D. E. Shaw Affiliate Acquires Online Assets of KB Toys; New Company to be Named eToys Direct, Inc.

NEW YORK & DENVER--(BUSINESS WIRE)--May 11, 2004--The D. E. Shaw group announced today that one of its affiliates has completed the acquisition of the online assets of KB Toys, Inc. The acquired assets include the inventory, equipment, leases, and proprietary technology of KB Online Holdings LLC as well as eToys trademarks, URLs, and associated intellectual property. Former members of KB Online Holdings senior management, including Michael J. Wagner, supported the transaction and will hold a significant minority equity stake in the new company, eToys Direct, Inc., formed to own and operate the acquired assets. Mr. Wagner will be the CEO of eToys Direct, which will be headquartered in Denver.

eToys Direct, Inc. will own and operate the eToys Web site (www.etoys.com) and a 650,000 square foot state-of-the-art fulfillment facility in Blairs, Virginia, and will continue to operate the KBtoys.com Web site (www.kbtoys.com) under a long-term licensing agreement with KB Toys. eToys Direct will also continue to provide merchandise, order fulfillment, and customer service to other online and catalog retailers through its various retail alliances.

“In addition, the acquisition will be an excellent complement to the online business of FAO Schwarz, which we acquired in January.”

"We're excited at the prospect of growing the eToys Direct business, especially by expanding alliances with established online and catalog retailers," said Max Holmes, a managing director of D. E. Shaw & Co., L.P. and head of the firm's distressed securities group. "In addition, the acquisition will be an excellent complement to the online business of FAO Schwarz, which we acquired in January."

The sale price includes approximately $7.4 million in cash plus a minimum royalty payment to KB Toys, Inc. of $500,000 per year for the next three years. In addition, a wholly owned subsidiary of D. E. Shaw Laminar Portfolios has agreed to provide a $20 million line of credit to eToys Direct. The acquisition was approved by Judge Joel B. Rosenthal of the U.S. Bankruptcy Court, District of Delaware on April 29, 2004.

eToys Direct, Inc. will operate as a subsidiary of D. E. Shaw Laminar Portfolios, L.L.C., whose activities include the deployment of capital in connection with the restructuring of companies with valuable assets that may currently be experiencing financial distress. D. E. Shaw Laminar Portfolios is a member of the D. E. Shaw group, a New York-based investment and technology development firm with approximately $8 billion in aggregate capital.