UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)*
The Right Start, Inc.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, No Par Value
- --------------------------------------------------------------------------------
(Title of Class of Securities)
766574-10-7
-----------
(CUSIP Number)
Walter H. Stowell, Esq.
Testa, Hurwitz & Thibeault, LLP
125 High Street, Boston, MA 02110
(617) 248-7000
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
May 6, 1997
- --------------------------------------------------------------------------------
(Date of Event which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box
|_|.
NOTE: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom copies
are to be sent.
- ---------------------------
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
SCHEDULE 13D
- ---------------------------------
CUSIP NO. 766574-10-7
- ---------------------------------
- --------- ----------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Edward L. Cahill
SSN: ###-##-####
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) |_|
(b) |X|
- --------- ----------------------------------------------------------------------
3 SEC USE ONLY
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
4 SOURCE OF FUNDS (See Instructions)
AF
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED |_|
PURSUANT TO ITEMS 2(d) or 2(e)
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------- ----------------------------------------------------------------------
- --------------------------- -------- -------------------------------------------
7 SOLE VOTING POWER
-0-
NUMBER OF
-------- -------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 658,333
OWNED BY
-------- -------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON
-------- -------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
658,333
- --------------------------- -------- -------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
658,333
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN |_|
SHARES (See Instructions)
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.1%
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (See Instructions)
IN
- --------- ----------------------------------------------------------------------
SCHEDULE 13D
- ---------------------------------
CUSIP NO. 766574-10-7
- ---------------------------------
- --------- ----------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
David L. Warnock
SSN: ###-##-####
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) |_|
(b) |X|
- ---------
- --------- ----------------------------------------------------------------------
3 SEC USE ONLY
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
4 SOURCE OF FUNDS (See Instructions)
AF
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED |_|
PURSUANT TO ITEMS 2(d) or 2(e)
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------- ----------------------------------------------------------------------
- --------------------------- -------- -------------------------------------------
7 SOLE VOTING POWER
-0-
NUMBER OF
-------- -------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 658,333
OWNED BY
-------- -------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON
-------- -------------------------------------------
-------- -------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
658,333
- --------------------------- -------- -------------------------------------------
- --------- ----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
658,333
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN |_|
SHARES (See Instructions)
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.1%
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (See Instructions)
IN
- --------- ----------------------------------------------------------------------
SCHEDULE 13D
- ---------------------------------
CUSIP NO. 766574-10-7
- ---------------------------------
- --------- ----------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Cahill, Warnock Strategic Partners, L.P.
IRSN: 52-1970604
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) |_|
(b) |X|
- ---------
- --------- ----------------------------------------------------------------------
3 SEC USE ONLY
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
4 SOURCE OF FUNDS (See Instructions)
AF
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED |_|
PURSUANT TO ITEMS 2(d) or 2(e)
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware Limited Partnership
- --------- ----------------------------------------------------------------------
- --------------------------- -------- -------------------------------------------
7 SOLE VOTING POWER
-0-
NUMBER OF
-------- -------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 658,333
OWNED BY
-------- -------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON
-------- -------------------------------------------
-------- -------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
658,333
- --------------------------- -------- -------------------------------------------
- --------- ----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
658,333
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN |_|
SHARES (See Instructions)
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.1%
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (See Instructions)
PN
- --------- ----------------------------------------------------------------------
SCHEDULE 13D
- ---------------------------------
CUSIP NO. 766574-10-7
- ---------------------------------
- --------- ----------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Cahill, Warnock Strategic Partners Fund, L.P.
IRSN: 52-1970619
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) |X|
(b) |_|
- ---------
- --------- ----------------------------------------------------------------------
3 SEC USE ONLY
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
4 SOURCE OF FUNDS (See Instructions)
WC
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED |_|
PURSUANT TO ITEMS 2(d) or 2(e)
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware Limited Partnership
- --------- ----------------------------------------------------------------------
- --------------------------- -------- -------------------------------------------
7 SOLE VOTING POWER
-0-
NUMBER OF
-------- -------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 658,333
OWNED BY
-------- -------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON
-------- -------------------------------------------
-------- -------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
658,333
- --------------------------- -------- -------------------------------------------
- --------- ----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
658,333
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN |_|
SHARES (See Instructions)
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.1%
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (See Instructions)
PN
- --------- ----------------------------------------------------------------------
SCHEDULE 13D
- ---------------------------------
CUSIP NO. 766574-10-7
- ---------------------------------
- --------- ----------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Cahill, Warnock & Company, LLC
IRSN: 52-1931617
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) |_|
(b) |X|
- ---------
- --------- ----------------------------------------------------------------------
3 SEC USE ONLY
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
4 SOURCE OF FUNDS (See Instructions)
AF
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED |_|
PURSUANT TO ITEMS 2(d) or 2(e)
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Maryland Limited Liability Company
- --------- ----------------------------------------------------------------------
- --------------------------- -------- -------------------------------------------
7 SOLE VOTING POWER
-0-
NUMBER OF
-------- -------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 658,333
OWNED BY
-------- -------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON
-------- -------------------------------------------
-------- -------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
658,333
- --------------------------- -------- -------------------------------------------
- --------- ----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
658,333
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN |_|
SHARES (See Instructions)
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.1%
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (See Instructions)
OO
- --------- ----------------------------------------------------------------------
SCHEDULE 13D
- ---------------------------------
CUSIP NO. 766574-10-7
- ---------------------------------
- --------- ----------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Strategic Associates, L.P.
IRSN: 52-1991689
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) |X|
(b) |_|
- ---------
- --------- ----------------------------------------------------------------------
3 SEC USE ONLY
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
4 SOURCE OF FUNDS (See Instructions)
WC
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED |_|
PURSUANT TO ITEMS 2(d) or 2(e)
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware Limited Partnership
- --------- ----------------------------------------------------------------------
- --------------------------- -------- -------------------------------------------
7 SOLE VOTING POWER
-0-
NUMBER OF
-------- -------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 658,333
OWNED BY
-------- -------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON
-------- -------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
658,333
- --------------------------- -------- -------------------------------------------
- --------- ----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
658,333
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN |_|
SHARES (See Instructions)
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.1%
- --------- ----------------------------------------------------------------------
- --------- ----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (See Instructions)
PN
- --------- ----------------------------------------------------------------------
This Schedule 13D Amendment No. 1 amends the Schedule 13Ds filed with the
Securities and Exchange Commission on October 21, 1996 on behalf of Cahill,
Warnock Strategic Partners Fund, L.P. ("Strategic Partners Fund"), Cahill,
Warnock Strategic Partners, L.P. ("Strategic Partners"), Strategic Associates,
L.P. ("Strategic Associates"), Cahill, Warnock & Company, LLC ("Cahill, Warnock
& Co."), Edward L. Cahill ("Cahill") and David L. Warnock ("Warnock"). Strategic
Partners Fund, Strategic Partners, Strategic Associates, Cahill Warnock & Co.,
Cahill and Warnock are sometimes referred to collectively herein as the
"Reporting Persons."
The Right Start, Inc., a California corporation, is referred to herein as
the "Issuer."
ITEM 2. IDENTITY AND BACKGROUND:
The address of the principal business and principal office of Strategic
Partners Fund, Strategic Partners, Strategic Associates and Cahill, Warnock &
Co. has been changed to 1 South Street, Suite 2150, Baltimore, MD 21202. The
business address of Cahill and Warnock has been changed to 1 South Street, Suite
2150, Baltimore, MD 21202.
The principal office of Camden Partners, L.P. has been changed to 1 South
Street, Suite 2150, Baltimore, MD 21202.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION:
On May 6, 1997 Strategic Partners Fund, pursuant to a certain Securities
Purchase Agreement, dated as of May 6, 1997 (attached hereto as Exhibit 2),
acquired (i) an 11.5% Senior Subordinated Note due May 6, 2000 in the principal
amount of $948,000 (attached hereto as Exhibit 4) and (ii) warrants to purchase
up to 150,100 shares of the Issuer's Common Stock at a purchase price of $3.00
per share (attached hereto as Exhibit 6), for a total purchase price of
$948,000. The working capital of Strategic Partners Fund was the source of funds
for this purchase. No part of the purchase price was represented by funds or
other consideration borrowed or otherwise obtained for the purpose of acquiring,
holding, trading or voting the securities.
On May 6, 1997 Strategic Associates, pursuant to a certain Securities
Purchase Agreement, dated as of May 6, 1997 (attached hereto as Exhibit 2),
acquired (i) an 11.5% Senior Subordinated Note due May 6, 2000 in the principal
amount of $52,000 (attached hereto as Exhibit 5) and (ii) warrants to purchase
up to 8,233 shares of the Issuer's Common Stock at a purchase price of $3.00 per
share (attached hereto as Exhibit 7), for a total purchase price of $52,000. The
working capital of Strategic Associates was the source of funds for this
purchase. No part of the purchase price was represented by funds or other
consideration borrowed or otherwise obtained for the purpose of acquiring,
holding, trading or voting the securities.
ITEM 5. INTEREST IN THE SECURITIES OF THE ISSUER:
(a) Strategic Partners Fund is the record owner of 2,842 units of 8%
Convertible Debentures due May 31, 2002 (the "Fund Debentures"). The Fund
Debentures are convertible into 473,666.67 shares of the Issuer's Common Stock
(the "Fund Conversion Shares"). In addition, Strategic Partners Fund is the
record owner of warrants to purchase up to 150,100 shares of the Issuer's Common
Stock (the "Fund Warrants"). The Fund Warrants are currently exercisable and
expire on May 6, 2002.
Strategic Associates is the record owner of 158 units of 8%
Convertible Debentures due May 31, 2002 (the "Associates Debentures"). The
Associates Debentures are convertible into 26,333.33 shares of the Issuer's
Common Stock (the "Associates Conversion Shares"). In addition, Strategic
Associates is the record owner of warrants to purchase up to 8,233 shares of the
Issuer's Common Stock (the "Associates Warrants"). The Associates Warrants are
currently exercisable and expire on May 6, 2002.
Because of their relationship as affiliated entities, both
Strategic Partners Fund and Strategic Associates may be deemed to own
beneficially the Fund Conversion Shares, the shares of Common Stock underlying
the Fund Warrants, the Associates Conversion Shares and the shares of Common
Stock underlying the Associates Warrants. As general partners of Strategic
Partners Fund and Strategic Associates, respectively, Strategic Partners and
Cahill, Warnock & Co. may be deemed to own beneficially the Fund Conversion
Shares, the shares of Common Stock underlying the Fund Warrants, the Associates
Conversion Shares and the shares of Common Stock underlying the Associates
Warrants. As the individual general partners of Strategic Partners and as the
members of Cahill, Warnock & Co., both Cahill and Warnock
may be deemed to own beneficially the Fund Conversion Shares, the shares of
Common Stock underlying the Fund Warrants, the Associates Conversion Shares and
the shares of Common Stock underlying the Associates Warrants.
Each of the Reporting Persons may be deemed to own beneficially 7.1% of the
Issuer's Common Stock, which percentage is calculated based upon (i) 8,593,639
shares reported outstanding by the Issuer on May 6, 1997, and (ii) the number of
shares (658,333) issuable upon conversion of the Fund Debentures, the Fund
Warrants, the Associates Debentures and the Associates Warrants.
(b) Number of shares of the Issuer's Common Stock as to which each
such person has
(i) Sole power to vote or direct the vote:
0 shares for each Reporting Person;
(ii) Shared power to vote or direct the vote:
658,333 shares for each Reporting Person;
(iii) Sole power to dispose or to direct the disposition:
0 shares for each Reporting Person;
(iv) Shared power to dispose or to direct the disposition:
658,333 shares for each Reporting Person.
Strategic Partners Fund disclaims beneficial ownership of all of the
Associates Conversion Shares and shares of Common Stock underlying the
Associates Warrants. Strategic Associates disclaims beneficial ownership of all
of the Fund Conversion Shares and shares of Common Stock underlying the Fund
Warrants. Strategic Partners, Cahill, Warnock & Co., Cahill and Warnock each
disclaim beneficial ownership of the Fund Conversion Shares, the shares of
Common Stock underlying the Fund Warrants, the Associates Conversion Shares and
the shares of Common Stock underlying the Associates Warrants.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER:
Pursuant to the terms of a certain Securities Purchase Agreement dated as
of May 6, 1997 (attached hereto as Exhibit 2), by and among the Issuer, Arthur
E. Hall, as Trustee for the A. E. Hall & Company Money Purchase Plan, Strategic
Partners Fund, Arbco Associates, L.P., Fred Kayne, Kayne Anderson
Non-Traditional Investments, L.P., Kayne Anderson Offshore Limited, Offense
Group Associates, L.P., Opportunity Associates, L.P., Strategic Associates,
Michael B. Targoff, and The Travelers Indemnity Company, the parties thereto
agreed to purchase from the Issuer 11.5% Senior Subordinated Notes due May 6,
2000 in the aggregate principal amount of $3,000,000. In addition, the parties
also agreed to purchase from the Issuer five year Warrants to purchase up to an
aggregate of 475,000 shares of the Issuer's Common Stock at a purchase price of
$3.00 per share.
Pursuant to a certain Registration Rights Agreement dated as of May 6, 1997
(attached hereto as Exhibit 3) by and among the Issuer, Arthur E. Hall, as
Trustee for the A. E. Hall & Company Money Purchase Plan, Strategic Partners
Fund, Arbco Associates, L.P., Fred Kayne, Kayne Anderson Non-Traditional
Investments, L.P., Kayne Anderson Offshore Limited, Offense Group Associates,
L.P., Opportunity Associates, L.P., Strategic Associates, Michael B. Targoff,
and The Travelers Indemnity Company, subject to certain limitations and
exceptions the parties thereto are granted certain demand and "piggyback"
registration rights.
Pursuant to the terms of a certain 11.5% Senior Subordinated Note due May
6, 2000 (attached hereto as Exhibit 4) the Issuer agrees to pay Strategic
Partners Fund the principal amount of $948,000 and to pay interest on any unpaid
principal at the annual rate of 11.5%. The Issuer is the sole party to this
Agreement.
Pursuant to the terms of a certain 11.5% Senior Subordinated Note due May
6, 2000 (attached hereto as Exhibit 5) the Issuer agrees to pay Strategic
Associates the principal amount of $52,000 and to pay interest on any unpaid
principal at the annual rate of 11.5%. The Issuer is the sole party to this
Agreement.
Pursuant to the terms of a certain Warrant dated May 6, 1997 (attached
hereto as Exhibit 6) granted by the Issuer, Strategic Partners Fund is granted
warrants to purchase up to 150,100 shares of the Issuer's Common Stock at an
exercise price of $3.00 per share. The warrants are currently exercisable and
expire on May 6, 2002. The sole party to this agreement is the Issuer.
Pursuant to the terms of a certain Warrant dated May 6, 1997 (attached
hereto as Exhibit 7) granted by the Issuer, Strategic Associates is granted
warrants to purchase up to 8,233 shares of the Issuer's Common Stock at an
exercise price of $3.00 per share. The warrants are currently exercisable and
expire on May 6, 2002. The sole party to this agreement is the Issuer.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS:
Exhibit 1 - Agreement regarding filing of joint Schedule 13D
Exhibit 2 - Securities Purchase Agreement dated as of May 6, 1997
Exhibit 3 - Registration Rights Agreement dated May 6, 1997
Exhibit 4 - 11.5% Senior Subordinated Note due May 6, 2000 in the principal
amount of $948,000
Exhibit 5 - 11.5% Senior Subordinated Note due May 6, 2000 in the principal
amount of $52,000
Exhibit 6 - Warrant dated May 6, 1997 granting Strategic Partners Fund the
right to purchase up to 150,100 shares of the Issuer's Common
Stock at a purchase price of $3.00 per share
Exhibit 7 - Warrant dated May 6, 1997 granting Strategic Associates the
right to purchase up to 8,233 shares of the Issuer's Common
Stock at a purchase price of $3.00 per share
SCHEDULE 13D
SIGNATURE
After reasonable inquiry and to the best of our knowledge and belief,
we certify that the information set forth in this statement is true, complete
and correct.
Dated: May 16, 1997 /s/ Edward L. Cahill
----------------------------------------
Edward L. Cahill
/s/ David L. Warnock
----------------------------------------
David L. Warnock
CAHILL, WARNOCK STRATEGIC
PARTNERS FUND, L.P.
By: Cahill, Warnock Strategic Partners,
----------------------------------------
L.P., its Sole General Partner
By: /s/ Edward L. Cahill
----------------------------------------
Edward L. Cahill, General Partner
By: /s/ David L. Warnock
----------------------------------------
David L. Warnock, General Partner
CAHILL, WARNOCK STRATEGIC PARTNERS, L.P.
By: /s/ Edward L. Cahill
----------------------------------------
Edward L. Cahill, General Partner
By: /s/ David L. Warnock
----------------------------------------
David L. Warnock, General Partner
STRATEGIC ASSOCIATES, L.P.
By: Cahill, Warnock & Co., LLC, its
----------------------------------------
sole General Partner
By: /s/ Edward L. Cahill
----------------------------------------
Edward L. Cahill, Member
By: /s/ David L. Warnock
----------------------------------------
David L. Warnock, Member
CAHILL, WARNOCK & CO., LLC
By: /s/ Edward L. Cahill
----------------------------------------
Edward L. Cahill, Member
By: /s/ David L. Warnock
----------------------------------------
David L. Warnock, Member
EXHIBIT 1
AGREEMENT
Pursuant to Rule 13d-1(f)(1) under the Securities Exchange Act of 1934,
the undersigned hereby agree that only one statement containing the information
required by Schedule 13D need be filed with respect to the ownership by each of
the undersigned of shares of stock of The Right Start, Inc.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
Executed this 16th day of May, 1997.
/s/ Edward L. Cahill
--------------------------
Edward L. Cahill
/s/ David L. Warnock
--------------------------
David L. Warnock
CAHILL, WARNOCK STRATEGIC
PARTNERS FUND, L.P.
By: Cahill, Warnock Strategic Partners, L.P.,
its Sole General Partner
By: /s/ Edward L. Cahill
--------------------------
Edward L. Cahill, General Partner
By: /s/ David L. Warnock
--------------------------
David L. Warnock, General Partner
CAHILL, WARNOCK STRATEGIC PARTNERS, L.P.
By: /s/ Edward L. Cahill
--------------------------
Edward L. Cahill, General Partner
By: /s/ David L. Warnock
--------------------------
David L. Warnock, General Partner
STRATEGIC ASSOCIATES, L.P.
By: Cahill, Warnock & Co., LLC, its
sole General Partner
By: /s/ Edward L. Cahill
--------------------------
Edward L. Cahill, Member
By: /s/ David L. Warnock
--------------------------
David L. Warnock, Member
CAHILL, WARNOCK & CO., LLC
By: /s/ Edward L. Cahill
--------------------------
Edward L. Cahill, Member
By: /s/ David L. Warnock
--------------------------
David L. Warnock, Member
EXHIBIT 2
THE RIGHT START, INC.
---------------
SECURITIES PURCHASE AGREEMENT
Dated as of May 6, 1997
---------------
11.5% Senior Subordinated Notes due May 6, 2000
Warrants to Purchase Common Stock
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1. ISSUANCE OF SECURITIES................................................................................1
Section 1.1. Authorization.............................................................................1
Section 1.2. Purchase and Sale of Securities; the Closing..............................................1
Section 1.3. Representations of the Purchaser..........................................................2
Section 2. REPRESENTATIONS OF THE COMPANY........................................................................2
Section 2.1. Organization and Authority of the Company.................................................2
Section 2.2. Business, Properties and Other Information Regarding the Company..........................2
Section 2.3. Capital Stock.............................................................................3
Section 2.4. Litigation; Observance of Statutes, Regulations and Orders................................3
Section 2.5. Title to Property.........................................................................3
Section 2.6. Taxes.....................................................................................4
Section 2.7. Compliance with Laws and Other Instruments of the Company.................................4
Section 2.8. Governmental Authorizations...............................................................4
Section 2.9. Licenses and Permits......................................................................4
Section 2.10. Compliance with ERISA.....................................................................4
Section 2.11. Investment Company Act....................................................................5
Section 2.12. Environmental Compliance..................................................................5
Section 2.13. Maintenance of Insurance..................................................................5
Section 2.14. Labor Relations...........................................................................5
Section 2.15. Assumptions or Guaranties of Indebtedness of Other Persons................................6
Section 2.16. Disclosure................................................................................6
Section 3. CONDITIONS OF CLOSING.................................................................................6
Section 3.1. Proceedings Satisfactory..................................................................6
Section 3.2. Representations True; Officer's Certificate...............................................6
Section 3.3. Purchase Permitted by Applicable Laws.....................................................6
Section 3.4. Securities................................................................................6
Section 3.5. Registration Rights Agreement.............................................................6
Section 4. PREPAYMENT OF THE NOTES...............................................................................7
Section 4.1. Optional Prepayment of the Notes..........................................................7
Section 4.2. Mandatory Prepayment......................................................................7
Section 4.3. Allocation of Prepayments.................................................................7
Section 4.4. Surrender of Notes; Notation Thereon......................................................7
Section 4.5. Purchase of Notes.........................................................................7
Section 5. COVENANTS.............................................................................................7
Section 5.1. Payment of Notes..........................................................................7
Section 5.2. Observance of Statutes, Regulations and Orders............................................7
Section 5.3. Corporate Existence.......................................................................7
Section 5.4. Taxes.....................................................................................7
Section 5.5. Maintenance of Properties.................................................................8
Section 5.6. Books and Records.........................................................................8
Section 5.7. Maintenance of Insurance..................................................................8
Section 5.8. Change of Control.........................................................................8
Section 5.9. Limitations on Transactions with Affiliates...............................................8
Section 5.10. Investment Company Act....................................................................8
Section 5.11. Compliance with ERISA.....................................................................8
Section 5.12. Access to Information.....................................................................8
Section 6. SEC REPORTS...........................................................................................8
Section 7. DEFINITIONS...........................................................................................9
Section 7.1. Definitions...............................................................................9
Section 7.2. Accounting Terms.........................................................................12
Section 8. EVENTS OF DEFAULT; REMEDIES..........................................................................12
Section 8.1. Events of Default Defined; Acceleration of Maturity......................................12
Section 8.2. Annulment of Defaults....................................................................13
Section 8.3. Suits for Enforcement....................................................................13
Section 8.4. Remedies Cumulative......................................................................14
Section 8.5. Remedies Not Waived......................................................................14
Section 9. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES.............................................14
Section 10. HOME OFFICE PAYMENT.................................................................................14
Section 11. TAXES...............................................................................................15
Section 12. MISCELLANEOUS.......................................................................................15
Section 12.1. Indemnification..........................................................................15
Section 12.2. Expenses.................................................................................15
Section 12.3. Amendments, Waiver and Consents..........................................................15
Section 12.4. Reliance on and Survival of Representations..............................................15
Section 12.5. Successors and Assigns...................................................................15
Section 12.6. Notices..................................................................................15
Section 12.7. Counterparts.............................................................................16
Section 12.8. Governing Law............................................................................16
Section 12.9. Waiver of Jury Trial.....................................................................16
Schedules
SCHEDULE I - Purchasers
SCHEDULE 2.13 - Insurance
Exhibits
EXHIBIT A - Form of Note
EXHIBIT B - Form of Warrant
EXHIBIT C - Form of Registration Rights Agreement
</TABLE>
THE RIGHT START, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of May 6, 1997
To each of the Purchasers
Listed on Schedule I hereto
Ladies and Gentlemen:
The Right Start, Inc., a California corporation (the
"Company"), hereby agrees with the Purchasers as follows:
Section 1. ISSUANCE OF SECURITIES.
