common Stock reflected by the terms of such consolidation, merger or
sale, and exercisable for a corresponding number of shares of Common Stock
acquirable and receivable upon exercise of the Preferred Share Warrants
(without regard to any limitations on exercises), if the value so reflected
is less than the Warrant Exercise Price in effect immediately prior to such
consolidation, merger or sale). Prior to the consummation of any other
Organic Change, the Company shall make appropriate provision (in form and
substance reasonably satisfactory to the holders of Preferred Share Warrants
representing at least two-thirds (2/3) of the shares of Common Stock obtainable
upon exercise of the Preferred Share Warrants then outstanding) to insure
that each of the holders of the Preferred Share Warrants will thereafter have
the right to acquire and receive in lieu of or in addition to (as the case
may be) the shares of Common Stock immediately theretofore acquirable and
receivable
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<PAGE>
upon the exercise of such holder's Preferred Share Warrants (without regard
to any limitations on exercises), such shares of stock, securities or assets
that would have been issued or payable in such Organic Change with respect to
or in exchange for the number of shares of Common Stock which would have
been acquirable and receivable upon the exercise of such holder's Warrant as
of the date of such Organic Change (without taking into account any
limitations or restrictions on the exerciseability of this Warrant).
Section 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly,
on receipt of an indemnification undertaking (or in the case of a mutilated
Warrant, the Warrant), issue a new Warrant of like denomination and tenor as
this Warrant so lost, stolen, mutilated or destroyed.
Section 11. NOTICE. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Warrant must be in writing and will be deemed to have been delivered: (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
(1) Business Day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. If notice is to be sent to the Company, the holder shall use its
reasonable best efforts to provide additional copies to the individuals
listed below; provided, however, that the failure of such holder to send such
additional copies shall in no way limit the effectiveness of any notice sent
to the Company to the attention of the General Counsel as provided for below.
The addresses and facsimile numbers for such communications shall be:
If to the Company:
eToys Inc.
3100 Ocean Park Blvd., Suite 300
Santa Monica, California 90405
Telephone: (310) 664-8100
Attention: General Counsel
Facsimile: (310) 664-8562
Telephone: (310) 664-8342
With additional copies of any written notice to:
Attention: Chief Executive Officer
Facsimile: (310) 664-8101
Telephone: (310) 664-8109
Attention: Chief Financial Officer
Facsimile: (310) 664-8563
Telephone: (310) 664-8275
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<PAGE>
Attention: Vice President, Administration
Facsimile: (310) 664-8563
Telephone: (310) 664-8118
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Telephone: (213) 687-5000
Facsimile: (213) 687-5600
Attention: Gregg A. Noel, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of
Buyers, or at such other address and facsimile as shall be delivered to the
Company upon the issuance or transfer of this Warrant. Each party shall
provide five days' prior written notice to the other party of any change in
address or facsimile number. Written confirmation of receipt (A) given by
the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the
first page of such transmission or (C) provided by a nationally recognized
overnight delivery service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
Section 12. AMENDMENTS. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such
change, waiver, discharge or termination is sought and shall be binding on
such party's or holder's assignees and transferees.
Section 13. LIMITATION ON NUMBER OF WARRANT SHARES. The Company shall
not be obligated to issue any Warrant Shares upon exercise of this Warrant if
the issuance of such shares of Common Stock would cause the Company to exceed
that number of shares of Common Stock which the Company may issue upon
exercise of this Warrant (the "EXCHANGE CAP") without breaching the Company's
obligations under the rules or regulations of Principal Market, except that
such limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by the Principal Market (or any
successor rule or regulation) for issuances of Common Stock in excess of such
amount or (b) obtains a written opinion from outside counsel to the Company
that such approval is not required, which opinion shall be reasonably
satisfactory to the holders of Warrants representing at least two-thirds (2/3)
of the Warrant Shares then issuable upon exercise of outstanding Warrants.
