<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(Rule 13d - 101)
Information To Be Included In Statements Filed Pursuant To
Rule 13d-1(a) And Amendments Thereto Filed Pursuant To Rule 13d-2(a)
(Amendment No. 1)(1)
THE RIGHT START, INC.
(Name of Issuer)
COMMON STOCK
(Title of Class of Securities)
766574206
(CUSIP Number)
Fred Kayne
c/o Fortune Financial
1800 Avenue of the Stars, Suite 1112
Los Angeles, California 90067
(310) 556-2721
December 28, 1998
(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 that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box
[ ].
Note. Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 6 Pages)
- ----------
(1) 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 the 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).
1
<PAGE>
13D
CUSIP NO. 766574206 Page 1 of 1 Page
- ------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
FRED KAYNE
- ------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [_]
- ------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF, OO
- ------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [_]
- ------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES OF AMERICA
- ------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 703,171
-----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
-----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 703,171
-----------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
- ------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
703,171
- ------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[_]
- ------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13.2%
- ------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
2
<PAGE>
ITEM 1. SECURITY AND ISSUER.
The equity securities to which this statement on Schedule 13D relates are
the Common Stock, no par value (the "Common Stock") of The Right Start, Inc., a
California corporation (the "Issuer"), with its principal executive offices
located at 5388 Sterling Center Drive, Unit C, Westlake Village, California
91361.
All common share numbers reported herein have been adjusted for a 1-for-2
reverse stock split effective as of December 15, 1998, unless otherwise
indicated.
ITEM 2. IDENTITY AND BACKGROUND.
(a) This statement is filed on behalf of Fred Kayne.
(b) Mr. Kayne's business address is c/o Fortune Financial, 1800 Avenue of
the Stars, Suite 1112, Los Angeles, California 90067.
(c) Mr. Kayne is President and Chairman of Fortune Financial. Fortune
Financial's principal business is investments and its address is 1800
Avenue of the Stars, Suite 1112, Los Angeles, California 90067. Mr.
Kayne is also President of Fortune Fashions and Chairman of Big Dog
Sportswear. Fortune Fashions' principal business is sportswear
manufacturer and its address is 6501 Flotilla Street, Commerce,
California 90040-1713. Big Dog Sportswear's principal business is the
development and retailing of sportswear and related accessories and its
address is 121 Gray Avenue, Suite 300, Santa Barbara, California 93101.
(d) Mr. Kayne has not been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) during the last five years.
(e) Mr. Kayne has not been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction which resulted in a
judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, Federal or State
securities laws or finding any violation with respect to such laws
during the last five years.
(f) Mr. Kayne is a citizen of the United States of America.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Mr. Kayne acquired 2,500 shares of the Issuer's Series B Convertible
Preferred Stock (convertible as of the date hereof into 83,333 shares of the
Issuer's Common Stock) and 3,500 shares of the Issuer's Series C Convertible
Preferred Stock (convertible as of the date hereof into 175,000 shares of the
Issuer's Common Stock) in connection with the Issuer's recapitalization, which
transaction was completed on December 28, 1998 (the "Recapitalization"). ARBCO
Associates, L.P., Kayne Anderson Non-Traditional Investments, L.P., Kayne
Anderson Offshore Limited, Offense Group Associates, L.P., Opportunity
Associates, L.P., Arthur E. Hall & Company Money Purchase Plan, Strategic
Associates, L.P., Cahill Warnock Strategic Partners Fund, L.P., Michael Targoff
and The Travelers Indemnity Company participated in the Recapitalization
transaction. Pursuant to the Recapitalization, Mr. Kayne exchanged $250,000
principal amount of the Issuer's 11.5% Senior Subordinated Notes together with
warrants to purchase 19,791 shares of Common Stock issued therewith for 2,500
shares of the Series B Convertible Preferred Stock, and $350,000 principal
amount of the non-interest bearing notes together with warrants to purchase
175,000 shares of Common Stock issued therewith (which warrants were at no time
exercisable) for 3,500 shares of Series C Convertible Preferred Stock.
Mr. Kayne paid $416,462 out of his personal funds borrowed from a stock
margin account on collateral at Bear, Stearns & Co. in order to purchase 65,688
shares of Common Stock from the Issuer in the Issuer's rights offering on April
8, 1996.
3
<PAGE>
Mr. Kayne received warrants to purchase 19,791 shares of Common Stock in
connection with his purchase of $250,000 principal amount of the Issuer's 11.5%
Senior Subordinated Notes on May 6, 1997.
Mr. Kayne paid $560,000 out of his personal funds borrowed from a stock
margin account on collateral at Goldman, Sachs & Co. in order to purchase
112,000 shares of Common Stock from the Issuer in a private placement on
September 4, 1997.
Mr. Kayne received warrants to purchase 175,000 shares of Common Stock in
connection with his purchase of $350,000 principal amount of the Issuer's non-
interest bearing notes on April 13, 1998. However, such warrants were at no
time exercisable.
Mr. Kayne has also been granted, since the time of his last report, options
entitling him to purchase an aggregate of 17,150 shares of Common Stock.
ITEM 4. PURPOSE OF TRANSACTION.
Mr. Kayne acquired 2,500 shares of the Issuer's Series B Convertible
Preferred Stock (convertible as of the date hereof into 83,333 shares of the
Issuer's Common Stock) and 3,500 shares of the Issuer's Series C Convertible
Preferred Stock (convertible as of the date hereof into 175,000 of the Issuer's
Common Stock) in connection with the Issuer's Recapitalization. Mr. Kayne
currently intends to hold such securities for investment purposes.
The remainder of the Common Stock acquired by Mr. Kayne was acquired for
investment purposes only and Mr. Kayne has no current plan relating to the
shares of Common Stock other than to hold them for investment purposes.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) Mr. Kayne directly, beneficially owns 703,171 shares of the Issuer's
Common Stock, or approximately 13.2% of the Issuer's outstanding Common Stock.
(b) Mr. Kayne has the sole power to vote and dispose, or direct the
disposition, of 703,171 shares of the Issuer's Common Stock.
(c) The following transactions in the Issuer's Common Stock beneficially
owned by Mr. Kayne were effected in the last 60 days:
<TABLE>
<CAPTION>
Date Type Amount of Securities Price Per Share Where/How Transaction Effected
- ---------------- ----- -------------------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
12/28/98 (1) 19,791 (1) (1)
12/28/98 (2) 83,333 (2) Privately acquired from Issuer
12/28/98 (3) 175,000 (3) Privately acquired from Issuer
- ------------------------------------------
</TABLE>
(1) Represents Common Stock underlying unexercised warrants returned
to the Issuer (together with debt securities issued therewith) in
exchange for 2,500 shares of Series B Convertible Preferred
Stock.
(2) Represents shares of Common Stock that may be acquired upon
conversion of 2,500 shares of Series B Convertible Preferred
Stock, without further payment to the Issuer.
(3) Represents shares of Common Stock may be acquired upon conversion
of 3,500 shares of Series C Convertible Preferred Stock, without
further payment to the Issuer.
4
<PAGE>
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
In connection with the purchase of the Issuer's Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock, Mr. Kayne has entered
into a Shareholders' Agreement dated as of December 28, 1998 with the Issuer and
certain other investors named therein (the "Shareholders' Agreement"). The
Shareholders' Agreement grants preemptive rights on a pro rata basis to each of
the parties to the Shareholder's Agreement who continue to hold any shares of
preferred stock (or shares of Common Stock issued upon conversion of the
preferred stock) with respect to the Issuer's proposed offering of additional
securities (other than employee incentive stock options or other stock options,
securities issued in a public offering of the Issuer's securities, securities of
the Issuer issued in the acquisition of another entity, or securities issued
upon conversion or exercise of securities outstanding on the date of issuance of
such additional securities). Such preemptive rights are terminable upon the
earlier of the transfer or assignment of such holder's shares of preferred stock
(or Common Stock received upon conversion of preferred stock) and December 15,
2003.
Mr. Kayne is a director of the Issuer and is also the brother of Richard
Kayne, a principal of Kayne Anderson Investment Management. Kayne Anderson
Investment Management owns, directly or indirectly, a substantial portion of the
Issuer's Common Stock.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1. The Letter Agreement dated April 6, 1998.