Section 1.1. Authorization.
The Company has duly authorized (a) an issue of its 11.5%
Senior Subordinated Notes due May 6, 2000 (the "Notes") in the aggregate
principal amount of $3,000,000 and (b) an issue of warrants (the "Warrants") to
purchase an aggregate of 475,000 Stock Units, initially covering 475,000 shares
of the Company's common stock and exercisable at $3.00 per Stock Unit (as
defined in the Warrants). Each Note shall be in the form of Exhibit A and shall
mature, bear interest and be payable and shall be otherwise as provided herein
and therein. Each Warrant shall be in the form of Exhibit B and shall be
exercisable, transferable and subject to adjustment and shall be otherwise as
provided herein and therein.
As used herein, the term "Notes" and "Warrants" shall include
all notes or warrants, as the case may be, originally issued pursuant to this
Securities Purchase Agreement (the "Agreement") and all notes or warrants
delivered in substitution or exchange for any of such notes or warrants and,
where applicable, shall include the singular number as well as the plural. The
term "Note" shall mean one of the Notes and the terms "Warrant" shall mean one
of the Warrants. The Notes and Warrants issued to the Purchasers pursuant to
this Agreement, and the certificates and other instruments from time to time
evidencing the same, are herein sometimes collectively called the "Securities."
Section 1.2. Purchase and Sale of Securities; the Closing. The
Company shall sell to the Purchasers and, subject to the terms and conditions
hereof, the Purchasers shall purchase from the Company (a) Notes in an aggregate
principal amount of $3,000,000 and (b) Warrants to purchase an aggregate of
475,000 Stock Units, at a combined purchase price equal to 100% of the aggregate
principal amount of the Notes. The Purchasers and the Company agree and
acknowledge that the value of the Warrants is equal to $0.74 per Stock Unit
covered thereby on the Closing Date. The Purchasers and the Company agree and
acknowledge that for purposes of determining whether there is any original issue
discount on the Notes, the proper rate of discount for determining the Notes'
value is 11.5% and the Purchasers and each subsequent Holder and the Company
agree to report payments of interest on the Notes consistent with this
determination of value.
The closing (the "Closing") of such purchase of the Securities
shall be held at 7:00 a.m., Los Angeles time, on May 6, 1997 (the "Closing
Date"), at the office of Milbank, Tweed, Hadley & McCloy, Los Angeles, or at
such other time or place as the parties hereto may mutually agree; provided,
however, that if the Closing Date shall not have occurred within ten (10)
Business Days after the date hereof, the Purchasers' obligation to purchase and
pay for the Notes hereunder shall be terminated and the Purchasers shall have no
liability or further obligations hereunder.
On the Closing Date, the Company shall deliver to each
Purchaser one or more certificates representing the Notes and Warrants,
registered in such Purchaser's name or in the name of such Purchaser's nominee
in any denominations, all as such Purchaser may specify by notice delivered to
the Company at least two days prior to the Closing Date (or, in the absence of
such notice, one certificate representing the Notes and one certificate
representing the Warrants, registered in such Purchaser's name), duly executed
and dated the Closing Date, against each Purchaser's delivery to the Company of
immediately available funds in the amount of the purchase price.
Section 1.3. Representations of the Purchaser. Each Purchaser
represents and warrants to the Company that:
(a) Purchaser is an "accredited investor" within the meaning
of Rule 501 under the Securities Act and was not organized for the specific
purpose of acquiring the Securities.
(b) Purchaser has sufficient knowledge and experience so as to
be able to evaluate the risks of merits of investment in the Company, and it is
able financially to bear the risks thereof.
(c) On the Closing Date, Purchaser is acquiring the Securities
for such Purchaser's own account for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof in violation of
the Securities Act.
Section 2. REPRESENTATIONS OF THE COMPANY. The Company
represents and warrants to each of the Purchasers as of the date hereof and as
of the Closing Date that:
Section 2.1. Organization and Authority of the Company.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, and has
all requisite power and authority to own or hold under lease the property it
purports to own or hold under lease, to transact the business it transacts and
proposes to transact. The Company has all requisite power and authority to
execute and deliver this Agreement, the Securities, and any other documents or
agreements contemplated hereby and thereby, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereunder and
thereunder. The Company is duly qualified as a foreign corporation and is in
good standing in each jurisdiction in which the character of the properties
owned or held under lease by it or the nature of the business transacted by it
requires such qualification except such jurisdictions, if any, in which the
failure to be so qualified or in good standing will not have a Material Adverse
Effect on the Company.
(b) The execution, delivery and performance of this Agreement,
the Securities, and any other documents or agreements to which the Company is a
party contemplated hereby and thereby, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized and approved by the
Board of Directors. Each of this Agreement, the Securities, and any other
document or agreement to which the Company is a party contemplated hereby or
thereby has been (or on the Closing Date will have been) duly authorized,
executed and delivered by, and each is (or, when duly executed and delivered on
the Closing Date, will be) the valid and binding obligation of, the Company,
enforceable in accordance with its terms, except as may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws or by
legal or equitable principles relating to or limiting creditors' rights
generally.
Section 2.2. Business, Properties and Other Information
Regarding the Company.
(a) The Company has delivered to each of the Purchasers copies
of the audited report of the Company's independent accountants for the
transition period ended February 1, 1997 containing balance sheets of the
Company as of the last day of the eight month period ended February 1, 1997 and
the fiscal year ended June 1, 1996, and the related statements of operations,
stockholders' equity and cash flows of the Company for the eight month period
ended February 1, 1997 and the fiscal year ended June 1, 1996 (such financial
statements being referred to collectively herein as the "Financial Statements").
The Financial Statements fairly present the financial position of the Company as
of the respective dates of such balance sheets and the results of the Company's
operations for the respective periods covered by such statements of operations,
stockholders' equity and cash flows. The Financial Statements are true, accurate
and complete in all material respects and have been prepared in accordance with
GAAP consistently applied throughout the periods involved. There are no material
liabilities, contingent or otherwise, of the Company as of the date hereof and
as of the Closing Date required to be reflected in a balance sheet prepared in
accordance with GAAP which are not reflected in such balance sheets. Since
February 1, 1997, the Company has continued to experience operating losses.
However, there have been no changes in the assets, liabilities or financial
position of the Company from that set forth in such balance sheet as of such
date, other than such continued operating losses and changes in the ordinary
course of business.
(b) As of their respective dates, neither the Financial
Statements nor any certificate executed by the Company in connection with the
transactions contemplated hereby and thereby, contained any untrue statement of
a material fact or omitted to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Since February 1, 1997, there has been no change in the
business, prospects, properties, condition (financial or otherwise) or
operations which has had a Material Adverse Effect on the Company. To the best
of the Company's knowledge, no fact has had a Material Adverse Affect or, so far
as the Company can reasonably foresee, will have a Material Adverse Effect on
the Company, or materially adversely affect the ability of the Company to
perform its respective obligations under this Agreement, the Securities, or any
other documents or agreements contemplated hereby and thereby.
Section 2.3. Capital Stock.
(a) The authorized capital stock of the Company consists of
25,000,000 shares of Common Stock, no par value per share (the "Common Stock").
On the date hereof and on the Closing Date, 8,593,639 shares of Common Stock are
and will be issued and outstanding, all of which shares have been duly and
validly issued and are fully paid and nonassessable. On the date hereof and on
the Closing Date, no shares of Preferred Stock have or will have been issued.
(b) The Company does not have outstanding any capital stock or
other securities convertible into or exchangeable for any of its capital stock
or any rights to subscribe for or to purchase, or any options for the purchase
of, or any agreements (contingent or otherwise) providing for the issuance of,
or any calls, commitments or claims of any character relating to, any of its
capital stock or any securities convertible into or exchangeable for any of its
capital stock, other than (i) stock options issued under the Company's stock
option plans, (ii) the Convertible Debenture dated October 11, 1996 issued to
Strategic Associates, L.P., and (ii) the Convertible Debenture dated October 11,
1996 issued to Cahill, Warnock Strategic Partners, L.P.
(c) The Company does not have any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any of its capital stock
or obligation evidencing the right of the holder thereof to purchase any of its
capital stock, other than the Company's obligation to repurchase stock owned by
an employee under The Right Start, Inc. Employee Stock Purchase Plan after such
employee elects to withdraw from such plan. There is not in effect any agreement
by the Company (other than the Warrants) pursuant to which any holders of
securities of the Company have a right to cause the Company to register such
securities under the Securities Act, other than (i) the shelf registration on
file with the Commission for Kayne Anderson to register shares of common stock
owned by Kayne Anderson, (ii) the Registration Rights Agreement dated October
11, 1996 between the Company and Strategic Associates, L.P., and (iii) the
Registration Rights Agreement dated October 11, 1996 issued to Cahill, Warnock
Strategic Partners, L.P.
Section 2.4. Litigation; Observance of Statutes, Regulations
and Orders.
(a) There are no actions, suits or proceedings pending or, to
the best knowledge of the Company, threatened against or affecting the Company
or any of its properties in any court or before any arbitrator of any kind or
before or by any Governmental Body except actions, suits or proceedings arising
in the ordinary course of business which individually or in the aggregate, if
adversely determined, would not have a Material Adverse Effect on the Company or
materially adversely affect its ability to perform its obligations under this
Agreement, the Securities, and any other document or agreement contemplated
hereby or thereby.
(b) The Company is not in default under any order of any
court, arbitrator or Governmental Body, or is subject to or a party to any Order
of any court or Governmental Body arising out of any action, suit or proceeding
under any statute or other law respecting antitrust, monopoly, restraint of
trade, unfair competition or similar matters. The Company is not in violation of
any statute or other rule or regulation of any Governmental Body the violation
of which would have a Material Adverse Effect on the Company or materially
adversely affect its ability to perform its obligations under this Agreement,
the Securities, and any other document or agreement contemplated hereby or
thereby.
Section 2.5. Title to Property.
(a) The Company has good and marketable title to its real
properties and good and merchantable title to each of its other properties as
are reflected on the Financial Statements, except for personal property sold or
otherwise
disposed of in the ordinary course of business. All properties of the Company
are free and clear of all Liens, other than Permitted Liens.
(b) The Company enjoys full and undisturbed possession under
all leases necessary in any material respect for the operation of its business
(the "Leases"). None of the Company's Leases contain any unusual or burdensome
provisions which, individually or in the aggregate, are likely to materially
impair the operation of the business of the Company. The Company's Leases are
valid and subsisting and are in full force and effect, and there are no existing
material defaults by the Company or events that with notice or lapse of time or
both would constitute material defaults by the Company under any of the Leases.
Section 2.6. Taxes. The Company has filed all tax returns
which are required to have been filed in any jurisdiction, and has paid all
taxes shown to be due and payable on such returns and all other taxes and
assessments payable by the Company to the extent the same have become due and
payable and before they have become delinquent, except for any taxes and
assessments the amount, applicability or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which the
Company has set aside on its books reserves (segregated to the extent required
by GAAP) deemed by it to be adequate. The Company knows of no proposed material
tax assessment against the Company and in the opinion of the Company all tax
liabilities are adequately provided for on the books of the Company.
Section 2.7. Compliance with Laws and Other Instruments of the
Company. The consummation of the transactions contemplated by this Agreement and
the execution, delivery and performance of the terms and provisions of this
Agreement, the Securities, or any other document or agreement contemplated
hereby or thereby will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of the Company under, any material indenture, mortgage, deed of
trust, bank loan or credit agreement, corporate charter, by-laws or other
material agreement or instrument to which the Company is a party or by which the
Company or any of its properties may be bound or affected, (ii) conflict with or
result in a breach of any of the terms, conditions or provisions of any Order of
any court, arbitrator or Governmental Body applicable to the Company, or (iii)
violate any provision of any statute or other rule or regulation of any
Governmental Body applicable to the Company.
Section 2.8. Governmental Authorizations. No consent, approval
or authorization of, or registration, filing or declaration with, any
Governmental Body is required for the issuance of the Securities or the valid
execution and delivery of the Securities or for the performance by the Company
of this Agreement, the Securities, and any other documents or agreements
contemplated hereby and thereby.
Section 2.9. Licenses and Permits. The Company possesses all
licenses, permits, franchises, authorizations, patents, copyrights, trademarks
and trade names, or rights thereto, required to conduct its business
substantially as now conducted and as currently proposed to be conducted,
without known conflict with the rights of others.
Section 2.10. Compliance with ERISA.
(a) Neither the Company nor any Related Person (as
defined below) has breached the fiduciary rules of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or engaged in any transaction
in connection with which the Company or any Related Person could be subjected to
a suit for damages, a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), in any such case which would be materially adverse to the
Company. For purposes of this Section 2.10, a "Related Person" shall mean any
trade or business, whether or not incorporated, which, together with the
Company, would be treated as a single employer under Section 414 of the Code.
(b) Neither any employee pension benefit plan (as
defined in Section 3(2) of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any Related Person or with respect to which the Company or any Related Person is
or has been obligated to contribute (a "Plan") nor any trust created under any
Plan has been terminated within the meaning of Title IV of ERISA since September
2, 1974 under circumstances that could result in liability which could be
materially adverse to the Company. Other than premiums due and owing in the
normal course, no liability to the Pension Benefit Guaranty Corporation (the
"PBGC") has been incurred and remains unsatisfied or is expected by the Company
to be incurred with respect to any Plan by the Company or any Related Person
which is or would be materially adverse to the Company. There has been
no reportable event (within the meaning of Section 4043(b) of ERISA) or any
other event or condition with respect to any Plan which presents a risk of
termination of any such Plan by the PBGC under circumstances which in any case
could result in liability which would be materially adverse to the Company.
(c) Neither the Company nor any Related Person has
within the past six years contributed, or had any obligation to contribute, to a
single employer plan that has at least two contributing sponsors not under
common control or has ceased operations at a facility under circumstances which
could result in liability under Section 4068(f) of ERISA.
(d) There is no multiemployer plan (within the
meaning of Section 4001(a)(3) of ERISA) to which the Company or any Related
Person is or has ever been obligated to contribute under Title IV of ERISA.
(e) No accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists
with respect to any Plan. Full payment has been made within the time required
under Section 412 of the Code of all amounts that the Company or any of its
Related Persons is required under the terms of each Plan and applicable law to
have paid as contributions to such Plan as of the date hereof. Each Plan
satisfies the minimum funding standard of Section 412 of the Code.
(f) The present value of the benefit liabilities
(within the meaning of Title IV of ERISA) under all Plans determined as of May
31, 1996 and on the basis of PBGC assumptions required under Title IV of ERISA
did not exceed the current value of the assets of all such Plans determined as
of such date.
(g) Neither the Company nor any Related Person has
engaged in any transaction that could result in the incurrence of any
liabilities under Section 4069 or Section 4212 of ERISA.
(h) The Company is not a party in interest with
respect to any employee benefit plan, except for The Right Start, Inc. Employee
Stock Ownership Plan and securities of the Company are not employer securities
with respect to any employee benefit plan other than the above listed plan. For
such purpose, the term "employee benefit plan" shall have the meaning assigned
to such term in Section 3 of ERISA and the term "employer security" shall have
the meaning assigned to such term in Section 407(d)(1) of ERISA. The execution
and delivery of this Agreement, the Securities and any other agreements or
instruments executed in connection herewith and therewith will not involve any
transaction which is subject to the prohibitions of Section 406 of ERISA or in
connection with which a tax could be imposed pursuant to Section 4975 of the
Code.
Section 2.11. Investment Company Act. The Company is not an
investment company or a person directly or indirectly controlled by or acting on
behalf of an investment company within the meaning of the Investment Company Act
of 1940, as amended.
Section 2.12. Environmental Compliance. The Company has
obtained and is in compliance with all permits, licenses, and other
authorizations that are required under all Environmental Laws (as hereinafter
defined), including laws relating to emissions, discharges, releases or
threatened releases of contaminants into the environment (including, without
limitation, ambient air, surface water, ground water or land) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of contaminants, except to the extent that
failure to have any such permit, license or other authorization does not have a
material adverse effect on the business, condition (financial or other), assets,
properties, operations or prospects of the Company.
Section 2.13. Maintenance of Insurance. The Company carries
insurance covering its properties and business adequate and customary for the
type and scope of the properties and business. The Company's present insurance
coverage is as set forth in Schedule 2.13 hereto.
Section 2.14. Labor Relations. To the best knowledge of the
Company, no material unfair labor practice complaint or sex, age, race or other
discrimination claim has been brought during the last five years against the
Company before the National Labor Relations Board, the Equal Employment
Opportunity Commission or any other Governmental Body. During that period, the
Company has complied in all material respects with all applicable laws relating
to the employment of labor, including, without limitation, those relating to
immigration, wages, hours and collective bargaining.
Section 2.15. Assumptions or Guaranties of Indebtedness of
Other Persons. The Company has not assumed, guaranteed, endorsed or otherwise
become directly or contingently liable (including, without limitation, liability
by way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor or otherwise to
assure the creditor against loss) on any Indebtedness of any other Person.
Section 2.16. Disclosure. The Company has provided to
Purchaser copies of its Annual Report on Form 10-K for the transition period
ended February 1, 1997, which includes the Financial Statements (the "Form 10-K
Documents"). Such documents are true, accurate and complete in all material
respects. Neither this Agreement, the Financial Statements, the Form 10-K
Documents nor any other agreement, document, certificate or written statement
furnished to Purchaser by or on behalf of the Company in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact within the
knowledge of the Company or any of its executive officers which has not been
disclosed herein or in the Form 10-K Documents or in writing by them to
Purchaser and which materially adversely affects, or in the future in their
opinion may, insofar as they can now reasonably foresee, materially adversely
affect, the business, properties, assets, operations, prospects or condition,
financial or otherwise, of the Company.
Section 3, CONDITIONS OF CLOSING. Each Purchaser's obligation
to purchase and pay for the Securities to be purchased by such Purchaser on the
Closing Date shall be subject to the satisfaction on or before the Closing Date
of the conditions hereinafter set forth.
Section 3.1. Proceedings Satisfactory. All proceedings taken
on or prior to the Closing Date in connection with the issuance of the
Securities and the consummation of the transactions contemplated hereby and all
documents and papers relating thereto shall be reasonably satisfactory in form
and substance to the Purchasers and their special counsel, and they shall have
received copies of such documents, papers, and certificates of officers of the
Company, all in form and substance reasonably satisfactory to the Purchasers and
their special counsel, as they may reasonably request in connection therewith.
Section 3.2. Representations True; Officer's Certificate. All
representations and warranties of the Company contained in Section 2 shall be
true, in each case on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of the Closing Date;
the Company shall have performed all agreements on its part required to be
performed under this Agreement on or prior to the Closing Date; no Default or
Event of Default shall have occurred and be continuing; the Company shall not
have consolidated with, merged into, or sold, leased or otherwise disposed of
its properties as an entirety or substantially as an entirety to any person; all
conditions specified in Section 3 shall have been satisfied; and the Purchasers
shall have received a certificate signed by the Chairman of the Board of
Directors, the President or the principal financial officer of the Company,
dated the Closing Date, certifying to the effect specified in this Section.
Section 3.3. Purchase Permitted by Applicable Laws. The sale
by the Company and the payment for the Securities to be purchased by the
Purchasers (i) shall not be prohibited by any applicable law or governmental
regulation, release, interpretation or opinion, (ii) shall not subject any
Purchaser to any penalty under or pursuant to any applicable law or governmental
regulation, and (iii) shall be permitted by the laws and regulations of the
jurisdictions to which any Purchaser is subject.
Section 3.4. Securities. The Securities shall have been duly
executed and delivered by the parties thereto in the respective forms attached
as Exhibits hereto, with only such changes or additions as the Purchasers or
their special counsel shall, in their sole judgment, require and all
governmental charges payable in connection therewith shall have been paid (or
payment shall have been provided for) in full, and shall be in full force and
effect and no term or condition thereof shall have been amended, modified or
waived without each Purchaser's prior written consent.
Section 3.5. Registration Rights Agreement. The Company and
the Purchasers shall have entered into the Registration Rights Agreement
substantially in the form set forth as Exhibit 3.5 hereto.
Section 4. PREPAYMENT OF THE NOTES.
Section 4.1. Optional Prepayment of the Notes. The Notes shall
be subject to prepayment at the option of the Company only as set forth in this
Section 4.1. Upon notice given as provided below, the Company, at its option,
may prepay the Notes in whole or in part at any time at par plus accrued
interest thereon to the date of such prepayment, without premium. The Company
shall give written notice of prepayment of the Notes pursuant to this Section
4.1 to each holder of any outstanding Notes not less than ten (10) Business Days
prior to the date fixed for such prepayment in such notice, which notice shall
specify the amount so to be prepaid and the date fixed for such prepayment. Upon
the giving of notice of any prepayment as provided in this Section, the Company
shall prepay on the date therein fixed for prepayment the principal amount of
the Notes so to be prepaid as specified in such notice, together with interest
accrued thereon to such date fixed for prepayment.
Section 4.2. Mandatory Prepayment. The Notes shall be subject
to mandatory prepayment by the Company only as set forth in Section 5.8 below.
Section 4.3. Allocation of Prepayments. In the event of any
prepayment pursuant to this Section 4 of less than all of the outstanding Notes,
the Company shall allocate the principal amount so to be prepaid pro rata among
all outstanding Notes.
Section 4.4. Surrender of Notes; Notation Thereon. Upon any
prepayment of a portion of the principal amount of any Note pursuant to Section
4.1 above, the Holder of such Note at its option may require the Company to make
and deliver, at the expense of the Company (other than for transfer taxes, if
any), upon surrender of such Note, a new Note payable to such person or persons
as may be designated by such Holder in the principal amount then remaining
unpaid of the surrendered Note, dated as of the date to which interest has been
paid on the unpaid principal amount of the surrendered Note (or, if no such
interest has been paid, dated as of the date of the surrendered Note), or may
present such Note to the Company for notation thereon of the payment of the
portion of the principal amount of such Note so prepaid.
Section 4.5. Purchase of Notes. The Company shall not, and
shall not permit any Affiliate of the Company to, acquire directly or indirectly
by purchase or prepayment or otherwise any of the outstanding Notes except by
way of payment or prepayment in accordance with the provisions of the Notes and
of this Agreement. Any Notes so acquired shall not be deemed to be outstanding.
Section 5. COVENANTS. The Company covenants and agrees that on
and after the date hereof, so long as any Note shall be outstanding, that it
will perform and observe the following covenants and provisions and will cause
each Subsidiary to perform and observe such of the following covenants and
provisions as are applicable to such Subsidiary:
Section 5.2. Payment of Notes; Issuance of Additional
Warrants. The Company shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes and this Agreement.
Section 5.3. Observance of Statutes, Regulations and Orders.
The Company shall remain at all times in compliance with all statutes or other
rules or regulations of any Governmental Body, including any Environmental Law,
the violation of which might have a Material Adverse Effect on the Company or
materially adversely affect the ability of the Company to perform its
obligations under this Agreement and the Securities.
