<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE THIRTEEN WEEK PERIOD ENDED AUGUST 31, 1996
--------------------------------------------------
Commission File Number 0-19536
THE RIGHT START, INC.
Incorporated in California Federal Employer Identification No. 95-3971414
Address of Principal Executive Offices:
5334 Sterling Center Drive, Westlake Village, CA 91361
Telephone: (818) 707-7100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Capital Stock Outstanding as of August 31, 1996 - 7,949,306 shares
<PAGE>
THE RIGHT START, INC.
INDEX TO FORM 10-Q
FOR THE THIRTEEN WEEK PERIOD
ENDED AUGUST 31, 1996
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
SIGNATURES 11
<PAGE>
THE RIGHT START, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
August 31, June 1,
1996 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 208,000 $ 472,000
Accounts receivable 581,000 609,000
Note receivable 248,000
Merchandise inventories 5,631,000 5,264,000
Prepaid catalog expenses 1,085,000 713,000
Deferred pre-opening costs, net 460,000 531,000
Other current assets 934,000 764,000
----------- -----------
Total current assets 9,147,000 8,353,000
----------- -----------
Noncurrent assets:
Property, plant and equipment, net 7,196,000 7,363,000
Other non-current assets 38,000 152,000
Deferred income tax benefit 1,607,000 1,607,000
----------- -----------
Total noncurrent assets 8,841,000 9,122,000
----------- -----------
$17,988,000 $17,475,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,278,000 $ 3,976,000
Accrued salaries and bonuses 374,000 530,000
Advance payments on orders 60,000 143,000
Note payable to the bank 1,949,000
----------- -----------
Total current liabilities 6,661,000 4,649,000
----------- -----------
Deferred rent 964,000 924,000
Commitments and contingencies
Shareholders' equity:
Common stock (25,000,000 authorized at no par 16,343,000 16,313,000
value; 7,949,306 and 7,939,306 issued and
outstanding, respectively)
Accumulated deficit (5,980,000) (4,411,000)
----------- -----------
Total shareholders' equity 10,363,000 11,902,000
----------- -----------
$17,988,000 $17,475,000
=========== ===========
</TABLE>
3
<PAGE>
THE RIGHT START, INC.
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Thirteen weeks
ended
-----------------------
August 31, August 30,
1996 1995
---------- ----------
<S> <C> <C>
Net sales:
Catalog $ 2,821,000 $6,441,000
Retail 6,072,000 3,100,000
----------- ----------
8,893,000 9,541,000
----------- ----------
Costs and expenses:
Cost of goods sold 4,861,000 5,244,000
Operating expense 3,965,000 3,263,000
General and administrative expense 1,142,000 720,000
Pre-opening cost amortization 182,000 86,000
Depreciation and amortization
expense 288,000 197,000
----------- ----------
10,438,000 9,510,000
----------- ----------
Operating loss (1,545,000) 31,000
Interest and other income and
expense, net (23,000) 23,000
----------- ----------
Loss before benefit from
income taxes (1,568,000) 54,000
Provision for income taxes (20,000)
----------- ----------
Net loss $(1,568,000) $ 34,000
=========== ==========
Earnings (loss) per share $ (0.20) $ 0.01
=========== ==========
Weighted average number of shares
outstanding 7,948,757 6,300,292
=========== ==========
</TABLE>
4
<PAGE>
THE RIGHT START, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
August 31, August 30,
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,569,000) $ 34,000
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 288,000 197,000
Change in assets and liabilities affecting
operations (Note 3) (600,000) (653,000)
----------- ----------
Cash used in operating activities (1,881,000) (422,000)
----------- ----------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (612,000) (442,000)
Proceeds from sale of telemarketing
operation 250,000
----------- ----------
Cash used in investing activities (362,000) (442,000)
----------- ----------
Cash flows from financing activities:
Borrowings under note payable to bank 1,949,000
Proceeds from exercise of stock options 30,000
-----------
Cash provided by financing activities 1,979,000
-----------
Net decrease in cash and cash equivalents (264,000) (864,000)
Cash and equivalents at beginning of period 472,000 1,567,000
----------- ----------
Cash and equivalents at end of period $ 208,000 $ 703,000
=========== ==========
</TABLE>
5
<PAGE>
THE RIGHT START, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Right Start, Inc. is a leading merchant offering unique, high-quality
juvenile products for infants and young children. The Company markets its
products through its retail stores, located in major regional malls across the
nation, and through The Right Start Catalog.