Exhibit 1.1. Amendment to Letter Agreement dated April 13, 1998.
Exhibit 1.2. Amendment to Letter Agreement dated July 7, 1998.
Exhibit 2. Shareholders' Agreement dated December 28, 1998.
5
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated as of the 7th day of January 1999.
By: /s/ Fred Kayne
---------------------------
Fred Kayne
6
<PAGE>
Exhibit 1
THE RIGHT START, INC.
5334 STERLING CENTER DRIVE
WESTLAKE VILLAGE, CALIFORNIA
April 6, 1998
To each of the parties listed
on the signature pages hereto
Gentlemen:
This letter agreement (the "Letter Agreement") is entered into by and among
The Right Start, Inc., a California corporation (the "Company"); ARBCO
Associates, L.P., Kayne Anderson Non-Traditional Investments, L.P., Kayne
Anderson Offshore Limited, Offense Group Associates, L.P., and Opportunity
Associates, L.P., (collectively, the "Purchasers"); Strategic Associates, L.P.
and Cahill Warnock Strategic Partners Fund, L.P., holders of the Company's
Convertible Debentures dated October 11, 1996, as amended on May 30, 1997, in
the aggregate original principal amount of $3,000,000 (the "Convertible
Debentures") (collectively, the "Debenture Holders"); and Fred Kayne, an
individual, Kayne Anderson Non-Traditional Investments, L.P., Kayne Anderson
Offshore Limited, Arthur E. Hall & Company Money Purchase Plan, ARBCO
Associates, L.P., Offense Group Associates, L.P., Opportunity Associates, L.P.,
Strategic Associates, L.P., Michael Targoff, an individual, The Travelers
Indemnity Company, and Cahill Warnock Strategic Partners Fund, L.P., holders of
the Company's 11.5% Senior Subordinated Notes due May 6, 2000 in the aggregate
original principal amount of $3,000,000 (the "Senior Notes") and warrants to
purchase shares of the Company's common stock issued in connection with the
Senior Notes (the "Senior Notes Warrants," and together with the Senior Notes,
the "Senior Notes Securities") (collectively, the "Noteholders"). The Senior
Notes Securities and the Convertible Debentures are collectively referred to
herein as the "Existing Securities." The Noteholders and the Debenture Holders
are collectively referred to herein as the "Existing Securityholders."
The parties hereby agree, subject to the terms and conditions set forth in
this Letter Agreement, that (a) the Company will issue, and the Purchasers will
purchase for an aggregate purchase price of $3,500,000, the Company's Senior
Subordinated Notes due May 6, 2000 (the "New Notes") having an aggregate
principal amount of $3,500,000 and warrants to purchase 3,500,000 shares of the
Company's common stock (the "New Warrants," and together with the New Notes, the
"New Securities"), on the same terms as the Senior Notes and Senior Notes
Warrants, respectively, except that no interest will be payable or accrue with
respect to the New Notes and the New Warrants will be exercisable at $1.00 per
share, subject to adjustment, and (b) the Existing Securityholders will exchange
their Existing Securities for the Preferred Stock (as defined below).
1. Purchase of New Securities
--------------------------
(a) Subject to the conditions set forth in Section 1(b) and the rights of
each Existing Securityholder (other than a Purchaser) set forth in Section 1(c)
of this Letter Agreement, the Company
<PAGE>
agrees to issue, and the Purchasers agree to purchase on April 10, 1998 (the
"Funding Date") New Securities for an aggregate purchase price of $3,500,000, in
the allocations set forth in Schedule I hereto (or in such other allocations as
may be agreed upon by each affected Purchaser). Each New Note shall mature and
be payable upon the same terms as the Senior Notes and subject to the conditions
set forth in this Letter Agreement. In connection with the Recapitalization (as
defined below), each Purchaser agrees to exchange its New Securities for shares
of Series C Preferred Stock as provided below.
(b) The obligations of the Purchasers to purchase, and the Company to
issue, the New Securities on the Funding Date shall be subject to the prior
satisfaction of the following:
(1) the agreement by all of the Existing Securityholders to exchange
their Existing Securities for the Preferred Stock as contemplated herein;
(2) the waiver by all of the Existing Securityholders of their rights
to receive any and all interest payments accrued and owing after February
28, 1998, under the Existing Debt;
(3) the approval by the Board of Directors, including the affirmative
vote of each"disinterested" director on or prior to April 7, 1998, of the
transactions contemplated by this Letter Agreement; and
(4) the receipt by the Board of Directors of the Company of a favorable
opinion rendered by a qualified investment bank as to the fairness of the
Recapitalization, from a financial point of view, to the Company and its
shareholders.
(c) Each Existing Securityholder (other than a Purchaser) shall have the
right to purchase New Securities on the same terms, and subject to the same
conditions, as the Purchasers. Any such Existing Securityholder electing to
purchase New Securities should indicate on the signature page hereof the
principal amount of New Notes (and corresponding number of New Warrants) such
Existing Securityholder desires to purchase; provided that the aggregate
principal amount purchasable by such Existing Securityholder shall not exceed
$3,500,000 (the maximum aggregate principal amount of New Notes to be issued)
multiplied by a fraction equal to (a) the aggregate principal amount of
Convertible Debentures and Senior Notes held by such Existing Securityholder
divided by (b) $6,000,000 (the aggregate principal amount of Convertible
Debentures and Senior Notes held by all Existing Securityholders). To the extent
any such Existing Securityholder elects to purchase New Securities, the
aggregate principal amount of New Notes and corresponding number of New Warrants
to be purchased by the Purchasers shall be reduced on a pro rata basis.
2. Recapitalization
----------------
As soon as reasonably practicable after the Funding Date, the Company
agrees, in consideration for the purchase of the New Securities, to undertake,
and the Purchasers and the Existing Securityholders agree to participate in, the
recapitalization of the Company (the "Recapitalization") as described herein.
The Recapitalization shall include the following and shall be undertaken in the
order set forth below:
(a) The Company shall seek approval for and effect an amendment to the
Company's Articles of Incorporation (the "Charter Amendment") and obtain all
other authorization necessary to issue Preferred Stock in connection with the
Recapitalization, with sufficient number of shares of each series of Preferred
Stock to accommodate the Recapitalization. The Charter Amendment also may
provide for the authorization of the Board of Directors to issue additional
shares of preferred stock from time to time after the Recapitalization, with the
rights, preferences, privileges and other terms of such additional shares
-2-
<PAGE>
to be determined by the Board of Directors, subject to the voting rights of
holders of the Preferred Stock. The Preferred Stock to be authorized in
connection with the Recapitalization shall include each of the following series:
(1) Series A Preferred Stock, par value $0.01 per share, which shall
have the rights, preferences, privileges, limitations and restrictions set
forth on Exhibit A attached hereto and incorporated herein by reference
(the "Series A Preferred Stock");
(2) Series B Preferred Stock, par value $0.01 per share, which shall
have the rights, preferences, privileges, limitations and restrictions set
forth on Exhibit B attached hereto and incorporated herein by reference
(the "Series B Preferred Stock" and together with the Series A Preferred
Stock, the "Preferred Stock"); and
(3) Series C Preferred Stock, par value $0.01 per share, which shall
have the rights, preferences, privileges, limitations and restrictions set
forth on Exhibit C attached hereto and incorporated herein by reference
(the "Series C Preferred Stock").
(b) The Company shall undertake the following simultaneous exchanges:
(1) an exchange whereby all Existing Securityholders shall exchange
their Existing Securities in the aggregate principal amount of $6,000,000,
for either Series A Preferred Stock and/or Series B Preferred Stock (the
"Preferred Stock Exchange"), as elected by each of the Existing
Securityholders on the signature page hereof, having an aggregate
preference upon liquidation ("Liquidation Preference") equal to the
aggregate principal amount of the Senior Notes and Convertible Debentures
so exchanged therefor; and
(2) the Company shall undertake an exchange whereby all holders of the
New Securities shall exchange their New Securities, in the aggregate
principal amount of $3,500,000, for Series C Preferred Stock having an
aggregate Liquidation Preference equal to the aggregate principal amount of
New Notes so exchanged therefor.
