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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 9, 1999
The Right Start, Inc.
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(Exact Name of Registrant as Specified in Charter)
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California 0-19536 95-3971414
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(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification
Incorporation) No.)
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5388 Sterling Center Drive, Unit C
Westlake Village, California 91361
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(Address of Principal Executive Offices) (Zip Code)
(818) 707-7100
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(Registrant's telephone number, including area code)
Not applicable
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events
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The Registrant's press release relating to the financing of
RightStart.com Inc. has been filed as an exhibit to this Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(c) Exhibits
10.1 Form of Securities Purchase Agreement dated July 9, 1999
(Series A Convertible Preferred Stock of RightStart.com)
10.2 Form of Investors' Rights Agreement dated July 9, 1999
(RightStart.com)
10.3 Management Services Agreement dated July 9, 1999 between The
Right Start, Inc. and RightStart.com Inc.
10.4 Intellectual Property Agreement dated July 9, 1999 between
The Right Start, Inc. and RightStart.com Inc.
99.1 Press Release of the Registrant dated July 12, 1999.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE RIGHT START, INC.
Date: July 12, 1999 /s/ Gina M. Engelhard
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Gina M. Engelhard
Chief Financial Officer and
Secretary
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EXHIBIT INDEX
10.1 Form of Securities Purchase Agreement dated July 9, 1999 (Series A
Convertible Preferred Stock of RightStart.com)
10.2 Form of Investors' Rights Agreement dated July 9, 1999 (RightStart.com)
10.3 Management Services Agreement dated July 9, 1999 between The Right
Start, Inc. and RightStart.com Inc.
10.4 Intellectual Property Agreement dated July 9, 1999 between The Right
Start, Inc. and RightStart.com Inc.
99.1 Press Release of the Registrant dated July 12, 1999.
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Exhibit 10.1
RightStart.com Inc.
SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
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TABLE OF CONTENTS
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Page No.
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1. PURCHASE AND SALE OF STOCK............................................ 1
1.1 Sale and Issuance of Series A Preferred Stock................... 1
1.2 Closing......................................................... 2
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... 2
2.1 Organization; Good Standing; Qualification...................... 2
2.2 Authorization................................................... 2
2.3 Valid Issuance of Preferred and Common Stock.................... 3
2.4 Governmental Consents........................................... 3
2.5 Capitalization and Voting Rights................................ 3
2.6 Subsidiaries.................................................... 4
2.7 Contracts and Other Commitments................................. 4
2.8 Related-Party Transactions...................................... 4
2.9 Registration Rights............................................. 5
2.10 Permits......................................................... 5
2.11 Compliance With Other Instruments............................... 5
2.12 Litigation...................................................... 5
2.13 Securities Act.................................................. 6
2.14 Title to Property and Assets; Leases............................ 6
2.15 Financial Position.............................................. 6
2.16 Patents and Trademarks.......................................... 6
2.17 Employees; Employee Compensation................................ 7
2.18 Taxes........................................................... 7
2.19 Insurance....................................................... 7
2.20 Environmental Compliance........................................ 7
2.21 Books and Records............................................... 7
2.22 Finders......................................................... 8
2.23 Investment Company.............................................. 8
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR........................ 8
3.1 Authorization................................................... 8
3.2 Purchase Entirely for Own Account............................... 8
3.3 Reliance Upon Investors' Representations........................ 8
3.4 Receipt of Information.......................................... 9
3.5 Investment Experience........................................... 9
3.6 Accredited Investor............................................. 9
3.7 Restricted Securities........................................... 10
3.8 Legends......................................................... 11
4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING....................... 11
4.1 Representations and Warranties.................................. 11
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4.2 Performance.................................................... 11
4.3 Compliance Certificate......................................... 12
4.4 Qualifications................................................. 12
4.5 Proceedings and Documents...................................... 12
4.6 Board of Directors............................................. 12
4.7 Other Agreements............................................... 12
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING................... 12
5.1 Representations and Warranties................................. 12
5.2 Qualifications................................................. 12
6. MISCELLANEOUS........................................................ 13
6.1 Entire Agreement............................................... 13
6.2 Survival of Warranties......................................... 13
6.3 Successors and Assigns......................................... 13
6.4 Governing Law.................................................. 13
6.5 Counterparts................................................... 13
6.6 Titles and Subtitles........................................... 13
6.7 Notices........................................................ 13
6.8 Finder's Fees.................................................. 14
6.9 Expenses....................................................... 14
6.10 Amendments and Waivers......................................... 14
6.11 California Corporate Securities Law............................ 14
6.12 Effect of Amendment or Waiver.................................. 15
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Exhibit A Certificate of Designation of Series A Convertible Preferred Stock
Exhibit B Investors' Rights Agreement
Exhibit C Ancillary Agreements
Exhibit D Insurance Coverage
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RightStart.com Inc.
SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is
made as of the 9th day of July, 1999, by and between RightStart.com Inc., a
Delaware corporation (the "Company"), Sierra Ventures VII, L.P., a California
limited partnership ("Sierra LP"), Sierra Ventures Associates VII, L.L.C., a
California limited liability company ("Sierra LLC"), Ajit Shah, an individual
("Shah"), Robert Simon, an individual ("Simon"), and Palomar Ventures I, L.P., a
Delaware limited partnership ("Palomar" and together with Sierra LP, Sierra LLC,
Shah and Simon, the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 Sale and Issuance of Series A Preferred Stock.
(a) The Company shall adopt and file with the Secretary of State of
the State of Delaware on or before the Closing (as defined below) a Certificate
of Designation of Series A Convertible Preferred Stock in the form attached
hereto as Exhibit A (the "Certificate of Designation").
(b) Subject to the terms and conditions of this Agreement, the
Investors agree to purchase shares of the Company's Series A Preferred Stock at
a purchase price of $4.50 per share, as more specifically set forth below:
(i) Sierra LP agrees to purchase at the Closing, and the
Company agrees to sell and issue to Sierra LP at the Closing,
2,423,334 shares of the Company's Series A Preferred Stock.
(ii) Sierra LLC agrees to purchase at the Closing, and the
Company agrees to sell and issue to Sierra LLC at the Closing, 236,667
shares of the Company's Series A Preferred Stock.
(iii) Shah agrees to purchase at the Closing, and the Company
agrees to sell and issue to Shah at the Closing, 3,333 shares of the
Company's Series A Preferred Stock.
(iv) Simon agrees to purchase at the Closing, and the Company
agrees to sell and issue to Simon at the Closing, 3,333 shares of the
Company's Series A Preferred Stock.
(v) Palomar agrees to purchase within twelve (12) days after
Closing, and the Company agrees to sell and issue to Palomar within
twelve (12) days after
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Closing (on such date as payment is rendered), 666,666 shares of the
Company's Series A Preferred Stock.
The Series A Preferred Stock will have the rights, preferences,
privileges and restrictions set forth in the Certificate of Designation. Each
of the Investors agrees to pay in cash by wire transfer of immediately available
funds at Closing (or in the case of Palomar, within twelve (12) days after
Closing) to the Company payment in full for the shares of the Company's Series A
Preferred Stock so purchased by such Investor.
1.2 Closing.
(a) The purchase and sale of the Series A Preferred Stock shall take
place at the offices of Milbank, Tweed, Hadley & McCloy LLP, Los Angeles,
California, at 10 a.m., on July 9, 1999, or at such other time and place as the
Company and the Investor shall mutually agree, either orally or in writing
(which time and place are designated as the "Closing").
Upon receipt of payment for the Series A Preferred Stock on or after
the Closing (in accordance with Section 1.1 above), the Company shall deliver to
an Investor a certificate representing the shares of Series A Preferred Stock
that such Investor is purchasing.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to each Investor that as
of the date of this Agreement, except as set forth on a Schedule of Exceptions
furnished to each Investor and special counsel for the Investors, which
exceptions shall be deemed to supplement and inform the representations and
warranties contained in this Agreement, as if made hereunder:
2.1 Organization; Good Standing; Qualification.
The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware, has all requisite
corporate power and authority to own and operate its properties and to carry on
its business as now conducted and as presently proposed to be conducted, to
execute and deliver this Agreement, the Investors' Rights Agreement (attached
hereto as Exhibit B), and any other agreement to which the Company is a party,
as listed on Exhibit C hereto (the "Ancillary Agreements"), to issue and sell
the Series A Preferred Stock and the Common Stock issuable upon conversion
thereof, and to carry out the provisions of this Agreement, the Investors'
Rights Agreement, the Certificate of Designation and any Ancillary Agreement.
The Company is duly qualified and is authorized to transact business and is in
good standing as a foreign corporation in each jurisdiction in which the failure
to so qualify would have a material adverse effect on its business, properties,
prospects, or financial condition.
2.2 Authorization.
All corporate action on the part of the Company, its officers,
directors and stockholders necessary for the authorization, execution and
delivery of this Agreement, the Investors' Rights Agreement and any Ancillary
Agreement, the performance of all obligations of the Company hereunder and
thereunder at the Closing, and the authorization, issuance (or
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reservation for issuance), sale, and delivery of the Series A Preferred Stock
being sold hereunder and the Common Stock issuable upon conversion thereof, has
been taken or will be taken prior to the Closing, and this Agreement, the
Investors' Rights Agreement, and any Ancillary Agreement, when executed and
delivered, will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting creditors' rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) as to rights to indemnity and contribution
that may be limited by applicable laws.
2.3 Valid Issuance of Preferred and Common Stock.
The Series A Preferred Stock that is being purchased by the Investor
hereunder, when issued, sold, and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable, and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Investors' Rights Agreement and under applicable state and federal securities
laws. The Common Stock issuable upon conversion of the Series A Preferred Stock
being purchased under this Agreement has been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of Series A Preferred
Stock, as set forth in the Certificate of Designation, will be duly and validly
issued, fully paid, and nonassessable and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Investors' Rights Agreement and under applicable state and federal securities
laws.
2.4 Governmental Consents.
No consent, approval, qualification, order or authorization of, or
filing with, any local, state, or federal governmental authority is required on
the part of the Company in connection with the Company's execution, delivery, or
performance by it of its obligations under this Agreement, the offer, sale or
issuance of the Series A Preferred Stock by the Company or the issuance of
Common Stock upon conversion of the Series A Preferred Stock, except (i) the
filing of the Certificate of Designation with the Secretary of State of the
State of Delaware, (ii) such filings as have been made prior to the Closing,
except any notices of sale required to be filed with the Securities and Exchange
Commission under Regulation D of the Securities Act of 1933, as amended (the
"Securities Act"), or such post-closing filings as may be required under
applicable state securities laws, which will be timely filed within the
applicable periods therefor and (iii) such consents, approvals, qualifications,
orders or authorizations which the failure to obtain could reasonably be
expected to have a material adverse effect on the Company.
2.5 Capitalization and Voting Rights.
The authorized capital of the Company consists, or will consist
immediately prior to the Closing, of:
(a) Preferred Stock. Five Million (5,000,000) shares of Preferred
Stock, par value $.01, of which 3,333,333 shares have been designated Series A
Preferred Stock, all of
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which may be sold pursuant to this Agreement. The rights, privileges and
preferences of the Series A Preferred Stock are as stated in the Certificate of
Designation.
(b) Common Stock. Twenty Million (20,000,000) shares of common
stock, par value $.01 ("Common Stock"), of which 5,766,667 shares are issued and
outstanding.
(c) The outstanding shares of Common Stock have been duly authorized
and validly issued, are fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act and any relevant state securities laws or pursuant to valid exemptions
therefrom.
(d) Except for (i) the conversion privileges of the Series A
Preferred Stock, and (ii) the rights provided in the Investors' Rights
Agreement, (iii) 900,600 options to purchase shares of the Company's Common
Stock granted (or to be granted immediately upon Closing) under the
RightStart.com Employee Stock Option Plan (the "Option Plan"), (iv) 182,000
shares of Common Stock issuable upon conversion of the warrant issued or to be
issued to CEA Montgomery Media L.L.C. or its affiliates (the "Warrant") and (v)
288,333 shares of Common Stock which may be transferred by The Right Start, Inc.
to Guidance Solutions, Inc. (at the option of The Right Start, Inc.), there are
no outstanding options, warrants, rights (including conversion or preeemptive
rights and rights of first refusal), proxy or stockholder agreements or
agreements of any kind for the purchase or acquisition from the Company of any
of its securities. In addition, the Company has reserved an additional 917,400
shares of its Common Stock for issuance upon exercise of options to be granted
after the date hereof under the Option Plan. The Company is not a party or
subject to any agreement that affects or relates to the voting or giving of
written consents with respect to any security or the voting by a director of the
Company.