There have been no changes in the Company's significant accounting policies as
set forth in the Company's consolidated financial statements for the fiscal year
ended June 1, 1996. These unaudited consolidated financial statements as of
August 31, 1996 and for the thirteen week period then ended have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Certain reclassifications have been made to conform prior
year amounts to current year presentation.
Operating results for the thirteen week period ended August 31, 1996 are not
necessarily indicative of the results that may be expected for the year ending
May 31, 1997.
NOTE 2: PER SHARE DATA
Earnings per share is computed in accordance with the treasury stock method
based upon the weighted average number of common shares and dilutive common
stock equivalents outstanding. Common stock equivalents comprise stock options
outstanding to key executives, employees and directors.
6
<PAGE>
NOTE 3: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
There was no interest paid for the thirteen weeks ended August 30, 1995. For the
period ended August 31, 1996 interest paid amounted to $25,000.
Changes in assets and liabilities which increased (decreased) cash and
equivalents are as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended
----------------------------
August 31, August 30,
1996 1995
----------- -----------
<S> <C> <C>
Accounts receivable $ 28,000 $ (222,000)
Merchandise inventories (367,000) (1,236,000)
Prepaid catalog expenses (372,000) 283,000
Other current assets (170,000) (562,000)
Deferred pre-opening costs 71,000
Deferred income tax benefit (9,000)
Other non-current assets 114,000 (28,000)
Accounts payable and accrued expenses 295,000 1,295,000
Accrued salaries and bonuses (156,000) (126,000)
Advance payments on order (83,000) (135,000)
Amounts due ARC 14,000
Income tax liability 29,000
Other liabilities 40,000 44,000
---------- -----------
$ (600,000) $ (653,000)
========== ===========
</TABLE>
Non -cash investing activity:
The Company received a $248,000 note in conjunction with the sale of assets
related to its telemarketing operations.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED AUGUST 31, 1996 COMPARED WITH AUGUST 30, 1995
Net sales for the three months ended August 31, 1996 declined 7% to
$8,893,000 from $9,541,000 for the same period last year. For the quarter,
retail net sales increased 96% to $6,072,000 from $3,100,000 last year, while
catalog net sales decreased 56% to $2,821,000 from $6,441,000 last year. The
increase in retail net sales is due to an increase in stores to 25 at August 31,
1996, compared to 12 at August 30, 1995. The reduction in catalog net sales is
due to the Company's decision to significantly reduce circulation and reposition
the catalog to strategically support and complement the retail store operations.
Cost of goods sold decreased 7% to $4,861,000 from $5,244,000, while gross
margin improved slightly to 45.3% compared to 45.0% last year.
Operating expense increased 22% due to an increase of 13 stores in
operation, offset by reductions in catalog production and fulfillment costs due
to a decrease in the level of catalog circulation.
General and administrative expense increased 59% or $422,000 due to
$280,000 in severance expenses related to the resignation of the Company's
former president and increases in payroll and business travel expenses. The
majority of the severance charge represents the value of a life insurance policy
that was transferred in accordance with the terms of the related employment
contract.
Pre-opening cost amortization increased to $182,000 from $86,000 last year,
while depreciation and amortization increased to $288,000 from $197,000 due to
the increase in the number of retail stores.
Interest expense increased to $23,000 from income of $23,000 last year due
to debt incurred to finance the Company's retail expansion.