Section 5.4. Corporate Existence. The Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect, and shall cause each Subsidiary to preserve and keep in full force and
effect, its corporate existence in accordance with the rights (charter and
statutory), licenses and franchises of the Company; provided, however, that the
Company shall not be required to preserve any such right, license or franchise
if the Board of Directors shall determine in good faith in accordance with the
Company's charter that the preservation thereof is no longer desirable in the
conduct of the business of the Company, taken as a whole, and that the loss
thereof is not adverse in any material respect to the Holders.
Section 5.4. Taxes. The Company shall pay, and shall cause
each Subsidiary to pay, prior to delinquency, all material taxes, assessments
and governmental levies that may be imposed upon the Company, except as
contested in good faith and by appropriate proceedings.
Section 5.5. Maintenance of Properties. The Company shall, and
shall cause each of its Subsidiaries to, maintain, preserve, protect and keep
its properties in good repair, working order and condition (ordinary wear and
tear excepted), and make necessary and proper repairs, renewals and replacements
so that its business carried on in connection therewith may be properly
conducted at all times consistent with past practices of the Company.
Section 5.6. Books and Records. The Company shall keep books
and records which accurately reflect all of its material business affairs and
transactions.
Section 5.7. Maintenance of Insurance. The Company shall
maintain, and cause each Subsidiary to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses and
owning similar properties in the same general areas in which the Company
operates.
Section 5.8. Change of Control. If at any time there is a
Change of Control of the Company then the Company shall, immediately following
the occurrence of any such event, send a notice to each Holder offering to
repurchase the Notes (or at each Holder's option, any portion thereof) at the
par amount thereof, plus interest accrued and unpaid on the Notes to the date of
such repurchase. If any Holder desires to accept such offer in whole or in part,
such Holder must advise the Company of such acceptance within 30 days of the
date of receiving such notice. The Company shall then repurchase the Notes or
portion thereof so tendered for repurchase by such Holder by paying the purchase
price to the Holder (or any person or persons designated by such Holder in such
acceptance notice), in immediately available funds, within five days of the
Company's receipt of such Holder's acceptance notice. If Holder tenders only a
portion of such Holder's Note, the Holder shall deliver such Note to the Company
and the Company then shall issue to the Holder a new subordinated note with the
same interest rate, maturity date and other terms as Holder's Note, representing
the portion of the Note not repurchased by the Company.
Section 5.9. Limitations on Transactions with Affiliates. The
Company shall not make, and shall cause its Subsidiaries not to make, any
payment to or investment in, or enter into any transaction with, any Affiliate,
including without limitation the purchase, sale or exchange of property or the
rendering of any service, except pursuant to the reasonable requirements of the
Company's existing or proposed business; provided that such transaction is on
terms comparable to those generally available on an arm's-length basis.
Section 5.10. Investment Company Act. The Company shall not
become an investment company subject to registration under the Investment
Company Act of 1940, as amended.
Section 5.11. Compliance with ERISA. The Company shall comply,
and cause each Subsidiary to comply, with the provisions of ERISA and the Code,
and the rules and regulations thereunder, which are applicable to any Plan. The
Company shall permit any event or condition to exist which could permit any such
plan to be terminated under circumstances which would cause the lien provided
for in Section 4068 of ERISA to attach to the assets of the Company.
Section 5.12. Access to Information. At the request of any
Purchaser (a "Requesting Purchaser"), the Company shall provide such Requesting
Purchaser with the monthly unaudited balance sheet of the Company as of the last
day of the month then ended and the related unaudited statements of operations,
stockholders' equity and cash flows of the Company for the month then ended. A
Requesting Purchaser under this Section 5.12 hereby acknowledges that it is
aware of the restrictions imposed by federal and state securities laws on a
person possessing material nonpublic information about a company. In this
regard, a Requesting Purchaser hereby agrees that while it is in possession of
material nonpublic information with respect to the Company and its subsidiaries,
such Requesting Purchaser will not purchase or sell any securities of the
Company, or communicate such information to any third party, in violation of any
such laws. Such Requesting Purchaser also agrees that, if requested by the
Company, such Requesting Purchaser will cause any of its representatives,
consultants or advisors who have been or may become apprised of any material
nonpublic information about the Company to give a written undertaking to the
same effect to the Company.
Section 6. SEC REPORTS. The Company shall file all reports and
other information and documents which it is required to file with the Securities
and Exchange Commission ("SEC") pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). The
Company will cause any quarterly and annual reports, proxy statements and any
other documents which it mails to its stockholders to be mailed each Holder.
If the Company is not subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company will prepare, for the first
three quarters of each fiscal year, quarterly financial statements substantially
equivalent to the financial statements required to be included in a report on
Form 10-Q under the Exchange Act. The Company will also prepare, on an annual
basis, complete audited consolidated financial statements, including, but not
limited to, a balance sheet, a statement of income and retained earnings, a
statement of changes in financial position and all appropriate notes. All such
financial statements will be prepared in accordance with generally accepted
accounting principles consistently applied, except for changes with which the
Company's independent accountants concur, and except that quarterly statements
may be subject to year-end adjustments. The Company will cause a copy of such
financial statements to be mailed to each Holder of a Note as soon as available
within forty-five (45) days after the close of each of the first three quarters
of each fiscal year and within ninety (90) days after the close of each fiscal
year.
Each Holder of a Note and prospective purchasers designated by
such holder will have the right to obtain from the Company upon request by such
holder or prospective purchasers, during any period in which the Company is not
subject to Section 13 or 15(d) of the Exchange Act, the information required by
paragraph d(4)(i) of Rule 144A under the Securities Act.
Section 7. DEFINITIONS.
Section 7.1. Definitions. Except as otherwise specified or as
the context may otherwise require, the following terms shall have the respective
meanings set forth below whenever used in this Agreement:
"Affiliate" means a Person (i) that directly or indirectly
controls, or is controlled by, or is under common control with, the Company,
(ii) that beneficially owns ten percent (10%) or more of the Voting Stock of the
Company, or (iii) ten percent (10%) or more of the Voting Stock (or in the case
of a Person which is not a corporation, ten percent (10%) or more of the equity
interest) of which is owned by the Company. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. Notwithstanding the
foregoing, the holders of the Securities shall be deemed not to be Affiliates of
the Company for purposes of this Agreement.
"Agreement" has the meaning ascribed thereto in Section 1.1.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Business Day" means any day other than a Saturday, Sunday or
a day on which banks in the State of California are required or permitted to
close.
"Capital Lease" means any lease of property which, in
accordance with GAAP, should be capitalized on the lessee's balance sheet or for
which the amount of the asset and liability thereunder as if so capitalized
should be disclosed in a note to such balance sheet; and "Capital Lease
Obligation" means the amount of the liability with respect to a Capital Lease
which should be so capitalized or disclosed.
"Change of Control" means an event or series of events by
which (1) Kayne Anderson ceases to beneficially own (as beneficial ownership is
defined in Rule 13d-3 of the Exchange Act) and control, directly or indirectly,
at least twenty-five percent (25%) of the issued and outstanding shares of each
class of capital stock of the Company entitled (without regard to the occurrence
of any contingency) to vote for the election of a majority of the members of the
board of directors of the Company; (2) any person or group (as defined in Rule
13d-1 of the Exchange Act), other than a group which includes Kayne Anderson,
who obtains beneficial ownership (as defined in Rule 13d-3 of the Exchange Act)
or control of a majority of the securities of the Company ordinarily having the
right to vote in the election of directors; (3) during any two year period
commencing on the Closing Date, individuals who at the beginning of such period
constituted the Board of Directors cease for any reason to constitute a majority
of the Board of Directors; (4) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all, or substantially
all, the assets of the Company; (5) the merger or consolidation of the Company
with another company with the effect that immediately after such transaction any
beneficial owner of the Company shall have become the beneficial owner of
securities of the company surviving such merger or consolidation representing a
majority of the combined
voting power of the outstanding securities of the surviving company ordinarily
having the right to vote in the election of directors; or (6) the adoption of a
plan leading to the liquidation or dissolution of the Company.
"Closing" has the meaning ascribed thereto in Section 1.2.
"Closing Date" has the meaning ascribed thereto in Section
1.2.
"Code" has the meaning ascribed thereto in Section 2.11.
"Commission" means the Securities and Exchange Commission and
any other similar or successor agency of the federal government administering
the Securities Act and the Exchange Act.
"Common Stock" has the meaning ascribed thereto in Section
2.3.
"Company" means The Right Start, Inc., a California
corporation.
"Convertible Debenture" means the Cahill, Warnock Convertible
Debentures issued by the Company on October 11, 1996.
"Default" means any default or other event which, with notice
or the lapse of time or both, would constitute an Event of Default.
"Environmental Law" or "Environmental Laws" mean any law or
Order relating to the regulation or protection of human health, safety or the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including, without limitation, ambient air,
soil, surface water, ground water, wetlands, land or subsurface strata), or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes.
"ERISA" has the meaning ascribed thereto in Section 2.11.
"ERISA Affiliate" means any corporation that is a member of
the same controlled group of corporations (within the meaning of Section 414(b)
of the Code) as the Company or any corporation or trade or business that is
under common control (within the meaning of Section 414(c) of the Code) with the
Company.
"Events of Default" has the meaning ascribed thereto in
Section 9.1.
"Exchange Act" means the Securities and Exchange Act of 1934,
as amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
any applicable time.
"Financial Statements" has the meaning ascribed thereto in
Section 2.2.
"GAAP" means generally accepted accounting principles as in
effect at the time of application to the provisions hereof.
"Governmental Body" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, foreign or domestic, or any financial or other rating agency.
"Guarantee" means any guarantee or other contingent liability,
direct or indirect, with respect to any Indebtedness of another person, through
an agreement or otherwise, including, without limitation, (i) any endorsement
(otherwise than for collection or deposit in the ordinary course of business) or
discount with recourse or undertaking substantially equivalent to or having
similar economic effect of a guarantee with respect to any such Indebtedness,
and (ii) any agreement (A) to purchase, or to advance or supply funds for the
payment or purchase of, any such Indebtedness of another, (B) to purchase, sell
or lease property, products, materials or supplies, or transportation or
services, primarily for the purpose of enabling such other person to pay such
Indebtedness or to assure the owner thereof against loss regardless of the
delivery or non-delivery of the property, products, materials or supplies or
transportation or services, or
(C) to make any loan, advance, capital contribution or other investment in such
other person to assure a minimum equity, working capital or other balance sheet
condition for any date, or to provide funds for the payment of any liability,
dividend or stock liquidation payment, or otherwise to supply funds to or in any
manner invest in such other person. The amount of any Guarantee shall be equal
to the outstanding principal amount of the Indebtedness guaranteed, unless some
lessor limitation is specifically stated in such guarantee.
"Holder" means each of the Purchasers and any other Person
that becomes a registered holder of any of the Notes (or any note or notes
issued by the Company in exchange therefor in accordance with this Agreement) as
registered on the books of the Company.
"Indebtedness" means any obligation for borrowed money or for
which interest is customarily paid, but in any event shall include without
limitation (i) any obligation owed for all or any part of the purchase price of
property, services or other assets or for the cost of property or other assets
constructed or of improvements thereto, other than accounts payable included in
current liabilities and incurred in respect of property purchased or services
rendered in the ordinary course of business, (ii) any obligations secured by any
Lien in respect of property even though the person owning the property has not
assumed or become liable for the payment of such obligation, (iii) any Capital
Lease Obligation, (iv) any Guarantee with respect to Indebtedness (of the kind
otherwise described in this definition) of another person, and (v) obligations
in respect of letters of credit, surety bonds and completion bonds.
"Kayne Anderson" means Kayne Anderson Investment Management,
Inc., KAIM Non-Traditional, L.P., Kayne Anderson Non-Traditional Investments,
L.P., Kayne Anderson Offshore Limited, ARBCO Associates, L.P., Offense Group
Associates, L.P., and Opportunity Associates, L.P. and each of their affiliates.
"Leases" has the meaning ascribed thereto in Section 2.5.
"Lien" means, as to any person, any mortgage, lien, pledge,
charge, security interest or other encumbrance in or on, or any interest or
title of any vendor, lessor, lender or other secured party to or of the person
under any Indebtedness, conditional sale or other title retention agreement or
Capital Lease with respect to, any property or asset of the person, or the
signing or filing of a financing statement which names the person as debtor, or
the signing of any security agreement authorizing any other party as the secured
party thereunder to file any financing statement.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the business, prospects, properties, condition
(financial or otherwise) or operations of such Person.
"Notes" has the meaning ascribed thereto in Section 1.1.
"Order" means any order, writ, injunction, decree, judgment,
award, determination, direction or demand.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means:
(a) Liens for taxes, assessments, or governmental
charges or claims the payment of which is not yet past due or that are
being contested in good faith by appropriate proceedings and for which
adequate reserves have been established;
(b) statutory Liens of landlords, carriers,
warehousemen, mechanics, or materialmen, and other Liens imposed by law
and incurred in the ordinary course of business, that are for sums not
yet delinquent for a period of more than thirty (30) days or are being
contested in good faith, if reserves or other appropriate provisions,
if any, as shall be required by GAAP, shall have been made therefor;
(c) Liens incurred or deposits or pledges made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance, and other types of social security laws;
(d) any attachment or judgment Lien; provided that
(i) the time for the appeal or petition for rehearing of such judgment
lien shall not have expired; (ii) the Company in good faith shall be
prosecuting an
appeal or proceeding for review with respect to which execution has
been stayed pending such appeal or which is vacated or discharged
within thirty (30) days of the termination of such stay; or (iii) with
respect to which payment in full above any applicable deductible is
covered by insurance (so long as no reservation of rights has been made
by the insurer in connection with such coverage), and Liens incurred to
secure any surety bonds, appeal bonds, supersedeas bonds, or other
instruments serving a similar purpose in connection with the appeal of
any such judgment or any proceeding to which the Company is a party;
(e) minor survey exceptions, easements and licenses,
reservations of, or rights of others for, rights-of-way, highway and
railroad crossings, sewers, electric lines, telegraph and telephone
lines, and other similar purposes, or zoning or other restrictions or
similar charges with respect to the use of real properties not incurred
in connection with Indebtedness of the Company or materially detracting
from the value of such properties; and
(f) any Lien on the Company's assets or properties to
secure payment to a lender that is senior in right of payment to a
Holder of the Notes.
"Person" shall include an individual, a corporation, an
association, a partnership, a trust or estate, a government, foreign or
domestic, and any agency or political subdivision thereof, or any other entity.
"Purchasers" means the Purchasers listed on Schedule I hereto
and their successors and assigns.
"Securities" has the meaning ascribed thereto in Section 1.1.
"Securities Act" means the Securities Act of 1933, as amended,
and any similar or successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at any applicable
time.
"Stock Unit" shall constitute one share of Common Stock, as
such Common Stock was constituted on the Closing Date and thereafter shall
constitute such number of shares (including any fractional shares) of Common
Stock as shall result from the adjustments specified in Section 4 of the
Warrants.
"Subsidiary" means any corporation or other entity of which
the Company and/or one or more of its Subsidiaries own more than 50% of the
outstanding stock or other interest having by its terms ordinary voting power to
elect a majority of the board of directors of such corporation, entity or
otherwise control such corporation or entity, and, except as otherwise expressly
indicated herein, references to Subsidiaries shall refer to Subsidiaries of the
Company.
"Voting Stock" means any equity security entitling the holder
of such security to vote at meetings of shareholders except an equity security
which entitles the holder of such security to vote only upon the occurrence of
some contingency, unless that contingency shall have occurred and be continuing.
"Warrants" has the meaning ascribed thereto in Section 1.1.
Section 7.2. Accounting Terms. All accounting terms used
herein which are not expressly defined in this Agreement have the meanings
respectively given to them in accordance with GAAP, all computations made
pursuant to this Agreement shall be made in accordance with GAAP, and all
balance sheets and other financial statements shall be prepared in accordance
with GAAP, except in the case of unaudited financial statements which are
subject to year-end audit adjustments and the absence of footnotes.
Section 8. EVENTS OF DEFAULT; REMEDIES.
Section 8.1. Events of Default Defined; Acceleration of
Maturity. If any of the following events ("Events of Default") shall occur and
be continuing (for any reason whatsoever and whether it shall be voluntary or
involuntary or by operation of law or otherwise):
(a) The Company shall fail to pay any installment of principal
of or interest on the Notes when due and any such failure shall not be
cured by full performance thereof within ten (10) days after written
notice thereof shall have been given to the Company by any registered
Holder; or
(b) The Company shall default in the performance of any
covenant contained in Article 5 and any such failure shall not be cured
by full performance thereof within ten (10) days after written notice
thereof shall have been given to the Company by any Holder; or
(c) Any representation or warranty made by the Company in this
Agreement or by the Company (or any officers of the Company) in any
certificate, instrument or written statement contemplated by or made or
delivered pursuant to or in connection with this Agreement, shall prove
to have been incorrect when made in any material respect; or
(d) The Company shall fail to perform or observe any other
term, covenant or agreement contained in this Agreement, or a Note on
its part to be performed or observed and any such failure shall not be
cured by full performance thereof within ten (20) days after written
notice thereof shall have been given to the Company by any Holder; or
(e) The Company shall (i) admit in writing its inability to
pay its debts generally as they become due; (ii) commence a voluntary
case under Title 11 of the United States Code as from time to time in
effect, or authorize, by appropriate proceedings of its Board of
Directors or other governing body, the commencement of such a voluntary
case; (iii) file an answer or other pleading omitting or failing to
deny the material allegations of a petition filed against it commencing
an involuntary case under such Title 11, or seek, consent to or
acquiesce in the relief therein provided, or fail to controvert timely
the material allegations of any such petition; (iv) suffer the entry an
order for relief in any involuntary case commenced under said Title 11;
(v) seek relief as a debtor under any applicable law, other than said
Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors, or consent to or acquiesce in such relief; (vi)
suffer the entry of an order by a court of competent jurisdiction (A)
finding it to be bankrupt or insolvent, (B) ordering or approving its
liquidation, reorganization or any modification or alteration of the
rights of its creditors, or (C) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its
property; or (D) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint or consent to the
appointment of a receiver or other custodian or all or a substantial
part of its property; or
(f) Any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against the property of the
Company in an aggregate amount which exceeds $2,500,000 and such
judgment, writ, or similar process shall not be released, vacated or
fully bonded or stayed pending appeal within sixty (60) days after its
issue or levy.
Upon the occurrence of any Event of Default, and in any such event, Purchaser or
any other Holder of any Note may, by notice to the Company, declare the entire
unpaid principal amount of such Note, all interest accrued and unpaid thereon
and all other amounts payable to such holder under such Note or this Agreement
to be forthwith due and payable, whereupon such Note, all such accrued interest
and all such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Company with respect to itself and its
Subsidiaries.
Section 8.2. Annulment of Defaults. If at any time after the
principal of any Note shall have become due and payable, and before any judgment
or decree for the payment of the moneys so due shall have been entered, all
arrears of interest upon such Note and all other sums payable to the Holder of
such Note under this Agreement (except the principal amount which by such
declaration shall have become payable) shall have been duly paid, and every
other default and Event of Default shall have been made good or cured, then and
in every such case the Holder of such Note, by written instrument filed with the
Company, may rescind and annul such declaration and its consequences; but no
such rescission or annulment shall extend to or affect any other or subsequent
default or Event of Default or impair any right of the Holders of any other Note
consequent thereon.
Section 8.3. Suits for Enforcement. If any Event of Default
shall have occurred and be continuing, any Holder may proceed to protect and
enforce its rights, either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in aid of the exercise of any power granted in this Agreement,
or such Holder may proceed to enforce the payment of all sums due upon such Note
or to enforce any other legal or equitable right of such Holder.
The Company covenants that, if it shall default in the making
of any payment due under any Note or in the performance or observance of any
agreement contained in this Agreement, it shall pay to any Holder such further
amounts, to the extent lawful, as shall be sufficient to pay the costs and
expenses of collection or of otherwise enforcing such Holder's rights, including
reasonable counsel fees and costs and expenses incurred in connection with any
restructuring, refinancing, workout, bankruptcy or other similar transaction or
proceeding. The obligations set forth in this paragraph shall survive the
payment in full of the Notes.
Section 8.4. Remedies Cumulative. No remedy herein conferred
upon any Holder is intended to be exclusive of any other remedy and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise.
Section 8.5. Remedies Not Waived. No course of dealing between
the Company and the Holders and no delay or failure in exercising any rights
hereunder or under any Note in respect thereof shall operate as a waiver of any
rights of any Holder.
Section 9. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST
NOTES. The Company shall keep at its principal executive office a register in
which, subject to such reasonable regulations as it may prescribe, but at its
expense (other than transfer taxes, if any), it shall provide for the
registration and transfer of the Notes.
The Notes may not be sold, transferred, pledged or
hypothecated unless the proposed transaction does not require registration or
qualification under federal or state securities laws or unless the proposed
transaction is registered or qualified as required.
The holder of any of the Notes may, at such holder's option,
surrender the same for transfer or exchange either at the principal executive
office of the Company or at the place of payment named in such Note, accompanied
in the case of a transfer or assignment by a written instrument of transfer or
assignment in form satisfactory to the Company duly executed by the registered
holder thereof or by such holder's attorney duly authorized in writing. In case
any holder shall so request the transfer, assignment or exchange of any Note,
the Company at its expense shall execute and deliver in exchange therefor one or
more new Notes, as may be requested by such holder, in the same denomination or
denominations as the Notes or Notes so surrendered. Any Note issued in exchange
for any other Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, and neither gain nor loss of interest shall result from any such
transfer or exchange.
The Company and any agent of the Company may treat the Person
in whose name any Note is registered as the owner of such Note for the purpose
of receiving payment of the principal of and premium (if any) and interest on
such Note and for all other purposes whatsoever, whether or not such Note be
overdue.
Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of any Note, and (in case of loss,
theft or destruction) of indemnity reasonably satisfactory to it, upon surrender
and cancellation of such Note or receipt of such indemnity, the Company shall
make and deliver in lieu of such Note a new Note in the same denomination and,
in the case of a Note, dated as of the date to which interest has been paid
thereon.
Notwithstanding the foregoing provisions of this Section, if
any Note of which any Purchaser or any other institutional Holder is the owner
is lost, stolen or destroyed, then the affidavit of such Purchaser or such
Holder's Treasurer or Assistant Treasurer (or other responsible official),
setting forth the name of the owner of such Note and the circumstances with
respect to such loss, theft or destruction, shall be accepted as satisfactory
evidence thereof, and no indemnity shall be required as a condition to the
execution and delivery by the Company of a new Note in lieu of such Note (or as
a condition to the payment thereof, if due and payable) other than a Purchaser's
or such Holder's written agreement to indemnify the Company.
Section 10. HOME OFFICE PAYMENT. Notwithstanding anything to
the contrary in this Agreement or the Notes, so long as any Purchaser or any
nominee designated by such Purchaser shall be a Holder of any Notes, the Company
shall punctually pay all amounts which become due and payable on such Note to
such Purchaser at such Purchaser's address set forth on its signature page
hereto, and in the manner set forth in the Notes, or at such other
place and in such other manner as such Purchaser may designate by notice to the
Company, without presentation or surrender of such Note. Each Purchaser agrees
that prior to the sale, assignment, transfer or other disposition of any such
Note, such Purchaser shall make notation thereon of the portion of the principal
amount paid or prepaid and the date to which interest has been paid thereon, or
surrender the same in exchange for a Note or Notes aggregating the same
principal amount as the unpaid principal amount of the Note so surrendered. The
Company agrees to enter into an agreement similar to that contained in this
Section with any other institutional investor (or nominee thereof) who shall
hold any of the Notes.