2.6 Subsidiaries.
The Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
association, or other business entity. The Company currently is not a
participant in any joint venture, partnership, or similar arrangement (other
than the transaction set forth in this Agreement).
2.7 Contracts and Other Commitments.
The Company does not have and is not bound by any material contract,
agreement, lease, commitment, or proposed transaction, judgment, order, writ or
decree, written or oral, absolute or contingent, other than those that have been
entered into in the ordinary course of business or are set forth on Schedule 2.7
of the Schedule of Exceptions.
2.8 Related-Party Transactions.
No employee, officer, stockholder or director of the Company or member
of his or her immediately family is indebted to the Company, nor is the Company
indebted or committed to make loans, or other payments, or extend or guarantee
credit to any of them, other than (i) indebtedness or commitments in an amount
less than $10,000 (ii) for payment of salary for services rendered, (iii)
reimbursement for reasonable expenses incurred on behalf of the Company, (iv)
for other standard employee benefits made generally available to all employees
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(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company), (v) pursuant to the terms of
a Management Services Agreement dated July 9, 1999 between The Right Start, Inc.
and the Company (the "Management Services Agreement"), (vi) pursuant to the
terms of an Intellectual Property Agreement dated July 9, 1999 between The Right
Start, Inc. and the Company (the "Intellectual Property Agreement"), and (vii)
those additional agreements set forth on Schedule 2.8 of the Schedule of
Exceptions.
2.9 Registration Rights.
Except as granted to Investors in connection with the transactions
contemplated by this Agreement and the Investors' Rights Agreement, the Company
is presently not under any obligation to file any registration statement under
the Securities Act relating to any outstanding securities of the Company or to
have any outstanding securities of the Company included in any registration
statement filed or to be filed under the Securities Act.
2.10 Permits.
The Company has all franchises, permits, licenses, and any similar
authority necessary for the conduct of its business as now being conducted and
as currently proposed to be conducted by it, the lack of which could materially
and adversely affect the business, properties, prospects, or financial condition
of the Company. To its knowledge, Company is not in default in any material
respect under any of such franchises, permits, licenses or other similar
authority.
2.11 Compliance With Other Instruments.
The Company is not in violation or default (i) in any material respect
of any provision of its Certificate of Incorporation, as amended through the
date hereof (the "Certificate of Incorporation") or Bylaws, (ii) in any material
respect of any provision of any material agreement, instrument, or contract to
which it is a party or by which it is bound, or (iii) to the best of its
knowledge, of any federal or state judgment, order, writ, decree, statute, rule,
regulation or restriction applicable to the Company, the violation of which
would have a material adverse effect on the Company. The execution, delivery,
and performance by the Company of this Agreement, the Investors' Rights
Agreement and any Ancillary Agreement, and the consummation of the transactions
contemplated hereby and thereby, will not result in any such violation or
constitute, with or without the passage of time or giving of notice, either a
material default under any such provision or an event that results in the
creation of any material lien, charge, or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations, or any of its assets or properties.
2.12 Litigation.
There is no litigation or governmental proceeding or investigation
pending or, to the best of the knowledge of the Company, threatened by or
against the Company which, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on the Company. Neither the Company,
nor, to the best knowledge of the Company, any officer
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of the Company, is in default with respect to any material order, writ,
injunction, decree, ruling or decision of any court, commission, board or other
government agency affecting the Company.
2.13 Securities Act.
Subject to the truth and accuracy of the Investor's representations
set forth in this Agreement, the offer, sale and issuance of the Series A
Preferred Stock as set forth in this Agreement are exempt from the registration
requirements of the Securities Act.
2.14 Title to Property and Assets; Leases.
Except (i) for liens for current taxes not yet delinquent, (ii) for
liens imposed by law and incurred in the ordinary course of business for
obligations not past due to carriers, warehousemen, laborers, materialmen and
the like, (iii) for liens in respect of pledges or deposits under workers'
compensation laws or similar legislation or (iv) for minor defects in title,
none of which, individually or in the aggregate, materially interferes with the
use of such property, the Company has good and marketable title to such of its
fixed assets as are real property, and good and merchantable title to all of its
other assets, free of any mortgages, pledges, charges, claims, liens, security
interests or other encumbrances, except as could not reasonably be expected to
have a material adverse effect on the Company. The Company enjoys peaceful and
undisturbed possession under all leases under which it is the lessee, and all
said leases are valid and subsisting and in full force and effect, subject to
clauses (i)(iv) above, and except as would not have a material adverse effect on
the Company.
2.15 Financial Position.
The Company is not a guarantor or indemnitor of any indebtedness of
any other firm, person or corporation, except as set forth on Schedule 2.15 of
the Schedule of Exemptions. The Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
generally accepted accounting principles.
2.16 Patents and Trademarks.
To the best of its knowledge, the Company owns or has a valid right to
use the patents, patent rights, licenses, permits, trade secrets, trademarks,
trade names, franchises, copyrights, inventions and intellectual property rights
(collectively, "Intellectual Property Rights") being used to conduct its
business as now operated and as now proposed to be operated, except Intellectual
Property Rights that could not reasonably be expected to have a material adverse
effect on the Company and as are being granted to the Company pursuant to the
Intellectual Property Agreement; and to the best of the Company's knowledge, the
conduct of its business as now operated and as now proposed to be operated does
not and will not materially conflict with Intellectual Property Rights of
others. The Company has not received any communications alleging that the
Company has violated, or by conducting its business as proposed, would violate
any of the Intellectual Property Rights of any other person or entity. The
Company has no obligation to compensate any person for the use of any
Intellectual Property Rights, except as required pursuant to the terms of the
Intellectual Property Agreement and the agreement(s) between The Right Start,
Inc. and Guidance Solutions, Inc. regarding the development of the Company's web
site. The Company has not granted to any person any
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license or right to use any Intellectual Property Rights of the Company except
as required by the terms of the Intellectual Property Agreement and the
agreement(s) between the Right Start, Inc. and Guidance Solutions, Inc.
regarding the development of the Company's web site.
2.17 Employees; Employee Compensation.
To the best of the Company's knowledge, there is no strike, labor
dispute or union organization activities pending or threatened between it and
its employees. None of the Company's employees belongs to any union or
collective bargaining unit. There are no unfair labor practice charges, pending
trials with respect to unfair labor practice charges, pending material grievance
proceedings or adverse decisions of a Trial Examiner of the National Labor
Relations Board against the Company. The Company is not a party to or bound by
any currently effective employment contract, deferred compensation agreement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation agreement other than the Option Plan. Subject to general
principles related to wrongful termination of employees, the employment of each
officer and employee of the Company is terminable at the will of the Company.
To the best knowledge of the Company, relations with employees of the Company
are good.
2.18 Taxes.
The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended (the "Code"), to be treated as an S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections that related solely to methods of accounting, depreciation, or
amortization) that would have a material effect on the business, properties,
prospects, or financial condition of the Company. The Company has never had any
tax deficiency proposed or assessed against it and has not executed any waiver
of any statute of limitations on the assessment or collection of any tax or
governmental charge.
2.19 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 on Exhibit D.
2.20 Environmental Compliance.
To the best of its knowledge, the Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to the best of its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
2.21 Books and Records.
The books of account, ledgers, order books, records and documents of
the Company accurately reflect all material information relating to the business
of the Company, the
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nature, acquisition, maintenance, location and collection of the assets of the
Company, and the nature of all transactions giving rise to the obligations or
accounts receivable of the Company.
2.22 Finders.
The Company has not entered into any agreements for which the Company,
its officers, directors, or the Investor will be liable for finders fees
relating to the transactions set forth in this Agreement, other than the
Company's agreement with CEA Montgomery Media, L.L.C.
2.23 Investment Company.
The Company is not an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended, or the regulations promulgated thereunder.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
Each Investor hereby represents and warrants to the Company,
separately and not jointly, that:
3.1 Authorization.
The Investor has full power and authority to enter into this
Agreement, and that this Agreement, when executed and delivered, will constitute
a valid and legally binding obligation of the Investor.
3.2 Purchase Entirely for Own Account.
This Agreement is made with the Investor in reliance upon the
Investor's representation to the Company, which by its execution of this
Agreement the Investor hereby confirms, that the Series A Preferred Stock to be
purchased by the Investor and the Common Stock issuable upon conversion thereof
(collectively, the "Securities") will be acquired for investment for the
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that the Investor has no present
intention of selling, granting any participating in, or otherwise distributing
the same. By executing this Agreement, the Investor further represents that the
Investor does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such person or to any
third person, with respect to any of the Securities.
3.3 Reliance Upon Investors' Representations.
The Investor understands that the Series A Preferred Stock is not, and
any Common Stock acquired on conversion thereof at the time of issuance will not
be, registered under the Securities Act on grounds that the sale provided for in
this Agreement and the issuance of securities hereunder is exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, and that
the Company's reliance on such exemption is predicated on the Investors'
representations set forth herein. The Investor realizes that the basis for the
exemption may not
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be present if, notwithstanding such representations, the Investor has in mind
merely acquiring shares of the Series A Preferred Stock for a fixed or
determinable period in the future, or for a market rise, or for sale if the
market does not rise. The Investor has no such intention.
3.4 Receipt of Information.
The Investor believes that it has received all the information the
Investor considers necessary or appropriate for deciding whether to purchase the
Series A Preferred Stock. The Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Series A Preferred Stock and the
business, properties, prospects, and financial condition of the Company and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to the Investor or
to which it had access.
3.5 Investment Experience.
The Investor represents that it is experienced in evaluating and
investing in private placement transactions of securities of companies in a
similar stage of development and acknowledges that it is able to fend for
itself, can bear the economic risk of the Investor's investment, and has such
knowledge and experience in financial and business matters that the Investor is
capable of evaluating the merits and risks of the investment in the Series A
Preferred Stock. The Investor also represents that it has not been organized
for the purpose of acquiring the Series A Preferred Stock.
3.6 Accredited Investor.
(a) The term "Accredited Investor" as used herein refers to:
(i) A person or entity who is a director or executive officer
of the Company;
(ii) Any bank as defined in Section 3(a)(2) of the Securities
Act, or any savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act whether acting in
its individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934; any
insurance company as defined in Section 2(13) of the Securities Act;
any investment company registered under the Investment Company Act of
1940 or a business development company as defined in Section 2(a)(48)
of that Act; any Small Business Investment Company licensed by the
U.S. Small Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of
$5,000,000; any employee benefit plan within the meaning of Title I of
the Employee Retirement Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association,
insurance company, or registered
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investment adviser, or if the employee benefit plan has total assets
in excess of $5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are accredited investors;
(iii) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(iv) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000;
(v) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of the purchase
exceeds $1,000,000;
(vi) Any natural person who had an individual income in excess
of $200,000 in each of the two most recent years or joint income with
that person's spouse in excess of $300,000 in each of those years and
has a reasonable expectation or reaching the same income level in the
current year;
(vii) Any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a person who has such knowledge
and experience in financial and business matters that he or she is
capable of evaluating the merits and risks of the prospective
investment; or
(viii) Any entity in which all of the equity owners are
accredited investors.
As used in this Paragraph 3.6(a), the term "net worth" means the
excess of total assets over total liabilities. For the purpose of determining a
person's net worth, the principal residence owned by an individual should be
valued at fair market value, including the cost of improvements, net of current
encumbrances. As used in this Paragraph 3.6(a), "income" means actual economic
income, which may differ from adjusted gross income for income tax purposes.
Accordingly, the Investor should consider whether it should add any or all of
the following items to the Investor's gross income for income tax purposes in
order to reflect more accurately the Investor's actual economic income: any
amounts attributable to tax-exempt income received, losses claimed as a limited
partner in any limited partnership, deductions claimed for depletion,
contributions to an IRA or Keogh retirement plan, and alimony payments.
(b) The Investor further represents to the Company that, except as
otherwise disclosed to the Company in writing prior to the Investor's execution
hereof, it is an Accredited Investor.