3. Exchange of Existing Securities for Preferred Stock
---------------------------------------------------
(a) After the Funding Date, each of the Existing Securityholders agrees as
follows:
(1) to exchange the Existing Securities for Series A Preferred Stock
and/or Series B Preferred Stock, as elected by each of the Existing
Securityholders on the signature pages hereof;
(2) to waive their right to receive any and all interest payments
accrued and owing after February 28, 1998, under the Existing Debt; and
(3) if the Company is unable to issue the Preferred Stock within two-
hundred forty (240) days after the Funding Date for reasons outside of the
control of the Company or the Purchasers, to subordinate the Senior Notes
and Convertible Debentures to the New Notes.
4. Covenants
---------
(a) Each party to this Letter Agreement hereby covenants and agrees as
follows:
-3-
<PAGE>
(1) to execute each of the documents the Company reasonably deems
necessary or desirable to effect the above-described transactions
including, without limitation, a registration rights agreement providing
that upon the request of a majority of the holders of the Series B
Preferred Stock or the Series C Preferred Stock, the Company will file a
shelf registration statement with respect to the shares of the Company's
common stock issuable upon conversion of such Preferred Stock;
(2) to use its reasonable best efforts to obtain all regulatory and
third party approvals as quickly as reasonably practicable, including the
approval of the Company's shareholders, necessary to consummate each of the
transactions contemplated by this Letter Agreement; and
(3) to vote their respective holdings of the Company's common stock in
favor of the transactions contemplated by this Letter Agreement, including
but not limited to the authorization of the Preferred Stock.
5. Representations and Warranties of the Existing Securityholders and the
----------------------------------------------------------------------
Purchasers
- ----------
Each Existing Securityholder and Purchaser represents and warrants for
itself with respect to the exchange of the Existing Securities or the New
Securities for Preferred Stock, as the case may be, that:
(a) such person or entity is an "accredited investor" within the meaning of
Rule 501 of Regulation D promulgated under the Securities Act and was not
organized for the specific purpose of acquiring such securities;
(b) such person or entity has sufficient knowledge and experience so as to
be able to evaluate the risks and merits of investment in the Company, and it is
able financially to bear the risks thereof;
(c) such securities are being acquired for investment purposes for such
person's or entity's own account, without a view to or for resale in connection
with, any distribution thereof, and such person or entity has no present
intention of selling or otherwise distributing the same in violation of the
Securities Act of 1933, as amended (the "Securities Act");
(d) such person or entity has been furnished with or given access to all
information which such person or entity considers necessary relating to the
Company and such securities and all information which such person or entity has
requested, and such person or entity has been afforded the opportunity to meet
with the management of the Company in order to ask all questions and receive all
answers as such person or entity has requested; and
(e) all actions necessary for the authorization, execution, delivery and
performance by such person or entity or entity of this Letter Agreement and the
consummation by it of the transactions contemplated herein have been taken. This
Letter Agreement is a valid and binding obligation of such person or entity,
enforceable in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization and moratorium laws and other laws of
general application affecting the enforcement of creditors' rights generally.
6. Miscellaneous
-------------
This Letter Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to its principles
of conflict of laws.
-4-
<PAGE>
This Letter Agreement constitutes and expresses the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings, inducements, commitments or
conditions, express or implied, oral or written, except as herein contained.
The express terms hereof control and supersede any course of performance or
usage of the trade inconsistent with any of the terms hereof. Neither this
Letter Agreement nor any portion or provision hereof may be changed, altered,
modified, supplemented, discharged, cancelled, terminated, or amended orally or
in any manner other than by an agreement, in writing signed by the parties
hereto.
The provisions of this Letter Agreement are independent of and separable
from each other. If any provision hereof shall for any reason be held invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
or enforceability of any other provision hereof, but this Letter Agreement shall
be construed as if such invalid or unenforceable provision had never been
contained herein.
This Letter Agreement may be executed in any number of counterparts, each
of which shall be an original and all of which, when taken together, shall
constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our agreement,
please so indicate by having an authorized representative sign this Letter
Agreement in the appropriate space provided below, make the required election of
either the Series A Preferred Stock or the Series B Preferred Stock and return
to us this Letter Agreement on or prior to April 6, 1998, whereupon this Letter
Agreement and your acceptance shall represent a binding agreement between you
and the Company with respect to the matters set forth herein; provided, however,
if each of the conditions set forth in Section 1(b) have not been satisfied (or
waived by the Purchasers or the Company, as the case may be) on or prior to the
Funding Date, this Letter Agreement shall be null and void and no party hereto
shall have any rights or obligations hereunder.
THE RIGHT START, INC.
By: /s/ Gina M. Shauer
---------------------------------
Gina M. Shauer
Chief Financial Officer and Vice
President of Finance and Administration
-5-
<PAGE>
AGREED TO AND ACCEPTED AS OF THE DATE
FIRST SET FORTH ABOVE
ARBCO ASSOCIATES, L.P.
By: /s/ David Shladovsky
--------------------------------------
Name: David Shladovsky
------------------------------------
Title:
------------------------------------
In accordance with the terms of this Letter Agreement,
ARBCO Associates, L.P. makes the following election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $ 100%
----------------
KAYNE ANDERSON NON-TRADITIONAL INVESTMENTS, L.P.
By: /s/ David Shladovsky
--------------------------------------
Name: David Shladovsky
------------------------------------
Title:
--------------------------------------
In accordance with the terms of this Letter Agreement,
Kayne Anderson Non-Traditional Investments, L.P.
makes the following election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
KAYNE ANDERSON OFFSHORE LIMITED
By: /s/ William T. Miller
--------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-6-
<PAGE>
In accordance with the terms of this Letter Agreement,
Kayne Anderson Offshore Limited makes the following
election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
OFFENSE GROUP ASSOCIATES, L.P.
By: /s/ David Shladovsky
--------------------------------------
Name: David Shladovsky
------------------------------------
Title:
------------------------------------
In accordance with the terms of this Letter Agreement,
Offense Group Associates, L.P. makes the following
election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
OPPORTUNITY ASSOCIATES, L.P.
By: /s/ David Shladovsky
--------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
In accordance with the terms of this Letter Agreement,
Opportunity Associates, L.P. makes the following
election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
STRATEGIC ASSOCIATES, L.P.
By: /s/ David L. Warnock
--------------------------------------
Name: David L. Warnock
------------------------------------
Title: General Partner
------------------------------------
In accordance with the terms of this Letter Agreement,
Strategic Associates, L.P. makes the following
election:
Series A Preferred Stock $157,500
----------------
Series B Preferred Stock $ 52,500
----------------
-7-
<PAGE>
Principal Amount of New Notes to be
purchased (including corresponding
number of New Warrants):$ 0
------------------
(maximum of $122,500)
Cahill Warnock Strategic Partners Fund, L.P.