The Company has recorded no benefit against the loss incurred for the first
quarter of fiscal 1997.
As a result of the above, the Company experienced a net loss of $1,568,000
or $.20 per share, compared to net income of $34,000 last year.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 1996, the Company had cash and equivalents of $208,000 and
borrowings of $1,949,000 against its line of credit. This compares to $472,000
of cash and equivalents with no outstanding borrowings at June 1, 1996.
Operating activities used $1,881,000 and investing activities used $362,000,
each of which were funded primarily by bank borrowings. Investing activities
relate to the capital expenditures for new stores, net of $498,000 of assets
sold in conjunction with the sale of the Company's telemarketing operations. Of
the $498,000 in proceeds from the sale, $248,000 were in the form of a two-year
note, payable monthly through August 1998.
The Company's existing credit facility provides for borrowings of up to $5
million, subject to a defined borrowing base. This agreement expires in June
1998. Outstanding borrowings are secured by all of the assets of the Company.
At October 15, 1996, approximately $1.1 million was available on the line.
Effective October 11, 1996, the Company issued and sold subordinated
convertible debentures to Cahill Warnock Strategic Partners, LP and Strategic
Partners, LP in the aggregate principal amount of $3 million. The terms of such
debentures permit the holders of such debentures to convert the principal amount
into 500,000 shares of the Company's common stock at $6.00 per share at any time
prior to May 31, 2002, the due date of the debentures. The debentures bear
interest at 8% per annum.
The Company opened 11 new stores in fiscal 1996, six new stores to date in
fiscal 1997, and currently expects to open up to 14 new stores for the remainder
of fiscal 1997. The Company expects to expend approximately $400,000 for each
new store it opens. The Company expects to fund store openings contemplated by
its current plan from borrowings under its credit facility, proceeds from the
subordinated convertible debenture sale and cash flow from operations. The
Company anticipates that it will be profitable in the future, however, there can
be no assurance that the Company's expansion strategy will be successful or that
the Company will not continue to incur operating losses. Losses could
negatively affect working capital, the extension of credit by the Company's
suppliers and the Company's ability to implement its expansion strategy.
9
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
There were no Reports on Form 8-K filed during the first quarter of fiscal 1997.
The following exhibits of The Right Start, Inc. are included herein.
<TABLE>
<CAPTION>
Exhibit Sequential
Number Page
- ------ ----
<S> <C>
10.1 Termination and Release Agreement between The Right
Start, Inc. and Stanley M. Fridstein dated as of
September 19, 1996 12-20
27.1 Financial Data Schedule 21
</TABLE>
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
and thereunto duly authorized.
THE RIGHT START, INC.
Date: October 14, 1996 /s/ JERRY WELCH
----------------- -----------------------
Jerry Welch
Chief Executive Officer
Date: October 14, 1996 /s/ GINA M. SHAUER
---------------- ------------------------
Gina M. Shauer
Chief Financial Officer
11
<PAGE>
EXHIBIT 10.1
TERMINATION AND RELEASE AGREEMENT
---------------------------------
THIS TERMINATION AND RELEASE AGREEMENT (this "Agreement") is made and
entered into as of this 19th day of September, 1996 by and between The Right
Start, Inc., a California corporation (the "Company"), and Stanley M. Fridstein
(the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Executive is employed by the Company as its President and
serves as Vice Chairman of its Board of Directors, and
WHEREAS, the rights and obligations of the Executive and the Company
with respect to such employment are subject to an employment agreement entered
into between the Executive and the Company, dated as of May 30, 1991, as amended
on July 28, 1994 and August 3, 1995 (as so amended, the "Employment Agreement"),
and
WHEREAS, the parties hereto desire to set forth the rights and
obligations of the Company and the Executive in connection with the resignation
of the Executive, the cancellation of the Employment Agreement and the
termination of the Executive's employment effective September 27, 1996.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and for other good and valuable consideration, the
parties hereto agree as follows:
1. Resignation and Termination of Employment. Effective September
-----------------------------------------
27, 1996, (i) the Executive resigns as a director and officer of the Company and
from all positions held with any subsidiary of the Company and on any corporate
committee or board of the Company and its subsidiaries and (ii) the Executive's
employment with the Company shall terminate. The Executive waives any rights to
future employment with the Company and its subsidiaries except as specifically
set forth herein.