3.7 Restricted Securities
The Investor understands that the Series A Preferred Stock (and any
Common Stock issued on conversion thereof) may not be sold, transferred, or
otherwise disposed of
10
<PAGE>
without registration under the Securities Act or an exemption therefrom, and
that in the absence of an effective registration statement covering the Series A
Preferred Stock (or the Common Stock issued on conversion thereof) or an
available exemption from registration under the Securities Act, the Series A
Preferred Stock (and any Common Stock issued on conversion thereof) must be held
indefinitely. In particular, the Investor is aware that the Series A Preferred
Stock (and any Common Stock issued on conversion thereof) may not be sold
pursuant to Rule 144 promulgated under the Securities Act unless all of the
conditions of that Rule are met. Among the conditions for use of Rule 144 may be
the availability of current information to the public about the Company. Such
information is not now available and the Company has no present plans to make
such information available.
3.8 Legends.
To the extent applicable, each certificate or other document
evidencing any of the Series A Preferred Stock or any Common Stock issued upon
conversion thereof shall be endorsed with the legends substantially in the form
set forth below:
(a) The following legend under the Securities Act:
"The shares represented here have not been registered under the
Securities Act of 1933, as amended, and may not be sold, transferred,
assigned, pledged, or hypothecated unless and until registered under
such Act, or unless the Company has received an opinion of counsel or
other evidence, satisfactory to the Company and its counsel, that such
registration is not required."
(b) Any legend imposed or required by the Company's Bylaws or
applicable state securities laws.
4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING.
The obligations of the Investors under subparagraph 1.1(b) of this
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions, the waiver of which shall not be effective against the
Investors if each does not consent in writing thereto:
4.1 Representations and Warranties.
The representations and warranties of the Company contained in Section
2 shall be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance.
The Company shall have performed and complied with all agreements,
obligations, and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the Closing.
11
<PAGE>
4.3 Compliance Certificate.
The President of the Company shall deliver to the Investor at the
Closing a certificate certifying that the conditions specified in this Section 4
have been fulfilled.
4.4 Qualifications.
All authorizations, approvals or permit, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful issuance and sale of the Series A
Preferred Stock pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
4.5 Proceedings and Documents.
All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Investors'
counsel.
4.6 Board of Directors.
Effective as of the Closing, the directors of the Company shall be
Jerry Welch, Richard Kayne, Fred Kayne, David Schwab, Robert Simon and the
Company's Chief Executive Officer.
4.7 Other Agreements.
The Company and the Investors shall have entered into the Investors'
Rights Agreement substantially in the form attached hereto as Exhibit B. The
Company and the Investor shall have entered into each of the Ancillary
Agreements listed on Exhibit C to which such party is a signatory.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company to the Investors under this Agreement
are subject to the fulfillment, on or before the Closing, of each of the
following conditions by each of the Investors:
5.1 Representations and Warranties.
The representations and warranties of each of the Investors contained
in Section 3 shall be true on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of the date
of the Closing.
5.2 Qualifications.
All authorizations, approvals, or permits, if any, of any governmental
authority or regulatory body of the United States or of any state or the
approval or authorization of any other
12
<PAGE>
entity that are required in connection with the lawful issuance and sale of the
Series A Preferred Stock pursuant to this Agreement shall be duly obtained and
effected as of the Closing.
6. MISCELLANEOUS.
6.1 Entire Agreement.
This Agreement and the documents referred to herein constitute the
entire agreement among the parties and no party shall be liable or bound to any
other party in any manner by any warranties, representations, or covenants
except as specifically set forth herein or therein.
6.2 Survival of Warranties.
The warranties, representations, and covenants of the Company and the
Investors contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing.
6.3 Successors and Assigns.
The parties to this Agreement may not assign or transfer their rights
or obligations under this Agreement without the prior written consent of the
other parties hereto. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.4 Governing Law.
This Agreement shall be governed by and construed under the laws of
the State of Delaware (excluding the choice of law provisions thereof).
6.5 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.
6.6 Titles and Subtitles.
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
6.7 Notices.
Unless otherwise provided, all notices and other communications
required or permitted under this Agreement shall be in writing and shall be sent
by facsimile or delivered personally by hand or by a nationally recognized
courier addressed to the party to be notified at the address or facsimile number
indicated for such person on the signature page hereof, or at
13
<PAGE>
such other address or facsimile number as such party may designate by ten (10)
days' advance written notice to the other parties hereto. All such notices and
other written communications shall be effective 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 facsimile) 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.
6.8 Finder's Fees.
The investors agree to indemnify and to hold harmless the Company from
any liability for any commission or compensation in the nature of a finder's fee
(and the cost and expenses of defending against such liability or asserted
liability) for which the Investors or any of their officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless the Investors from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees, or
representatives is responsible.
6.9 Expenses.
The Company and each of the Investors shall pay all their own costs
and expenses (excluding attorneys' fees and expenses) in connection with the
preparation, execution and delivery of this Agreement, the Investor's Rights
Agreement and other Ancillary Agreements and other documents to be delivered
hereunder or thereunder. The Company agrees to pay all its own attorneys' fees
and expenses and up to $20,000 of the Investors' reasonable attorneys' fees and
expenses incurred in connection with the preparation, execution and delivery of
this Agreement, the Investors' Rights Agreement and the other Ancillary
Agreements and other documents to be delivered hereunder or thereunder. The
Investors agree to pay all of their own attorneys' fees and expenses in excess
of $20,000 relating to the transaction described in the foregoing sentence.
6.10 Amendments and Waivers.
Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of more than fifty percent (50%) of the
Common Stock not previously sold to the public that is issued or issuable upon
conversion of the Series A Preferred Stock. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities have been converted), each future holder
of all such securities, and the Company.
6.11 California Corporate Securities Law.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS
NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY
PART OF THE
14
<PAGE>
CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100,
25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
6.12 Effect of Amendment or Waiver.
The Investors acknowledge that by the operation of paragraph 6.10
hereof the holders of more than fifty percent (50%) of the Common Stock not
previously sold to the public that is issued or issuable upon conversion of the
Series A Preferred Stock will have the right and power to diminish or eliminate
all rights of an Investor under this Agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
RIGHTSTART.COM INC.
By
----------------------------------------
Name
----------------------------------------
Title
----------------------------------------
Address: RightStart.com Inc.
5388 Sterling Center Drive, Unit C
Westlake Village, California 91361
Facsimile: (818) 707-7132
SIERRA VENTURES VII, L.P.:
By: , its
----------------------------------------
general partner
By
----------------------------------------
Name
----------------------------------------
Title
----------------------------------------
Address: Sierra Ventures VII LP
3000 Sand Hill Road, Building 4, #210
Menlo Park, CA 94025
Facsimile: (650) 854-5593
16
<PAGE>
SIERRA VENTURES ASSOCIATES VII,
L.L.C.
By
--------------------------------
Managing Member
--------------------------------
Robert Simon
--------------------------------
Ajit Shah
17
<PAGE>
PALOMAR VENTURES I, L.P., a Delaware
limited partnership:
By: _____________________________________
Name: Jim Gauer
Its: General Partner
Address: Palomar Ventures I, L.P.
100 Wilshire Boulevard, Suite 400
Santa Monica, CA 90401
Facsimile: (310) 656-4150
18
<PAGE>
Exhibit 10.2
RIGHTSTART.COM INC.
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "Agreement") is made and entered
---------
into as of the 9th day of July, 1999 by and among RightStart.com Inc., a
Delaware corporation (the "Company"), Sierra Ventures VII, L.P., a California
-------
limited partnership ("Sierra LP"), Sierra Ventures Associates VII, L.L.C., a
---------
California limited liability company ("Sierra LLC"), Robert Simon, an individual
----------
("Simon"), Ajit Shah, an individual ("Shah"), Palomar Ventures I, L.P., a
----- ----
Delaware limited partnership ("Palomar"), and The Right Start, Inc., a
-------
California corporation ("Parent").
------
Recitals
WHEREAS, each of the members of the Sierra Group (as defined below),
Palomar and the Company are parties to the Series A Preferred Stock Purchase
Agreement dated as of even date herewith (the "Purchase Agreement");
------------------
WHEREAS, Parent owns shares of the Company's Common Stock; and
WHEREAS, certain of the Company's and the obligations of the Principal
Stockholders (as defined below) under the Purchase Agreement are conditioned
upon the execution and delivery by the Principal Stockholders and the Company of
this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto further agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings set forth below:
1.1 "Affiliate" of any party means any person (or group of persons) who
---------
effectively controls, is effectively controlled by or is under common control
with such party.
1.2 "Closing" shall mean the date of the initial sale of shares of the
-------
Company's Series A Preferred Stock.
1.3 "Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
1.4 "Common Stock" shall mean the common stock of the Company, $.01 par
------------
value per share.
1.5 "Conversion Shares" shall mean the Common Stock issued upon
-----------------
conversion of the Series A Preferred Stock.
1.6 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
<PAGE>
1.7 "Holder" shall mean any of the Principal Stockholders so long as it
------
holds any Series A Preferred Stock, Conversion Shares or Common Stock and any
holder of Series A Preferred Stock or Common Stock who acquired such Securities
from a Principal Stockholder pursuant to the terms of this Agreement.
1.8 "Other Stockholders" shall mean persons other than Holders who, by
------------------
virtue of "Other Stockholders" shall mean persons other than Holders who, by
------------------
virtue of agreements with the Company, are entitled to include their securities
in certain registrations hereunder.
1.9 "Preferred Stock" shall mean the Company's outstanding Series A
----------------
Preferred Stock and any other class or series of preferred stock of the Company
in existence on the date hereof or subsequently issued by the Company.
1.10 "Principal Stockholders" shall mean each of Parent, Palomar and the
----------------------
Sierra Group.
1.11 "Registrable Securities" shall mean (i) Conversion Shares and (ii) any
----------------------
Common Stock (whether issued as a dividend or other distribution with respect to
or in exchange for or in replacement of the Conversion Shares or otherwise) held
by a Holder granted or receiving registration rights under Section 3 of this
---------
Agreement; provided, however, that Registrable Securities shall not include any
-------- -------
shares of Common Stock which have previously been registered or which have been
sold to the public either pursuant to a registration statement or Rule 144, or
which have been sold in a private transaction in which the transferor's rights
under this Agreement are not assigned.
1.12 The terms "register," "registered" and "registration" shall refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
1.13 "Registration Expenses" shall mean all expenses incurred in effecting
---------------------
any registration pursuant to this Agreement, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
and expenses of any regular or special audits incident to or required by any
such registration, but shall not include Selling Expenses, fees and
disbursements of counsel for the Holders.
1.14 "Rule 144" shall mean Rule 144 as promulgated by the Commission under
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
1.15 "Rule 415" shall mean Rule 415 as promulgated by the Commission under
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
1.16 "Securities" shall mean shares of the Company's Common Stock and
----------
Preferred Stock (or warrants or other securities convertible into Common Stock
or Preferred Stock) now owned or subsequently acquired.
2
<PAGE>
1.17 "Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar successor federal statute and the rules and regulations thereunder,
all as the same shall be in effect from time to time.
1.18 "Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of special counsel to the selling
stockholder.
1.19 "Series A Preferred Stock" shall mean the Company's Series A
------------------------
Convertible Preferred Stock, par value $.01 per share.
1.20 "Sierra Group" shall mean the group comprised of Sierra LP, Sierra
------------
LLC, Simon and Shah.
2. RESTRICTIONS ON TRANSFER.
2.1 Right of First Refusal.
(a) Transfer by a Principal Stockholder.
(i) Subject to Section 2.1(b) below, if any of the Principal
--------------
Stockholders (or their respective Affiliates to whom Securities have been
transferred) propose to sell or transfer any Securities in one or more related
transactions which will result in the transfer of any Securities by such
Principal Stockholder or its Affiliate, as applicable, then such Principal
Stockholder or Affiliate of such Principal Stockholder proposing to transfer
Securities, as the case may be (a "Selling Stockholder") shall promptly give
-------------------
written notice ("Notice") to the other Principal Stockholders at least twenty
------
(20) days prior to the closing of such sale or transfer. The Notice shall
describe in reasonable detail the proposed sale or transfer including, without
limitation, the number and type of Securities to be sold or transferred (the
"Notice Shares"), the nature of such sale or transfer, the consideration to be
-------------
paid, the requested method of payment and the name and address of each
prospective purchaser or transferee. In the event that the sale or transfer is
being made pursuant to the provisions of Section 2.1(b) hereof, the Notice shall
--------------
state under which paragraph and subparagraph the sale or transfer is being made.
