eToys SVP of Operations Employment

December 28, 1998





Lou Zambello 50 Woodland Road Pownal, Maine 04609







Dear Candidate:



eToys Inc. (the "Company") is pleased to offer you employment on the following terms:



POSITION. You will serve in a full-time capacity as Senior Vice President of Operations of the Company. You will report to the Company's Chief Executive Officer. You will be encouraged to participate in meetings of the Company's Board of Directors (the "Board") at the discretion of the Company's Chief Executive Officer. Your start date will be December 31st, 1998.



CASH COMPENSATION. You will be paid a monthly salary of not less than $16,667.00, which is equivalent to $200,000 on an annual basis, payable in monthly installments in accordance with the Company's standard payroll practices for salaried employees. In addition, you will receive a signing bonus of $115,000 payable on a schedule to be mutually agreed to by you and the Company, but in no case later than January 31st, 2000. You will vest with respect to your signing bonus in 12 equal monthly installments for each of the 12 months during which you continue to be employed by the Company following the commencement of your employment. If the Company terminates your employment for any reason, with or without cause (see definition of "cause" below) prior to the end of this 12 month period, or if you end your employment with the Company, you will be obligated to refund to the Company the unvested portion of your signing bonus. If the Company terminates your employment without cause within the first 12 months of your employment, you will receive a severance payment of $100,000, which is equivalent to 6 months of salary. Your cash compensation will be reviewed annually by the Board.



STOCK OPTIONS. In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you stock options to purchase 275,000 shares of the Company's Common Stock. The exercise price will be equal to the fair market value of the Common Stock on the date of grant. The option will be an incentive stock option to the maximum extent permitted by applicable tax law and will be subject to the terms and conditions applicable to options granted under the Company's 1997 Stock Plan, as described in that Plan and the applicable stock option agreement (including customary transfer and "lock-up" restrictions.) The option will be immediately exercisable, but the purchased shares will be subject to repurchase by the Company at the exercise price in the event that your employment terminates before you vest in the shares. You will vest in 1/4th of the option shares after twelve months of employment, and the balance will vest in monthly installments over the next 36 months of employment, as described in the applicable stock option agreement. If you are terminated by the Company without Cause within the first 6 months of employment, you will vest a ...