2. Consulting Services.
-------------------
(a) Services. On and after September 27, 1996 through May 31, 1997
--------
(the "Effective Period"), the Executive shall become an independent consultant
and shall provide consulting services to the Company, including management
advisory, marketing and financial services (the "Consulting Services"). The
Consulting Services shall be provided by the Executive on a project-by-project
basis as shall be reasonably requested by the Company.
<PAGE>
The Company hereby acknowledges that the Executive shall not be required to
commit any specific periods of time with respect to the provision of such
Consulting Services.
(b) Compensation. As consideration for the provision of such
------------
Consulting Services:
(i) the Executive shall be entitled to receive from the Company
through the Effective Period (x) all base salary amounts that the Executive
was entitled to receive under the Employment Agreement, (y) if the
Executive elects to receive COBRA coverage in connection with the
termination of his employment hereunder, the Company shall make payments on
the Executive's behalf in an amount equal to all COBRA payments which
otherwise would be payable by the Executive to the Company, and (z) if the
Executive elects not to receive COBRA coverage in connection with the
termination of his employment hereunder, the Company shall make payments to
the Executive in an amount equal to all COBRA payments which would be
payable by the Executive to the Company if the Executive had elected to
receive such coverage;
(ii) effective September 27, 1996, the Executive's options (the
"Stock Options") to purchase 388,000 shares of the Company's common stock
granted pursuant to the Employment Agreement shall be fully vested and, to
the extent not previously exercised, may be exercised at any time through
June 1, 2001, subject to the terms and conditions of such Stock Options
which, except as set forth herein, are not amended or modified in any way
hereby; and
(iii) the Company agrees to continue to participate in the split-
dollar insurance program pursuant to the Employment Agreement, and upon
completion by the Executive of the Consulting Services through the end of
the Effective Period or, if earlier, the termination of such Consulting
Services pursuant to Section 2(e) hereof, the Company shall (A) assign to
the Executive all of its interest in that certain $1,000,000 face amount
split dollar life insurance policy insuring the life of the Executive (the
"Policy"), (B) forgive all indebtedness associated with or outstanding
against the Policy, and (C) make a cash payment to the Executive (or his
estate) such that the amount of the cash payment shall equal the
Executive's federal and California income tax liability resulting from the
assignment of the Policy, the forgiveness of such indebtedness and the
making of such payment.
-2-
<PAGE>
The Company acknowledges and agrees that the Executive may seek and obtain other
employment during the Effective Period and the payments and benefits provided
for herein will not be affected by reason of any salary or other compensation
received by the Executive by reason of such other employment.
(c) Expenses. All reasonable out-of-pocket expenses incurred by the
--------
Executive in performance of the Consulting Services to be rendered hereunder
shall be borne by the Company and reimbursed to the Executive upon presentation
of appropriate documentation provided, however, that such expenses shall require
the prior written approval of the Company.
(d) Relationship. Nothing herein shall be deemed to constitute an
------------
employment or agency relationship between the Executive and the Company. Except
as expressly agreed in writing, the Executive shall not have the authority to
obligate, bind or commit the Company in any manner whatsoever. The Executive
acknowledges that he is an independent contractor and, as such, shall be liable
to pay any taxes or assessments with respect to any consideration received under
this Agreement.
(e) Termination. The rights and obligations of the Company and the
-----------
Executive set forth in this Section 2 may be terminated (i) by the Executive, at
any time, for any reason whatsoever or (ii) by the Company, if the Executive
breaches this Agreement in any material respect and fails to cure such breach
within 15 days after written notice by the Company. Notwithstanding the
foregoing, any such termination shall not affect the Executive's rights with
respect to the Stock Options or the Policy.