By: /s/ David L. Warnock
--------------------------------------
Name: David L. Warnock
------------------------------------
Title: General Partner
------------------------------------
In accordance with the terms of this Letter Agreement,
Cahill Warnock Strategic Partners Fund, L.P. makes
the following election:
Series A Preferred Stock $2,842,500
----------------
Series B Preferred Stock $ 947,500
----------------
Principal Amount of New Notes to be
purchased (including corresponding
number of New Warrants): $ 0
-----------------
(maximum of $2,210,833)
FRED KAYNE
By: /s/ Fred Kayne
--------------------------------------
Name: Fred Kayne
-------------------------------------
Title:
-------------------------------------
-8-
<PAGE>
In accordance with the terms of this Letter Agreement,
Fred Kayne makes the following election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
Principal Amount of New Notes to be
purchased (including corresponding
number of New Warrants): $
-----------------
(maximum of $145,833)
ARTHUR E. HALL & COMPANY MONEY PURCHASE PLAN
By: /s/ Arthur E. Hall
--------------------------------------
Name: Arthur E. Hall
-------------------------------------
Title: Trustee
------------------------------------
In accordance with the terms of this Letter Agreement,
Arthur E. Hall & Company Money Purchase Plan makes
the following election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
Principal Amount of New Notes to be
purchased (including corresponding
number of New Warrants): $ 116,667
-----------------
(maximum of $116,667)
MICHAEL TARGOFF
By: /s/ Michael Targoff
--------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
-9-
<PAGE>
In accordance with the terms of this Letter Agreement,
Michael Targoff makes the following election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
Principal Amount of New Notes to be
purchased (including corresponding
number of New Warrants): $
----------------
(maximum of $87,500)
THE TRAVELERS INDEMNITY COMPANY
By: /s/ Harvey P. Eisen
--------------------------------------
Name: Harvey P. Eisen
-------------------------------------
Title: Senior Vice President
------------------------------------
In accordance with the terms of this Letter Agreement,
The Travelers Indemnity Company makes the following
election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
-10-
<PAGE>
SCHEDULE I
----------
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Purchasers Amount of Notes Purchased
- ---------- -------------------------
<S> <C>
ARBCO Associates, L.P. $1,000,000
Kayne Anderson Non-Traditional
Investments, L.P. 1,000,000
Kayne Anderson Offshore Limited 250,000
Offense Group Associates, L.P. 1,000,000
Opportunity Associates, L.P. 250,000
----------
TOTAL: $3,500,000
==========
</TABLE>
-11-
<PAGE>
EXHIBIT A
THE RIGHT START, INC.
SERIES A PREFERRED STOCK
SUMMARY OF TERMS
ISSUER: The Right Start, Inc., a California corporation (the "Company").
-------
SECURITY: Series A Preferred Stock, par value $0.01 per share (the "Series
------
A Preferred Stock").
------------------
EXCHANGE
PRICE: $1,000 principal amount of Existing Debt per ten shares of Series
A Preferred Stock.
PRIORITY: The Series A Preferred Stock will rank senior to the Company's
common stock (the "Common Stock") and pari passu with the
----------
Company's Series B Preferred Stock and Series C Preferred Stock
with respect to liquidation, and shall be senior or pari passu
----------
with any other preferred stock subsequently issued by the
Company; provided however, that the Series A Preferred Stock
--------
shall be senior to the Series B Preferred Stock and the Series C
Preferred Stock from and after June 1, 2002.
LIQUIDATION
PREFERENCE: $100 per share of Series A Preferred Stock (the "Liquidation
-----------
Value").
-----
VOTING RIGHTS: Consent of the holders of at least a majority of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock voting together as a single class, will be required for (a)
any sale by the Company of a substantial portion of its assets,
(b) any merger of the company with another entity, (c) each
amendment of the company's articles of incorporation, and (d) any
action that (i) increases the authorized number of shares of
preferred stock of the Company of any series, (ii) creates any
new class or series of shares having preference over or being on
a parity with the Series A Preferred Stock, Series B Preferred
Stock, and Series C Preferred Stock, or (iii) creates any
contractually subordinated debt of the company. Such consent
shall not be unreasonably withheld. Except for such consent
rights and such voting rights as may be provided by applicable
law, the Series A Preferred Stock shall have no voting rights as
a separate series except the right to vote as a separate series
within the class of preferred stock as to any matters regarding
the modification of the
-12-
<PAGE>
rights, privileges or terms of the Series A Preferred Stock and
otherwise in accordance with applicable law.
MANDATORY
REDEMPTION: The Series A Preferred Stock shall be redeemed by the Company on
May 31, 2002 for cash (subject to the legal availability of funds
therefor) at a price per share equal to the Liquidation Value.
The Series A Preferred Stock shall also be redeemed by the
Company for cash (subject to the legal availability of funds
therefor) at a price per share equal to the Liquidation
Value upon the occurrence of a Change of Control (as defined
below).
Change of Control shall be defined as:
a) any merger or consolidation of the Company where the
Company is not the surviving corporation or as a result
of which Kayne Anderson and its affiliates cease to
beneficially own (as beneficial ownership is defined in
Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) and control, directly or indirectly, at least
twenty-five (25%) percent 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;
or
b) any sale or transfer of all or substantially all of the
Company's assets or stock.
The Series A Preferred Stock shall also be mandatorily
redeemable by the Company for cash (subject to the legal
availability of funds therefor) at a price per share equal
to the Liquidation Value if the Company shall consummate the
sale or a series of related sales for cash of equity
securities the net proceeds to the Company from which (after
deduction of discounts, commissions and other offering
expenses) shall equal or exceed the sum of $12,000,000 plus
----
the amount of Series A Preferred Stock originally issued
pursuant to the Preferred Stock Exchange.
DIVIDEND: There shall be no dividends on the Series A Preferred Stock
prior to June 1, 2002. Thereafter, dividends on the Series A
Preferred Stock shall cumulate and accrue on a daily basis
without interest, at the rate of $15.00 per share per annum.
After June 1, 2002, the holders of the Series A Preferred
Stock shall be entitled to receive, out of funds legally
available for such purpose, quarterly payments of dividends
on the Series A
-13-
<PAGE>
Preferred Stock. The cumulation and accrual of dividends on the
Series A Preferred Stock after June 1, 2002 shall occur
regardless of whether or not the Company shall have funds legally
available for the payment of dividends.
In no event, so long as any Series A Preferred Stock shall remain
outstanding, shall any dividend whatsoever be declared or paid
upon, nor shall any distribution be made upon, any Common Stock,
other than a dividend or distribution payable in shares of Common
Stock, nor (without the written consent of the holders of 50% of
the outstanding shares of Series A Preferred Stock) shall any
shares of Common Stock be purchased or redeemed by the Company,
nor shall any moneys be paid to or made available for a sinking
fund for the purchase or redemption of any Common Stock.
INFORMATION
RIGHTS: The Company will timely furnish the holders of the Series A
Preferred Stock with annual, quarterly and monthly financial
statements. Representatives of such holders will have the right,
upon reasonable notice, to inspect the books and records of the
Company.
-14-
<PAGE>
EXHIBIT B
THE RIGHT START, INC.
SERIES B CONVERTIBLE PREFERRED STOCK
SUMMARY OF TERMS
ISSUER: The Right Start, Inc., a California corporation (the "Company").
-------
SECURITY: Series B Convertible Preferred Stock, par value $0.01 per share
(the "Series B Preferred Stock").
------------------------
EXCHANGE
PRICE: $1,000 principal amount of Existing Debt per ten shares of Series
B Preferred Stock.
PRIORITY: The Series B Preferred Stock will rank senior to the Company's
common stock (the "Common Stock") and pari passu with the
----------
Company's Series A Preferred Stock and Series C Preferred Stock
with respect to liquidation, and shall be senior to or pari passu
----------
with any other preferred stock subsequently issued by the
Company; provided however, that the Series A Preferred Stock
--------
shall be senior with respect to liquidation to the Series B
Preferred Stock and Series C Preferred Stock from and after June
1, 2002.
LIQUIDATION
PREFERENCE: $100 per share of the Series B Preferred Stock (the "Liquidation
-----------
Value").
------
VOTING RIGHTS: Consent of the holders of at least a majority of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock voting together as a single class, will be required for (a)
any sale by the Company of a substantial portion of its assets,
(b) any merger of the company with another entity, (c) each
amendment of the company's articles of incorporation, and (d) any
action that (i) increases the authorized number of shares of
preferred stock of the Company of any series, (ii) creates any
new class or series of shares having preference over or being on
a parity with the Series A Preferred Stock, Series B Preferred
Stock, and Series C Preferred Stock, or (iii) creates any
contractually subordinated debt of the company. Such consent
shall not be unreasonably withheld. Except for such consent
rights and such voting rights as may be provided by applicable
law, the Series B Preferred Stock shall have no voting rights as
a separate series except the right to vote as a separate series
within the class of Preferred Stock as to any matters regarding
any modification of
-15-
<PAGE>
the rights, privileges or terms of the Series B Preferred Stock
or otherwise in accordance with applicable law.
OPTIONAL
CONVERSION: Series B Preferred Stock shall be convertible in whole or in part
at any time, and from time to time, at the option of the holders
into shares of the Company's Common Stock at a rate equal to
$1.50 per share, the "Conversion Price").