Section 11. TAXES. The Company shall pay all taxes (including
interest and penalties), other than taxes imposed on the income of the Holders,
which may be payable in respect of the execution and delivery of this Agreement
or of the execution and delivery of any of the Notes or of any amendment of, or
waiver or consent under or with respect to, this Agreement or any of the Notes
and shall save each Purchaser and all subsequent Holders of the Notes harmless
against any loss or liability resulting from nonpayment or delay in payment of
any such tax. The obligations of the Company under this Section shall survive
the payment of the Notes and the exercise of the Warrants.
Section 12. MISCELLANEOUS.
Section 12.1. Indemnification. The Company hereby agrees to
indemnify, exonerate and hold Purchaser and each of its partners and affiliates,
and their stockholders, officers, directors, employees and agents free and
harmless from and against any and all actions, causes of action, suits,
litigation, losses, liabilities and damages, investigations or proceedings
instituted by any governmental agency or any other Person, and expenses in
connection therewith, including without limitation reasonable attorneys' fees
and disbursements, incurred by the indemnitee or any of them as a result of, or
arising out of, or relating to (a) any transaction financed or to be financed in
whole or in part directly or indirectly with proceeds from the sale by the
Company of any securities hereunder, or (b) the execution, delivery, performance
or enforcement of this Agreement or any instrument contemplated hereby by any of
the indemnitees, except in each such case to the extent any such indemnified
liabilities arise on account of such indemnitee's gross negligence, willful
misconduct or bad faith.
Section 12.2. Expenses. The Company and Purchaser each agree
to pay all their own costs and expenses in connection with the preparation,
execution and delivery of this Agreement, the Note and other instruments and
documents to be delivered hereunder.
Section 12.3. Amendments, Waiver and Consents. No amendment,
modification or addition to this Agreement, and no waiver of or consent to
noncompliance with any covenant or other provision of this Agreement, or the
Note shall be effective unless in writing and duly executed by the party against
whom enforcement of such amendment, modification, addition, waiver or consent is
sought. Any waiver or consent may be given subject to satisfaction of conditions
stated therein and any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
Section 12.4. Reliance on and Survival of Representations. All
agreements, representations and warranties of the Company contained in this
Agreement and in any certificates or other instruments delivered pursuant to
this Agreement shall (i) be deemed to be material and to have been relied upon
by the Purchasers, notwithstanding any investigation heretofore or hereafter
made by any Purchaser or on such Purchaser's behalf, and (ii) survive the
execution and delivery of this Agreement and the Notes, and shall continue in
effect so long as any Note is outstanding and thereafter as provided in Sections
8.3, 11 and 12.2.
Section 12.5. Successors and Assigns. This Agreement shall
bind and inure to the benefit of and be enforceable by the Company, each of the
Purchasers, and the Purchasers' respective successors and assigns, and, in
addition, shall inure to the benefit of and be enforceable by each Person who
shall from time to time be a Holder of any of the Notes. The Company may not
assign its rights under this Agreement.
Section 12.6. Notices. All notices and other communications
provided for in this Agreement shall be in writing and delivered, telecopied or
mailed, first class postage prepaid, addressed:
(a) If to the Company:
The Right Start, Inc.
5334 Sterling Center Drive
Westlake Village, CA 91361
Attention: President
Facsimile: (818) 707-7132
with a copy to:
Milbank, Tweed, Hadley & McCloy
601 S. Figueroa, 30th Floor
Los Angeles, CA 90017
Attention: Kenneth J. Baronsky, Esq.
Facsimile: (213) 629-5063
(b) If to the Holders, at the addresses set forth on the
signature page (in the case of the original Holder) and as may be
designated by notice to the Company.
Any such notice or communication shall be deemed to have been
duly given when delivered, telecopied or mailed as aforesaid.
Section 12.7. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
Section 12.8. Governing Law. This Agreement and the Notes and
(unless otherwise provided) all amendments, supplements, waivers and consents
relating hereto or thereto shall be governed by and construed in accordance with
the laws of the State of Delaware.
Section 12.9. Waiver of Jury Trial. EACH PURCHASER, EACH
HOLDER, BY ITS ACCEPTANCE OF ANY OF THE NOTES, AND THE COMPANY, EACH HEREBY
AGREE TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE NOTES, OR ANY OTHER
AGREEMENTS RELATING TO THE NOTES OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION AND THE LENDER/BORROWER RELATIONSHIP THAT IS
BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing
of any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including without limitation, contract
claims, tort claims, breach of duty claims and all other common law and
statutory claims. The Purchasers and the Company each acknowledge that this
waiver is a material inducement to enter into a business relationship, that each
has already relied on the waiver in entering into this Agreement, and that each
shall continue to rely on the waiver in their related future dealings. The
Purchasers and the Company further represent and warrant that each has reviewed
this waiver with its legal counsel, and that each knowingly and voluntarily
waives its jury trial rights following consultation with legal counsel.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT, THE NOTES, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING
TO THE NOTES. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the Court.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 15.3 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No persons guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
[Remainder of page intentionally left blank]
Each Purchaser is requested to sign the form of acceptance in the space
provided below whereupon this Agreement shall become a binding agreement between
such Purchaser and the Company.
Very truly yours,
THE RIGHT START, INC.
By: /s/ Jerry R. Welch
---------------------------------
Jerry R. Welch
Chief Executive Officer
The foregoing Agreement is hereby accepted as of the date first above written:
ARTHUR E. HALL, as Trustee for the A. E. Hall &
Company Money Purchase Plan
By: /s/ Arthur E. Hall
----------------------------------
Arthur E. Hall
Address for Notices and Payments:
----------------------------------
-----------------------------------
Attention: Arthur E. Hall
Telephone: ( ) _________________
Telecopy: ( ) _________________
With a copy to:
-----------------------------------
-----------------------------------
Attention:
Telephone: ( ) _________________
Telecopy: ( ) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: /s/ David L. Warnock
----------------------------------------
Name:
Title:
Address for Notices and Payments:
1 South Street, Suite 2150
Baltimore, MD 21202
Attention: David Warnock
Telephone: (410) 895-3800
Telecopy: (410) 895-3805
With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, NW
Washington, DC 20037
Attention: Gerry Cater, Esq.
Telephone: (410) 986-2800
Telecopy: (410) 986-2828
The foregoing Agreement is hereby accepted as of the date first above written:
ARBCO Associates, L.P.
By: /s/ Robert V. Sinnott
-----------------------------
Address for Notices and Payments:
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
Attention: Ric Kayne
Telephone: (310) 556-2721
Telecopy: (310) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
FRED KAYNE, an individual
/s/ Fred Kayne
---------------------------------
Address for Notices and Payments:
1800 Avenue of the Stars
Suite 1112
Los Angeles, CA 90067
Attention: Fred Kayne
Telephone: (310) 551-0322
Telecopy: (310) 551-3077
With a copy to:
------------------------------------
-----------------------------------
Attention:
Telephone: ( ) _________________
Telecopy: ( ) _________________
the foregoing Agreement is hereby accepted as of the date first above written:
KAYNE ANDERSON NON-TRADITIONAL INVESTMENTS, L.P.
By: /s/ Robert V. Sinnott
----------------------------------
Address for Notices and Payments:
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
Attention: Ric Kayne
Telephone: (310) 556-2721
Telecopy: (310) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
KAYNE ANDERSON OFFSHORE LIMITED
By: /s/ CFS Company Ltd
Address for Notices and Payments:
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
Attention: Rick Kayne
Telephone: (310) 556-2721
Telecopy: (310) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
OFFENSE GROUP ASSOCIATES, L.P.
By: /s/ Robert V. Sinnott
-------------------------------
Address for Notices and Payments:
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
Attention: Rick Kayne
Telephone: (310) 556-2721
Telecopy: (310) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
OPPORTUNITY ASSOCIATES, L.P.
By: /s/ Robert V. Sinnott
----------------------------------
Address for Notices and Payments:
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
Attention: Rick Kayne
Telephone: (310) 556-2721
Telecopy: (310) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
STRATEGIC ASSOCIATES, L.P.
By: /s/ David L. Warnock
-----------------------------------
Address for Notices and Payments:
1 South Street, Suite 2150
Baltimore, MD 21202
Attention: David Warnock
Telephone: (410) 895-3800
Telecopy: (410) 895-3805
With a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Attention: Gerry Cater, Esq.
Telephone: (410) 986-2800
Telecopy: (410) 986-2828
The foregoing Agreement is hereby accepted as of the date first above written:
MICHAEL B. TARGOFF
/s/ Michael B. Targoff
-----------------------------------
Address for Notices and Payments:
----------------------------------
-----------------------------------
Attention: Michael Targoff
Telephone: (212) _________________
Telecopy: (212) _________________
With a copy to:
-----------------------------------
-----------------------------------
Attention:
Telephone: ( ) _________________
Telecopy: ( ) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
THE TRAVELERS INDEMNITY COMPANY
By: /s/ David A. Tyson
-----------------------------------
Address for Notices and Payments:
388 Greenwich Street, 36th Floor
New York, NY 10013
Attention: Harvey Eisen
Telephone: (212) _________________
Telecopy: (212) _________________
With a copy to:
-----------------------------------
-----------------------------------
Attention:
Telephone: ( ) _________________
Telecopy: ( ) _________________
SCHEDULE I
Amount of
Purchasers Notes Purchased
ARBCO Associates, L.P. $150,000.00
Arthur E. Hall, as Trustee for the A.E. Hall &
Company Money Purchase Plan 200,000.00
Cahill, Warnock Strategic Partners Fund, L.P. 948,000.00
Fred Kayne 250,000.00
Kayne Anderson Non-Traditional Investments, L.P. 150,000.00
Kayne Anderson Offshore Limited 225,000.00
Offense Group Associates, L.P. 400,000.00
Opportunity Associates, L.P. 275,000.00
Strategic Associates, L.P. 52,000.00
Michael Targoff 150,000.00
The Travelers Indemnity Company 200,000.00
-------------
TOTAL: $3,000,000.00
=============
EXHIBIT 3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
as of May 6, 1997 between The Right Start, Inc., a California corporation (the
"Company"), and ARBCO Associates, L.P., a California limited partnership, Arthur
E. Hall, as Trustee for the A.E. Hall & Company Money Purchase Plan, Cahill,
Warnock Strategic Partners Fund, L.P., a Delaware limited partnership, Fred
Kayne, an individual, Kayne Anderson Non-Traditional Investments, L.P., a
California limited partnership, Kayne Anderson Offshore Limited, a British
Virgin Islands corporation, Offense Group Associates, L.P., a California limited
partnership, Opportunity Associates, L.P., a California limited partnership,
Strategic Associates, L.P., a Delaware limited partnership, Michael Tragoff, an
individual, and The Travelers Indemnity Company, a Connecticut corporation (each
individually a "Purchaser," and collectively the "Purchasers").
WHEREAS, the Company and Purchasers have entered into a
Securities Purchase Agreement dated as of May 6, 1997 (the "Purchase Agreement")
WHEREAS, pursuant to the Purchase Agreement, the Company and
Purchasers desire to enter into this Agreement to provide Purchasers with
certain registration rights and to address related matters;
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements set forth herein, the parties agree as follows:
1. Registration Rights.
1.1 Demand Registration Rights.
(a) Subject to the provisions of this
Section 1.1, at any time after the date hereof, Purchasers may request
registration for sale under the Act of all or part of the Common Stock, no par
value, of the Company ("Common Stock") then held by Purchasers or issuable to
Purchasers pursuant to exercise of the Warrant of even date herewith, issued by
the Company to Purchasers pursuant to the Purchase Agreement (the "Warrant").
The Company shall thereafter, as expeditiously as practicable, use its best
efforts (i) to file with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "Act"), a registration
statement on the appropriate form (using Form S-3 or other "short form," if
available) covering all the shares of Common Stock specified in the demand
request and (ii) to cause such registration statement to be declared effective.
The Company shall use its best efforts to cause each offering pursuant to this
Section 1.1 to be managed, on a firm commitment basis, by a recognized regional
or national underwriter. The Company shall not be required to comply with more
than two (2) requests by Purchasers for demand registration pursuant to this
Section 1.1(a).
(b)The Company shall not be required to effect
a demand registration under the Act pursuant to Section 1.1(a) above if (i) the
Company receives such request for registration within 120 days preceding the
anticipated effective date of a proposed underwritten public offering of
securities of the Company approved by the Company's Board of Directors prior to
the Company's receipt of such request; (ii) within 6 months prior to any such
request for registration , a registration of securities of the Company has been
effected in which Purchasers had the right to participate pursuant to Section
1.2 hereof; or (iii) the Board of Directors of the Company reasonably determines
in good faith that effecting such a demand registration at such time would have
a material adverse effect upon a proposed sale of all (or substantially all) the
assets of the Company, or a merger, reorganization, recapitalization, or similar
transaction materially affecting the capital structure or equity ownership of
the company; provided, however, that the Company may only delay a demand
registration pursuant to this Section 1.1(b)(iii) for a period not exceeding 3
months (or until such earlier time as such transaction is consummated or no
longer proposed). The Company shall promptly notify Purchasers in writing of any
decision not to effect any such request for registration pursuant to this
Section 1.1(b), which notice shall set forth in reasonable detail the reason for
such decision and shall include an undertaking by the Company promptly to notify
Purchasers as soon as a demand registration may be effected.
(c)Purchasers may withdraw a request for demand
registration at any time before a registration
statement is declared effective, in which event the Company shall withdraw such
registration statement (and Purchasers shall not be deemed to have requested a
demand registration for purposes of Section 1.1(a) hereof). If the Company
withdraws a registration statement under this Section 1.1(c) in respect of a
registration for which the Company would otherwise be required to pay expenses
under Section 1.4(b) hereof, Purchasers shall be liable to the Company for all
expenses of such registration specified in Section 1.4(b) hereof in proportion
to the number of shares each of the Purchasers shall have requested to be
registered, and Purchasers shall not be deemed to have requested a demand
registration for purposes of Section 1.1(a) hereof.
1.2 Piggyback Registration Rights.
(a) If at any time or times after the date
hereof, the Company proposes to make a registered public offering of any of its
securities under the Act, whether to be sold by it or by one or more third
parties (other than an offering pursuant to a demand registration under Section
1.1(a) hereof or an offering registered on Form S-8, Form S-4, or comparable
forms), the Company shall, not less than 45 days prior to the proposed filing
date of the registration form, give written notice of the proposed registration
to Purchasers, and at the written request of Purchasers delivered to the Company
within 20 days after the receipt of such notice, shall include in such
registration and offering, and in any underwriting of such offering, all shares
of Common Stock that may have been designated in Purchasers' request.
(b) If a registration in which Purchasers
have the right to participate pursuant to this Section 1.2 is an underwritten
offering for the account of the Company or for the account of a security holder
(other than Purchaser) pursuant to the exercise of a demand registration right,
and the managing underwriters advise the Company or such security holder, as the
case may be, in writing that in their opinion the number of securities requested
to be included in such registration, together with the securities being offered
by the Company or such security holder, as the case may be, exceeds the number
which can be effectively sold in such offering, the Company shall include in
such registration (i) first, the securities of the Company or such security
holder proposed to be sold, and (ii) second, to the extent possible, the Common
Stock proposed to be sold by each of the Purchasers and any other selling
stockholders, in proportion to the number of shares of Common Stock with respect
to which they have requested registration.
1.3 Registration Procedures. The Company shall have
no obligation to file a registration statement pursuant to Section 1.1 hereof,
or to include shares of Common Stock owned by or issuable to any Purchaser in a
registration statement pursuant to Section 1.2 hereof, unless and until such
Purchaser shall have furnished the Company with all information and statements
about or pertaining to such Purchaser in such reasonable detail and on such
timely basis as is reasonably required by the Company in connection with the
preparation of the registration statement. Whenever Purchasers have requested
that any shares of Common Stock be registered pursuant to Section 1.1 or 1.2
hereof, the Company shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a
registration statement with respect to such shares and use its best efforts to
cause such registration statement to become effective as soon as reasonably
practicable thereafter (provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company shall furnish
counsel for Purchasers with copies of all such documents proposed to be filed);
(b) prepare and file with the SEC such
amendments and supplements to such registration statement and prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than nine months (or two years, if the
provisions of Rule 415 under the Act are available with respect thereto) or
until Purchasers have completed the distribution described in such registration
statement, whichever occurs first;
(c) furnish to Purchasers such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus), and such other document as Purchasers may reasonably
request;
(d) use its best efforts to register or
qualify such shares under such other securities or blue sky laws of such
jurisdictions as Purchasers request (and to maintain such registrations and
qualifications effective for a period of nine months or until Purchasers have
completed the distribution of such shares, whichever occurs first), and to do
any and all other acts and things which may be necessary or advisable to enable
Purchasers to consummate the disposition in such jurisdictions of such shares
(provided that the Company will not be required to (i) qualify generally to do
business in any jurisdiction where it would not be required but for this Section
1.3(d), (ii) subject itself to taxation in any such jurisdiction, or (iii) file
any general consent to service of process in any such jurisdiction);
(e) notify Purchasers, at any time during
which a prospectus relating thereto is required to be delivered under the Act
within the period that the Company is required to keep a registration statement
effective, of the happening of any event as a result of which the prospectus
included in such registration statement contains an untrue statement of a
material fact or omits any fact necessary to make the statements therein not
misleading, and prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such shares, such prospectus will not
contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading;
(f) use its best efforts to cause all such
shares to be listed on securities exchanges or interdealer quotation systems
(including NASDAQ National or Small-Cap Market), if any, on which similar
securities issued by the Company are then listed;
(g) enter into such customary agreements
(including an underwriting agreement in customary form) and take all such other
actions as Purchasers reasonably request (and subject to Purchasers' reasonable
approval) in order to expedite or facilitate the disposition of such shares; and
(h) make reasonably available for inspection
by Purchasers, by any underwriter participating in any distribution pursuant to
such registration statement, and by any attorney, accountant or other agent
retained by Purchasers or by any such underwriter, all relevant financial and
other records, pertinent corporate documents, and properties (other than
confidential intellectual property) of the Company; provided, however, that any
information that is designated in writing by the Company, in good faith, as
confidential at the time of delivery of such information shall be kept
confidential by Purchasers or any such underwriter, attorney, accountant or
agent, unless such disclosure is made in connection with a court proceeding or
required by law, or such information becomes available to the public generally
or through a third party without an accompanying obligation of confidentiality.
1.4 Registration Expenses.
The Company will pay all Registration Expenses of all
registrations under this Agreement, provided, however, that if a registration
under Section 1.1 is withdrawn at the request of Purchasers (other than as a
result of information concerning the business or financial condition of the
Company that is made known to the Purchasers after the date on which such
registration was requested) and if the requesting Purchasers elect not to have
such registration counted as a registration requested under Section 1.1,
Purchasers shall pay the Registration expenses of such registration. For
purposes of this Section, the term "Registration Expenses" means all expenses
incurred by the Company in complying with this Section, including, without
limitation, all registration and filing fees (other than National Association of
Securities Dealers, Inc. filing fees pursuant to an underwritten offering),
exchange listing fees, printing expenses, fees, and expenses of counsel for the
Company and the reasonable fees and expenses of one firm or counsel selected by
Purchasers to represent it, state Blue Sky fees and expenses, and the expense of
any special audits incident to or required by any such registration, but
excluding underwriting discounts and selling commissions.
1.5 Indemnity.
(a) In the event that any shares of Common
Stock owned by Purchasers are sold by means of a registration statement pursuant
to Section 1.1 or 1.2 hereof, the Company agrees to indemnify and hold harmless
such Purchasers, each of its partners and their officers and directors, and each
person, if any, who controls such Purchasers within the meaning of the Act
(Purchaser, its partners and their officers and directors, and any such other
persons being hereinafter referred to individually as an "Indemnified Person"
and collectively as "Indemnified Persons") from and against all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities, costs,
and expenses, including, without limitation, interest, penalties, and reasonable
attorneys' fees and disbursements, asserted against, resulting to, imposed upon
or incurred by such Indemnified Person, directly or indirectly (hereinafter
referred to in this Section 1.5 in the singular as a "claim" and in the plural
as "claims"), based upon, arising out of or resulting from any untrue statement
of a material fact contained in the registration statement or any omission to
state therein a material fact necessary to make the statements made therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such claim is based upon, arises out of or result from
information furnished to the Company in writing by such Purchaser for use in
connection with the registration statement.
(b) Each Purchaser agrees to indemnify and
hold harmless the Company, its officers and directors, and each person, if any,
who controls the Company within the meaning of the Act (the Company, its
officers and directors, and any such other persons also being hereinafter
referred to individually as an "Indemnified Person" and collectively as
"Indemnified Persons") from and against all claims based upon, arising out of or
resulting from any untrue statement of a material fact contained in the
registration statement or any omission to state therein a material fact
necessary in order to make the statement made therein, in the light of the
circumstances under which they were made, not misleading, to the extent that
such claim is based upon, arises out of or result from information furnished to
the Company in writing by Purchaser for use in connection with the registration
statement.
(c) The indemnification set forth herein
shall be in addition to any liability the Company or a Purchaser may otherwise
have to the Indemnified Persons. Promptly after actually receiving definitive
notice of any claim in respect of which an Indemnified Person may seek
indemnification under this Section 1.5, such Indemnified Person shall submit
written notice thereof to either the Company or Purchaser, as the case may be
(some-times being hereinafter referred to as an "Indemnifying Person"). The
failure of the Indemnified Person so to notify the Indemnifying Person of any
such claim shall not relieve the Indemnifying Person from any liability it may
have hereunder except to the extent that (a) such liability was caused or
materially increased by such failure, or (b) the ability of the Indemnifying
Person to reduce such liability was materially adversely affected by such
failure. In addition, the failure of the Indemnified Person so to notify the
Indemnifying Person of any such claim shall not relieve the Indemni-fying Person
from any liability it may have otherwise than hereunder. The Indemnifying Person
shall have the right to undertake, by counsel or representatives of its own
choosing, the defense, compromise or settlement (without admitting liability of
the Indemnified Person) of any such claim asserted, such defense, compromise or
settlement to be undertaken at the expense and risk of the Indemnifying Person,
and the Indemnified Person shall have the right to engage separate counsel, at
such Indemnified Person's own expense, whom counsel for the Indemnifying Person
shall keep informed and consult with in a reasonable manner. In the event the
Indemnifying Person shall elect not to undertake such defense by its own
representatives, the Indemnifying Person shall give prompt written notice of
such election to the Indemnified Person, and the Indemnified Person may
undertake the defense, compromise or settlement without admitting liability of
the Indemnified Person) thereof on behalf of and for the account and risk of the
Indemnifying Person by counsel or other representatives designated by the
Indemnified Person. Notwithstanding the foregoing, no Indemnifying Person shall
be obligated hereunder with respect to amounts paid in settlement of any claim
if such settlement is effected without the consent of such Indemnifying Person
(which consent shall not be unreasonably withheld).