(ii) Each of the non-transferring Principal Stockholders, or their
respective Affiliates acting on their behalf, shall have the right, exercisable
upon written notice to such Selling Stockholder within ten (10) days after
receipt of the Notice, to purchase a pro rata share (based on the number of
Registrable Securities then held by the non-transferring Principal Stockholders)
of such proposed transfer and if either of the two other non-transferring
Principal Stockholders elects not to purchase all of its pro rata portion, the
other eligible purchaser shall be entitled to all of the remaining shares, in
each case on the same terms and conditions specified in the Notice.
(iii) If the non-transferring Principal Stockholders elect to so purchase
all or a portion of the Notice Shares, such Principal Stockholders, or their
respective Affiliates acting on their behalf (the "Purchasing Stockholders")
-----------------------
shall purchase the Notice Shares by delivering the consideration to be paid for
the Notice Shares to the Selling Stockholder pursuant to the payment method
specified in the Notice on a date mutually agreed to by the parties.
3
<PAGE>
(iv) Simultaneously upon receipt of the consideration specified in the
Notice and delivered pursuant to the foregoing paragraph (a)(iii) of this
------------------
Section 2.1, the Selling Stockholder shall deliver to the Purchasing
- -----------
Stockholder(s) a stock certificate or certificates representing the Notice
Shares in consummation of the sale of such shares pursuant to the terms and
conditions specified in the Notice.
(v) The exercise or non-exercise of the rights of any Principal
Stockholder hereunder (or their respective Affiliates acting on their behalf) to
participate as a purchaser in one or more sales of Securities made by a
Principal Stockholder (or its Affiliates) shall not adversely affect their
rights to participate as purchasers in subsequent sales of Securities subject to
paragraph (a)(i) of Section 2.1.
- ---------------- -----------
(vi) If the Principal Stockholders do not elect to participate in the
purchase of the Notice Shares (or purchase only a portion of the Notice Shares),
then the Selling Stockholder may, not later than sixty (60) days following
delivery to the other Principal Stockholder(s), enter into an agreement
providing for the closing of the transfer of the remaining Notice Shares within
sixty (60) days of such agreement on terms and conditions not more favorable to
the transferor than those described in the Notice, subject to the provisions of
Section 2.2 below. Any proposed transfer on terms and conditions more favorable
- -----------
than those described in the Notice, as well as any subsequent proposed transfer
of any additional Securities by a Principal Stockholder or its Affiliate, shall
again be subject to the rights of the other Principal Stockholders (and their
respective Affiliates) set forth herein and shall require compliance with the
procedures described in this Section 2.1(a).
--------------
(b) Exempt Transfers.
(i) Notwithstanding the foregoing, the provisions of paragraphs (a)(i)
-----------------
through (a)(vi) of Section 2.1 shall not apply to (A) any pledge of
------- -----------
Securities made pursuant to a bona fide loan transaction that creates a mere
security interest, (B) any transfer to an Affiliate of transferor; provided that
--------
(1) the Selling Stockholder shall inform the other Principal Stockholders of
such pledge or transfer prior to effecting it and (2) the pledgee or transferee
shall furnish the other Principal Stockholders with a written agreement to be
bound by and comply with all provisions of Section 2.1(a), or (C) the transfer
--------------
by Parent to Guidance Solutions, Inc. (or its affiliate) of up to 288,333 shares
of Common Stock. Such pledged or transferred Securities under subsections (A) or
(B) above shall remain "Securities" hereunder, and such pledgee or transferee
under subsections (A) or (B) shall be treated as a "Principal Stockholder" for
purposes of this Agreement; provided, however, that Securities transferred
pursuant to subsection (C) above shall no longer be subject to this Agreement
upon transfer.
(ii) Notwithstanding the foregoing, the provisions of Section 2.1(a) shall
--------------
not apply to the sale of any Securities (A) to the public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"); or (B) to the Company.
4
<PAGE>
(c) Prohibited Transfers. Any attempt by a Selling Stockholder to
transfer Securities in violation of Section 2.1(a) hereof shall be void and the
--------------
Company agrees it will not effect such a transfer nor will it treat any alleged
transferee as the holder of such shares without the written consent of the non-
transferring Principal Stockholders (or their respective Affiliates acting on
their behalf).
(d) Legend.
(i) Each certificate representing Securities now or hereafter owned
by the Principal Stockholders or issued to any person in connection with a
transfer pursuant to paragraph (a) of Section 2.1 hereof shall be endorsed
------------- -----------
with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN INVESTORS' RIGHTS AGREEMENT BY AND BETWEEN THE COMPANY
AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT
MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY."
(ii) Each Principal Stockholder agrees that the Company may instruct
its transfer agent to impose transfer restrictions on the shares
represented by certificates bearing the legend referred to in paragraph
---------
(d)(i) of this Section 2.1 to enforce the provisions of this Agreement and
------ -----------
the Company agrees promptly to do so. The legend shall be removed upon
termination of this Agreement.
(e) Amendment of Section 2.1. Any provision of this Section 2.1 may be
----------- -----------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only by the
written consent of the Principal Stockholders adversely affected by such
amendment or waiver. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon the applicable parties, and such parties'
successors and assigns.
(f) Term. The rights and obligations set forth in this Section 2.1 shall
-----------
terminate upon the earlier of (i) the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale of the Company's Common Stock, and
(ii) the closing of the Company's sale of all or substantially all of its assets
or the acquisition of the Company by another entity by means of a merger or
consolidation resulting in the exchange of the outstanding shares of the
Company's capital stock for securities or consideration issued, or caused to be
issued, by the acquiring entity or its subsidiary.
(g) Ownership. For purposes of this Section 2.1, each Principal
-----------
Stockholder represents and warrants to the other Principal Stockholders, that
such Principal Stockholder is the sole legal and beneficial owner of the shares
of stock subject to this Section 2.1 and that no other person has any interest
-----------
(other than a community property interest) in such shares, other than the
interest of the Parent's senior secured lender in the Securities held by Parent
and the individual interests of the members of the Sierra Group in the
Securities held by the Sierra Group.
5
<PAGE>
2.2 General Restrictions on Transfer. Each Holder agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 2.2, and provided that:
-----------
(a) There is then in effect a registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) (i) Such Holder shall have notified the Company of the proposed disposition
and shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by a Holder (i) which is a partnership to its partners or retired partners in
accordance with partnership interests or to a partnership under common control
with such Holder, (ii) which is a corporation to its shareholders in accordance
with their interest in the corporation, (iii) which is a limited liability
company to its members or former members in accordance with their interest in
the limited liability company, or (iv) to such Holder's family member or trust
for the benefit of an individual Holder, provided the aforementioned transferees
--------
will be subject to the terms of this Section 2.2 to the same extent as if such
-----------
transferee were an original Holder hereunder.
2.3 Legends.
(a) Each certificate representing Securities shall (unless otherwise permitted
by the provisions of this Agreement) be imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH
ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER
EVIDENCE, SATISFACTORY TO THE cOMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
(b) The Company shall be obligated to reissue promptly unlegended certificates
at the request of any Holder thereof if the Holder shall have obtained an
opinion of counsel at such Holder's expense (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
6
<PAGE>
3. REGISTRATION RIGHTS.
3.1 Demand Registration.
(a) If the Company shall receive at any time after June 1, 2002 (so long as
such request is not within 180 days after the effective date of a registration
statement filed by the Company covering an underwritten offering of any of its
securities to the general public) a written request from one or more Principal
Stockholders that the Company file a registration statement registering (x)
Registrable Securities constituting at least twenty percent (20%) of the shares
of Common Stock issuable upon conversion of the Series A Preferred Stock
originally issued to the Principal Stockholders under the Purchase Agreement, or
(y) any amount of Registrable Securities if the aggregate offering price for the
registration, net of underwriting discounts and commissions, would exceed
$5,000,000, then the Company will:
(i) promptly give written notice of the proposed registration to all
other Holders holding Registrable Securities; and
(ii) as soon as practicable, use its best efforts to effect such
registration, on Form S-3 or successor form replacing Form S-3, if practicable,
(including, without limitation, filing post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and
appropriate compliance with the Securities Act) as would permit or facilitate
the sale and distribution of all or such portion of such Registrable Securities
as are specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request (as
permitted hereunder) as are specified in a written request received by the
Company within twenty (20) days after such written notice from the Company is
mailed or delivered.
Notwithstanding the foregoing provisions, the Company shall not be
obligated to effect, or to take any action to effect, any such registration
pursuant to this Section 3 if:
---------
(A) in any particular jurisdiction, the Company would be required to
execute a general consent to service of process in effecting such registration,
qualification, or compliance (unless the Company is already subject to service
in such jurisdiction and except as may be required by the Securities Act);
(B) the Company has initiated two registrations pursuant to
Section 3.1(a) (counting for these purposes only (1) registrations which have
- --------------
been declared or ordered effective and pursuant to which securities have been
sold and (2) registrations which have been withdrawn by the initiating Holders
as to which the Holders have not paid the Registration Expenses pursuant to
Section 3.3 hereof and were required to bear such expenses);
- -----------
(C) such request for registration is made during the period starting
with the date sixty (60) days prior to the Company's good faith estimate of the
date of filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a Company-initiated registration; provided that the Company
--------
is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
7
<PAGE>
(b) Subject to the foregoing clauses (A) through (C), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Principal Stockholders (or their respective permitted Affiliate
transferees), as the case may be; provided, however, that if (i) in the good
-------- -------
faith judgment of the Board of Directors of the Company (the "Board of
--------
Directors"), such registration would be seriously detrimental to the Company
- ---------
and the Board of Directors concludes, as a result, that it is essential to defer
the filing of such registration statement at such time, and (ii) the Company
shall furnish to such Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors, it
would be seriously detrimental to the Company for such registration statement to
be filed in the near future and that it is, therefore, essential to defer the
filing of such registration statement, then the Company shall have the right to
defer such filing (except as provided in clause (C) above) for a period of not
more than one hundred twenty (120) days after receipt of the request of the
initiating Principal Stockholder(s) (or their permitted Affiliate transferees),
as the case may be, and, provided further, that the Company shall not defer its
-------- -------
obligation in this manner more than once in any twelve-month period.
The registration statement filed pursuant to the request of the initiating
Principal Stockholder(s) (or their respective permitted Affiliate transferees)
may, subject to the provisions of Sections 3.1(d) and 3.11 hereof, include other
--------------- ----
securities of the Company, with respect to which registration rights have been
granted, and may include securities of the Company being sold for the account of
the Company.
(c) Underwriting. The right of any Holder to registration pursuant to
Section 3.1 shall be conditioned upon such Holder's participation in such
- -----------
underwriting, the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein and such other restrictions as may be
reasonably imposed by the underwriter. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
(d) Procedures. The Company shall (together with all Holders and other persons
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the initiating Holder(s), which underwriters are reasonably
acceptable to the Company. If the Company shall request inclusion in any
registration pursuant to Section 3.1 of securities being sold for its own
-----------
account, or if other persons shall request inclusion in any registration
pursuant to Section 3.1, the initiating Holder(s) shall, on behalf of all
-----------
Holders, offer to include such securities in the underwriting and may condition
such offer on their acceptance of the further applicable provisions of this
Section 3 (including Section 3.10). Notwithstanding any other provision of
- --------- ------------
this Section 3.1, if the representative of the underwriters advises the
-----------
initiating Holder(s) in writing that marketing factors require a limitation on
the number of shares to be underwritten, the number of shares to be included in
the underwriting or registration shall be allocated as set forth in Section 3.11
------------
hereof. If a person who has requested inclusion in such registration as provided
above does not agree to the terms of any such underwriting, such person shall be
excluded therefrom by written notice from the Company, the underwriter or the
initiating Holder(s). The securities so excluded shall also be withdrawn from
registration. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall also be withdrawn from such registration.
8
<PAGE>
If shares are so withdrawn from the registration and if the number of shares to
be included in such registration was previously reduced as a result of marketing
factors pursuant to this Section 3.1(d), then the Company shall offer to all
--------------
Holders who have retained rights to include securities in the registration the
right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to be
allocated among such Holders requesting additional inclusion in accordance with
Section 3.11.