----------------
ANTI-DILUTION
PROVISIONS: The Series B Preferred Stock will be subject to anti-dilution
provisions providing for adjustments to the Conversion Price
upon:
(a) Dividend or distribution of shares of Common Stock to holders
of Common Stock;
(b) Subdivision or combination of the outstanding shares of
Common Stock.
MANDATORY
REDEMPTION: The Series B Preferred Stock shall be mandatorily redeemable by
the Company for cash (subject to the legal availability of funds
therefor) at a price per share equal to the Liquidation Value
upon the occurrence of a Change of Control (as defined below).
In connection with any such event, the Company shall provide the
holders of the Series B Preferred Stock with prior written notice
no later than 30 days in advance of a mandatory redemption due to
a Change of Control.
Change of Control shall be defined as,
a) any merger or consolidation of the Company where the Company
is not the surviving corporation or as a result of which Kayne
Anderson and its affiliates cease to beneficially own (as
beneficial ownership is defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) and control, directly or
indirectly, at least twenty-five (25%) percent 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; or
b) any sale or transfer of all or substantially all of the
Company's assets or stock.
INFORMATION
-16-
<PAGE>
RIGHTS: The Company will timely furnish the holders of the Series B
Preferred Stock with annual, quarterly and monthly financial
statements. Representatives of such holders will have the right,
upon reasonable notice, to inspect the books and records of the
Company.
PREEMPTIVE
RIGHTS: If the Company proposes to offer additional securities (other
than employee incentive stock or stock options, securities issued
in a public offering or the acquisition of another company, or
shares issued upon conversion or exercise of outstanding
securities), the Company will first offer all such securities to
the holders of the Series B Preferred Stock and the Series C
Preferred Stock (or Common Stock issued upon conversion of the
Series B Preferred Stock or Series C Preferred Stock) on a pro
rata basis. Such preemptive rights will not be transferable and
will terminate with respect to any shares of Series B Preferred
Stock or Series C Preferred Stock (or common stock issued upon
conversion of the Series B Preferred Stock or Series C Preferred
Stock), as the case may be, upon the earlier of (a) the transfer
of such shares or (b) the fifth anniversary of the Preferred
Stock Exchange.
-17-
<PAGE>
EXHIBIT C
THE RIGHT START, INC.
SERIES C CONVERTIBLE PREFERRED STOCK
SUMMARY OF TERMS
ISSUER: The Right Start, Inc., a California corporation (the "Company").
-------
SECURITY: Series C Convertible Preferred Stock, par value $0.01 per share
(the "Series C Preferred Stock").
------------------------
EXCHANGE
PRICE: $1000 principal amount of debt, represented by the new Senior
Subordinated Notes due 2000, per ten shares of Series C Preferred
Stock.
PRIORITY: The Series C Preferred Stock will rank senior to the Company's
common stock (the "Common Stock") and pari passu with the
----------
Company's Series A Preferred Stock and Series B Preferred Stock
with respect to liquidation, and shall be senior to or pari passu
----------
with any other preferred stock subsequently issued by the
Company; provided however, that the Series A Preferred Stock
-------- -------
shall be senior with respect to liquidation to the Series B
Preferred Stock and the Series C Preferred Stock from and after
June 1, 2002.
LIQUIDATION
PREFERENCE: $100 per share of Series C Preferred Stock (the "Liquidation
-----------
Value").
-----
VOTING RIGHTS: Consent of the holders of at least a majority of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock voting together as a single class, will be required for (a)
any sale by the Company of a substantial portion of its assets,
(b) any merger of the company with another entity, (c) each
amendment of the company's articles of incorporation, and (d) any
action that (i) increases the authorized number of shares of
preferred stock of the Company of any series, (ii) creates any
new class or series of shares having preference over or being on
a parity with the Series A Preferred Stock, Series B Preferred
Stock, and Series C Preferred Stock, or (iii) creates any
contractually subordinated debt of the company. Such consent
shall not be unreasonably withheld. Except for such consent
rights and such voting rights as may be provided by applicable
law, the Series C Preferred Stock shall have no voting rights as
a separate series except the right to vote as a separate series
within the class of Preferred Stock as to any matters regarding
any modification of
-18-
<PAGE>
the rights, privileges or terms of the Series C Preferred Stock
or otherwise in accordance with applicable law.
OPTIONAL
CONVERSION: The Series C Preferred Stock shall be convertible in whole or in
part at any time, and from time to time, at the option of the
holders into shares of the Company's Common Stock at a rate equal
to $1.00 per share, the "Conversion Price").
----------------
ANTI-DILUTION
PROVISIONS: The Series C Preferred Stock will be subject to anti-dilution
provisions providing for adjustments to the Conversion Price
upon:
(a) Dividend or distribution of shares of Common Stock to holders
of Common Stock;
(b) Subdivision or combination of the outstanding shares of
Common Stock.
MANDATORY
REDEMPTION: The Series C Preferred Stock shall be mandatorily redeemable by
the Company for cash (subject to the legal availability of funds
therefor) at a price per share equal to the Liquidation Value
upon the occurrence of a Change of Control (as defined below).
In connection with any such event, the Company shall give the
holders of the Series C Preferred Stock prior written notice no
later than 30 days in advance of a mandatory redemption due to a
Change of Control.
Change of Control shall be defined as,
a) any merger or consolidation of the Company where the Company
is not the surviving corporation or as a result of which Kayne
Anderson and its affiliates cease to beneficially own (as
beneficial ownership is defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) and control, directly or
indirectly, at least twenty-five (25%) percent 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; or
b) any sale or transfer of all or substantially all of the
Company's assets or stock.
INFORMATION
RIGHTS: The Company will timely furnish the holders of the Series C
Preferred Stock with annual, quarterly and monthly financial
statements.
-19-
<PAGE>
Representatives of such holders will have the right, upon
reasonable notice, to inspect the books and records of the
Company.
PREEMPTIVE
RIGHTS: If the Company proposes to offer additional securities (other
than employee incentive stock or stock options, securities issued
in a public offering or the acquisition of another company, or
shares issued upon conversion or exercise of outstanding
securities), the Company will first offer all such securities to
the holders of the Series B Preferred Stock and the Series C
Preferred Stock (or Common Stock issued upon conversion of the
Series B Preferred Stock or Series C Preferred Stock) on a pro
rata basis. Such preemptive rights will not be transferable and
will terminate with respect to any shares of Series B Preferred
Stock or Series C Preferred Stock (or common stock issued upon
conversion of the Series B Preferred Stock or Series C Preferred
Stock), as the case may be, upon the earlier of (a) the transfer
of such shares or (b) the fifth anniversary of the Preferred
Stock Exchange.
-20-
<PAGE>
Exhibit 1.1
Amendment to Letter Agreement
April 13, 1998
WHEREAS, The Right Start, Inc. (the "Company"), ARBCO Associates, L.P.,
Kayne Anderson Non-Traditional Investments, L.P., Kayne Anderson Offshore
Limited, Offense Group Associates, L.P. and Opportunity Associates, L.P.,
(collectively, the "Purchasers"), and Strategic Associates, L.P., Cahill Warnock
Strategic Partners Fund, L.P., ARBCO Associates, L.P., Kayne Anderson Non-
Traditional Investments, L.P., Kayne Anderson Offshore Limited, Offense Group
Associates, L.P. Opportunity Associates, L.P., Fred Kayne, an individual, Arthur
E. Hall & Company Money Purchase Plan, Michael Targoff, an individual, and The
Travelers Indemnity Company (collectively, the "Existing Securityholders" and
together with the Company and the Purchasers, collectively, the "Letter
Agreement Parties") have entered into a Letter Agreement dated as of April 6,
1998 (the "Letter Agreement"; capitalized words used herein and not otherwise
defined have the meaning ascribed to them in the Letter Agreement); and
WHEREAS, Fred Kayne desires to buy and the Company desires to sell, for a
purchase price of $350,000, additional New Notes in the principal amount of
$350,000 and additional New Warrants to purchase 350,000 shares of the Company's
common stock, on the same terms and conditions as set forth in the Letter
Agreement, bringing the aggregate total offering amount of the New Securities to
$3,850,000;
NOW THEREFOR IN CONSIDERATION OF THE FOREGOING, the Letter Agreement
Parties hereby amend the Letter Agreement as follows:
1. The term "Purchasers" shall include Fred Kayne, an individual, as a
Purchaser of the New Securities on the same terms and conditions set
forth in the Letter Agreement.