3. Inventions and Confidentiality.
-------------------------------
(a) Inventions. The Executive agrees that he shall fully inform and
----------
disclose to the Company all products, ideas, designs, improvements and processes
(collectively, "Inventions") which he has obtained during his employment with
the Company or during the Effective Period and which relate to or are useful in
the business of the Company or the subsidiaries or affiliates of the Company,
which resulted from tasks assigned to him by the Company or which resulted from
the use of premises owned, leased or contracted by, or on behalf of, the
Company, whether conceived by the Executive alone or with others and whether or
not conceived during regular working hours. All such Inventions, and all
patents, copyrights and other rights in connection therewith, shall be the
exclusive property of the Company or the subsidiaries or affiliates of the
Company, as applicable. The Executive further agrees that he will fully inform
and disclose to the Company, and the Company hereby agrees to receive all
-3-
<PAGE>
disclosures in confidence, all Inventions made or conceived or reduced to
practice or learned by him, either alone or jointly with others, during the
course of his employment with the Company or during the course of providing the
Consulting Services to the Company during the Effective Period, for the purposes
of determining whether they constitute Inventions relating to the business of
the Company or the subsidiaries or affiliates of the Company, as described
above.
The Executive shall assist the Company or the subsidiaries or
affiliates of the Company to obtain and enforce patents, copyrights, and other
rights and protections against infringement by others relating to the Inventions
in any and all states and countries, and shall execute all documents and do all
things necessary to vest the Company or the subsidiaries or affiliates of the
Company, as appropriate, with full and exclusive title thereto.
In the event that the Company is unable, after reasonable effort to
secure the signature of the Executive on any document or documents needed to
apply for or prosecute any patent, copyright, or other right or protection
relating to an Invention, for any reason whatsoever, the Executive hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as his agent and attorney-in-fact, to act for and in his behalf and
to execute and file any such application or applications and to do all other
acts to further the prosecution and issuance of patents, copyrights, or similar
protections thereon with the same legal force and effect as if executed by the
Executive.
(b) Confidentiality. The Executive understands and agrees that as an
---------------
executive officer and director of the Company, he was privy and had access to
certain information which is confidential to the Company and which would put the
Company at a competitive disadvantage, if known to its competitors. The
Executive represents and warrants that he has returned all Company property,
including without limitation Company files, records, drawings and documents,
confidential or otherwise, and copies thereof to the Company. Except as may be
required in the performance of this Agreement, pursuant to subpoena or other
legal process, or otherwise as required by law, for a period of five years from
the date hereof, the Executive will not use for his own benefit or to the
benefit of anyone other than the Company any Company confidential or trade
secret information, including (by way of illustration and not limitation), but
only to the extent confidential and not publicly available, the identity of
their customers, service providers and suppliers; their arrangements with
customers, service providers and suppliers; their data, records, compilations of
information,
-4-
<PAGE>
processes, programs, knowhow, improvements, marketing plans, strategies,
forecasts, financial statements, budgets, projections, licenses, prices, costs,
files, documents, drawings, memoranda, notes, or other documents relating to the
business of the Company and the subsidiaries or affiliates of the Company or the
business of any customer, service provider or supplier of the Company or the
subsidiaries or affiliates of the Company; and the specifications relating to
their customers, service providers, suppliers, products and services.