- ------------
3.2 Registration on Form S-3; Shelf Registration.
(a) After the Company has qualified for the use of Form S-3, in addition to the
rights contained in Sections 3.1 and 3.3 hereof, the Holders of Registrable
--------------------
Securities who hold in excess of two percent (2%) of the then outstanding Common
Stock of the Company shall have the right to request registrations on Form S-3
on a continuous or delayed basis pursuant to Rule 415 (such requests shall be in
writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended methods of disposition of such shares by such
Holder or Holders), provided, however, that the Company shall not be obligated
-------- -------
to effect any such registration (i) if the Holders propose to sell Registrable
Securities and such other securities (if any) on Form S-3 at an aggregate price
to the public of less than $1,000,000, (ii) in the circumstances described in
clauses (A) and (C) of Section 3.1(a), (iii) if the Company shall furnish the
- -------------------------------------
certification described in paragraph 1.3(b) (but subject to the limitations set
----------------
forth therein), (iv) if, in a given twelve-month period, the Company has
effected one (1) such registration in such period or (v) if it is to be effected
more than five (5) years after the Company's initial public offering.
(b) If a request complying with the requirements of Section 3.2(a) hereof is
--------------
delivered to the Company, the provisions of Sections 3.1(a)(i) and Section
------------------ -------
3.1(b) hereof shall apply to such registration. If the registration is for
- ------
an underwritten offering, the provisions of Sections 3.1(c) and 3.1(d) hereof
--------------------------
shall apply to such registration.
3.3 Piggyback Registration.
(a) If the Company shall determine to register any of its securities either for
its own account or the account of a security holder or holders exercising their
respective demand registration rights (other than a registration relating solely
to employee benefit plans, or a registration relating to a corporate
reorganization or other transaction on Form S-4, or a registration on any
registration form that does not permit secondary sales), the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) use its best efforts to include in such registration (and any related
qualification under blue sky laws or other compliance), except as set forth in
Section 3.3(b) below, and in any underwriting involved therein, all the
- --------------
Registrable Securities specified in a written request or requests, made by any
Holder and received by the Company within ten (10) days after the written notice
from the Company described in clause (i) above is mailed or delivered by the
Company. Such written request may specify all or a part of a Holder's
Registrable Securities.
9
<PAGE>
(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to
Section 3.3(a)(i). In such event, the right of any Holder to registration
- -----------------
pursuant to this Section 3.3 shall be conditioned upon such Holder's
-----------
participation in such underwriting, the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein and such other
restrictions as may be reasonably imposed by the underwriter and the Company.
All Holders proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders of securities of the
Company with registration rights to participate therein distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected by the Company.
Notwithstanding any other provision of this Section 3.3, if the
-----------
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten or the
Company's Board of Directors reasonably determines that the number of shares
proposed to be registered must be reduced in view of then existing market
conditions, the Company shall be required to include in the offering only that
number of Registrable Securities that the Board of Directors determine in their
sole discretion will not jeopardize the success of the offering (the securities
so included to be apportioned pro rata among the selling Holders according to
the total amount of Registrable Securities (to be determined assuming full
conversion of all securities convertible into Registrable Securities at such
time) entitled to be included therein owned by each selling Holder or in such
other proportions as shall mutually be agreed to be such selling Holders), but
in no event shall the amount of Registrable Securities of the selling Holders
included in such offering be reduced below thirty percent (30%) of the total
amount of securities included in such offering, unless such offering is the
initial public offering of the Company's securities (in which case, the selling
Holders may be excluded if the underwriters make the determination described
above and no other shareholder's securities are included in such offering). If
any person does not agree to the terms of any such underwriting, he or she shall
be excluded therefrom by written notice from the Company or the underwriter.
Any Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
If shares are so withdrawn from the registration and if the number of
shares of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion in accordance
with Section 3.11 hereof.
------------
3.4 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 3.1, 3.2 or 3.3 hereof shall be borne by the Company; provided,
- ------------------------ --------
however, that if the Holders bear the Registration Expenses for any
- -------
registration proceeding begun pursuant to Section 3.1 and subsequently
-----------
withdrawn by the Holders registering shares therein, such registration
proceeding shall not be counted as a requested registration pursuant to
Section 3.1 hereof. Furthermore, in the event that a withdrawal by the
- -----------
Holders is based upon material adverse information relating to the Company
10
<PAGE>
that is different from the information known or available (upon request from the
Company or otherwise) to the Holders requesting registration at the time of
their request for registration under Section 3.1, such registration shall not be
-----------
treated as a counted registration for purposes of Section 3.1 hereof, even
-----------
though the Holders do not bear the Registration Expenses for such registration.
All Selling Expenses relating to securities so registered shall be borne by the
holders of such securities pro rata on the basis of the number of shares of
securities so registered on their behalf, as shall any other expenses in
connection with the registration required to be borne by the Holders of such
securities.
3.5 Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 3, the Company will keep each
---------
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. At its expense, the Company will use its best efforts
to:
(a) Keep such registration effective for a period of ninety (90) days or until
the Holder or Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs; provided,
--------
however, that (i) such 90-day period shall be extended for a period of time
- -------
equal to the period the Holder refrains from selling any securities included in
such registration at the request of an underwriter of Common Stock (or other
securities) of the Company; and (ii) in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 90-day period shall be extended, if necessary,
to keep the registration statement effective until all such Registrable
Securities are sold, however in no event longer than one year from the effective
date of the registration statement and provided that Rule 415, or any
--------
successor rule under the Securities Act, permits an offering on a continuous
or delayed basis, and provided further that applicable rules under the
----------------
Securities Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment that (A) includes any
prospectus required by Section 10(a)(3) of the Securities Act or (B) reflects
----------------
facts or events representing a material or fundamental change in the information
set forth in the registration statement, the incorporation by reference of
information required to be included in (A) and (B) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in
the registration statement;
(b) Prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish such number of prospectuses and other documents incident thereto,
including any amendment of or supplement to the prospectus, as a Holder from
time to time may reasonably request;
(d) Cause all such Registrable Securities registered pursuant hereunder to be
listed on each securities exchange on which similar securities issued by the
Company are then listed, if any;
11
<PAGE>
(e) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant to such registration statement and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration;
(f) In connection with any underwritten offering pursuant to a registration
statement filed pursuant to Section 3.1 hereof, the Company will enter into an
-----------
an underwriting agreement in form reasonably necessary to effect the offer and
sale of Common Stock.
3.6 Indemnification.
(a) The Company will indemnify each Holder, each of its officers, directors and
partners, legal counsel, and accountants and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification, or compliance has been effected pursuant to this
Section 3, against all expenses, claims, losses, damages, and liabilities (or
- ---------
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement of a material fact contained in any prospectus, offering
circular, or other document (including any related registration statement,
notification, or the like) incident to any such registration, qualification, or
compliance, or based on any omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification, or
compliance, and will reimburse each such Holder, each of its officers,
directors, partners, legal counsel, and accountants and each person controlling
such Holder, each such underwriter, and each person who controls any such
underwriter, as incurred, for any legal and any other expenses reasonably
incurred in connection with investigating and defending or settling any such
claim, loss, damage, liability, or action; provided, however, that the Company
-----------------
will not be liable in any such case to the extent that any such claim, loss,
damage, liability, or expense arises out of or is based on any untrue statement
or omission based upon written information furnished to the Company by such
Holder or underwriter. It is agreed that the indemnity agreement contained in
this Section 3.6(a) shall not apply to amounts paid in settlement of any such
--------------
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company.
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants, each person who controls the
Company within the meaning of Section 15 of the Securities Act, and each Other
Stockholder, and each of their officers, directors, and partners, and each
person controlling such Other Stockholder, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement of a material fact contained in any such registration
statement, prospectus, offering circular, or other document, or any omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and such
Other Stockholders, directors, officers, partners, legal counsel, and
accountants, persons, underwriters, or control persons, as incurred, for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability, or action, in each case to
the extent, but only to the extent, that such untrue statement or omission is
made in such registration
12
<PAGE>
statement, prospectus, offering circular, or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder;
provided, however, that the obligations of such Holder hereunder shall not apply
- -------- -------
to amounts paid in settlement of any such claims, losses, damages, or
liabilities (or actions in respect thereof) if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld); and provided further that in no event shall any indemnity under this
-------- -------
Section 3.6(b) exceed the net proceeds from the offering received by such
- --------------
Holder.
(c) Each party entitled to indemnification under this Section 3.6 (the
-----------
"Indemnified Party") shall give notice to the party required to provide
- ------------------
indemnification (the "Indemnifying Party") promptly after such Indemnified
------------------
Party has actual knowledge of any claim as to which indemnity may be sought, and
shall permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
--------
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
----------------
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 3, to the extent such
---------
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 3.6 is held by a court
-----------
of competent jurisdiction to be unavailable to an Indemnified Party with respect
to any loss, liability, claim, damage, or expense referred to therein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and of the Indemnified Party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations. The relative
fault of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in an underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control and the foregoing Section 3.6 shall have no further force and effect.
-----------
13
<PAGE>
3.7 Information by Holder. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification, or compliance referred to in this Section 3.
---------
3.8 Transfer or Assignment of Registration Rights. Prior to the
Company's initial public offering of its Common Stock, a Principal Stockholder's
right to cause the Company to register Registrable Securities pursuant to
Section 3.1 shall not be transferrable except to its respective Affiliates. The
- -----------
rights to cause the Company to register a Holder's Registrable Securities (as
presently constituted and subject to subsequent adjustments for stock splits,
stock dividends, reverse stock splits, and the like) granted under Section 3.1
-----------
(only after the Company's initial public offering of its Common Stock) and under
Section 3.2 or 3.3 may be transferred or assigned (a) to a transferee or
- ------------------
assignee (in accordance with Section 2 hereof) who acquires at least twenty
---------
percent (20%) of such Holder's Securities, (b) to a transferee or assignee who
acquires at least two percent (2%) of the Company's Common Stock from a Holder,
which assignee or transferee is acceptable to the Company (which acceptance
shall not be unreasonably withheld), (c) to partners or retired partners of the
such Holder in accordance with their partnership interests, or (d) to another
affiliate of Holder, which assignee or transferee is acceptable to the Company
(which acceptance shall not be unreasonably withheld); provided that the Company
--------
is given written notice at the time of or within a reasonable time after said
transfer or assignment, stating the name and address of the proposed transferee
or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned; and provided further,
----------------
that the transferee or assignee of such rights assumes in writing the
obligations of such Holder under this Section 3.
---------
3.9 "Lock-Up" Agreement. If requested by the Company or any
representative of an underwriter of Common Stock (or other securities) of the
Company following an initial public offering, each of the holders of the
Securities shall not sell or otherwise transfer or dispose of any Common Stock
or other securities of the Company held by such holders (other than those
included in the registration) during the one hundred eighty (180) day period
following the effective date of a registration statement of the Company filed
under the Securities Act. If requested by the Company or any representative of
an underwriter of Common Stock (or other securities) of the Company following
the first public offering of the Company after the Company's initial public
offering, each of the holders of the Securities shall not sell or otherwise
transfer or dispose of any Common Stock or other securities of the Company held
by such holders (other than those included in the registration) during the
ninety (90) day period following the effective date of a registration statement
of the Company filed under the Securities Act. The obligations described in this
Section 3.10 shall not apply to a registration relating solely to employee
- ------------
benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated
in the future, or a registration relating solely to a transaction on Form S-4 or
similar forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of such lock-up
periods.
3.10 Allocation of Registration Opportunities. In any circumstance in
which all of the Registrable Securities of the Company (including shares of
Common Stock issued or issuable upon conversion of shares of any currently
unissued series of preferred stock of the Company)
14
<PAGE>
with registration rights (the "Other Shares") requested to be included in a
------------
registration on behalf of the Holders or other selling stockholders cannot be so
included as a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares that may be so included, the number of
shares of Registrable Securities and Other Shares that may be so included shall
be allocated among the Holders and other selling stockholders requesting
inclusion of shares pro rata on the basis of the number of shares of Registrable
Securities and Other Shares that would be held by such Holders and other selling
stockholders, assuming conversion; provided, however, that such allocation shall
-------- -------
not operate to reduce the aggregate number of Registrable Securities and Other
Shares to be included in such registration, if any Holder or other selling
stockholder does not request inclusion of the maximum number of shares of
Registrable Securities and Other Shares allocated to him pursuant to the above-
described procedure, in which case the remaining portion of his allocation shall
be reallocated among those requesting Holders and other selling stockholders
whose allocations did not satisfy their requests pro rata on the basis of the
number of shares of Registrable Securities and Other Shares which would be held
by such Holders and other selling stockholders, assuming conversion, and this
procedure shall be repeated until all of the shares of Registrable Securities
and Other Shares which may be included in the registration on behalf of the
Holders and other selling stockholders have been so allocated.