2. The aggregate purchase price of the New Notes shall be $3,850,000.
3. The aggregate principal amount of the New Notes shall be $3,850,000.
4. The aggregate principal amount of the New Warrants shall be 3,850,000.
5. The Schedule of Purchasers set forth on Schedule I to the Letter
Agreement shall be amended to include Fred Kayne as an additional
Purchaser of $350,000 of New Notes and to change the total amount of
New Notes purchased to $3,850,000.
Except to the extent set forth above, the Letter Agreement shall continue
in full force and effect, and the Existing Securityholders that opted to
purchase New Securities pursuant to Section 1(c) of the Letter Agreement shall
continue to be obligated to so purchase such New Securities. This Amendment to
the Letter Agreement shall be subject to the same terms and provisions as set
forth in the Letter Agreement and may be executed in any number of
<PAGE>
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one and the same instrument.
THE RIGHT START, INC.
By: /s/ Gina M. Shauer
------------------------------------
Gina Shauer
Chief Financial Officer and Vice
President of Finance and
Administration
-2-
<PAGE>
AGREED TO AND ACCEPTED AS OF THE DATE FIRST SET FORTH ABOVE
ARBCO Associates, L.P.
By: /s/ David Shladovsky
-----------------------------
Name: David Shladovsky
----------------------
Title:
----------------------
Kayne Anderson Non-Traditional
Investments, L.P.
By: /s/ David Shladovsky
-----------------------------
Name: David Shladovsky
----------------------
Title:
----------------------
Kayne Anderson Offshore Limited
By: /s/ W. T. Miller
-----------------------------
Name: W. T. Miller
----------------------
Title:
----------------------
Offense Group Associates, L.P.
By: /s/ David Shladovsky
-----------------------------
Name: David Shladovsky
----------------------
Title:
----------------------
-3-
<PAGE>
Opportunity Associates, L.P.
By: /s/ David Shladovsky
-----------------------------
Name: David Shladovsky
----------------------
Title:
----------------------
Strategic Associates, L.P.
By: /s/ David Warnock
-----------------------------
Name: David Warnock
----------------------
Title: General Partner
---------------------
Cahill Warnock Strategic Partners
Fund, L.P.
By: /s/ David Warnock
-----------------------------
Name: David Warnock
----------------------
Title: General Partner
---------------------
Fred Kayne
By: /s/ Fred Kayne
-----------------------------
Name:
----------------------
Title:
----------------------
Arthur E. Hall & Company Money
Purchase Plan
By: /s/ Arthur E. Hall
-----------------------------
Name: Arthur E. Hall
----------------------
Title: Trustee
---------------------
-4-
<PAGE>
Michael Targoff
By: /s/ Michael Targoff
-----------------------------
Name:
----------------------
Title:
----------------------
The Travelers Indemnity Company
By: /s/ Harvey P. Eisen
-----------------------------
Name: Harvey P. Eisen
----------------------
Title: Senior Vice President
---------------------
-5-
<PAGE>
Exhibit 1.2
THE RIGHT START, INC.
5388 STERLING CENTER DRIVE
WESTLAKE VILLAGE, CALIFORNIA
July 7, 1998
To each of the parties listed
on the signature pages hereto
Re: The Right Start, Inc.
---------------------
Ladies and Gentlemen:
The Right Start, Inc. and the countersigning parties listed below hereby
agree to amend the Company's plan of Recapitalization, as set forth in that
certain Letter Agreement dated April 6, 1998, between you, the Company and the
other investors named therein (as amended on April 13, 1998, the "Letter
Agreement"), in order to amend certain terms of the Series B Preferred Stock of
the Company and the Series C Preferred Stock of the Company.
The terms of each of the Series B Preferred Stock and the Series C
Preferred Stock, as set forth in the Letter Agreement, provided that shares of
each series would be mandatorily redeemable upon the happening of a Change of
Control (as defined in the Letter Agreement). However, upon examination of the
accounting treatment for such shares by the Company's accountants, Price
Waterhouse LLP, the Company's Series B Preferred Stock and the Company's Series
C Preferred Stock can not be treated as equity for financial accounting purposes
under the current structure set forth in the Letter Agreement. Therefore, the
new terms of the Series B Preferred Stock and Series C Preferred Stock, modified
to eliminate the redemption provisions thereof, are attached hereto as Exhibit A
and Exhibit B, respectively.
If the foregoing meets with your approval, please so indicate by having an
authorized representative sign this letter agreement in the appropriate space
provided below and return this signed letter to Gina Shauer at The Right Start,
Inc. on or prior
<PAGE>
to July 8, 1998, whereupon this Letter Agreement and your acceptance shall
represent a binding agreement between you and the Company with respect to the
matters set forth herein.
Sincerely,
THE RIGHT START, INC.
By: /s/ Gina M. Shauer
----------------------------
Gina M. Shauer
Chief Financial Officer
and Vice President of
Finance and
Administration
-2-
<PAGE>
SIGNATURE PAGES TO LETTER AGREEMENT
AGREED TO AND ACCEPTED AS OF THE DATE FIRST SET FORTH ABOVE:
ARBCO ASSOCIATES, L.P.
By: /s/ Robert Sinnott
-----------------------------
Name: Robert Sinnott
----------------------
Title:
----------------------
KAYNE ANDERSON NON-TRADITIONAL
INVESTMENTS, L.P.
By: /s/ Robert Sinnott
-----------------------------
Name: Robert Sinnott
----------------------
Title:
----------------------
KAYNE ANDERSON OFFSHORE LIMITED
By: /s/ William T. Miller
-----------------------------
Name: William T. Miller
-----------------------
Title:
-----------------------
OFFENSE GROUP ASSOCIATES, L.P.
By: /s/ Robert Sinnott
-----------------------------
Name: Robert Sinnott
----------------------
Title:
----------------------
OPPORTUNITY ASSOCIATES, L.P.
By: /s/ Robert Sinnott
-----------------------------
Name: Robert Sinnott
----------------------
Title:
----------------------
-3-
<PAGE>
SIGNATURE PAGES TO LETTER AGREEMENT (CONT'D)
STRATEGIC ASSOCIATES, L.P.
By: /s/ David L. Warnock
-----------------------------
Name: David L. Warnock
----------------------
Title: Partner
----------------------
Cahill Warnock Strategic Partners
FUND, L.P.
By: /s/ David L. Warnock
-----------------------------
Name: David L. Warnock
----------------------
Title: Partner
----------------------
-4-
<PAGE>
SIGNATURE PAGES TO LETTER AGREEMENT (CONT'D)
FRED KAYNE
/s/ Fred Kayne
-----------------------------
-5-
<PAGE>
SIGNATURE PAGES TO LETTER AGREEMENT (CONT'D)
ARTHUR E. HALL & COMPANY MONEY
PURCHASE PLAN
By: /s/ Arthur E. Hall
-----------------------------
Name: Arthur E. Hall
----------------------
Title: Trustee
----------------------
-6-
<PAGE>
SIGNATURE PAGES TO LETTER AGREEMENT (CONT'D)
MICHAEL TARGOFF
/s/ Michael Targoff
-----------------------------
-7-
<PAGE>
SIGNATURE PAGES TO LETTER AGREEMENT (CONT'D)
THE TRAVELERS INDEMNITY COMPANY
By: /s/ David A. Tyson
-----------------------------
Name: David A. Tyson
----------------------
Title: Senior Vice President
----------------------
-8-
<PAGE>
EXHIBIT A
THE RIGHT START, INC.
SERIES B CONVERTIBLE PREFERRED STOCK
REVISED SUMMARY OF TERMS
ISSUER: The Right Start, Inc., a California corporation (the "Company").
-------
SECURITY: Series B Convertible Preferred Stock, par value $0.01 per share
(the "Series B Preferred Stock").
------------------------
EXCHANGE
PRICE: $1,000 principal amount of Existing Debt per ten shares of Series
B Preferred Stock.