(d) If for any reason the foregoing
indemnity is unavailable to, or is insufficient to hold harmless, an Indemnified
Person, then the Indemnifying Person shall contribute to the amount paid or
payable by the Indemnified Person as a result of such claims, in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Person and
the Indemnified Person as well as any other relevant equitable considerations.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
1.6 Subsequent Registration Statements. The Company
shall not cause or permit any new registration statements (except registration
statements on Form S-8, S-4, or comparable forms) to become effective during the
90 days after the effective date of a registration statement covering shares of
Common Stock owned by Purchasers.
2. Miscellaneous.
2.1 Additional Actions and Documents. Each of the
parties hereto hereby agrees to use its good faith best efforts to take or cause
to be taken such further actions, to execute, deliver and file or cause to be
executed, delivered and filed such further documents and instruments, and to
obtain such consents, as may be necessary or as may be reasonably requested in
order to fully effectuate the purposes, terms and conditions of this Agreement.
2.2 Assignment. Any Purchaser may assign its rights
under this Agreement to any assignee of the Warrant or the shares of Common
Stock issuable thereunder.
2.3 Entire Agreement; Amendment. This Agreement,
including the other writings referred to herein or delivered pursuant hereto,
constitutes the entire agreement among the parties hereto with respect to the
transactions contemplated herein, and its supersedes all prior oral or written
agreements, commitments or
understandings with respect to the matters provided for herein. No amendment,
modification or discharge of this Agreement shall be valid or binding unless set
forth in writing and duly executed by a party against whom enforcement of the
amendment, modification, or discharge is sought.
2.4 Limitation on Benefits. It is the explicit
intention of the parties hereto that no person or entity other than the parties
hereto (and their respective successors and assigns) is or shall be entitled to
bring any action to enforce any provision of this Agreement against any of the
parties hereto, and the covenants, undertakings and agreements set forth in this
Agreement shall be solely for the benefit of, and shall be enforceable only by,
the parties hereto or their respective successors and assigns.
2.5 Binding Effect. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
2.6 Governing Law. This Agreement, the rights and
obligations of the parties hereto, and any claims or disputes relating thereto,
shall be governed by and construed in accordance with the laws of Delaware.
2.7 Notices. All notices, demands, requests, or other
communications which may be or are required to be given, served, or sent by any
party to any other party pursuant to this Agreement shall be in writing and
shall be mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery )including delivery
by courier), telegram, telex, or facsimile transmission, addressed as follows:
(a) If to the Company:
The Right Start, Inc.
5334 Starling Center Drive
Westlake Village, California 91361
Attention: President
Facsimile: (818) 707-7132
with a copy (which shall not constitute notice) to:
Milbank, Tweed, Hadley & McCloy
601 S. Figueroa, 30th Floor
Los Angeles, CA 90017
Attention: Kenneth J. Baronsky, Esq.
Facsimile: (213) 629-5063
(b) If to Purchaser, to the address set
forth in the Securities Purchase Agreement for such Purchaser.
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request, or communication which shall be mailed, delivered
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt, the affidavit of
messenger or (with respect to a telex) the answer back being deemed conclusive
(but not exclusive) evidence of such delivery) or at such time as delivery is
refused by the addressee upon presentation.
2.8 Headings. Article and Section headings contained
in this Agreement are inserted for convenience of reference only, shall not be
deemed to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
2.9 Execution in Counterparts. To facilitate
execution, this Agreement may be executed in as many counterparts as may be
required; and it shall not be necessary that the signatures of each party appear
on each counterpart; but it shall be sufficient that the signature of each party
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of this
Agreement to produce or account for more than a number of counterparts
containing the respective signatures of all of the parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first above written.
THE RIGHT START, INC.
By: /s/ Jerry R. Welch
----------------------------------------
Jerry R. Welch
Chief Executive Officer
The Purchasers:
ARBCO ASSOCIATES, L.P.
By: /s/ Robert V. Sinnott
----------------------------------------
Name:
Title:
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: /s/ David L. Warnock
----------------------------------------
KAPLAN NATHAN & COMPANY
By:
----------------------------------------
Name:
Title:
FRED KAYNE, an individual
/s/ Fred Kayne
----------------------------------------
KAYNE ANDERSON NON-TRADITIONAL INVESTMENTS, L.P.
By: /s/ Robert V. Sinnott
----------------------------------------
Name:
Title:
KAYNE ANDERSON OFFSHORE LIMITED
By: /s/ CFS Company Ltd
----------------------------------------
Name:
Title:
OFFENSE GROUP ASSOCIATES, L.P.
By: /s/ Robert V. Sinnott
----------------------------------------
Name:
Title:
STRATEGIC ASSOCIATES, L.P.
By: /s/ David L. Warnock
----------------------------------------
Name:
Title:
OPPORTUNITY ASSOCIATES, L.P.
By: /s/ Robert V. Sinnott
----------------------------------------
Name:
Title:
MICHAEL TARGOFF, an individual
/s/ Michael Targoff
----------------------------------------
THE TRAVELERS INDEMNITY COMPANY
By: /s/ David A. Tyson
----------------------------------------
Name:
Title:
ARTHUR E. HALL, as Trustee for the A. E. Hall & Company
Money Purchase Plan
By: /s/ Arthur E. Hall
----------------------------------------
Arthur E. Hall
EXHIBIT 4
THE NOTES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE NOTES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS THE PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR
QUALIFICATION UNDER FEDERAL OR STATE SECURITIES LAWS, OR UNLESS THE PROPOSED
TRANSACTION IS REGISTERED OR QUALIFIED AS REQUIRED.
THE RIGHT START, INC.
11.5% SENIOR SUBORDINATED NOTE DUE MAY 6, 2000
$948,000 Los Angeles, California
Subordinated Note No. 2 May 6, 1997
FOR VALUE RECEIVED, the undersigned, The Right Start, Inc., a
California corporation (the "Company"), hereby promises to pay to Cahill,
Warnock Strategic Partners Fund, L.P., a Delaware limited partnership, or its
registered assigns, the principal sum of NINE HUNDRED FORTY-EIGHT THOUSAND
DOLLARS (or so much thereof as shall not have been prepaid) on May 6, 2000, with
interest (computed on the basis of a 360-day year of twelve 30-day months) on
the unpaid principal hereof at the rate of eleven and one-half percent (11.5%)
per annum from the date hereof, under the terms of the Securities Purchase
Agreement dated as of May 6, 1997 (the "Agreement") between the Company and each
of the purchasers named therein, payable quarterly in arrears on January 31,
April 30, July 31 and October 31 of each year, commencing on July 31, 1997,
until such principal shall have become due and payable Payments of principal and
interest are to be made at the office of Cahill, Warnock Strategic Partners
Fund, L.P., located at c/o Cahill, Warnock & Co., 1 South Street, Suite 2150,
Baltimore, Maryland 21202 in lawful money of the United States of America.
This Subordinated Note is one of the Subordinated Notes issued pursuant
to the Agreement and is also entitled to the benefits thereof. If an Event of
Default (as defined in the Agreement) shall occur and be continuing, the
principal of this Subordinated Note may, under certain circumstances, become or
be declared due and payable in the manner and with the effect provided in such
Agreement. Subject to the terms of the Agreement, upon the occurrence or
existence of an Event of Default the holder of this Subordinated Note (the
"Holder") may, by notice to the Company, declare the entire unpaid principal
amount of this Subordinated Note, all interest accrued and unpaid hereon, and
all other amounts payable to the Holder hereunder or under the Agreement to be
forthwith due and payable, whereupon this Subordinated Note, all such accrued
interest and all such amounts shall become and be forthwith due and payable, and
in addition thereto, and not in substitution for, the Holder shall be entitled
to exercise any one or more of the rights and remedies provided by applicable
law. Failure to exercise any right or remedy under this Subordinated Note or
available under applicable law shall not constitute a waiver of such option or
such other remedies or of the right to exercise any of the same in the event of
any subsequent Event of Default. The Company and all maker, sureties,
guarantors, endorsers and other persons assuming obligations pursuant to this
Subordinated Note hereby waive presentment, protest, demand, notice of dishonor
and all other notices and all defenses and pleas on the grounds of any extension
or extension of the time of payments or the due dates hereof, in whole or in
part, before or after maturity, with or without notice. No renewal or extension
of this Subordinated Note, no release of any obligor and no delay in enforcement
of this Subordinated Note or in exercising any right or power hereunder shall
affect the liability of any obligor hereunder.
1. Prepayment. As provided in the Agreement, this Subordinated Note is
subject to optional prepayments in whole or in part, without any prepayment
charge, all as specified in the Agreement. If at any time there is a Change of
Control of the Company (as defined in the Agreement) then the Company shall,
immediately following the occurrence of any such event, send a notice to each
Holder offering to repurchase this Subordinated Note (or at each Holder's
option, any portion thereof) at the par amount thereof, plus interest accrued
and unpaid on this Subordinated Note to the date of such repurchase. If any
Holder desires to accept such offer in whole or in part, such Holder must advise
the Company of such acceptance within 30 days of the date of receiving such
notice. The Company shall then repurchase this Subordinated Note or portion
thereof so tendered for repurchase by such Holder by paying the purchase price
to the Holder (or any person or persons designated by such Holder in such
acceptance notice), in immediately available funds, within five days of the
Company's receipt of such Holder's acceptance notice. If Holder tenders only a
portion of this Subordinated Note, the Holder shall deliver this Subordinated
Note to the Company and the Company
then shall issue to the Holder a new subordinated note with the same interest
rate, maturity date and other terms as this Subordinated Note, representing the
portion of the Subordinated Note not repurchased by the Company.
2. Subordination.
2.1 Agreement to Subordinate. The Company, for its successors, and each
Holder, by his acceptance of this Subordinated Note, agree that the payment of
the principal of or interest on or any other amounts due on this Subordinated
Note is subordinated in right of payment, to the extent and in the manner stated
in this Section 2, to the prior payment in full of all Senior Debt. For purposes
hereof, "Senior Debt" means the principal of, interest on (including any
interest accruing after the commencement of any bankruptcy proceeding or which
would have accrued but for such proceeding whether or not allowed) and other
amounts due on or with respect to (i) indebtedness of the Company, whether
outstanding on the date hereof or incurred, assumed or guaranteed by the
Company, for money borrowed from banks or other financial institutions and any
refinancings or refundings thereof; (ii) indebtedness of the company, whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed by the Company, which is not subordinated in right of payment or in
rights upon liquidation to any Senior Debt; and (iii) indebtedness of the
Company under interest rate swaps, caps or similar hedging agreements and
foreign exchange contracts, currency swaps or similar agreements.
2.2 Ranking with respect to Other Subordinated Indebtedness of the
Company. This Subordinated Note shall rank pari passu with all other
Subordinated Debt of the Company. For purposes hereof, "Subordinated Debt" means
any indebtedness of the Company, whether outstanding on the date hereof or
incurred, assumed or guaranteed by the Company, which is subordinated in right
of payment or in rights of upon liquidation to any Senior Debt.
2.3 No Payment on this Subordinated Note if Senior Debt in Default.
Anything in this Subordinated Note to the contrary notwithstanding, no payment
or other distribution on account of principal of or redemption of, interest on
or other amounts due on this Subordinated Note, and no redemption, purchase, or
other acquisition of this Subordinated Note, shall be made by or on behalf of
the Company (i) unless full payment of amounts then due for principal and
interest and of all other amounts then due on all Senior Debt has been made or
duly provided for in cash pursuant to the terms of the instrument governing such
Senior Debt, (ii) if, at the time of such payment, redemption, purchase or other
acquisition, or immediately after giving effect thereto, there shall exist under
any Senior Debt, or any agreement pursuant to which any Senior Debt is issued,
any default, which default shall not have been cured or waived and which default
shall have resulted in the full amount of such Senior Debt being due and payable
or (iii) if, at the time of such payment, redemption, purchase or other
acquisition, the Holder shall have received written notice from the Holder or
holders of any Senior Debt or their representative or representatives (a
"Payment Blockage Notice") that there exists under such Senior Debt, or any
agreement pursuant to which such Senior Debt is issued, any default, which
default shall not have been cured or waived, permitting the holders there to
declare the full amount of such Senior Debt due and payable, but only for the
period (the "Payment Blockage Period") commencing on the date of receipt of the
Payment Blockage Notice and ending (unless earlier terminated by notice given to
the Holder by the holders of such Senior Debt) on the earlier of (a) the date on
which such event of default shall have been cured or waived or (b) 180 days from
the receipt of the Payment Blockage Notice unless payment or distribution with
respect to this Subordinated Note are otherwise not then permitted. Upon
termination of Payment Blockage Period, payments on account of principal of or
interest on this Subordinated Note (other than amounts due and payable by reason
of the acceleration of the maturity of this Subordinated Note) and redemptions,
purchases or other acquisitions may be made by or on behalf of the Company, if
otherwise permitted hereunder. Notwithstanding anything herein to the contrary,
(A) only one Payment Blockage Notice may be given during any period of 360
consecutive days with respect to the same event of default and any other events
of default on the same issue of Senior Debt existing and known to the person
giving such notice at the time of such notice and (B) no new Payment Blockage
Period may be commenced by the Holder or holders of the same issue of Senior
Debt or their representative or representatives during any period of 360
consecutive days unless all events of default which were the object of the
immediately preceding Payment Blockage Notice, and any other event of default on
the same issue of Senior Debt existing and known to the person giving such
notice at the time of such notice, have been cured or waived.
In the event that, notwithstanding the provisions of this Section 2.3,
payments are made by or on behalf of the Company in contravention of the
provisions of this Section 2.3, such payments shall be held by the Holders in
trust for the benefit of, and shall be paid over to and delivered to, the
holders of Senior Debt or their representative for application to the payment of
all Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt
in full
accordance with the terms of such Senior Debt, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
The Company shall give prompt written notice to the Holder of any event
of default under any Senior Debt or under any agreement pursuant to which any
Senior Debt may have been issued.
So long as any Senior Debt remains unpaid, the Holders of these
Subordinated Notes will not accelerate, or cause to be accelerated, the
Subordinated Notes, or exercise any remedies with respect to any event of
default occurring with respect to the Subordinated Notes for a period of no less
than 180 days after the holders have delivered to the holders of the Senior Debt
notice of the occurrence of any event of default. If the event of default is
cured or waived or shall have ceased to exist within such 180 day period (and
payment of all amounts then due on the Subordinated Notes without acceleration
shall constitute a cure of any event of default resulting from the failure to
make such payment when due), then the holders shall not be entitled to declare
these Subordinated Notes due prior to their stated maturity because of such
event of default.
2.4 Distribution on Acceleration of this Subordinated Note; Dissolution
and Reorganization; Subrogation of this Subordinated Note.
1. Upon (i) any acceleration of the principal amount due on
this Subordinated Note because of an Event of Default or (ii) any distribution
of assets of the Company upon any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or any other
dissolution, winding up, liquidation or reorganization of the Company):
a. the holders of the Senior Debt shall first be
entitled to receive payment in full of the principal thereof, the interest
thereon and any other amounts due thereon before the Holder is entitled to
receive payment on account of the principal of or interest on or any other
amounts due on the Subordinated Note.
b. any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities (other
than securities of the Company as reorganized or readjusted or securities of the
Company or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Section 2 with respect to this Subordinated Note, to the
payment in full without diminution or modification by such plan of all Senior
Debt), to which the Holder would be entitled except for the provisions of this
Section 2, shall be paid by the liquidating trustee or agent or other person
making such a payment or distribution, directly to the holders of Senior Debt
(or their representative(s) or trustee(s) acting on their behalf), ratably
according to the aggregate amounts remaining unpaid on account of the principal
of or interest on and other amounts due on the Senior Debt held or represented
by each, to the extent necessary to make payment in full of all Senior Debt
remaining unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Debt; and
c. in the event that, notwithstanding the foregoing,
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities shall be received by the Holder before
all Senior Debt is paid in full in cash, such payment or distribution shall be
held in trust for the benefit of, and be paid over to upon request by a holder
of the Senior Debt, the holders of the Senior Debt remaining unpaid (or their
representatives) or trustee(a) acting on their behalf, ratably as aforesaid, for
application to the payment of such Senior Debt until all such Senior Debt shall
have been paid in full, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
Subject to the payment in full of all Senior Debt, the Holder
shall be subrogated to the rights of the holders of Senior Debt to receive
payments or distributions of cash, property or securities of the Company
applicable to the Senior Debt until the principal of and interest on this
Subordinated Note shall be paid in full and, for purposes of such subrogation,
no such payments or distributions to the holders of Senior Debt of cash,
property or securities which otherwise would have been payable or distributable
to the Holder shall, as between the Company, its creditors other than the
holders of Senior Debt, and the Holder, be deemed to be a payment by the Company
to or on account of the Senior Debt, it being understood that the provisions of
this Section 2 are and are intended solely for the purpose of defining the
relative rights of the Holder, on the one hand, and the holders of Senior Debt,
on the other hand.
Nothing contained in this Section 2 or elsewhere in this
Subordinated Note is intended to or shall impair, as between the Company and its
creditors other than the holders of Senior Debt, the obligation of the Company,
which is absolute and unconditional, to pay to the Holder the principal of and
interest on this Subordinated Note as and when the same shall become due and
payable in accordance with the terms of this Subordinated Note as and when the
same shall become due and payable in accordance with the terms of this
Subordinated Note or is intended to or shall affect the relative rights of the
Holder and creditors of the Company other than holders of Senior Debt, nor shall
anything herein or therein prevent the Holder from exercising all remedies
otherwise permitted by applicable law upon default under this Subordinated Note,
subject to the rights, if any, under this Section 3 of the holders of Senior
Debt in respect of cash, property and securities of the Company received upon
the exercise of any such remedy. Upon distribution of assets of the Company
referred to in this Section 2 the Holder shall be entitled to rely upon a
certificate of the liquidating trustee or agent or other person making any
distribution to the Holder for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Company, the amount hereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Section 2.
2.5 Reliance by Senior Debt on Subordination Provisions. The Holder of
this Subordinated Note by his acceptance thereof acknowledges and agrees that
the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration for each holder of any Senior Debt, whether such
Senior Debt was created or acquired before or after the issuance of this
Subordinated Note, to acquire and continue to hold, or to continue to hold, such
Senior Debt, and such holder of Senior Debt shall be deemed conclusively to have
relied on such subordination provisions in acquiring and continuing to hold, or
in continuing to hold, such Senior Debt. Notice of any default in the payment of
any Senior Debt, except as expressly stated in this Section 2, and notice of
acceptance of the provisions thereof are hereby expressly waived. Except as
otherwise expressly provided herein, no waiver, forbearance or release by any
holder of Senior Debt under such Senior Debt or under this Section 2 shall
constitute a release of any of the obligations or liabilities of the Holders
provided in this Section 2. Except as otherwise expressly provided herein, no
right of any present or future holder of Senior Debt to enforce the
subordination provisions hereof shall at any time or in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or any such
holder or by any noncompliance by the Company with the terms, provisions or
covenants of this Subordinated Note, regardless of any knowledge thereof which
such holder may have otherwise been charged with.
3. Transfer; Registration; Replacement. Upon surrender of this
Subordinated Note for registration of transfer or assignment, duly endorsed, or
accompanied by a written instrument of transfer or assignment duly executed, by
the registered Holder hereof or such Holder's attorney duly authorized in
writing, a new Subordinated Note for a like principal amount shall be issued to,
and, at the option of the Holder, registered in the name of, the transferee or
assignee. The Company may deem and treat the person in whose name this
Subordinated Note is registered as the Holder and owner hereof for the purpose
of receiving payments and for all other purposes whatsoever, and the Company
shall not be affected by any notice to the contrary.
IN WITNESS WHEREOF, the undersigned has caused this Subordinated Note
to be duly executed on its behalf as of the date first hereinabove set forth.
THE RIGHT START, INC.
By: /s/ Jerry R. Welch
-------------------------
Jerry R. Welch
Chief Executive Officer
EXHIBIT 5
THE NOTES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE
SECURITIES LAWS. THE NOTES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS THE PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR QUALIFICATION
UNDER FEDERAL OR STATE SECURITIES LAWS, OR UNLESS THE PROPOSED TRANSACTION IS
REGISTERED OR QUALIFIED AS REQUIRED.
THE RIGHT START, INC.
11.5% SENIOR SUBORDINATED NOTE DUE MAY 6, 2000
$52,000 Los Angeles, California
Subordinated Note No. 9 May 6, 1997
FOR VALUE RECEIVED, the undersigned, The Right Start, Inc., a
California corporation (the "Company"), hereby promises to pay to Strategic
Associates, L.P., a Delaware limited partnership, or its registered assigns, the
principal sum of FIFTY-TWO THOUSAND DOLLARS (or so much thereof as shall not
have been prepaid) on May 6, 2000, with interest (computed on the basis of a
360-day year of twelve 30-day months) on the unpaid principal hereof at the rate
of eleven and one-half percent (11.5%) per annum from the date hereof, under the
terms of the Securities Purchase Agreement dated as of May 6, 1997 (the
"Agreement") between the Company and each of the purchasers named therein,
payable quarterly in arrears on January 31, April 30, July 31 and October 31 of
each year, commencing on July 31, 1997, until such principal shall have become
due and payable Payments of principal and interest are to be made at the office
of Strategic Associates, L.P., located at c/o Cahill, Warnock & Co., 1 South
Street, Suite 2150, Baltimore, Maryland 21202 in lawful money of the United
States of America.
This Subordinated Note is one of the Subordinated Notes issued pursuant
to the Agreement and is also entitled to the benefits thereof. If an Event of
Default (as defined in the Agreement) shall occur and be continuing, the
principal of this Subordinated Note may, under certain circumstances, become or
be declared due and payable in the manner and with the effect provided in such
Agreement. Subject to the terms of the Agreement, upon the occurrence or
existence of an Event of Default the holder of this Subordinated Note (the
"Holder") may, by notice to the Company, declare the entire unpaid principal
amount of this Subordinated Note, all interest accrued and unpaid hereon, and
all other amounts payable to the Holder hereunder or under the Agreement to be
forthwith due and payable, whereupon this Subordinated Note, all such accrued
interest and all such amounts shall become and be forthwith due and payable, and
in addition thereto, and not in substitution for, the Holder shall be entitled
to exercise any one or more of the rights and remedies provided by applicable
law. Failure to exercise any right or remedy under this Subordinated Note or
available under applicable law shall not constitute a waiver of such option or
such other remedies or of the right to exercise any of the same in the event of
any subsequent Event of Default. The Company and all maker, sureties,
guarantors, endorsers and other persons assuming obligations pursuant to this
Subordinated Note hereby waive presentment, protest, demand, notice of dishonor
and all other notices and all defenses and pleas on the grounds of any extension
or extension of the time of payments or the due dates hereof, in whole or in
part, before or after maturity, with or without notice. No renewal or extension
of this Subordinated Note, no release of any obligor and no delay in enforcement
of this Subordinated Note or in exercising any right or power hereunder shall
affect the liability of any obligor hereunder.