3.11 Delay of Registration. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 3.
---------
3.12 Termination of Registration Rights. The right of any Holder to
request registration or inclusion in any registration pursuant to Section 3.1,
------------
3.2 or 3.3 shall terminate on the closing of the first Company-initiated
- ----------
registered public offering of Common Stock of the Company, if all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144 during any 90-day period, or the
earlier of (i) such date after the closing of the first Company-initiated
registered public offering of Common Stock of the Company as all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144 during any 90-day period, and (ii)
five (5) years after the closing of the first Company-initiated registered
public offering.
4. COVENANTS OF THE COMPANY.
The Company hereby covenants and agrees as follows:
4.1 Basic Financial Information
(a) Upon request, the Company will furnish the following reports to a Holder so
long as such Holder owns at least 300,000 shares of the Series A Preferred
Stock, or such number of shares of Common Stock issued upon conversion of
300,000 or more shares of the Series A Preferred Stock, or any combination
thereof (as presently constituted and subject to subsequent adjustment for stock
splits, stock dividends, reverse stock splits, recapitalizations and the like):
(i) monthly financial statements as soon as practicable at the end of each month
and (ii) a summary of the financial plan of the Company for each fiscal year as
soon as practicable after the end of each fiscal year; provided, however, that
-------- -------
the obligation of the Company to furnish
15
<PAGE>
such monthly financial statements and annual financial plan shall terminate upon
a firmly underwritten public offering of the Common Stock of the Company.
(b) Upon request, the Company will furnish, as soon as practicable after the
end of the first, second and third quarterly accounting periods in each fiscal
year of the Company, to a Holder if it holds at least 150,000 of the outstanding
shares of Series A Preferred Stock, or shares of common stock issued upon
conversion thereof, or any combination thereof (as presently constituted and
subject to subsequent adjustment for stock splits, stock dividends, reverse
stock splits, recapitalizations and the like), annual and quarterly financial
statements for such period (including a balance sheet of the Company as of the
end of such period and statements of income and cash flows of the Company for
such period), prepared in accordance with generally accepted accounting
principles consistently applied, subject to changes resulting from normal year-
end audit adjustments, and except that such financial statements need not
contain the notes required by generally accepted accounting principles. Annual
financial statements of the Company provided to a Holder under this paragraph
shall be certified by independent public accountants of recognized national
standing selected by the Company.
4.2 Additional Information and Rights.
(a) The Company will permit any Holder, so long as such Holder owns at least
300,000 shares of the Series A Preferred Stock, or such number of shares of
Common Stock issued upon conversion of 300,000 or more shares of the Series A
Preferred Stock, or any combination thereof (as presently constituted and
subject to subsequent adjustment for stock splits, stock dividends, reverse
stock splits, recapitalizations and the like) and each Holder which represents
that it is a "venture capital operating company" for purposes of Department of
Labor Regulation Section 2510.3-101, who requests them (a "Significant Holder")
------------------
(or a representative of any Significant Holder) to visit and inspect any of the
properties of the Company, including its books of account and other records, and
to discuss its affairs, finances and accounts with the Company's officers and
its independent public accountants, all at such reasonable times and as often as
any such person may reasonably request.
(b) The provisions of Section 4.1 and this Section 4.2 shall not be in
----------- -----------
limitation of any rights which any Holder or Significant Holder may have with
respect to the books and records of the Company and its subsidiaries, or to
inspect their properties or discuss their affairs, finances and accounts, under
the laws of the jurisdictions in which they are incorporated.
(c) Anything in this Agreement to the contrary notwithstanding, no Holder by
reason of this agreement shall have access to any trade secrets or classified
information of the Company. Each Holder hereby agrees to hold in confidence and
trust and not to misuse or disclose any confidential information provided
pursuant to this Section 4.2. The Company shall not be required to comply with
-----------
this Section 4.2 in respect of any Holder whom the Company reasonably determines
-----------
to be a competitor or an officer, employee, director or greater than ten percent
(10%) stockholder of a competitor.
(d) From the date the Company becomes subject to the reporting requirements of
the Exchange Act (which shall include any successor federal statute), the
Company's obligation to
16
<PAGE>
provide financial information required pursuant to Sections 4.1 and 4.2 hereof
------------ ---
shall automatically terminate.
(e) Each Holder who represents to the Company that it is a "venture capital
operating company" for purposes of Department of Labor Regulation Section
2510.3-101 shall, in addition, have the right to consult with and advise the
officers of the Company as to the management of the Company.
4.3 Right to Purchase New Securities. The Company hereby grants (a)
to each Principal Stockholder (other than Palomar) and its Affiliates who
collectively own at least 1,333,333 shares of Series A Preferred Stock, or an
equivalent number of shares of Common Stock that would be issued upon conversion
of 1,333,333 or more shares of the Series A Preferred Stock, or any combination
thereof (as presently constituted and subject to subsequent adjustment for stock
splits, stock dividends, reverse stock splits, recapitalizations and the like)
and (b) to Palomar and its Affiliates if they collectively own at least 333,333
shares of Series A Preferred Stock, or an equivalent number of shares of Common
Stock that would be issued upon conversion of 333,333 or more shares of the
Series A Preferred Stock, or any combination thereof (as presently constituted
and subject to subsequent adjustment for stock splits, stock dividends, reverse
stock splits, recapitalizations and the like), a right to purchase a pro rata
share of New Securities (as defined in this Section 4.3) which the Company may,
-----------
from time to time, propose to sell and issue. A Principal Holder's pro rata
share, for purposes of this right, is the ratio of the number of shares of
Common Stock (taken together with Common Stock underlying Series A Preferred
Stock) owned by such Principal Holder (and its Affiliates) immediately prior to
the issuance of the New Securities, to the total number of shares of Common
Stock (taken together with Common Stock underlying Series A Preferred Stock)
held by all Holders immediately prior to the issuance of New Securities. Each
eligible Principal Holder shall have a right of over-allotment such that if any
Principal Holder (or its Affiliates acting on its behalf) fails to exercise its
right hereunder to purchase its pro rata share of New Securities, the other
eligible Principal Holders (and their respective Affiliates) may purchase the
non-purchasing Holder's portion on a pro rata basis within five (5) days from
the date such non-purchasing Principal Holder (or Affiliate) fails to exercise
its right hereunder to purchase its pro rata share of New Securities. This right
shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including Common Stock
--------------
and/or preferred stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provided that the term "New Securities" does not include (i) securities
purchased under the Purchase Agreement; (ii) securities issued upon conversion
of the Series A Preferred Stock; (iii) securities issued in connection with a
merger, acquisition, reorganization or other similar transaction undertaken by
the Company; (iv) any borrowings, direct or indirect, from financial
institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type of debt
instrument, provided such borrowings do not have any equity features including
warrants, options or other rights to purchase capital stock and are not
convertible into capital stock of the Company; (v) securities issued to
employees, consultants, officers or directors of the Company pursuant to any
stock option, stock purchase stock bonus plan, warrant, agreement or arrangement
approved by the Board of Directors; (vi) securities issued to vendors or
customers
17
<PAGE>
or to other persons in similar commercial situations with the Company if such
issuance is approved by the Board of Directors and such issuance is undertaken
for purposes primarily other than equity financing; (vii) securities issued in
connection with obtaining lease financing, whether issued to a lessor, guarantor
or other person and such issuance is undertaken for purposes primarily other
than equity financing; (viii) securities issued in connection with any stock
split, stock dividend or recapitalization of the Company; (ix) securities issued
in connection with corporate partnering transactions on terms approved by the
Board of Directors and such issuance is undertaken for purposes primarily other
than equity financing; and (x) any right, option or warrant to acquire any
security convertible into the securities excluded from the definition of New
Securities pursuant to subsections (i) through (ix) above.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each eligible Principal Holder written notice of its
intention, describing the type of New Securities, and their price and the
general terms upon which the Company proposes to issue the same. Each eligible
Principal Holder (or its Affiliate) shall have ten (10) days after any such
notice is mailed or delivered to agree to purchase such Principal Holder's pro
rata share of such New Securities for the price and upon the terms specified in
the notice by giving written notice to the Company and stating therein the
quantity of New Securities to be purchased.
(c) In the event the eligible Principal Holders (or their Affiliates) fail to
exercise fully the right within said ten (10) day period and after the
expiration of the 5-day period for the exercise of the over-allotment provisions
of this Section 4.3, the Company shall have sixty (60) days thereafter to sell
-----------
or enter into an agreement (pursuant to which the sale of New Securities covered
thereby shall be closed, if at all, within sixty (60) days from the date of said
agreement) to sell the New Securities respecting which the Principal Holders'
(or their Affiliates') right option set forth in this Section 4.3 was not
-----------
exercised, at a price and upon terms no more favorable to the purchasers thereof
than specified in the Company's notice to eligible Principal Holders pursuant to
Section 4.3(b). In the event the Company has not sold within such sixty (60) day
- --------------
period or entered into an agreement to sell the New Securities in accordance
with the foregoing within sixty (60) days from the date of said agreement, the
Company shall not thereafter issue or sell any New Securities, without first
again offering such securities to the eligible Principal Holders (and their
Affiliates) in the manner provided in Section 4.3(b) above.
--------------
(d) The right set forth in this Section 4.3 may not be assigned or transferred
-----------
(except as otherwise expressly permitted above in this Section).
4.4 Termination of Covenants. The covenants set forth in this
Section 4 shall terminate and be of no further force and effect after the
- ---------
consummation of the Company's first firm commitment underwritten public offering
registered under the Securities Act.
5. COVENANTS OF THE PRINCIPAL STOCKHOLDERS.
5.1 Operating Committee. Until such time as the Company employs a
full-time Chief Executive Officer, each of the members of the Sierra Group and
Parent agree to use its best efforts to cause its director nominees to vote in
favor of creating an operating committee (the "Operating Committee") of the
-------------------
Board of Directors of the Company comprised of one
18
<PAGE>
representative appointed by Parent, who shall be Jerry R. Welch, and one
representative of the Sierra Group, who shall be David Schwab. The Operating
Committee shall approve in advance all expenditures of the Company in excess of
ten thousand dollars ($10,000) if such expenditures are not in the ordinary
course of business of the Company. Upon employment by the Company of a full-time
Chief Executive Officer, the Operating Committee shall be dissolved.
5.2 Exclusive On-Line E-Commerce Provider. Parent hereby covenants
to the Sierra Group and Palomar that the Company will be the Parent's exclusive
channel of on-line sales of products for children under age 12 over the
Internet, so long as the Sierra Group continues to hold at least 500,000 shares
of the Company's Series A Preferred Stock or shares of Common Stock issued on
conversion thereof (or any combination thereof) or Palomar continues to hold at
least 300,000 shares of the Company's Series A Preferred Stock or shares of
Common Stock issued on conversion thereof (or any combination thereof).
5.3 Board of Directors.
(a) So long as a Holder holds at least 67 percent of the Series A Preferred
Stock (or Common Stock issued upon conversion thereof), such Holder shall be
entitled to designate two (2) members to the Company's Board of Directors. So
long as a Holder holds at least 67 percent of the Series A Preferred Stock (or
Common Stock issued upon conversion thereof), such Holder shall also be entitled
(along with Parent) to propose additional members of the Company's Board of
Directors, two (2) of which proposed members shall be appointed to the Company's
Board of Directors by mutual agreement between the Parent and such Holder. If a
Holder of the Series A Preferred Stock (or Common Stock issued upon conversion
thereof) holds less than 67 percent but more than 33 percent of the Series A
Preferred Stock (or Common Stock issued upon conversion thereof), then such
Holder shall be entitled to designate one (1) member to the Company's Board of
Directors. If a Holder of the Series A Preferred Stock (or Common Stock issued
upon conversion thereof) holds less than 67 percent but more than 33 percent of
the Series A Preferred Stock (or Common Stock issued in conversion thereof),
then such Holder shall be entitled (along with Parent) to propose additional
members of the Company's Board of Directors, one (1) of which proposed members
shall be appointed to the Company's Board of Directors by mutual agreement
between the Parent and such Holder. If a Holder holds 33 percent or less of the
Series A Preferred Stock (or Common Stock issued on conversion thereof), such
Holder shall have no right to designate any member of the Company's Board of
Directors. The holders of the Company's Common Stock shall be entitled to elect
all members of the Board of Directors not designated pursuant to the above.