PRIORITY: The Series B Preferred Stock will rank senior to the Company's
common stock (the "Common Stock") and pari passu with the
----------
Company's Series A Preferred Stock and Series C Preferred Stock
with respect to liquidation, and shall be senior to or pari passu
----------
with any other preferred stock subsequently issued by the
Company; provided however, that the Series A Preferred Stock
--------
shall be senior with respect to liquidation to the Series B
Preferred Stock and Series C Preferred Stock from and after June
1, 2002.
LIQUIDATION
PREFERENCE: $100 per share of the Series B Preferred Stock (the
"Liquidation Value").
------------------
VOTING RIGHTS: Consent of the holders of at least a majority of the Series
A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock voting together as a single class, will be
required for (a) any sale by the Company of a substantial portion
of its assets, (b) any merger of the company with another entity,
(c) each amendment of the company's articles of incorporation,
and (d) any action that (i) increases the authorized number of
shares of preferred stock of the Company of any series, (ii)
creates any new class or series of shares having preference over
or being on a parity with the Series A Preferred Stock, Series B
Preferred Stock, and Series C Preferred Stock, or (iii) creates
any contractually subordinated debt
-9-
<PAGE>
of the company. Such consent shall not be unreasonably withheld.
Except for such consent rights and such voting rights as may be
provided by applicable law, the Series B Preferred Stock shall
have no voting rights as a separate series except the right to
vote as a separate series within the class of Preferred Stock as
to any matters regarding any modification of the rights,
privileges or terms of the Series B Preferred Stock or otherwise
in accordance with applicable law.
OPTIONAL
CONVERSION: Series B Preferred Stock shall be convertible in whole or in part
at any time, and from time to time, at the option of the holders
into shares of the Company's Common Stock at a rate equal to
$1.50 per share, the ("Conversion Price").
----------------
ANTI-DILUTION
PROVISIONS: The Series B Preferred Stock will be subject to anti-dilution
provisions providing for adjustments to the Conversion Price
upon:
(a) Dividend or distribution of shares of Common Stock to holders
of Common Stock;
(b) Subdivision or combination of the outstanding shares of
Common Stock.
INFORMATION
RIGHTS: The Company will timely furnish the holders of the Series B
Preferred Stock with annual, quarterly and monthly financial
statements. Representatives of such holders will have the right,
upon reasonable notice, to inspect the books and records of the
Company.
PREEMPTIVE
RIGHTS: If the Company proposes to offer additional securities (other
than employee incentive stock or stock options, securities issued
in a public offering or the acquisition of another company, or
shares issued upon conversion or exercise of outstanding
securities), the Company will first offer all such securities to
the holders of the Series B Preferred Stock and the Series C
Preferred Stock (or Common Stock issued upon conversion of the
Series B Preferred Stock or Series C Preferred Stock) on a pro
rata basis. Such preemptive rights will not be transferable
-10-
<PAGE>
and will terminate with respect to any shares of Series B
Preferred Stock or Series C Preferred Stock (or common stock
issued upon conversion of the Series B Preferred Stock or Series
C Preferred Stock), as the case may be, upon the earlier of (a)
the transfer of such shares or (b) the fifth anniversary of the
Preferred Stock Exchange.
-11-
<PAGE>
EXHIBIT B
THE RIGHT START, INC.
SERIES C CONVERTIBLE PREFERRED STOCK
SUMMARY OF TERMS
ISSUER: The Right Start, Inc., a California corporation (the "Company").
-------
SECURITY: Series C Convertible Preferred Stock, par value $0.01 per share
(the "Series C Preferred Stock").
------------------------
EXCHANGE
PRICE: $1000 principal amount of debt, represented by the new Senior
Subordinated Notes due 2000, per ten shares of Series C Preferred
Stock.
PRIORITY: The Series C Preferred Stock will rank senior to the Company's
common stock (the "Common Stock") and pari passu with the
----------
Company's Series A Preferred Stock and Series B Preferred Stock
with respect to liquidation, and shall be senior to or pari passu
----------
with any other preferred stock subsequently issued by the
Company; provided however, that the Series A Preferred Stock
----------------
shall be senior with respect to liquidation to the Series B
Preferred Stock and the Series C Preferred Stock from and after
June 1, 2002.
LIQUIDATION
PREFERENCE: $100 per share of Series C Preferred Stock (the "Liquidation
-----------
Value").
-----
VOTING RIGHTS: Consent of the holders of at least a majority of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock voting together as a single class, will be required for (a)
any sale by the Company of a substantial portion of its assets,
(b) any merger of the company with another entity, (c) each
amendment of the company's articles of incorporation, and (d) any
action that (i) increases the authorized number of shares of
preferred stock of the Company of any series, (ii) creates any
new class or series of shares having preference over or being on
a parity with the Series A Preferred Stock, Series B Preferred
Stock, and Series C Preferred Stock, or (iii) creates any
contractually subordinated debt
-12-
<PAGE>
of the company. Such consent shall not be unreasonably withheld.
Except for such consent rights and such voting rights as may be
provided by applicable law, the Series C Preferred Stock shall
have no voting rights as a separate series except the right to
vote as a separate series within the class of Preferred Stock as
to any matters regarding any modification of the rights,
privileges or terms of the Series C Preferred Stock or otherwise
in accordance with applicable law.
OPTIONAL
CONVERSION: The Series C Preferred Stock shall be convertible in whole or in
part at any time, and from time to time, at the option of the
holders into shares of the Company's Common Stock at a rate equal
to $1.00 per share, (the "Conversion Price").
----------------
ANTI-DILUTION
PROVISIONS: The Series C Preferred Stock will be subject to anti-dilution
provisions providing for adjustments to the Conversion Price
upon:
(a) Dividend or distribution of shares of Common Stock to holders
of Common Stock;
(b) Subdivision or combination of the outstanding shares of
Common Stock.
INFORMATION
RIGHTS: The Company will timely furnish the holders of the Series C
Preferred Stock with annual, quarterly and monthly financial
statements. Representatives of such holders will have the right,
upon reasonable notice, to inspect the books and records of the
Company.
PREEMPTIVE
RIGHTS: If the Company proposes to offer additional securities (other
than employee incentive stock or stock options, securities issued
in a public offering or the acquisition of another company, or
shares issued upon conversion or exercise of outstanding
securities), the Company will first offer all such securities to
the holders of the Series B Preferred Stock and the Series C
Preferred Stock (or Common Stock issued upon conversion of the
Series B Preferred Stock or Series C Preferred Stock) on a pro
rata basis. Such preemptive rights will not be transferable
-13-
<PAGE>
and will terminate with respect to any shares of Series B
Preferred Stock or Series C Preferred Stock (or common stock
issued upon conversion of the Series B Preferred Stock or Series
C Preferred Stock), as the case may be, upon the earlier of (a)
the transfer of such shares or (b) the fifth anniversary of the
Preferred Stock Exchange.
-14-
<PAGE>
Exhibit 2
SHAREHOLDERS AGREEMENT
This SHAREHOLDERS AGREEMENT, dated as of December 28, 1998, is by and
among The Right Start, Inc., a California corporation (the "Company"), and ARBCO
-------
Associates, L.P., Kayne Anderson Non-Traditional Investments, L.P., Kayne
Anderson Offshore Limited, Offense Group Associates, L.P., Opportunity
Associates, L.P., Strategic Associates, L.P., Cahill Warnock Strategic Partners
Fund, L.P., Fred Kayne, an individual, Arthur E. Hall & Company Money Purchase
Plan, Michael Targoff, an individual, and The Travelers Indemnity Company
(collectively, the "Series B Preferred Investors"), and ARBCO Associates, L.P.,
----------------------------
Kayne Anderson Non-Traditional Investments, L.P., Kayne Anderson Offshore
Limited, Offense Group Associates, L.P. Opportunity Associates, L.P., Fred
Kayne, an individual, and Arthur E. Hall & Company Money Purchase Plan,
(collectively, the "Series C Preferred Investors" and, together with the Company
----------------------------
and the Series B Preferred Investors, the "Letter Agreement Parties"). The
------------------------
Series B Preferred Investors and the Series C Preferred Investors are
collectively referred to herein as the "Investors."
