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eToys Snags Funding

In the midst of a snowballing e-commerce shakeout, eToys Inc. bucked the trend Tuesday, selling $100 million in stock and warrants.

The sale of securities was made to a group of institutional investors led by Promethean Asset Management; the other investors were not named.

The preferred stock is convertible into eToys Inc. common stock at a rate based on market prices, subject to certain limits and conditions, over the three-year term of the securities. eToys has the right to redeem any or all of the preferred stock for cash, subject to a premium and certain conditions, at any time over the next three years.

The preferred stock carries a 7 percent dividend yield, payable in either cash or eToys common stock. The holders of the preferred stock have also received warrants to purchase up to approximately 5 million shares of eToys common stock at $7.17 per share over the next three years, subject to adjustment.

The company, which has lost $220 million since opening in 1997, will use the proceeds to fund working capital and other general corporate needs. eToys is struggling to compete with Toysrus.com

eToys survival play comes at a time in the industry when many e-commerce and news content firms are struggling to keep afloat. This week, Reel.com shut down its video and DVD retail store when it couldn't lasso cash from investors. Last week, media outlets Salon.com and Oxygen Media were forced to lay off staffers.

Last month, British high-end fashion store Boo.com through up the white flag and was bought by Net services company Brighton Station.

Ironically, and in keeping with the tradition of watching a Net business blossom via word of mouth strength, a new site waging guesses as to the demise of dot-com has come into its own.

Cynically titled, F**kedCompany.com, the site began as a game between friends, but has spread like wildfire to more than 20,000 players who have listed more than 2,400 companies that they predict are doomed.

In related news, eToys Monday snatched up party-planning site eParties in a stock deal valued at $1.6 million. The move was in keeping with eToys' strategy to sell party products, which they announced last month. Prior to the sale, eParties had laid off off much of its staff.



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