4. Release.
-------
(a) The Executive hereby releases and discharges the Company and its
respective past and present agents, employees, managers, representatives,
officers, directors, attorneys, accountants, trustees, shareholders, partners,
insurers, heirs, predecessors-in-interest, advisors, partnerships, successors,
assigns, and affiliated persons, organizations, and companies (hereinafter
"Released Parties") from any and all suits, causes of action, demands, claims,
charges, complaints, obligations, liabilities, costs, losses, damages, injuries,
rights, judgments, attorneys' fees, expenses, bonds, bills, penalties, fines,
and all other legal responsibilities in any form whatsoever in law or in equity,
whether known or unknown, whether suspected or unsuspected, arising out of his
employment relationship with Released Parties, or the termination of that
relationship, including but not limited to claims of wrongful termination of
employment, breach of an implied covenant of good faith and fair dealing, breach
of contract, defamation, slander, negligent misrepresentation, fraud,
intentional or negligent interference with business relations, and employment
discrimination (including, but not limited to discrimination under the Fair
Employment and Housing Act, discrimination under Title VII of the Civil Rights
Act of 1964, and Civil Rights Act of 1991 and discrimination under the Equal Pay
Act). Hereinafter these shall collectively be referred to as the "Released
Actions."
(b) The Executive shall not file any actions against Released Parties
in any court, governmental administrative agency, or private organization with
respect to the Released Actions.
(c) The Executive shall make no assignment of any Released Actions and
the Executive represents that no such assignment has been made.
(d) The Executive represents and agrees that he has been given the
opportunity to, has been advised to, and has discussed all of the aspects of
this Agreement with his attorneys, that he has carefully read and fully
understands all
-5-
<PAGE>
of the provisions of this Agreement, and that he is voluntarily entering into
this Agreement.
(e) The Executive understands and agrees that the nature, extent and
result of the Released Actions hereby released may not now be known or
anticipated and declares that he nevertheless desires, and hereby agrees, to
release in full all possible Released Actions against the Released Parties
arising from or related to any and all acts or omissions of any of the Released
Parties arising from or relating to any event or transaction occurring on or
before the date hereof. The Executive acknowledges that this release shall be
effective as a full and final accord, satisfaction and settlement of and as a
bar to each and every claim and cause of action referred to and released by
virtue of Paragraph 4(a) above. The Executive acknowledges his familiarity with
Section 1542 of the California Civil Code which provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release which if known by him must have materially affected his
settlement with the debtor."
The Executive expressly waives and relinquishes any and all rights and benefits
which he has or may have under Section 1542 of the California Civil Code to the
full extent that he may lawfully waive all such rights and benefits pertaining
to the Released Actions hereinabove specified. The Executive further
acknowledges that he is aware that he or his attorneys may hereafter discover
facts different from or in addition to the facts of which he or his attorneys
now are aware with respect to the subject matter of this release and that he
nevertheless intends hereby fully, finally, absolutely and forever to settle the
matters released by virtue of Paragraph 4(a) above notwithstanding the discovery
of any such different or additional facts.
5. Statements. The parties agree that neither shall make any
----------
disparaging comments about the other to anyone. The Executive specifically
agrees that he will not disparage the Company to its investors, customers, or to
anyone, and that if asked, he will advise only that he left to pursue other
opportunities. The parties acknowledge and agree that this Section 5 constitutes
a material provision of this Agreement.
6. No Admissions. Neither the execution nor the performance of this
-------------
Agreement shall constitute or be construed as
-6-
<PAGE>
an admission of liability or wrongdoing whatsoever by the Released Parties or by
the Executive.
7. Rights Relating to Employment and Termination. This Agreement
---------------------------------------------
integrates and embodies all understandings and agreements between the Executive
and the Company in connection with the Executive's employment and termination of
employment from the Company and its subsidiaries and affiliates and supersedes
any other agreements, oral or written, concerning the Released Actions. Except
as specifically provided in this Agreement, the Executive shall not be entitled
to any payments on account of his having been employed by, or having terminated
his employment with, the Company and its subsidiaries and affiliates.
Notwithstanding anything to the contrary contained herein, the Executive shall
be entitled to such limitation on liability and rights of indemnification as may
be provided under applicable law, the Company's articles of incorporation and
bylaws or any agreements between the Executive and the Company with regard to
any action or omission of the Executive prior to the termination of his
employment with the Company.