1. Prepayment. As provided in the Agreement, this Subordinated Note is
subject to optional prepayments in whole or in part, without any prepayment
charge, all as specified in the Agreement. If at any time there is a Change of
Control of the Company (as defined in the Agreement) then the Company shall,
immediately following the occurrence of any such event, send a notice to each
Holder offering to repurchase this Subordinated Note (or at each Holder's
option, any portion thereof) at the par amount thereof, plus interest accrued
and unpaid on this Subordinated Note to the date of such repurchase. If any
Holder desires to accept such offer in whole or in part, such Holder must advise
the Company of such acceptance within 30 days of the date of receiving such
notice. The Company shall then repurchase this Subordinated Note or portion
thereof so tendered for repurchase by such Holder by paying the purchase price
to the Holder (or any person or persons designated by such Holder in such
acceptance notice), in immediately available funds, within five days of the
Company's receipt of such Holder's acceptance notice. If Holder tenders only a
portion of this Subordinated Note, the Holder shall deliver this Subordinated
Note to the Company and the Company
then shall issue to the Holder a new subordinated note with the same interest
rate, maturity date and other terms as this Subordinated Note, representing the
portion of the Subordinated Note not repurchased by the Company.
2. Subordination.
2.1 Agreement to Subordinate. The Company, for its successors,
and each Holder, by his acceptance of this Subordinated Note, agree that the
payment of the principal of or interest on or any other amounts due on this
Subordinated Note is subordinated in right of payment, to the extent and in the
manner stated in this Section 2, to the prior payment in full of all Senior
Debt. For purposes hereof, "Senior Debt" means the principal of, interest on
(including any interest accruing after the commencement of any bankruptcy
proceeding or which would have accrued but for such proceeding whether or not
allowed) and other amounts due on or with respect to (i) indebtedness of the
Company, whether outstanding on the date hereof or incurred, assumed or
guaranteed by the Company, for money borrowed from banks or other financial
institutions and any refinancings or refundings thereof; (ii) indebtedness of
the company, whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed by the Company, which is not subordinated in
right of payment or in rights upon liquidation to any Senior Debt; and (iii)
indebtedness of the Company under interest rate swaps, caps or similar hedging
agreements and foreign exchange contracts, currency swaps or similar agreements.
2.2 Ranking with respect to Other Subordinated Indebtedness of
the Company. This Subordinated Note shall rank pari passu with all other
Subordinated Debt of the Company. For purposes hereof, "Subordinated Debt" means
any indebtedness of the Company, whether outstanding on the date hereof or
incurred, assumed or guaranteed by the Company, which is subordinated in right
of payment or in rights of upon liquidation to any Senior Debt.
2.3 No Payment on this Subordinated Note if Senior Debt in
Default. Anything in this Subordinated Note to the contrary notwithstanding, no
payment or other distribution on account of principal of or redemption of,
interest on or other amounts due on this Subordinated Note, and no redemption,
purchase, or other acquisition of this Subordinated Note, shall be made by or on
behalf of the Company (i) unless full payment of amounts then due for principal
and interest and of all other amounts then due on all Senior Debt has been made
or duly provided for in cash pursuant to the terms of the instrument governing
such Senior Debt, (ii) if, at the time of such payment, redemption, purchase or
other acquisition, or immediately after giving effect thereto, there shall exist
under any Senior Debt, or any agreement pursuant to which any Senior Debt is
issued, any default, which default shall not have been cured or waived and which
default shall have resulted in the full amount of such Senior Debt being due and
payable or (iii) if, at the time of such payment, redemption, purchase or other
acquisition, the Holder shall have received written notice from the Holder or
holders of any Senior Debt or their representative or representatives (a
"Payment Blockage Notice") that there exists under such Senior Debt, or any
agreement pursuant to which such Senior Debt is issued, any default, which
default shall not have been cured or waived, permitting the holders there to
declare the full amount of such Senior Debt due and payable, but only for the
period (the "Payment Blockage Period") commencing on the date of receipt of the
Payment Blockage Notice and ending (unless earlier terminated by notice given to
the Holder by the holders of such Senior Debt) on the earlier of (a) the date on
which such event of default shall have been cured or waived or (b) 180 days from
the receipt of the Payment Blockage Notice unless payment or distribution with
respect to this Subordinated Note are otherwise not then permitted. Upon
termination of Payment Blockage Period, payments on account of principal of or
interest on this Subordinated Note (other than amounts due and payable by reason
of the acceleration of the maturity of this Subordinated Note) and redemptions,
purchases or other acquisitions may be made by or on behalf of the Company, if
otherwise permitted hereunder. Notwithstanding anything herein to the contrary,
(A) only one Payment Blockage Notice may be given during any period of 360
consecutive days with respect to the same event of default and any other events
of default on the same issue of Senior Debt existing and known to the person
giving such notice at the time of such notice and (B) no new Payment Blockage
Period may be commenced by the Holder or holders of the same issue of Senior
Debt or their representative or representatives during any period of 360
consecutive days unless all events of default which were the object of the
immediately preceding Payment Blockage Notice, and any other event of default on
the same issue of Senior Debt existing and known to the person giving such
notice at the time of such notice, have been cured or waived.
In the event that, notwithstanding the provisions of this
Section 2.3, payments are made by or on behalf of the Company in contravention
of the provisions of this Section 2.3, such payments shall be held by the
Holders in trust for the benefit of, and shall be paid over to and delivered to,
the holders of Senior Debt or their representative for application to the
payment of all Senior Debt remaining unpaid to the extent necessary to pay all
Senior Debt in full
accordance with the terms of such Senior Debt, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
The Company shall give prompt written notice to the Holder of
any event of default under any Senior Debt or under any agreement pursuant to
which any Senior Debt may have been issued.
So long as any Senior Debt remains unpaid, the Holders of
these Subordinated Notes will not accelerate, or cause to be accelerated, the
Subordinated Notes, or exercise any remedies with respect to any event of
default occurring with respect to the Subordinated Notes for a period of no less
than 180 days after the holders have delivered to the holders of the Senior Debt
notice of the occurrence of any event of default. If the event of default is
cured or waived or shall have ceased to exist within such 180 day period (and
payment of all amounts then due on the Subordinated Notes without acceleration
shall constitute a cure of any event of default resulting from the failure to
make such payment when due), then the holders shall not be entitled to declare
these Subordinated Notes due prior to their stated maturity because of such
event of default.
2.4 Distribution on Acceleration of this Subordinated Note;
Dissolution and Reorganization; Subrogation of this Subordinated Note.
1. Upon (i) any acceleration of the principal amount
due on this Subordinated Note because of an Event of Default or (ii) any
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company (whether in bankruptcy, insolvency
or receivership proceedings or upon an assignment for the benefit of creditors
or any other dissolution, winding up, liquidation or reorganization of the
Company):
a. the holders of the Senior Debt shall
first be entitled to receive payment in full of the principal thereof, the
interest thereon and any other amounts due thereon before the Holder is entitled
to receive payment on account of the principal of or interest on or any other
amounts due on the Subordinated Note.
b. any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or securities
(other than securities of the Company as reorganized or readjusted or securities
of the Company or any other corporation provided for by a plan of reorganization
or readjustment the payment of which is subordinate, at least to the extent
provided in this Section 2 with respect to this Subordinated Note, to the
payment in full without diminution or modification by such plan of all Senior
Debt), to which the Holder would be entitled except for the provisions of this
Section 2, shall be paid by the liquidating trustee or agent or other person
making such a payment or distribution, directly to the holders of Senior Debt
(or their representative(s) or trustee(s) acting on their behalf), ratably
according to the aggregate amounts remaining unpaid on account of the principal
of or interest on and other amounts due on the Senior Debt held or represented
by each, to the extent necessary to make payment in full of all Senior Debt
remaining unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Debt; and
c. in the event that, notwithstanding the
foregoing, any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities shall be received by the
Holder before all Senior Debt is paid in full in cash, such payment or
distribution shall be held in trust for the benefit of, and be paid over to upon
request by a holder of the Senior Debt, the holders of the Senior Debt remaining
unpaid (or their representatives) or trustee(a) acting on their behalf, ratably
as aforesaid, for application to the payment of such Senior Debt until all such
Senior Debt shall have been paid in full, after giving effect to any concurrent
payment or distribution to the holders of such Senior Debt.
Subject to the payment in full of all Senior Debt,
the Holder shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of the Company
applicable to the Senior Debt until the principal of and interest on this
Subordinated Note shall be paid in full and, for purposes of such subrogation,
no such payments or distributions to the holders of Senior Debt of cash,
property or securities which otherwise would have been payable or distributable
to the Holder shall, as between the Company, its creditors other than the
holders of Senior Debt, and the Holder, be deemed to be a payment by the Company
to or on account of the Senior Debt, it being understood that the provisions of
this Section 2 are and are intended solely for the purpose of defining the
relative rights of the Holder, on the one hand, and the holders of Senior Debt,
on the other hand.
Nothing contained in this Section 2 or elsewhere in
this Subordinated Note is intended to or shall impair, as between the Company
and its creditors other than the holders of Senior Debt, the obligation of the
Company, which is absolute and unconditional, to pay to the Holder the principal
of and interest on this Subordinated Note as and when the same shall become due
and payable in accordance with the terms of this Subordinated Note as and when
the same shall become due and payable in accordance with the terms of this
Subordinated Note or is intended to or shall affect the relative rights of the
Holder and creditors of the Company other than holders of Senior Debt, nor shall
anything herein or therein prevent the Holder from exercising all remedies
otherwise permitted by applicable law upon default under this Subordinated Note,
subject to the rights, if any, under this Section 3 of the holders of Senior
Debt in respect of cash, property and securities of the Company received upon
the exercise of any such remedy. Upon distribution of assets of the Company
referred to in this Section 2 the Holder shall be entitled to rely upon a
certificate of the liquidating trustee or agent or other person making any
distribution to the Holder for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Company, the amount hereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Section 2.
2.5 Reliance by Senior Debt on Subordination Provisions. The
Holder of this Subordinated Note by his acceptance thereof acknowledges and
agrees that the foregoing subordination provisions are, and are intended to be,
an inducement and a consideration for each holder of any Senior Debt, whether
such Senior Debt was created or acquired before or after the issuance of this
Subordinated Note, to acquire and continue to hold, or to continue to hold, such
Senior Debt, and such holder of Senior Debt shall be deemed conclusively to have
relied on such subordination provisions in acquiring and continuing to hold, or
in continuing to hold, such Senior Debt. Notice of any default in the payment of
any Senior Debt, except as expressly stated in this Section 2, and notice of
acceptance of the provisions thereof are hereby expressly waived. Except as
otherwise expressly provided herein, no waiver, forbearance or release by any
holder of Senior Debt under such Senior Debt or under this Section 2 shall
constitute a release of any of the obligations or liabilities of the Holders
provided in this Section 2. Except as otherwise expressly provided herein, no
right of any present or future holder of Senior Debt to enforce the
subordination provisions hereof shall at any time or in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or any such
holder or by any noncompliance by the Company with the terms, provisions or
covenants of this Subordinated Note, regardless of any knowledge thereof which
such holder may have otherwise been charged with.
3. Transfer; Registration; Replacement. Upon surrender of this
Subordinated Note for registration of transfer or assignment, duly endorsed, or
accompanied by a written instrument of transfer or assignment duly executed, by
the registered Holder hereof or such Holder's attorney duly authorized in
writing, a new Subordinated Note for a like principal amount shall be issued to,
and, at the option of the Holder, registered in the name of, the transferee or
assignee. The Company may deem and treat the person in whose name this
Subordinated Note is registered as the Holder and owner hereof for the purpose
of receiving payments and for all other purposes whatsoever, and the Company
shall not be affected by any notice to the contrary.
IN WITNESS WHEREOF, the undersigned has caused this Subordinated Note
to be duly executed on its behalf as of the date first hereinabove set forth.
THE RIGHT START, INC.
By: /s/ Jerry R. Welch
----------------------------
Jerry R. Welch
Chief Executive Officer
EXHIBIT 6
No. of Stock Units: 150,000 Warrant No. 2
WARRANT
to Purchase Common Stock of
THE RIGHT START, INC.
THIS IS TO CERTIFY THAT Cahill, Warnock Strategic Partners Fund, L.P., a
Delaware limited partnership, or registered assigns, is entitled to purchase
from The Right Start, Inc., a California corporation (hereinbelow called the
"Company"), at any time on and after the Closing Date (as defined below), but
not later than 5:00 p.m., Los Angeles time, on the date that is five (5) years
after the Closing Date (the "Expiration Date"), 150,100 Stock Units, in whole or
in part, at a purchase price per Stock Unit of $3.00, adjusted as provided
below, all on the terms and conditions hereinbelow provided.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS PURSUANT TO
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY REQUIRED
REGISTRATION OR QUALIFICATION UNDER ANY STATE SECURITIES LAWS, OR THE PROPOSED
TRANSACTION DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER FEDERAL OR
STATE SECURITIES LAWS.
Section 1. Certain Definitions. As used in this Warrant, unless the
context otherwise requires:
"Affiliate" means a Person (1) that directly or indirectly
controls, or is controlled by, or is under common control with, the Company, (2)
that beneficially owns ten percent (10%) or more of the Voting Stock of the
Company, or (3) ten percent (10%) or more of the Voting Stock (or in the case of
a Person which is not a corporation, ten percent (10%) or more of the equity
interest) of which is owned by the Company. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Appraised Value" shall mean the fair market value of all
outstanding shares of Common Stock (on a fully diluted basis including any
fractional shares and assuming the exercise in full of all then-outstanding
Warrants and all other options, warrants or other rights to purchase shares of
Common Stock that are then currently exercisable at exercise prices less than
the Current Market Price), as determined by a written appraisal prepared by an
appraiser acceptable to the Company and the holders of Warrants evidencing a
majority in number of the total number of Stock Units at the time purchasable
upon the exercise of all then outstanding Warrants. "Fair market value" is
defined for this purpose as the price in a single transaction determined on a
going-concern basis that would be agreed upon by the most likely hypothetical
buyer for a 100% controlling interest in the equity capital of the Company (on a
fully diluted basis including any fractional shares and assuming the exercise in
full of all then-outstanding Warrants and all other options, warrants or other
rights to purchase shares of Common Stock that are then currently exercisable at
exercise prices less than the Current Market Price), with consideration given to
the effect of a noncompete covenant signed by the seller and employment
agreements signed by key management personnel of the Company (and of its
subsidiaries), each extending for a period of time considered sufficient by all
parties to effect the transfer of goodwill from the seller to the buyer and
disregarding any discounts for nonmarketability of Common Stock of the Company.
In the event that the Company and said holders cannot, in good faith, agree upon
an appraiser, then the Company, on the one hand, and said holders, on the other
hand, shall each select an appraiser, the two appraisers so selected shall
select a third appraiser who shall be directed to prepare such a written
appraisal (the "Appraisal") and the term Appraised Value shall mean the
appraised value set forth in the Appraisal prepared in accordance with this
definition. Except as otherwise set forth herein, the entire cost of the
appraisal process shall be borne by the Company, but the cost thereof shall be
deemed an account payable of the Company and shall be considered in the
determination of the Appraised Value.
"Board of Directors" shall mean either the board of directors
of the Company or any duly authorized committee of that board.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banks in the State of California are required or
permitted to close.
"Certificate of Incorporation" shall mean the certificate or
articles of incorporation of the Company, as in effect on the Closing Date and
as at any time amended or otherwise modified.
"Closing Date" shall mean have the meaning set forth in the
Securities Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission
and any other similar or successor agency of the federal government
administering the Securities Act and the Exchange Act.
"Common Stock" shall mean the Company's authorized Common
Stock, no par value per share, irrespective of class unless otherwise specified,
as constituted on the date of original issuance of this Warrant, and any stock
into which such Common Stock may thereafter be changed, and shall also include
stock of the Company of any other class, which is not preferred as to dividends
or assets over any other class of stock of the Company issued to the holders of
shares of Common Stock upon any reclassification thereof.
"Company" shall mean The Right Start, Inc., a California
corporation.
"Current Market Price" per share of Common Stock for the
purposes of any provision of this Warrant at the date herein specified, shall be
deemed to be the price determined pursuant to the first applicable of the
following methods:
(i) If the Common Stock is traded on a national
securities exchange or is traded in the over-the-counter market, the
Current Market Price per share of Common Stock shall be deemed to be
the average of the daily market prices for 20 consecutive Business Days
commencing 20 Business Days before such date. The market price for each
such Business Day shall be, (a) if the Common Stock is traded on a
national securities exchange or in the over-the-counter market, its
last sale price on the preceding Business Day on such national
securities exchange or over-the-counter market or, if there was no sale
on that day, the last sale price on the next preceding Business Day on
which there was a sale, all as made available over the Consolidated
Last Sale Reporting System of the CTA Plan (the "CLSRS") or, if the
Common Stock is not then eligible for reporting over the CLSRS, its
last reported sale price on the preceding Business Day on such national
securities exchange or, if there was no sale on that day, on the next
preceding Business Day on which there was a sale reported on such
exchange or (b) if the principal market for the Common Stock is the
over-the-counter market, but the Common Stock is not then eligible for
reporting over the CLSRS, but the Common Stock is quoted on the Nasdaq
National Market ("Nasdaq"), the last sale price reported on Nasdaq on
the preceding Business Day or, if the Common Stock is an issue for
which last sale prices are not reported on Nasdaq, the closing bid
quotation on such day, but, in each of the next preceding two cases, if
the relevant Nasdaq price or quotation did not exist on such day, then
the price or quotation on the next preceding Business Day in which
there was such a price or quotation.
(ii) If the Current Market Price per share of Common Stock
cannot be ascertained by any of the methods set forth in paragraph (i)
immediately above, the Current Market Price per share of Common Stock
shall be deemed to be the price equal to the quotient determined by
dividing the Appraised Value by the number of outstanding shares of
Common Stock (on a fully diluted basis including any fractional shares
and assuming the exercise in full of all then-outstanding Warrants and
all other options, warrants or other rights to purchase shares of
Common Stock that are then currently exercisable at exercise prices
equal to or less than the Current Market Price).
"Current Warrant Price" per share of Common Stock, for the
purpose of any provision of this Warrant at the date herein specified, shall
mean the amount equal to the quotient resulting from dividing the Exercise Price
in effect on such date by the number of shares (including any fractional share)
of Common Stock comprising a Stock Unit on such date.
"Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended, and any similar or successor federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be in effect
at any applicable time.
"Exercise Price" shall mean the purchase price per Stock Unit
as set forth on the first page of this Warrant on the Closing Date and
thereafter shall mean such dollar amount as shall result from the adjustments
specified in Section 4.
"Holder" means, initially, each of the Purchasers listed on
Schedule I to the Securities Purchase Agreement and thereafter any Person that
is or Persons that are the registered holder(s) of the Warrants or Warrant Stock
as registered on the books of the Company.
"Nonpreferred Stock" shall mean the Common Stock and shall
also include stock of the Company of any other class which is not preferred as
to dividends or assets over any other class of stock of the Company and which is
not subject to redemption.
"Person" shall include an individual, a corporation, an
association, a partnership, a trust or estate, a government, foreign or
domestic, and any agency or political subdivision thereof, or any other entity.
"Restricted Certificate" shall mean a certificate for Common
Stock or a Warrant bearing the restrictive legend set forth in Section 10.1.
"Restricted Securities" shall mean Restricted Stock and
Restricted Warrants.
"Restricted Stock" shall mean Common Stock evidenced by a
Restricted Certificate.
"Restricted Warrant" shall mean a Warrant evidenced by a
Restricted Certificate.
"Securities" shall mean the Warrant issued to the Holder
pursuant to the Securities Purchase Agreement, and the certificates and other
instruments from time to time evidencing the same.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
any applicable time.
"Securities Purchase Agreement" shall mean the Securities
Purchase Agreement between the Company and the Purchasers, dated as of May 6,
1997.
"Seller" shall mean a holder of Restricted Securities of the
Company for which the Company shall be required to file a registration statement
or which shall be registered under the Securities Act at the request of such
holder pursuant to any of the provisions of Section 10. Neither the Company nor
any of its Affiliates shall be deemed a "Seller" for any purposes of this
Agreement.
"Stock Unit" shall constitute one share of Common Stock, as
such Common Stock was constituted on the Closing Date and thereafter shall
constitute such number of shares (including any fractional shares) of Common
Stock as shall result from the adjustments specified in Section 4.
"Subordinated Note" shall mean that certain 11.5% Senior
Subordinated Note Due May 6, 2000, issued to the Holder of this Warrant on the
date hereof (or any permitted assignee).
"Voting Stock" shall mean any equity security entitling the
holder of such security to vote at meetings of shareholders except an equity
security which entitles the holder of such security to vote only upon the
occurrence of some contingency, unless that contingency shall have occurred and
be continuing.
"Warrants" shall mean the Warrants issued pursuant to the
Securities Purchase Agreement, of which this Warrant is one, evidencing rights
to purchase up to an aggregate of 475,000 Stock Units, and all Warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of Stock Units for which they may be exercised.
"Warrant Stock" shall mean the shares of Common Stock
purchasable by the holder of a Warrant upon the exercise of such Warrant.
Section 2. Exercise of Warrant. The holder of this Warrant may, at any
time on and after Closing Date, but not later than the Expiration Date, exercise
this Warrant in whole at any time or in part from time to time for the number of
Stock Units which such holder is then entitled to purchase hereunder. The Holder
may exercise this Warrant, in whole or in part, by either of the following
methods:
(a) The Holder may deliver to the Company at its office
maintained pursuant to Section 15 for such purpose (i) a written notice
of such Holder's election to exercise this Warrant, which notice shall
specify the number of Stock Units to be purchased, (ii) this Warrant
and, if the Holder desires to tender all or a portion of the
Subordinated Note in consideration of the Exercise Price, the
Subordinated Note, and (iii) a sum equal to the aggregate Exercise
Price therefor in immediately available funds or, in lieu thereof, all
or a portion of the Subordinated Note. For purposes of this
subparagraph (a), the Subordinated Note will be attributed a value
equal to the principal amount of such Subordinated Note, together with
any accrued but unpaid interest through date of exercise of this
Warrant. Additionally, if, upon exercise of the Warrant, the value of
the surrendered Subordinated Note of the Holder is greater than the
aggregate Exercise Price for which the Subordinated Note is being
tendered for payment, then the Company shall issue to the Holder a new
subordinated note, with the same maturity date, interest rate and other
terms as the Holder's Subordinated Note, which represents the remaining
balance of the Subordinated Note; or
(b) The Holder may also exercise this Warrant, in whole or in
part, in a "cashless" or "net-issue" exercise by delivering to the
Company at its office maintained pursuant to Section 15 for such
purpose (i) a written notice of such Holder's election to exercise this
Warrant, which notice shall specify the number of Stock Units to be
delivered to such Holder and the number of Stock Units with respect to
which this Warrant is being surrendered in payment of the aggregate
Exercise Price for the Stock Units to be delivered to the Holder, and
(ii) this Warrant. For purposes of this subparagraph (b), each Stock
Unit as to which this Warrant is surrendered will be attributed a value
equal to the product of (x) the Current Market Price per share of
Common Stock minus the Current Warrant Price per share of Common Stock,
multiplied by (y) the number of shares of Common Stock then comprising
a Stock Unit.
Any notice required under this Section 2 may be in the form of
Subscription set out at the end of this Warrant. Upon delivery thereof, the
Company shall as promptly as practicable and in any event within ten Business
Days thereafter, cause to be executed and delivered to such holder a certificate
or certificates representing the aggregate number of fully-paid and
nonassessable shares of Common Stock issuable upon such exercise.