Until such approval or written opinion is obtained, the holder of this
Warrant shall not be issued, upon exercise of this
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<PAGE>
Warrant, Warrant Shares in an amount greater than such holder's Cap
Allocation Amount (as defined in the Certificate of Designations). In the
event the Company is prohibited from issuing Warrant Shares as a result of
the operation of this Section 13 on or after the earlier to occur of (A)
September 30, 2000, or (B) the date on which the Company holds its next
stockholders meeting provided that at such meeting the Company does not
receive Stockholder Approval (as defined in the Securities Purchase
Agreement), then the Company shall redeem for cash those Warrant Shares which
can not be issued, at a price equal to the difference between the Market
Price of the Common Stock and the Warrant Exercise Price of such Warrant
Shares as of the date of the attempted exercise.
Section 14. DATE. The date of this Warrant is June 12, 2000 (the
"WARRANT DATE"). This Warrant, inall events, shall be wholly void and of no
effect after the close of business on the Expiration Date, except that
notwithstanding any other provisions hereof, the provisions of Section 7
shall continue in full force and effect after such date as to any Warrant
Shares or other securities issued upon the exercise of this Warrant.
Section 15. AMENDMENT AND WAIVER. Except as otherwise provided herein,
the provisions of the Preferred Share Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of Preferred Share Warrants representing at least
two-thirds (2/3) of the shares of Common Stock obtainable upon exercise of the
Preferred Share Warrants then outstanding; provided that no such action may
increase the Warrant Exercise Price or decrease the number of shares or class
of stock obtainable upon exercise of any Preferred Share Warrants without the
written consent of the holder of such Preferred Share Warrant.
Section 16. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive
headings of the several sections and paragraphs of this Warrant are inserted
for convenience only and do not constitute a part of this Warrant. The
corporate laws of the State of Delaware shall govern all issues concerning
the relative rights of the Company and its stockholders. All other questions
concerning the construction, validity, enforcement and interpretation of this
Warrant shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or
rule (other than Section 5-1401 of the New York General Obligations Law and
whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
Steven J. Schoch, its Senior Vice President and Chief Financial Officer, as
of the 12th day of June, 2000.
eTOYS INC.
By:
------------------------------
Name: Steven J. Schoch
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT A TO WARRANT
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
eToys Inc.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of eToys
Inc., a Delaware corporation (the "COMPANY"), evidenced by the attached
Warrant (the "WARRANT"). Capitalized terms used herein and not otherwise
defined shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of
the Warrant Exercise Price shall be made as:
______ "Cash Exercise" with respect to ________ Warrant Shares; and/or
______ "Cashless Exercise" with respect to ______ Warrant Shares (to
the extent permitted by the terms of the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to
be issued pursuant hereto, the holder shall pay the sum of
$___________________ to the Company in accordance with the terms of the
Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Notwithstanding anything to the contrary contained herein, this Notice shall
constitute a representation by the holder of the Warrant submitting this
Notice that, after giving effect to the exercise provided for in this Notice,
such Person (as defined in the Warrant) (together with such Person's
affiliates) will not have acquired, through exercise of the Warrant or
otherwise, beneficial ownership of a number of shares of Common Stock during
the 60-day period ending on and including the date of this Notice (the "60
DAY PERIOD"), that, when added to the number of shares of Common Stock
beneficially owned by such Person (together with such Person's affiliates) at
the beginning of the 60 Day Period, exceeds 9.99% of the number of shares of
Common Stock outstanding as reflected in the Company's most recent Form 10-Q
or Form 10-K, as the case may be, or more recent public press release or
other notice by the Company setting forth the number of shares of Common
Stock outstanding, but after giving effect to conversions of Preferred Shares
and issuances of Dividend Shares and exercises of the Warrant by such holder
since the date as of which such number of outstanding shares of Common Stock
was reported. The holder of this warrant has sold or will sell the shares of
common stock issuable pursuant to this Notice pursuant to a registration
statement or an exemption from registration under the Securities Act of 1933,
as amended.
Date: _______________ __, ______
_______________________________ _______________________________
Name of Registered Holder Tax ID of Registered Holder
By:___________________________
Name:____________________________
Title:___________________________
<PAGE>
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
[TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated __________,
2000 from the Company and acknowledged and agreed to by [TRANSFER AGENT].
eTOYS INC.
By:________________________
Name:______________________
Title:_____________________
<PAGE>
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to
purchase ____________ shares of the capital stock of eToys Inc., a Delaware
corporation, represented by warrant certificate no. _____, standing in the
name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint ______________, attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.
Dated: _________, 200_
____________________________________
By:_________________________________
Its:________________________________