Additionally, any person entitled to designate a member of the Board of
Directors of the Company pursuant to the foregoing also shall be entitled,
exclusively and in such person's sole discretion, to designate such member for
removal from the Board of Directors. Each of the Principal Stockholders agrees
that it will vote shares of Series A Preferred Stock and Common Stock held by it
in favor of the foregoing. This paragraph (a) is subject in its entirety to
Section 5.3(d) below.
- --------------
(b) Each of the members of the Company's Board of Directors shall serve a one-
year term or until his successor is elected (in accordance with Section 5.3(a)
--------------
above) and has qualified.
(c) The makeup of the Board of Directors immediately following the Closing
under the Purchase Agreement shall be Jerry R. Welch, David Schwab, Robert
Simon, Richard Kayne,
19
<PAGE>
Fred Kayne and the Chief Executive Officer of the Company, of which David Schwab
and Robert Simon have been nominated solely by the Sierra Group, as holder of
more than 67 percent of the Series A Preferred Stock.
(d) The rights and obligations under Section 5.3(a) shall be nontransferrable
--------------
by Stockholder and shall automatically terminate as to both parties upon the
effectiveness of the Company's initial public offering.
5.4 Termination of Covenants. The covenants set forth in this
Section 5 shall terminate and be of no further force and effect after the
- ---------
consummation of the Company's first firm commitment underwritten public offering
registered under the Securities Act.
6. MISCELLANEOUS.
6.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Delaware (except choice of law provisions thereof).
6.2 Arbitration. The parties hereto agree that any dispute or
controversy arising out of or relating to any interpretation, construction,
performance or breach of this Agreement (other than disputes involving
confidentiality or infringement of intellectual property rights) shall be
settled by arbitration to be held in Los Angeles County, California, in
accordance with the rules then in effect of the American Arbitration
Association. The arbitrator, who shall be mutually agreed upon by the parties
hereto, may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator shall be final, conclusive and binding on the
parties to the arbitration. Judgement may be entered on the arbitrator's
decision in any court of competent jurisdiction. The non-prevailing party shall
pay the costs and expenses of such arbitration, and each party hereto shall
separately pay its respective counsel fees and expenses.
6.3 Successors and Assigns. Except as otherwise expressly provided
herein, this Agreement, nor the provisions hereof, shall be assignable by the
parties hereto. To the extent assignable as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
6.4 Entire Agreement; Amendment; Waiver. Except as set forth in
Section 2.1(f), this Agreement (including the Exhibits and Schedules hereto)
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof. Neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated, except by a written instrument
signed by the Company and the holders of at least seventy-five percent (75%) of
the Securities, and any such amendment, waiver, discharge or termination shall
be binding on all the Holders, but in no event shall the obligation of any
Holder hereunder be materially increased, except upon the written consent of
such Holder.
6.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, sent by facsimile or delivered personally by
hand or nationally recognized courier addressed (a) if to the Sierra Group (or
any member thereof), to the address set forth below, (b) if to a Holder other
than the Sierra Group (or a member thereof), at such address or facsimile
20
<PAGE>
number as such holder or permitted assignee shall have furnished to the Company
in writing, or (c) if to the Company, at the following address:
If to the Sierra Group:
Sierra Ventures
3000 Sand Hill Road
Building 4, #210
Menlo Park, CA 94025
Attn: Robert J. Simon
Facsimile: (650) 854-5593
with a copy to:
Jeff Higgins, Esq.
Gunderson Dettmer
155 Constitution Drive
Menlo Park, CA 94025
Facsimile: (650) 321-2800
If to Palomar:
Palomar Ventures
2190 Palomar Airport Road
Carlsbad, CA 92009
Attn: Jim Gauer
Facsimile: (310) 656-4150
If to the Company or Parent:
RightStart.com Inc. or The Right Start, Inc.
Each at the following address:
5388 Sterling Center Drive - Unit C
Westlake Village, CA 91361
Attn: President
Telecopy: (818) 707-7132
with a copy to:
Kenneth J. Baronsky, Esq.
Milbank, Tweed, Hadley & McCloy LLP
601 So. Figueroa Street, 30th Floor
Los Angeles, California 90017
Telecopy: (213) 629-5063
21
<PAGE>
All such notices and other written communications shall be effective on the
date of mailing, confirmed facsimile transfer or delivery.
6.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any Holder, upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default therefore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Holder of any breach or default under this Agreement or any
waiver on the part of any Holder of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any Holder, shall be cumulative and
not alternative.
6.7 Rights; Separability. Unless otherwise expressly provided herein, a
Holder's rights hereunder are several rights, not rights jointly held with any
of the other Holders.
6.8 Information Confidential. Each Holder acknowledges that the
information received by them pursuant hereto may be confidential and for its use
only, and it will not use such confidential information in violation of the
Exchange Act or reproduce, disclose or disseminate such information to any other
person (other than its employees or agents having a need to know the contents of
such information, and its attorneys), except in connection with the exercise of
fights under this Agreement, unless the Company has made such information
available to the public generally or such Holder is required to disclose such
information by a governmental body.
6.9 Headings. The titles of the paragraphs and subparagraphs of this
Agreement are for convenience of reference only and are not to be considered in
construing or interpreting this Agreement.
6.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
22
<PAGE>
Exhibit 10.2
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement effective as of the day and year first above written.
RIGHTSTART.COM INC.
By:____________________________
Jerry R. Welch
President
THE RIGHT START, INC.
By:____________________________
Gina M. Engelhard
Chief Financial Officer and Secretary
SIERRA VENTURES VII, L.P.
By:___________________________,
its general partner
By:___________________________,
Name:
Title:
<PAGE>
SIERRA VENTURES ASSOCIATES VII, L.L.C.
By:_____________________________________,
Managing Member
_____________________________________
Robert Simon
_____________________________________
Ajit Shah
<PAGE>
PALOMAR VENTURES I, L.P., a Delaware limited
partnership:
By:_____________________________________
Name: Jim Gauer
Its: General Partner
Address: Palomar Ventures I, L.P.
100 Wilshire Boulevard, Suite 400
Santa Monica, CA 90401
Facsimile: (310) 656-4150
<PAGE>
EXHIBIT 10.3
MANAGEMENT SERVICES AGREEMENT
This MANAGEMENT SERVICES AGREEMENT (this "Agreement") is dated as of July
9, 1999, by and among The Right Start, Inc., a California corporation (the
"Company") and RightStart.com Inc., a Delaware Corporation ("Sub").
W I T N E S S E T H:
WHEREAS, Sub is a subsidiary of the Company formed for the purpose of
engaging in online retailing of the Company's products for infants and young
children;
WHEREAS, Sub desires to obtain and the Company desires to provide
administrative and other services to Sub in connection with its online retailing
business;
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Basic Services.
(a) During the term of this Agreement and subject to the ultimate
authority of Sub, the Company shall, either directly, through one or more of its
subsidiaries or through one or more of its third party service providers,
provide and/or arrange the following basic services and benefits to Sub (the
"Basic Services"):
(i) Personnel. The Company shall provide Sub with substantially the
same personnel/human resource services that it performs for itself including,
without limitation, hiring, termination, personnel transfer, benefits
administration and employee relations services.
(ii) Payroll. The Company shall provide Sub with substantially the
-------
same payroll services that it performs for itself including, without limitation,
processing payroll, preparing payroll tax returns, mailing payroll checks,
participating in payroll related audits and preparing W-2 and 1099 forms.
(iii) Insurance. The Company shall obtain for Sub property, casualty
---------
(including general liability and workers' compensation), product liability,
crime and fiduciary insurance on an annual basis, and surety insurance on an as
needed basis, provided that Sub shall be solely liable for workers' compensation
claims of employees incurred after the date hereof, and the discharge of any
such workers' compensation liability by the Company shall be considered a
service rendered by the Company to Sub under this Section 1(a).
(iv) Employee Benefits. The Company shall provide all Sub employees
-----------------
with benefits substantially similar to benefits provided by the Company to its
employees.
<PAGE>
(v) General Corporate. The Company shall provide Sub with
-----------------
substantially the same general corporate services that it performs for itself
using Company employees or that it procures through third-party service
providers including, without limitation, tax services, cash management services,
merchandising services, advertising, inventory management services, customer
relations services, financial services and legal services.
(vi) Order Fulfillment and Collection. The Company's distribution
--------------------------------
centers located in Pennsylvania and California shall provide fulfillment and
collection services with respect to orders placed by Sub's customers in
substantially the same manner and with priority at least as high as it performs
for itself or any third party. Fulfillment and collection services shall consist
of, without limitation, receiving, quality control, storage, picking, packing,
shipping and handling of product, and processing customer returns, warranty
service, invoicing, collections, etc. and will include electronic integration of
such functions with Sub's Internet site(s).
(vii) General Accounting. The Company shall provide Sub with
------------------
substantially the same general accounting services that it performs for itself
including sales audit, accounts payable and general ledger services, receipt and
opening of all vendor mail, maintenance of a vendor master file, processing and
forwarding payment of all vendor invoices, invoice exception reporting and
resolution, periodic financial reporting and vendor relations.
(viii) Telecommunications. The Company shall provide Sub with access
------------------
to the Company's internet/telecommunications hardware and facilities including
access to data, networking and computing resources, telephone and facsimile
equipment and services, internet service providers providing connectivity to
internet over dedicated DS-3 line, internet traffic, data routing and email
services, relay services for Sub's back office operations and hardware services.
(ix) Catalog Production. The Company shall provide Sub with catalog
------------------
production assistance, in substantially the same form as the Company performed
for itself prior to the date of this Agreement, including, without limitation,
catalog photography, copyrighting, catalog editing, catalog product selection,
production management, customer list and customer information management,
catalog circulation and mailing services.
(x) Credit Services. During the term of this Agreement, the Company
---------------
shall, either directly, through one or more of its subsidiaries or through one
or more of its third party service providers, provide credit services to Sub
including without limitation full credit checking and analysis and credit card
processing for customer orders.
(xi) Miscellaneous. The Company shall provide to Sub such other
-------------
services and benefits as the parties hereto shall mutually agree from time to
time.
2. Inventory Supply Services.
(a) During the term of this Agreement, the Company shall, either directly
or through one or more of its subsidiaries, supply inventory to Sub when and as
requested and solely for resale or promotion by Sub through its catalogs or
online Website (or Sub's other online or electronic mode or promotional methods)
(the "Inventory Supply Services") as follows:
2
<PAGE>
(i) Until January 31, 2000, Sub shall purchase Common Inventory
from the Company on an as needed basis in order to immediately fulfill
individual customer orders.
(ii) At all times after the date of this Agreement if Sub desires to
purchase Internet-Only Inventory from the Company, then Sub shall purchase such
inventory on a forward basis as needed to meet expected customer demand. After
January 31, 2000 if Sub desires to purchase Common Inventory from the Company,
then Sub shall also purchase Common Inventory to be sold by it on a forward
basis as needed to meet expected customer demand. In all cases under this
subsection (ii), Sub will be required to take delivery of such inventory
purchased on a forward basis and record it as inventory on its books.
For purposes of this Agreement, the term "Internet-Only Inventory" shall
mean inventory of products sold or carried for sale only by Sub in its Internet
or catalog operations and not sold or carried for sale by the Company in its
stores. The term "Common Inventory" shall mean all inventory purchased by the
Company on behalf of Sub that is sold or carried for sale in both the Company's
stores and in Sub's Internet or catalog operations.
(b) The Company agrees to accept any inventory originally purchased by Sub
from the Company returned by Sub's customer to Sub, a Right Start store or their
distribution centers ("Returned Inventory"), subject to the following:
(i) For Common Inventory (which for purposes of this Section 2(b)
shall also include inventory purchased by the Company on behalf of Sub that has
at any time been carried for sale in the Company's stores), the Company shall
accept the Returned Inventory and provide credit to the customer. In order to
properly reflect the accounting for such transactions on the books of each
company, the transaction shall be recorded as follows: (A) the amount refunded
to the customer will be charged to the account of Sub and (B) the Company's cost
of the inventory, including freight, will be credited to the account of Sub,
provided the inventory is saleable or a credit is obtained from the inventory's
vendor.