The stock certificate or certificates for Warrant Stock so
delivered shall be in such denominations as may be specified in said notice and
shall be registered in the name of such holder or, subject to Section 10, such
other name or names as shall be designated in said notice. Such certificate or
certificates shall be deemed to have been issued and such holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares, including to the extent permitted by law the right to
vote such shares or to consent or to receive notice as a stockholder, as of the
time said notice is delivered to the Company as aforesaid. If this Warrant shall
have been exercised only in part, the Company shall, at the time of delivery of
said certificate or certificates, deliver to such holder a new Warrant dated the
date it is issued, evidencing the rights of such holder to purchase the
remaining Stock Units called for by this Warrant, which new Warrant shall in all
other respects be identical with this Warrant, or, at the request of such
holder, appropriate notation may be made on this Warrant and the Warrant shall
be returned to such holder.
The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2.
All shares of Common Stock issuable upon the exercise of this
Warrant shall be validly issued, fully paid and nonassessable, and free from all
liens and other encumbrances thereon.
Except as may otherwise be required by law, the Company will
not close its books against the transfer of this Warrant or of any share of
Warrant Stock in any manner which interferes with the timely exercise of this
Warrant.
The Company shall issue certificates for fractional shares of
stock upon any exercise of this Warrant whenever, in order to implement the
provisions of this Warrant, the issuance of such fractional shares is required.
Section 3. Transfer, Division and Combination. Subject to Section 10,
this Warrant and all rights hereunder are transferable, in whole or in part, on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the office of the Company maintained for such purpose pursuant
to Section 15, together with a written assignment in the form set out at the end
of this Warrant duly executed by the holder hereof or its agent or attorney and
payment of funds sufficient to pay any stock transfer taxes payable upon the
making of such transfer. Upon such surrender and payment the Company shall,
subject to Section 10, execute and deliver a new Warrant or Warrants in the name
of the assignee or assignees and in the denominations specified in such
instrument of assignment, and this Warrant shall promptly be canceled. If and
when this Warrant is assigned in blank (in case the restrictions on
transferability in Section 10 shall have been terminated), the Company may (but
shall not be obliged to) treat the bearer hereof as the absolute owner of this
Warrant for all purposes and the Company shall not be affected by any notice to
the contrary. This Warrant, if properly assigned in compliance with this Section
3 and Section 10, may be exercised by an assignee for the purchase of shares of
Common Stock without having a new Warrant issued.
This Warrant may, subject to Section 10, be divided or
combined with other Warrants upon presentation at the aforesaid office of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued, signed by the holder hereof or its agent
or attorney. Subject to compliance with the preceding paragraph and with Section
10, as to any transfer which may be involved in such division or combination,
the Company shall execute and deliver a new Warrant or Warrants in exchange for
the Warrant or Warrants to be divided or combined in accordance with such
notice.
The Company shall pay all expenses, taxes and other charges
incurred by the Company in the performance of its obligations in connection with
the preparation, issue and delivery of Warrants under this Section 3.
The Company agrees to maintain at its aforesaid office books
for the registration and transfer of the Warrants.
Section 4. Adjustment of Stock Unit or Exercise Price. The number of
shares of Common Stock comprising a Stock Unit shall be subject to adjustment
from time to time as set forth in this Section 4 and in Section 5. The Company
will not take any action with respect to its Nonpreferred Stock of any class
requiring an adjustment pursuant to any of the following Subsections 4.1, or 4.3
without at the same time taking like action with respect to its Nonpreferred
Stock of each other class; and the Company will not create any class of
Nonpreferred Stock which carries any rights to dividends or assets differing in
any respect from the rights of the Common Stock on the Closing Date.
4.1. Stock Dividends, Subdivisions and Combinations. In case
at any time or from time to time the Company shall
(a) take a record of the holders of its Nonpreferred Stock for
the purpose of entitling them to receive a dividend payable in, or other
distribution of, Nonpreferred Stock, or
(b) subdivide its outstanding shares of Nonpreferred Stock
into a larger number of shares of Nonpreferred Stock, or
(c) combine its outstanding shares of Nonpreferred Stock into
a smaller number of shares of Nonpreferred Stock,
then the number of shares of Common Stock comprising a Stock Unit immediately
after the happening of any such event shall be adjusted so as to consist of the
number of shares of Common Stock which a record holder of the number of shares
of Common Stock comprising a Stock Unit immediately prior to the happening of
such event would own or be entitled to receive after the happening of such
event; provided, however, that no such event may take place with respect to any
shares of Nonpreferred Stock unless it shall also take place for all shares of
Nonpreferred Stock.
4.2. Other Provisions Applicable to Adjustments. The following
provisions shall be applicable to the making of adjustments of the number of
shares of Common Stock comprising a Stock Unit hereinbefore provided for in this
Section 4:
(a) When Adjustments to Be Made. The adjustments
required by the preceding Section 4.1 shall be made whenever and as often as any
specified event requiring an adjustment shall occur. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(b) Fractional Interests. In computing adjustments
under this Section 4, fractional interests in Nonpreferred Stock shall be taken
into account to the nearest one-thousandth of a share.
(c) When Adjustment Not Required. If the Company
shall take a record of the holders of its Nonpreferred Stock for the purpose of
entitling them to receive a dividend or distribution pursuant to this Section 4
and shall, thereafter and before the distribution thereof to shareholders,
legally abandon its plan to pay or deliver such dividend or distribution rights,
then thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
4.3. Merger, Consolidation or Disposition of Assets. In case
the Company shall merge or consolidate into another corporation, or shall sell,
transfer or otherwise dispose of all or substantially all of its property,
assets or business to another corporation and pursuant to the terms of such
merger, consolidation or disposition of assets, shares of common stock of the
successor or acquiring corporation are to be received by or distributed to the
holders of Nonpreferred Stock of the Company, then each holder of a Warrant
shall have the right to receive, upon exercise of such Warrant, Stock Units each
comprising the number of shares of common stock of the successor or acquiring
corporation receivable upon or as a result of such merger, consolidation or
disposition of assets by a holder of the number of shares of Nonpreferred Stock
comprising a Stock Unit immediately prior to such event.
Section 5. Notice to Warrant Holders.
5.1. Notice of Adjustment of Stock Unit or Exercise Price.
Whenever the number of shares of Common Stock comprising a Stock Unit, shall be
adjusted pursuant to Section 4, the Company shall forthwith obtain a certificate
signed by independent accountants, of recognized national standing, selected by
the Company and reasonably acceptable to the Holders of the Warrants, setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated and specifying the number of shares of
Common Stock comprising a Stock Unit and (if such adjustment was made pursuant
to Section 4.3) describing the number and kind of any other shares of stock
comprising a Stock Unit, after giving effect to such adjustment or change. The
Company shall promptly, and in any case within three days after the making of
such adjustment, cause a signed copy of such certificate to be delivered to each
holder of a Warrant in accordance with Section 16. The Company shall keep at its
office or agency, maintained for the purpose pursuant to Section 15, copies of
all such certificates and cause the same to be available for inspection at said
office during normal business hours by any holder of a Warrant or any
prospective purchaser of a Warrant designated by a holder thereof.
5.2. Notice of Certain Corporate Action. In case the Company
shall propose (a) to pay any dividend payable in stock of any class to the
holders of its Nonpreferred Stock or to make any other distribution to the
holders of its Nonpreferred Stock payable in stock, or (b) to effect any
reorganization, consolidation, merger or sale, organic change, transfer or other
disposition of all or substantially all of its property, assets or business, or
(c) to effect the liquidation, dissolution or winding up of the Company, then in
each such case, the Company shall deliver to each holder of a Warrant, in
accordance with Section 16, a notice of such proposed action, which shall
specify the date on which a record is to be taken for the purposes of such stock
dividend or distribution, or the date on which such reorganization,
consolidation, merger, sale, organic change, transfer, disposition, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of Nonpreferred Stock, if any such date is to be fixed,
and shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action on the Nonpreferred Stock and
the number and kind of any other shares of stock which will comprise a Stock
Unit after giving effect to any adjustment which will be required as a result of
such action. Such notice shall be so delivered thirty (30) days prior to (i) the
record date for determining holders of the Nonpreferred Stock for purposes of
any action covered by clause (a) or (b) above, and (ii) in the case of any other
such action, the date of the taking of such proposed action or the date of
participation therein by the holders of Nonpreferred Stock, whichever shall be
the earlier.
Section 6. Reservation and Authorization of Nonpreferred Stock;
Registration with or Approval of any Governmental Authority. The Company shall
at all times reserve and keep available for issue upon the exercise of Warrants
such number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. The
Company will not amend its Certificate of Incorporation in any respect relating
to the Common Stock other than to increase or decrease the number of shares of
authorized capital stock (subject to the provisions of the preceding sentence).
All shares of Common Stock which shall be so issuable, when issued upon exercise
of any Warrant or upon such conversion, as the case may be, shall be duly and
validly issued and fully-paid and nonassessable.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock comprising a Stock Unit, the Company
shall obtain all such authorizations or exemptions thereof, or consents thereto,
as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
If any shares of Common Stock required to be reserved for
issue upon exercise of Warrants require registration with any governmental
authority under any federal or state law (otherwise than as provided in Section
10) before such shares may be so issued, the Company will in good faith and as
expeditiously as possible and at its expense endeavor to cause such shares to be
duly registered.
Section 7. Taking of Record; Stock and Warrant Transfer Books. In the
case of all dividends or other distributions by the Company to the holders of
its Nonpreferred Stock with respect to which any provision of Section 4 refers
to the taking of a record of such holders, the Company will in each such case
take such a record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up or as otherwise may be required by law, close its
stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
Section 8. Taxes. The Company will pay all taxes (other than federal,
state, local or foreign income taxes) which may be payable in connection with
the execution and delivery of this Warrant or the issuance and sale of the
Restricted Securities hereunder or in connection with any modification of the
Restricted Securities and will save the Holder harmless without limitation as to
time against any and all liabilities with respect to or resulting from any delay
in paying, or omission to pay, such taxes. The obligations of the Company under
this Section 8 shall survive any redemption, repurchase or acquisition of
Restricted Securities by the Company.
Section 9. Restrictions on Transferability. The Restricted Securities
shall not be transferable except upon the conditions specified in this Section 9
unless such Restricted Securities are properly registered under the Securities
Act of 1933, as amended. Each transferee shall be subject to the same transfer
restrictions imposed on the Holder by this Agreement.
9.1. Restrictive Legend. Unless and until otherwise permitted
by this Section 9, each certificate for Warrants issued under this Agreement,
each certificate for any Warrants issued to any transferee of any such
certificate, each certificate for any Warrant Stock issued upon exercise of any
Warrant and each certificate for any Warrant Stock issued to any transferee of
any such certificate, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
REQUIRED REGISTRATION OR QUALIFICATION UNDER ANY STATE SECURITIES LAWS, OR THE
PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER
FEDERAL OR STATE SECURITIES LAWS."
9.2. Notice of Proposed Transfers; Request for Registration.
(a) Prior to any transfer or attempted transfer of
any Restricted Securities not covered by the proviso contained in the
introductory paragraph to Section 9, the holder of such Restricted Certificate
shall give written
notice to the Company of such holder's intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail.
(b) Upon receipt of such notice, the Company may
request an opinion of counsel of such holder to the effect that such proposed
transfer may be effected without registration under the Securities Act. Upon
receipt of such opinion, or if the Company does not request such an opinion,
within ten (10) Business Days after receiving notice of the proposed transfer,
the Company shall, as promptly as practicable, so notify the holder of such
Restricted Certificate and such holder shall thereupon be entitled to transfer
such Restricted Securities in accordance with the terms of the notice delivered
by such holder to the Company. Each certificate evidencing the Restricted
Securities thus to be transferred (and each certificate evidencing any
untransferred balance of the Restricted Securities evidenced by such Restricted
Certificate) shall bear the restrictive legend set forth in Section 9.1, unless
in the opinion of the Company or the opinion of such counsel, if requested,
pursuant to Rule 144(k) of the Securities Act or otherwise, such legend is not
required in order to ensure compliance with the Securities Act. The fees and
expenses of counsel for any such opinion shall be paid by the Company.
(c) Subject to the limitations contained in Section
9.3 below, if in the opinion of the Company or the opinion of such counsel, if
requested, the proposed transfer of the Restricted Securities evidenced by such
Restricted Certificate may not be effected without registration under the
Securities Act, the Company shall, as promptly as practicable, so notify the
holder thereof. If within 30 days after receipt of such notice to such effect
such holder shall request registration of such Restricted Securities (which
request shall state the intended method of disposition of such securities by the
prospective Seller) and the preconditions to the Company's obligation to effect
such registration specified in Section 9.3 are satisfied, the Company will
immediately use its best efforts to effect the registration of such Restricted
Securities under the Securities Act, all in accordance with the following
provisions of this Section 9.
9.3. Required Registration. The Warrant Stock issuable upon
exercise of the Warrants is subject to the terms and conditions of that certain
Registration Rights Agreement dated as of the date hereof among the Company and
the Purchasers named therein, attached as Exhibit C of the Securities Purchase
Agreement.
9.4. Termination of Restrictions. Notwithstanding the
foregoing provisions of this Section 9, the restrictions imposed by this Section
9 upon the transferability of the Restricted Securities shall cease and
terminate as to any particular Restricted Security when such Restricted Security
shall have been effectively registered under the Securities Act and sold by the
holder thereof in accordance with such registration or sold under Rule 144 or
Rule 144A promulgated by the Commission. Whenever the restrictions imposed by
this Section 9 shall terminate as to any Restricted Certificate, as hereinabove
provided, the holder thereof shall be entitled to receive from the Company,
without expense, a new certificate not bearing the restrictive legend otherwise
required to be borne thereby.
Section 10. Limitation of Liability. No provision hereof, in the
absence of affirmative action by the holder hereof to purchase shares of Common
Stock, and no mere enumeration herein of the rights or privileges of the holder
hereof, shall give rise to any liability of such holder for the purchase price
of the Warrant Stock or as a stockholder of the Company, whether such liability
is asserted by the Company or by creditors of the Company.
Section 11. Loss or Destruction of Warrant Certificates. Upon receipt
of evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Company
(the original Warrant holder's or any other institutional Warrant holder's
indemnity being satisfactory indemnity in the event of loss, theft or
destruction of any Warrant owned by such institutional holder), or, in the case
of any such mutilation, upon surrender and cancellation of such Warrant, the
Company will make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Warrant, a new Warrant of like tenor and representing the right to
purchase the same aggregate number of shares of Common Stock.
Section 12. Furnish Information. The Company agrees that it shall
deliver to the holder of record hereof promptly after their becoming available
copies of all financial statements, reports and proxy statements which the
Company shall have sent to its stockholders generally.
Section 13. Amendments. The terms of this Warrant and all other
Warrants may be amended, and the observance of any term therein may be waived,
but only with the unanimous written consent of the holders of the then
outstanding Warrants evidencing a majority in number of the total number of
Stock Units at the time purchasable upon
the exercise of all then outstanding Warrants, provided that no such action may
change the number of shares of stock comprising a Stock Unit or the Exercise
Price, without the written consent of the holders of Warrants evidencing 100% in
number of the total number of Stock Units at the time purchasable upon the
exercise of all then outstanding Warrants. For the purposes of determining
whether the holders of outstanding Warrants entitled to purchase a requisite
number of Stock Units at any time have taken any action authorized by this
Warrant, any Warrants owned by the Company or any Affiliate of the Company
(other than an institutional investor which may be deemed an Affiliate solely by
reason of the ownership of Warrants) shall be deemed not to be outstanding.
Section 14. Office of the Company. So long as any of the Warrants
remains outstanding, the Company shall maintain an office in Southern California
where the Warrants may be presented for exercise, transfer, division or
combination as in this Warrant provided. Such office shall be at 5334 Starling
Center Drive, Westlake Village, California 91361 unless and until the Company
shall designate and maintain some other office for such purposes and deliver
written notice thereof to the holders of all outstanding Warrants.
Section 15. Notices Generally.
15.1. All communications (including all required or permitted
notices) pursuant to the provisions hereof shall be in writing and shall be
sent,
(a) if to any party to the Securities Purchase
Agreement at its address for notices specified beneath its name on the
signature page of the Securities Purchase Agreement, or at such other
address as it may have furnished in writing to each other party thereto
and all other holders of Warrants and Warrant Stock at the time
outstanding, or
(b) if to any other Person who is the registered
holder of any Warrants or Warrant Stock, to the address of such holder
as it appears in the stock or warrant ledger of the Company.
15.2. Any notice shall be deemed to have been duly delivered
when delivered by hand, if personally delivered, and if sent by mail to a party
whose address is in the same country as the sender, two Business Days after
being deposited in the mail, postage prepaid, and if sent by recognized
international courier, freight prepaid, with a copy sent by telecopier, to a
party whose address is not in the same country as the sender, three Business
Days after the later of (a) being telecopied and (b) delivery to such courier.
SECTION 16. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its President or a Vice President and its corporate seal to be
impressed hereon and attested by its Secretary or an Assistant Secretary.
Dated: May 6, 1997
THE RIGHT START, INC.:
By /s/ Jerry R. Welch
----------------------------
Jerry R. Welch
Chief Executive Officer
ATTEST:
/s/ Gina M. Shauer
- ------------------------
Gina M. Shauer
Chief Financial Officer
and Secretary
EXHIBIT 7
---------
No. of Stock Units: 8,233 Warrant No. 9
WARRANT
to Purchase Common Stock of
THE RIGHT START, INC.
THIS IS TO CERTIFY THAT Strategic Associates, L.P., a Delaware limited
partnership, or registered assigns, is entitled to purchase from The Right
Start, Inc., a California corporation (hereinbelow called the "Company"), at any
time on and after the Closing Date (as defined below), but not later than 5:00
p.m., Los Angeles time, on the date that is five (5) years after the Closing
Date (the "Expiration Date"), 8,233 Stock Units, in whole or in part, at a
purchase price per Stock Unit of $3.00, adjusted as provided below, all on the
terms and conditions hereinbelow provided.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS PURSUANT TO
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY REQUIRED
REGISTRATION OR QUALIFICATION UNDER ANY STATE SECURITIES LAWS, OR THE PROPOSED
TRANSACTION DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER FEDERAL OR
STATE SECURITIES LAWS.
Section 1. Certain Definitions. As used in this Warrant, unless the
context otherwise requires:
"Affiliate" means a Person (1) that directly or indirectly
controls, or is controlled by, or is under common control with, the Company, (2)
that beneficially owns ten percent (10%) or more of the Voting Stock of the
Company, or (3) ten percent (10%) or more of the Voting Stock (or in the case of
a Person which is not a corporation, ten percent (10%) or more of the equity
interest) of which is owned by the Company. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Appraised Value" shall mean the fair market value of all
outstanding shares of Common Stock (on a fully diluted basis including any
fractional shares and assuming the exercise in full of all then-outstanding
Warrants and all other options, warrants or other rights to purchase shares of
Common Stock that are then currently exercisable at exercise prices less than
the Current Market Price), as determined by a written appraisal prepared by an
appraiser acceptable to the Company and the holders of Warrants evidencing a
majority in number of the total number of Stock Units at the time purchasable
upon the exercise of all then outstanding Warrants. "Fair market value" is
defined for this purpose as the price in a single transaction determined on a
going-concern basis that would be agreed upon by the most likely hypothetical
buyer for a 100% controlling interest in the equity capital of the Company (on a
fully diluted basis including any fractional shares and assuming the exercise in
full of all then-outstanding Warrants and all other options, warrants or other
rights to purchase shares of Common Stock that are then currently exercisable at
exercise prices less than the Current Market Price), with consideration given to
the effect of a noncompete covenant signed by the seller and employment
agreements signed by key management personnel of the Company (and of its
subsidiaries), each extending for a period of time considered sufficient by all
parties to effect the transfer of goodwill from the seller to the buyer and
disregarding any discounts for nonmarketability of Common Stock of the Company.
In the event that the Company and said holders cannot, in good faith, agree upon
an appraiser, then the Company, on the one hand, and said holders, on the other
hand, shall each select an appraiser, the two appraisers so selected shall
select a third appraiser who shall be directed to prepare such a written
appraisal (the "Appraisal") and the term Appraised Value shall mean the
appraised value set forth in the Appraisal prepared in accordance with this
definition. Except as otherwise set forth herein, the entire cost of the
appraisal process shall be borne by the Company, but the cost thereof shall be
deemed an account payable of the Company and shall be considered in the
determination of the Appraised Value.
"Board of Directors" shall mean either the board of directors
of the Company or any duly authorized committee of that board.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banks in the State of California are required or
permitted to close.
"Certificate of Incorporation" shall mean the certificate or
articles of incorporation of the Company, as in effect on the Closing Date and
as at any time amended or otherwise modified.
"Closing Date" shall mean have the meaning set forth in the
Securities Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission
and any other similar or successor agency of the federal government
administering the Securities Act and the Exchange Act.
"Common Stock" shall mean the Company's authorized Common
Stock, no par value per share, irrespective of class unless otherwise specified,
as constituted on the date of original issuance of this Warrant, and any stock
into which such Common Stock may thereafter be changed, and shall also include
stock of the Company of any other class, which is not preferred as to dividends
or assets over any other class of stock of the Company issued to the holders of
shares of Common Stock upon any reclassification thereof.
"Company" shall mean The Right Start, Inc., a California
corporation.
"Current Market Price" per share of Common Stock for the
purposes of any provision of this Warrant at the date herein specified, shall be
deemed to be the price determined pursuant to the first applicable of the
following methods:
(i) If the Common Stock is traded on a national
securities exchange or is traded in the over-the-counter market, the
Current Market Price per share of Common Stock shall be deemed to be
the average of the daily market prices for 20 consecutive Business Days
commencing 20 Business Days before such date. The market price for each
such Business Day shall be, (a) if the Common Stock is traded on a
national securities exchange or in the over-the-counter market, its
last sale price on the preceding Business Day on such national
securities exchange or over-the-counter market or, if there was no sale
on that day, the last sale price on the next preceding Business Day on
which there was a sale, all as made available over the Consolidated
Last Sale Reporting System of the CTA Plan (the "CLSRS") or, if the
Common Stock is not then eligible for reporting over the CLSRS, its
last reported sale price on the preceding Business Day on such national
securities exchange or, if there was no sale on that day, on the next
preceding Business Day on which there was a sale reported on such
exchange or (b) if the principal market for the Common Stock is the
over-the-counter market, but the Common Stock is not then eligible for
reporting over the CLSRS, but the Common Stock is quoted on the Nasdaq
National Market ("Nasdaq"), the last sale price reported on Nasdaq on
the preceding Business Day or, if the Common Stock is an issue for
which last sale prices are not reported on Nasdaq, the closing bid
quotation on such day, but, in each of the next preceding two cases, if
the relevant Nasdaq price or quotation did not exist on such day, then
the price or quotation on the next preceding Business Day in which
there was such a price or quotation.
(ii) If the Current Market Price per share of Common Stock
cannot be ascertained by any of the methods set forth in paragraph (i)
immediately above, the Current Market Price per share of Common Stock
shall be deemed to be the price equal to the quotient determined by
dividing the Appraised Value by the number of outstanding shares of
Common Stock (on a fully diluted basis including any fractional shares
and assuming the exercise in full of all then-outstanding Warrants and
all other options, warrants or other rights to purchase shares of
Common Stock that are then currently exercisable at exercise prices
equal to or less than the Current Market Price).