8. Withholding. The Company may withhold from any amounts payable
-----------
to the Executive hereunder any amounts which, in the opinion of its accounting
officer or other tax counsel to the Company, are required to be withheld for
federal, state or local taxes.
9. Notice. Any notice required or permitted to be given under this
------
Agreement shall be in writing and shall be deemed to have been given when
delivered personally, sent by registered or certified mail, postage prepaid,
return receipt requested, addressed to the party concerned at the address
indicated below or to such changed address as such party may subsequently give
notice of:
If to the Company:
The Right Start
5334 Sterling Center Drive
Westlake Village, CA 91361
Attention: Mr. Jerry Welch
If to the Executive:
Mr. Stanley M. Fridstein
3801 Charthouse Circle
Westlake Village, CA 91361
-7-
<PAGE>
10. Binding Agreement; Assignment. In entering into this Agreement,
-----------------------------
each party assumes the risk of any misrepresentation, concealment, or mistake.
If any party shall subsequently discover that any fact relied upon it in
entering into this Agreement was untrue or that any fact was concealed from it,
or that its understanding of the facts or the law was incorrect, such party
shall not be entitled to relief in connection herewith and, including without
limitation of the generality of the foregoing, no party shall have any right or
claim to set aside or rescind this Agreement. This Agreement is intended to be
and is final and binding between the parties hereto and their respective
successors, heirs and assigns regardless of any claims of misrepresentation made
without the intention to perform, concealment of fact, mistake in fact, or in
law, or any other circumstance whatsoever. No rights or obligations of the
Executive under this Agreement may be assigned or transferred by the Executive
except that his rights to compensation and benefits hereunder, which rights
shall remain subject to the limitations of this Agreement, may be transferred by
will or operation of law. The Executive's heirs by will or law shall be entitled
to the payments hereunder upon the Executive's death. No rights or obligations
of the Company under this Agreement may be assigned or transferred except that
such rights or obligations may be assigned or transferred in the event of a
merger or consolidation in which the Company is not the continuing entity, or
the sale or liquidation of all or substantially all of the assets of the
Company, provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement either contractually or as a matter of law. The Company further
agrees that in the event of a merger, consolidation, sale of assets, or
liquidation as described in the preceding sentence it shall take whatever action
it legally can in order to cause such assignee or transferee to assume the
liabilities, obligations, and duties of the Company hereunder.
11. Amendment or Waiver. No provision in this Agreement may be amended
-------------------
or waived unless such amendment or waiver is agreed to in writing, signed by the
Executive and by a duly authorized officer of the Company. No waiver by either
party hereto or any breach by the other party of any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of a
similar or dissimilar provision or condition at the same or any prior or
subsequent time.
12. Severability and Interpretation. In the event that any provision
-------------------------------
of this Agreement shall be held to be invalid or unenforceable for any reason,
in whole or in part, the
-8-
<PAGE>
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law. No
provision of this Agreement shall be modified or construed by any practice that
is inconsistent with such provision, and failure by either the Company or the
Executive to comply with any provision, or to require the other to comply with
any provision, should not affect the rights of either to thereafter comply or
require the other to comply.
13. Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the laws of California without reference to the principles
of conflict of laws.
14. Attorney Fees. The parties shall be responsible for their own
-------------
attorneys' fees and costs associated with this Agreement and with the Released
Actions. Should any action be brought by the Executive or the Released Parties
to enforce any of the terms of this Agreement, the prevailing party shall be
entitled to recover all costs and expenses in the prosecution or defense of this
action, including reasonable attorneys' fees.
15. Counterparts. This Agreement may be executed in
------------
one or more counterparts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
THE RIGHT START, INC.
By: /s/ Jerry R. Welch
------------------------------------
Jerry R. Welch
Chief Executive Officer and
Chairman of the Board
/s/ Stanley M. Fridstein
---------------------------------------
Stanley Fridstein
-9-
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