----------
W I T N E S S E T H
WHEREAS, each of the Letter Agreement Parties have entered into a
Letter Agreement dated as of April 6, 1998 (as amended through the date hereof,
the "Letter Agreement").
----------------
WHEREAS, pursuant to the Letter Agreement, the Series B Preferred
Investors have agreed to exchange certain of their existing securities of the
Company for 30,000 shares of the Company's Series B Convertible Preferred Stock,
no par value per share (the "Series B Preferred Stock") and the Series C
------------------------
Preferred Investors have agreed to exchange certain of their existing securities
of the Company for 38,500 shares of the Company's Series C Convertible Preferred
Stock, no par value per share (the "Series C Preferred Stock") (such exchange
------------------------
transactions are referred to collectively herein as the "Exchange
--------
Transactions");
WHEREAS, in connection with the Exchange Transactions and in accordance
with the provisions of the Letter Agreement, the Company and the Investors
desire to set forth certain additional rights of the Investors with respect to
the Series B Preferred Stock and the Series C Preferred Stock;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. DEFINITIONS. Unless otherwise defined herein, terms defined
-----------
in the Letter Agreement are used herein as therein defined, and the following
shall have (unless otherwise provided elsewhere in this Shareholders Agreement)
the following respective meanings (such meanings being equally applicable to
both the singular and plural form of the terms defined).
1
<PAGE>
"Agreement" means this Shareholders Agreement, including all
---------
amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to the Agreement as the same may be in effect
at the time such reference becomes operative.
"Common Stock" means the common stock of the Company, no par value per
------------
share.
"Company" has the meaning given to it in the caption of this
-------
Agreement.
"Conversion Stock" has the meaning given to it in Section 2(a) of this
----------------
Agreement.
"Eligible Holder" has the meaning given to it in Section 2(a) of this
---------------
Agreement.
"Initial Holders" means all holders of Preferred Stock on the
---------------
Preferred Stock Issuance Date.
"Investors" has the meaning given to it in the caption of this
---------
Agreement.
"Letter Agreement" has the meaning given to it in the recitals of this
----------------
Agreement.
"Preferred Stock" means collectively the Series B Preferred Stock and
---------------
the Series C Preferred Stock.
"Preferred Stock Issuance Date" means the date on which the Company
-----------------------------
first issues any shares of Preferred Stock.
"Series B Preferred Stock" has the mean given to it in the caption of
------------------------
this Agreement.
"Series C Preferred Stock" has the mean given to it in the caption of
------------------------
this Agreement.
Section 2. PREEMPTIVE RIGHTS.
-----------------
(a) Subject to the limitations of (b) below, if the Company
proposes to offer additional securities (other than employee incentive stock
options or other stock options, securities issued in a public offering of the
Company's securities, securities of the Company issued in the acquisition of
another entity, or securities issued upon conversion or exercise of securities
outstanding on the date of issuance of such additional securities), then the
Company shall first offer (the "Offer") all such additional securities to the
-----
Initial Holders of the Preferred Stock (so long as such Initial Holder (an
"Eligible Holder"), on the date of such Offer (the "Offer Date"), continues to
--------------- ----------
hold any shares of Preferred Stock or shares issued upon conversion of the
Preferred Stock ("Conversion Stock")) on terms no less favorable than the
----------------
Company's proposed offering of additional shares. Such Offer shall be made on a
pro rata basis to all Eligible Holders, such calculation to be determined at any
given time for an Eligible Holder by dividing an amount equal to such Eligible
Holder's Percentage Share by an amount equal to the aggregate of all such
amounts for all Eligible Holders. An Eligible Holder's "Percentage Share" shall
----------------
be calculated for
2
<PAGE>
each Eligible Holder by computing the amount equal to the lesser of (i) the
number of shares of Preferred Stock held by such holder on the Preferred Stock
Issuance Date or (ii) the number of shares of Preferred Stock held by such
Eligible Holder on the Offer Date (plus, if such holder then holds any
Conversion Stock, the number of shares of Preferred Stock which related to such
Conversion Stock prior to conversion of such Preferred Stock into such
Conversion Stock).
(b) Such preemptive rights shall not be transferable or
assignable in whole or in part and shall terminate with respect to any holder of
shares of Preferred Stock (or Conversion Stock, if any) upon the earlier of (1)
the transfer or assignment of such holder's shares of Preferred Stock (or
Conversion Stock) by such initial holder of the Preferred Shares or (2) the
fifth anniversary of the Preferred Stock Issuance Date.
(c) Each Eligible Holder shall have the right to purchase its
Percentage Share of such additional securities on the same terms as those of the
Company's proposed offer for a period of 30 days after the Company has given
written notice to such Eligible Holder of such proposed offer. Such right shall
expire at the end of such 30-day term.
Section 3. LEGEND.
------
Each of the Holders agrees that substantially the following legend
shall be placed on the certificates representing any shares of Preferred Stock
owned by them:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RIGHTS AND
RESTRICTIONS CONTAINED IN A SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 28,
1998 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE ISSUER HEREOF)."
Section 4. MISCELLANEOUS.
-------------
(a) Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not control or affect the meaning or
construction of any provisions hereof.
(b) Notices. Any notice, request, consent, approval or other
-------
communication hereunder to be made pursuant to the provisions of this Agreement
shall be sufficiently given or made if in writing when delivered in person with
receipt acknowledged, two days after mailing or sending if sent by registered or
certified mail, return receipt requested, postage prepaid, the day after sending
if by overnight courier with guaranteed next day delivery or when sent by
facsimile to the party to whom directed if followed by telephone confirmation of
receipt, all at the following address:
(i) If to the Company to it at:
The Right Start, Inc.
5388 Sterling Center Drive, Unit C
Westlake Village, CA 91361
Attn: Corporate Secretary
3
<PAGE>
Telecopy: (818) 707-7132
Telephone: (818) 707-7100
(ii) If to the Investors, to each of them at:
their respective addresses set forth in the records of
the Company or at such other address as may be
substituted by notice given as herein provided.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Every notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, three (3) days after the same shall have been
deposited in the United States mail, one business day after sent by overnight
courier or on the day sent by facsimile.
(c) Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws of the State of California (i.e.,
without regard to its conflicts of law rules).
(d) Amendments; Waivers. This Agreement may not be amended,
-------------------
modified or supplemented, and no waivers of or consents to departures from the
provisions hereof may be given, unless consented to in writing by the Company
and each of the Eligible Holders in existence at the time of such amendment or
waiver.
(e) Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same Agreement.
[END OF TEXT]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Shareholders
Agreement as of the day and year first above written.
THE RIGHT START, INC.
By: /s/ Gina M. Shauer
------------------
Gina Shauer
Chief Financial Officer
5
<PAGE>
AGREED TO AND ACCEPTED AS OF THE DATE FIRST SET FORTH ABOVE
ARBCO Associates, L.P.
By: /s/ David Shladovsky
-----------------------
Name: David Shladovsky
Title:
Kayne Anderson Non-Traditional
Investments, L.P.
By: /s/ David Shladovsky
-----------------------
Name: David Shladovsky
Title:
Kayne Anderson Offshore Limited
By: /s/ David Shladovsky
-----------------------
Name: David Shladovsky
Title:
Offense Group Associates, L.P.
By: /s/ David Shladovsky
-----------------------
Name: David Shladovsky
Title:
6
<PAGE>
Opportunity Associates, L.P.
By: /s/ David Shladovsky
-----------------------
Name: David Shladovsky
Title:
/s/ Fred Kayne
- ---------------------------
Fred Kayne
Arthur E. Hall & Company Money
Purchase Plan
By: /s/ Arthur E. Hall
-----------------------
Name: Arthur E. Hall
Title: Trustee
Strategic Associates, L.P.
By: /s/ David L. Warnock
-----------------------
Name: David L. Warnock
Title:
Cahill Warnock Strategic Partners Fund, L.P.
By: /s/ David L. Warnock
-----------------------
Name: David L. Warnock
Title:
7
<PAGE>
___________________________
Michael Targoff
The Travelers Indemnity Company
By: /s/ David Tyson
-----------------------
Name: David Tyson
Title: Senior Vice President
8