"Current Warrant Price" per share of Common Stock, for the
purpose of any provision of this Warrant at the date herein specified, shall
mean the amount equal to the quotient resulting from dividing the Exercise Price
in effect on such date by the number of shares (including any fractional share)
of Common Stock comprising a Stock Unit on such date.
"Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended, and any similar or successor federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be in effect
at any applicable time.
"Exercise Price" shall mean the purchase price per Stock Unit
as set forth on the first page of this Warrant on the Closing Date and
thereafter shall mean such dollar amount as shall result from the adjustments
specified in Section 4.
"Holder" means, initially, each of the Purchasers listed on
Schedule I to the Securities Purchase Agreement and thereafter any Person that
is or Persons that are the registered holder(s) of the Warrants or Warrant Stock
as registered on the books of the Company.
"Nonpreferred Stock" shall mean the Common Stock and shall
also include stock of the Company of any other class which is not preferred as
to dividends or assets over any other class of stock of the Company and which is
not subject to redemption.
"Person" shall include an individual, a corporation, an
association, a partnership, a trust or estate, a government, foreign or
domestic, and any agency or political subdivision thereof, or any other entity.
"Restricted Certificate" shall mean a certificate for Common
Stock or a Warrant bearing the restrictive legend set forth in Section 10.1.
"Restricted Securities" shall mean Restricted Stock and
Restricted Warrants.
"Restricted Stock" shall mean Common Stock evidenced by a
Restricted Certificate.
"Restricted Warrant" shall mean a Warrant evidenced by a
Restricted Certificate.
"Securities" shall mean the Warrant issued to the Holder
pursuant to the Securities Purchase Agreement, and the certificates and other
instruments from time to time evidencing the same.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
any applicable time.
"Securities Purchase Agreement" shall mean the Securities
Purchase Agreement between the Company and the Purchasers, dated as of May 6,
1997.
"Seller" shall mean a holder of Restricted Securities of the
Company for which the Company shall be required to file a registration statement
or which shall be registered under the Securities Act at the request of such
holder pursuant to any of the provisions of Section 10. Neither the Company nor
any of its Affiliates shall be deemed a "Seller" for any purposes of this
Agreement.
"Stock Unit" shall constitute one share of Common Stock, as
such Common Stock was constituted on the Closing Date and thereafter shall
constitute such number of shares (including any fractional shares) of Common
Stock as shall result from the adjustments specified in Section 4.
"Subordinated Note" shall mean that certain 11.5% Senior
Subordinated Note Due May 6, 2000, issued to the Holder of this Warrant on the
date hereof (or any permitted assignee).
"Voting Stock" shall mean any equity security entitling the
holder of such security to vote at meetings of shareholders except an equity
security which entitles the holder of such security to vote only upon the
occurrence of some contingency, unless that contingency shall have occurred and
be continuing.
"Warrants" shall mean the Warrants issued pursuant to the
Securities Purchase Agreement, of which this Warrant is one, evidencing rights
to purchase up to an aggregate of 475,000 Stock Units, and all Warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of Stock Units for which they may be exercised.
"Warrant Stock" shall mean the shares of Common Stock
purchasable by the holder of a Warrant upon the exercise of such Warrant.
Section 2. Exercise of Warrant. The holder of this Warrant may, at any
time on and after Closing Date, but not later than the Expiration Date, exercise
this Warrant in whole at any time or in part from time to time for the number of
Stock Units which such holder is then entitled to purchase hereunder. The Holder
may exercise this Warrant, in whole or in part, by either of the following
methods:
(a) The Holder may deliver to the Company at its office
maintained pursuant to Section 15 for such purpose (i) a written notice
of such Holder's election to exercise this Warrant, which notice shall
specify the number of Stock Units to be purchased, (ii) this Warrant
and, if the Holder desires to tender all or a portion of the
Subordinated Note in consideration of the Exercise Price, the
Subordinated Note, and (iii) a sum equal to the aggregate Exercise
Price therefor in immediately available funds or, in lieu thereof, all
or a portion of the Subordinated Note. For purposes of this
subparagraph (a), the Subordinated Note will be attributed a value
equal to the principal amount of such Subordinated Note, together with
any accrued but unpaid interest through date of exercise of this
Warrant. Additionally, if, upon exercise of the Warrant, the value of
the surrendered Subordinated Note of the Holder is greater than the
aggregate Exercise Price for which the Subordinated Note is being
tendered for payment, then the Company shall issue to the Holder a new
subordinated note, with the same maturity date, interest rate and other
terms as the Holder's Subordinated Note, which represents the remaining
balance of the Subordinated Note; or
(b) The Holder may also exercise this Warrant, in whole or in
part, in a "cashless" or "net-issue" exercise by delivering to the
Company at its office maintained pursuant to Section 15 for such
purpose (i) a written notice of such Holder's election to exercise this
Warrant, which notice shall specify the number of Stock Units to be
delivered to such Holder and the number of Stock Units with respect to
which this Warrant is being surrendered in payment of the aggregate
Exercise Price for the Stock Units to be delivered to the Holder, and
(ii) this Warrant. For purposes of this subparagraph (b), each Stock
Unit as to which this Warrant is surrendered will be attributed a value
equal to the product of (x) the Current Market Price per share of
Common Stock minus the Current Warrant Price per share of Common Stock,
multiplied by (y) the number of shares of Common Stock then comprising
a Stock Unit.
Any notice required under this Section 2 may be in the form of
Subscription set out at the end of this Warrant. Upon delivery thereof, the
Company shall as promptly as practicable and in any event within ten Business
Days thereafter, cause to be executed and delivered to such holder a certificate
or certificates representing the aggregate number of fully-paid and
nonassessable shares of Common Stock issuable upon such exercise.
The stock certificate or certificates for Warrant Stock so
delivered shall be in such denominations as may be specified in said notice and
shall be registered in the name of such holder or, subject to Section 10, such
other name or names as shall be designated in said notice. Such certificate or
certificates shall be deemed to have been issued and such holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares, including to the extent permitted by law the right to
vote such shares or to consent or to receive notice as a stockholder, as of the
time said notice is delivered to the Company as aforesaid. If this Warrant shall
have been exercised only in part, the Company shall, at the time of delivery of
said certificate or certificates, deliver to such holder a new Warrant dated the
date it is issued, evidencing the rights of such holder to purchase the
remaining Stock Units called for by this Warrant, which new Warrant shall in all
other respects be identical with this Warrant, or, at the request of such
holder, appropriate notation may be made on this Warrant and the Warrant shall
be returned to such holder.
The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2.
All shares of Common Stock issuable upon the exercise of this
Warrant shall be validly issued, fully paid and nonassessable, and free from all
liens and other encumbrances thereon.
Except as may otherwise be required by law, the Company will
not close its books against the transfer of this Warrant or of any share of
Warrant Stock in any manner which interferes with the timely exercise of this
Warrant.
The Company shall issue certificates for fractional shares of
stock upon any exercise of this Warrant whenever, in order to implement the
provisions of this Warrant, the issuance of such fractional shares is required.
Section 3. Transfer, Division and Combination. Subject to Section 10,
this Warrant and all rights hereunder are transferable, in whole or in part, on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the office of the Company maintained for such purpose pursuant
to Section 15, together with a written assignment in the form set out at the end
of this Warrant duly executed by the holder hereof or its agent or attorney and
payment of funds sufficient to pay any stock transfer taxes payable upon the
making of such transfer. Upon such surrender and payment the Company shall,
subject to Section 10, execute and deliver a new Warrant or Warrants in the name
of the assignee or assignees and in the denominations specified in such
instrument of assignment, and this Warrant shall promptly be canceled. If and
when this Warrant is assigned in blank (in case the restrictions on
transferability in Section 10 shall have been terminated), the Company may (but
shall not be obliged to) treat the bearer hereof as the absolute owner of this
Warrant for all purposes and the Company shall not be affected by any notice to
the contrary. This Warrant, if properly assigned in compliance with this Section
3 and Section 10, may be exercised by an assignee for the purchase of shares of
Common Stock without having a new Warrant issued.
This Warrant may, subject to Section 10, be divided or
combined with other Warrants upon presentation at the aforesaid office of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued, signed by the holder hereof or its agent
or attorney. Subject to compliance with the preceding paragraph and with Section
10, as to any transfer which may be involved in such division or combination,
the Company shall execute and deliver a new Warrant or Warrants in exchange for
the Warrant or Warrants to be divided or combined in accordance with such
notice.
The Company shall pay all expenses, taxes and other charges
incurred by the Company in the performance of its obligations in connection with
the preparation, issue and delivery of Warrants under this Section 3.
The Company agrees to maintain at its aforesaid office books
for the registration and transfer of the Warrants.
Section 4. Adjustment of Stock Unit or Exercise Price. The number of
shares of Common Stock comprising a Stock Unit shall be subject to adjustment
from time to time as set forth in this Section 4 and in Section 5. The Company
will not take any action with respect to its Nonpreferred Stock of any class
requiring an adjustment pursuant to any of the following Subsections 4.1, or 4.3
without at the same time taking like action with respect to its Nonpreferred
Stock of each other class; and the Company will not create any class of
Nonpreferred Stock which carries any rights to dividends or assets differing in
any respect from the rights of the Common Stock on the Closing Date.
4.1. Stock Dividends, Subdivisions and Combinations. In case
at any time or from time to time the Company shall
(a) take a record of the holders of its Nonpreferred Stock for
the purpose of entitling them to receive a dividend payable in, or other
distribution of, Nonpreferred Stock, or
(b) subdivide its outstanding shares of Nonpreferred Stock
into a larger number of shares of Nonpreferred Stock, or
(c) combine its outstanding shares of Nonpreferred Stock into
a smaller number of shares of Nonpreferred Stock,
then the number of shares of Common Stock comprising a Stock Unit immediately
after the happening of any such event shall be adjusted so as to consist of the
number of shares of Common Stock which a record holder of the number of shares
of Common Stock comprising a Stock Unit immediately prior to the happening of
such event would own or be entitled to receive after the happening of such
event; provided, however, that no such event may take place with respect to any
shares of Nonpreferred Stock unless it shall also take place for all shares of
Nonpreferred Stock.
4.2. Other Provisions Applicable to Adjustments. The following
provisions shall be applicable to the making of adjustments of the number of
shares of Common Stock comprising a Stock Unit hereinbefore provided for in this
Section 4:
(a) When Adjustments to Be Made. The adjustments required by
the preceding Section 4.1 shall be made whenever and as often as any specified
event requiring an adjustment shall occur. For the purpose of any adjustment,
any specified event shall be deemed to have occurred at the close of business on
the date of its occurrence.
(b) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Nonpreferred Stock shall be taken into
account to the nearest one-thousandth of a share.
(c) When Adjustment Not Required. If the Company shall take a
record of the holders of its Nonpreferred Stock for the purpose of entitling
them to receive a dividend or distribution pursuant to this Section 4 and shall,
thereafter and before the distribution thereof to shareholders, legally abandon
its plan to pay or deliver such dividend or distribution rights, then thereafter
no adjustment shall be required by reason of the taking of such record and any
such adjustment previously made in respect thereof shall be rescinded and
annulled.
4.3. Merger, Consolidation or Disposition of Assets. In case
the Company shall merge or consolidate into another corporation, or shall sell,
transfer or otherwise dispose of all or substantially all of its property,
assets or business to another corporation and pursuant to the terms of such
merger, consolidation or disposition of assets, shares of common stock of the
successor or acquiring corporation are to be received by or distributed to the
holders of Nonpreferred Stock of the Company, then each holder of a Warrant
shall have the right to receive, upon exercise of such Warrant, Stock Units each
comprising the number of shares of common stock of the successor or acquiring
corporation receivable upon or as a result of such merger, consolidation or
disposition of assets by a holder of the number of shares of Nonpreferred Stock
comprising a Stock Unit immediately prior to such event.
Section 5. Notice to Warrant Holders.
5.1. Notice of Adjustment of Stock Unit or Exercise Price.
Whenever the number of shares of Common Stock comprising a Stock Unit, shall be
adjusted pursuant to Section 4, the Company shall forthwith obtain a certificate
signed by independent accountants, of recognized national standing, selected by
the Company and reasonably acceptable to the Holders of the Warrants, setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated and specifying the number of shares of
Common Stock comprising a Stock Unit and (if such adjustment was made pursuant
to Section 4.3) describing the number and kind of any other shares of stock
comprising a Stock Unit, after giving effect to such adjustment or change. The
Company shall promptly, and in any case within three days after the making of
such adjustment, cause a signed copy of such certificate to be delivered to each
holder of a Warrant in accordance with Section 16. The Company shall keep at its
office or agency, maintained for the purpose pursuant to Section 15, copies of
all such certificates and cause the same to be available for inspection at said
office during normal business hours by any holder of a Warrant or any
prospective purchaser of a Warrant designated by a holder thereof.
5.2. Notice of Certain Corporate Action. In case the Company
shall propose (a) to pay any dividend payable in stock of any class to the
holders of its Nonpreferred Stock or to make any other distribution to the
holders of its Nonpreferred Stock payable in stock, or (b) to effect any
reorganization, consolidation, merger or sale, organic change, transfer or other
disposition of all or substantially all of its property, assets or business, or
(c) to effect the liquidation, dissolution or winding up of the Company, then in
each such case, the Company shall deliver to each holder of a Warrant, in
accordance with Section 16, a notice of such proposed action, which shall
specify the date on which a record is to be taken for the purposes of such stock
dividend or distribution, or the date on which such reorganization,
consolidation, merger, sale, organic change, transfer, disposition, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of Nonpreferred Stock, if any such date is to be fixed,
and shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action on the Nonpreferred Stock and
the number and kind of any other shares of stock which will comprise a Stock
Unit after giving effect to any adjustment which will be required as a result of
such action. Such notice shall be so delivered thirty (30) days prior to (i) the
record date for determining holders of the Nonpreferred Stock for purposes of
any action covered by clause (a) or (b) above, and (ii) in the case of any other
such action, the date of the taking of such proposed action or the date of
participation therein by the holders of Nonpreferred Stock, whichever shall be
the earlier.
Section 6. Reservation and Authorization of Nonpreferred Stock;
Registration with or Approval of any Governmental Authority. The Company shall
at all times reserve and keep available for issue upon the exercise of Warrants
such number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. The
Company will not amend its Certificate of Incorporation in any respect relating
to the Common Stock other than to increase or decrease the number of shares of
authorized capital stock (subject to the provisions of the preceding sentence).
All shares of Common Stock which shall be so issuable, when issued upon exercise
of any Warrant or upon such conversion, as the case may be, shall be duly and
validly issued and fully-paid and nonassessable.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock comprising a Stock Unit, the Company
shall obtain all such authorizations or exemptions thereof, or consents thereto,
as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
If any shares of Common Stock required to be reserved for
issue upon exercise of Warrants require registration with any governmental
authority under any federal or state law (otherwise than as provided in Section
10) before such shares may be so issued, the Company will in good faith and as
expeditiously as possible and at its expense endeavor to cause such shares to be
duly registered.
Section 7. Taking of Record; Stock and Warrant Transfer Books. In the
case of all dividends or other distributions by the Company to the holders of
its Nonpreferred Stock with respect to which any provision of Section 4 refers
to the taking of a record of such holders, the Company will in each such case
take such a record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up or as otherwise may be required by law, close its
stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
Section 8. Taxes. The Company will pay all taxes (other than federal,
state, local or foreign income taxes) which may be payable in connection with
the execution and delivery of this Warrant or the issuance and sale of the
Restricted Securities hereunder or in connection with any modification of the
Restricted Securities and will save the Holder harmless without limitation as to
time against any and all liabilities with respect to or resulting from any delay
in paying, or omission to pay, such taxes. The obligations of the Company under
this Section 8 shall survive any redemption, repurchase or acquisition of
Restricted Securities by the Company.
Section 9. Restrictions on Transferability. The Restricted Securities
shall not be transferable except upon the conditions specified in this Section 9
unless such Restricted Securities are properly registered under the Securities
Act of 1933, as amended. Each transferee shall be subject to the same transfer
restrictions imposed on the Holder by this Agreement.
9.1. Restrictive Legend. Unless and until otherwise permitted
by this Section 9, each certificate for Warrants issued under this Agreement,
each certificate for any Warrants issued to any transferee of any such
certificate, each certificate for any Warrant Stock issued upon exercise of any
Warrant and each certificate for any Warrant Stock issued to any transferee of
any such certificate, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
REQUIRED REGISTRATION OR QUALIFICATION UNDER ANY STATE SECURITIES LAWS, OR THE
PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER
FEDERAL OR STATE SECURITIES LAWS."
9.2. Notice of Proposed Transfers; Request for Registration.
(a) Prior to any transfer or attempted transfer of any
Restricted Securities not covered by the proviso contained in the introductory
paragraph to Section 9, the holder of such Restricted Certificate shall give
written notice to the Company of such holder's intention to effect such
transfer. Each such notice shall describe the manner and circumstances of the
proposed transfer in sufficient detail.
(b) Upon receipt of such notice, the Company may request an
opinion of counsel of such holder to the effect that such proposed transfer may
be effected without registration under the Securities Act. Upon receipt of such
opinion, or if the Company does not request such an opinion, within ten (10)
Business Days after receiving notice of the proposed transfer, the Company
shall, as promptly as practicable, so notify the holder of such Restricted
Certificate and such holder shall thereupon be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
such holder to the Company. Each certificate evidencing the Restricted
Securities thus to be transferred (and each certificate evidencing any
untransferred balance of the Restricted Securities evidenced by such Restricted
Certificate) shall bear the restrictive legend set forth in Section 9.1, unless
in the opinion of the Company or the opinion of such counsel, if requested,
pursuant to Rule 144(k) of the Securities Act or otherwise, such legend is not
required in order to ensure compliance with the Securities Act. The fees and
expenses of counsel for any such opinion shall be paid by the Company.
(c) Subject to the limitations contained in Section 9.3 below,
if in the opinion of the Company or the opinion of such counsel, if requested,
the proposed transfer of the Restricted Securities evidenced by such Restricted
Certificate may not be effected without registration under the Securities Act,
the Company shall, as promptly as practicable, so notify the holder thereof. If
within 30 days after receipt of such notice to such effect such holder shall
request registration of such Restricted Securities (which request shall state
the intended method of disposition of such securities by the prospective Seller)
and the preconditions to the Company's obligation to effect such registration
specified in Section 9.3 are satisfied, the Company will immediately use its
best efforts to effect the registration of such Restricted Securities under the
Securities Act, all in accordance with the following provisions of this Section
9.
9.3. Required Registration. The Warrant Stock issuable upon
exercise of the Warrants is subject to the terms and conditions of that certain
Registration Rights Agreement dated as of the date hereof among the Company and
the Purchasers named therein, attached as Exhibit C of the Securities Purchase
Agreement.
9.4. Termination of Restrictions. Notwithstanding the
foregoing provisions of this Section 9, the restrictions imposed by this Section
9 upon the transferability of the Restricted Securities shall cease and
terminate as to any particular Restricted Security when such Restricted Security
shall have been effectively registered under the Securities Act and sold by the
holder thereof in accordance with such registration or sold under Rule 144 or
Rule 144A promulgated by the Commission. Whenever the restrictions imposed by
this Section 9 shall terminate as to any Restricted Certificate, as hereinabove
provided, the holder thereof shall be entitled to receive from the Company,
without expense, a new certificate not bearing the restrictive legend otherwise
required to be borne thereby.
Section 10. Limitation of Liability. No provision hereof, in the
absence of affirmative action by the holder hereof to purchase shares of Common
Stock, and no mere enumeration herein of the rights or privileges of the holder
hereof, shall give rise to any liability of such holder for the purchase price
of the Warrant Stock or as a stockholder of the Company, whether such liability
is asserted by the Company or by creditors of the Company.
Section 11. Loss or Destruction of Warrant Certificates. Upon receipt
of evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Company
(the original Warrant holder's or any other institutional Warrant holder's
indemnity being satisfactory indemnity in the event of loss, theft or
destruction of any Warrant owned by such institutional holder), or, in the case
of any such mutilation, upon surrender and cancellation of such Warrant, the
Company will make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Warrant, a new Warrant of like tenor and representing the right to
purchase the same aggregate number of shares of Common Stock.
Section 12. Furnish Information. The Company agrees that it shall
deliver to the holder of record hereof promptly after their becoming available
copies of all financial statements, reports and proxy statements which the
Company shall have sent to its stockholders generally.
Section 13. Amendments. The terms of this Warrant and all other
Warrants may be amended, and the observance of any term therein may be waived,
but only with the unanimous written consent of the holders of the then
outstanding Warrants evidencing a majority in number of the total number of
Stock Units at the time purchasable upon the exercise of all then outstanding
Warrants, provided that no such action may change the number of shares of stock
comprising a Stock Unit or the Exercise Price, without the written consent of
the holders of Warrants evidencing 100% in number of the total number of Stock
Units at the time purchasable upon the exercise of all then outstanding
Warrants.
For the purposes of determining whether the holders of outstanding Warrants
entitled to purchase a requisite number of Stock Units at any time have taken
any action authorized by this Warrant, any Warrants owned by the Company or any
Affiliate of the Company (other than an institutional investor which may be
deemed an Affiliate solely by reason of the ownership of Warrants) shall be
deemed not to be outstanding.
Section 14. Office of the Company. So long as any of the Warrants
remains outstanding, the Company shall maintain an office in Southern California
where the Warrants may be presented for exercise, transfer, division or
combination as in this Warrant provided. Such office shall be at 5334 Starling
Center Drive, Westlake Village, California 91361 unless and until the Company
shall designate and maintain some other office for such purposes and deliver
written notice thereof to the holders of all outstanding Warrants.
Section 15. Notices Generally.
15.1. All communications (including all required or permitted
notices) pursuant to the provisions hereof shall be in writing and shall be
sent,
(a) if to any party to the Securities Purchase
Agreement at its address for notices specified beneath its name on the
signature page of the Securities Purchase Agreement, or at such other
address as it may have furnished in writing to each other party thereto
and all other holders of Warrants and Warrant Stock at the time
outstanding, or
(b) if to any other Person who is the registered
holder of any Warrants or Warrant Stock, to the address of such holder
as it appears in the stock or warrant ledger of the Company.
15.2. Any notice shall be deemed to have been duly delivered
when delivered by hand, if personally delivered, and if sent by mail to a party
whose address is in the same country as the sender, two Business Days after
being deposited in the mail, postage prepaid, and if sent by recognized
international courier, freight prepaid, with a copy sent by telecopier, to a
party whose address is not in the same country as the sender, three Business
Days after the later of (a) being telecopied and (b) delivery to such courier.
SECTION 16. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its President or a Vice President and its corporate seal to be
impressed hereon and attested by its Secretary or an Assistant Secretary.
Dated: May 6, 1997
THE RIGHT START, INC.:
By /s/ Jerry R. Welch
---------------------------
Jerry R. Welch
Chief Executive Officer
ATTEST:
/s/ Gina M. Shauer
- ---------------------------------------
Gina M. Shauer
Chief Financial Officer
and Secretary