(ii) For Internet-Only Inventory, the Company shall accept the
Returned Inventory and provide a credit to the customer. In order to properly
reflect the accounting for such transactions on the books of each company, the
transactions shall be recorded as follows: (A) the amount refunded to the
customer will be charged to the account of Sub and (B) provided the returned
inventory is in salable condition, the Company will transfer the inventory to
Sub's Internet-Only Inventory balance at Sub's cost of the inventory, including
freight. If the returned Internet-Only Inventory is not in salable condition,
the Company will obtain a credit from the vendor, if available, and credit Sub's
account for such vendor credit. If the returned Internet-Only Inventory is not
salable and not returnable to its vendor for credit, no credit will be made to
Sub's account for such inventory.
(c) The Company shall not buy any inventory for Sub without the prior
approval of an officer of Sub.
(d) All vendor warranties with respect to inventory purchased by Sub from
the Company hereunder are hereby assigned to Sub.
3
<PAGE>
3. Promotional Services.
During the term of this Agreement the Company shall, either directly,
through one or more of its subsidiaries or through one or more of its third
party service providers, provide and/or arrange the following promotional
benefits to Sub at no additional cost to Sub (the "Promotional Services"):
(a) Until termination of the Intellectual Property Agreement dated as of
even date herewith between the Company and Sub (even after the term of this
Agreement): (a) Company will vigorously promote Sub as its exclusive online and
catalog channel for products for parents, childcare providers, infants and
children under age seventeen; (b) Company agrees that neither it nor any
affiliates it controls will promote in any way any other online or catalog
retailer that offers products, as a material part of its business, for parents,
childcare providers, infants and children under age seventeen; (c) Company
agrees that Company will include prominent reference to Sub where such reference
can be accomplished at a low incremental cost to the Company (by way of example,
and not limitation, all the following created or manufactured or obtained after
the Effective Date will contain a prominent reference to Sub: customer bags,
customer receipts, labels, invoices, counter cards, in-store audio programming,
emails, letterhead, and other stationary, mailers, print publications,
advertising (including, without limitation, print, radio, television, billboard
and the Internet, etc.)); and (d) Company agrees that it will have in-store
signs promoting Sub in all Company retail stores and any retail store controlled
or licensed by the Company.
(b) Company shall cause its marketing and merchandising employees to
assist Sub in the development of Sub's marketing and merchandising programs to
be implemented by the Company; Company shall also cause its retail store
personnel to execute and carry out reasonable marketing and merchandising
programs of Sub.
4. Payment.
(a) Basic Services. In full consideration for the Basic Services set forth
--------------
in Section 1 above, Sub shall pay the Company for each such service, an amount
equal to the Company's Direct Cost (as defined below) plus an additional five
percent (5%). "Direct Cost" means, with respect to each service provided
pursuant to this Agreement, the direct out-of-pocket expenses paid or incurred
to third parties or by the Company and a proportionate share of all overhead
expenses directly and demonstrably attributable to providing such service,
including, without limitation, shipping, handling, travel expenses, personnel
costs, professional fees, printing and postage.
(b) Inventory Supply Services. In full consideration for the Inventory
-------------------------
Supply Services referred to in Section 2(a) above, Sub shall pay the Company
105%, multiplied by the sum of (x) the direct cost of the goods supplied to Sub,
(y) the inbound freight charges, and (z) all other costs charged to the Company
by its suppliers.
(c) Invoices.
--------
(i) On or as soon as possible after the last day of each month and
in reasonable detail, the Company shall deliver an invoice to Sub setting forth
the Basic Services,
4
<PAGE>
and the amount of fees payable for such services rendered to Sub during such
month. Sub shall pay the invoiced amount to the Company for Basic Services
within ten (10) days after the date on which such invoice is received by Sub.
(ii) On or prior to January 31, 2000 as to the Common Inventory
purchased for Sub, each week the Company shall deliver an invoice to Sub in
reasonable detail setting forth the Common Inventory purchased from the Company
for filling customer orders during such week. Sub shall pay the invoiced amount
to the Company for the Common Inventory of Sub under this provision within three
(3) days after the date on which such invoice is received by Sub.
(iii) On or as soon as possible after the last day of each month as
to the Common Inventory purchased for Sub at any time after January 31, 2000 and
at all times for the Internet-Only Inventory, the Company shall deliver an
invoice to Sub in reasonable detail setting forth the Common Inventory and the
Internet-Only Inventory purchased for Sub during the month. Sub shall pay the
invoiced amount within fifteen (15) days after the date on which such invoice is
received by Sub.
5. Inspection. Sub and its agents and representatives, at Sub's expense
----------
(unless a five percent (5%) or greater discrepancy is discovered), shall have
the right to examine the books and records of the Company that relate to the
costs and expenses referred to in this Agreement, provided, however, that such
examination may only be conducted during regular business hours and upon
reasonable prior written notice.
6. No Agency. The parties hereto are independent contractors and nothing
---------
in this Agreement is intended to, nor shall it, create any agency, partnership
or joint venture relationship between them. With respect to any third party, no
party hereto, or any of its officers, directors, employees or agents, shall have
the right or authority to bind or otherwise obligate the other party hereto in
any way as a consequence of this Agreement.
7. Termination.
-----------
(a) The term of this Agreement shall begin as of the date hereof and shall
continue for an indefinite period in full force and effect until it is
terminated in accordance with this Section 7.
(b) This Agreement may be terminated in full or on a service-by-service
basis at the option of either the Company or Sub as follows:
(i) Sub may terminate this Agreement or any of the Basic Services,
Inventory Supply Services or Promotional Services (or any other services under
this Agreement) at any time upon thirty (30) days prior written notice to the
Company; provided that if Sub terminates the Inventory Supply Services or this
--------
Agreement in full, Sub must pay for and take delivery of (in accordance with
this Agreement) all Common Inventory and Internet-Only Inventory purchased by
the Company at Sub's request prior to the termination date.
(ii) The Company may terminate this Agreement or any service(s)
under this Agreement at any time after January 31, 2000 upon one hundred twenty
(120) days
5
<PAGE>
prior written notice to Sub when the annual run rate of Sub's sales is projected
to be in excess of $40 million or, in order to meet demand for Sub's sales (even
if Sub's annual run rate is less than $40 million), the Company would be
required to make additional Expenditures in providing Basic Services or
Inventory Services that exceed $15,000 in any one-month period and that could
not be passed through to or reimbursed by Sub under this Agreement or that Sub
does not otherwise agree to pay. For purposes of this section, the term
"Expenditures" shall mean any capital expenditures made by the Company for
facilities, space, equipment or software.
(c) Notwithstanding the foregoing clause (b), the Company shall have the
right, but not the obligation, to terminate this Agreement immediately if:
(i) Sub is in material breach of any of this Agreement, which
breach is not cured within sixty (60) days of receipt of written notice from the
Company of such breach; except that any material breach relating to or arising
------
out of Section 4 of this Agreement must be cured within thirty (30) days of
receipt of written notice from the Company of such breach;
(ii) Sub is the subject of a voluntary petition in bankruptcy or any
voluntary proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors, if such petition or proceeding is not
dismissed within ninety (90) days of filing, or becomes the subject of any
involuntary petition in bankruptcy or any involuntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within ninety (90)
days of filing;
(iii) Sub's business, or all or substantially all of its assets, are
liquidated or otherwise terminated, sold or transferred due to insolvency or any
other basis; or
(iv) Sub makes an assignment for the benefit of its creditors.
(d) Notwithstanding the foregoing clause (b), Sub shall have the right,
but not the obligation, to terminate immediately this Agreement if:
(i) the Company is in material breach of any of its obligations or
representations hereunder, which breach is not cured within thirty (30) days of
receipt of written notice from Sub of such breach;
(ii) the Company is the subject of a voluntary petition in
bankruptcy or any voluntary proceeding relating to insolvency, receivership,
liquidation, or composition for the benefit of creditors, if such petition or
proceeding is not dismissed within sixty (60) days of filing, or becomes the
subject of any involuntary petition in bankruptcy or any involuntary proceeding
relating to insolvency, receivership, liquidation, or composition for the
benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing;
(iii) the Company's business, or substantially all of its assets, are
liquidated or otherwise terminated, sold or transferred due to insolvency or any
other basis; or
(iv) the Company becomes insolvent or unable to pay its debts as
they mature or Company makes an assignment for the benefit of its creditors.
6
<PAGE>
(e) If Sub wishes to obtain any inventory or services on its own through
third parties or in the event of a termination of this Agreement in whole or in
part, the Company shall use its best efforts to effect a smooth transition and
to assist Sub in establishing direct third party relationships on reasonable
terms. This obligation will continue after termination of this Agreement for any
reason with the intent that Sub will have the ability to acquire for resale all
products Company sells from time to time for a period of at least three years
after termination of this Agreement in whole.
(f) A party may exercise its right to terminate pursuant to this Section 7
by sending appropriate notice to the other party pursuant to Section 8(f) hereof
specifying the subsection of this Section 7 on which the party is relying and,
if this Agreement is not terminated in full, the specific services to which such
termination relates. No exercise by a party of its rights under this Section 7
will limit its remedies by reason of the other party's default, the party's
rights to exercise any other rights under this Section 7, or any of that party's
other rights.
8. Miscellaneous.
-------------
(a) This Agreement shall be governed by the internal laws of the State of
California without giving effect to the conflict of law principles thereof.
(b) This Agreement sets forth the entire agreement between the parties
hereto with respect to the subject matter hereof and is intended to supersede
all prior negotiations, understandings and agreements. No provision of this
Agreement may be waived or amended, except by a writing signed by the Company
and Sub.
(c) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and together which shall constitute one and
the same instrument.
(d) The failure of any party to exercise any right or remedy provided for
herein shall not be deemed a waiver of any right or remedy hereunder.
(e) If any provision of this Agreement is determined by a court of
competent jurisdiction to be invalid or otherwise unenforceable, such
determination shall not affect the validity or enforceability of any remaining
provisions of this Agreement. If any provision of this Agreement is invalid
under any applicable statute or rule of law, it shall be enforced to the maximum
extent possible so as to effect the intent of the parties, and the remainder of
this Agreement shall continue in full force and effect.
(f) All notices, requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered personally, via overnight
courier, by facsimile transmission or mailed, certified or registered mail,
postage prepaid, return receipt requested:
7
<PAGE>
If to the Company: The Right Start, Inc.
5388 Sterling Center Drive, Unit C
Westlake Village, California 91361
Attn: President
Fax: (818) 707-7132
If to Sub: RightStart.com Inc.
5388 Sterling Center Drive, Unit C
Westlake Village, California 91361
Attn: President
Fax: (818) 707-7132
(g) This Agreement shall be binding upon and inure to the benefit of each
of the parties hereto and their respective, permitted successors and assigns.
Sub may not assign any of its rights hereunder without the prior written consent
of the Company, except to a successor to substantially all of Sub's business or
assets; provided, that if Sub assigns its rights under this Agreement as
permitted by the foregoing, the Company may terminate this Agreement six (6)
months following such assignment, unless earlier terminated during such six-
month period by Sub (notwithstanding anything to the contrary set forth in
Section 7 hereof).
(h) The section headings used herein are for the convenience of the
parties only, are not substantive and shall not be used to interpret or construe
any of the provisions contained herein.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
The Right Start, Inc., a California corporation
/s/ Gina M. Engelhard
------------------------
Name: Gina M. Engelhard
Title: Chief Financial Officer and Secretary
RightStart.com Inc., a Delaware corporation
/s/ Jerry R. Welch
--------------------------
Name: Jerry R. Welch
Title: President
<PAGE>
Exhibit 10.4
INTELLECTUAL PROPERTY AGREEMENT
This INTELLECTUAL PROPERTY AGREEMENT, (the "Agreement"), dated as of
---------
July 9, 1999 (the "Effective Date"), is by and among The Right Start, Inc., a
--------------
California corporation (the "Company") and RightStart.com Inc., a Delaware
-------
Corporation ("Sub").
---
W I T N E S S E T H:
--------------------
WHEREAS, Company is the owner of all right, title and interest in the
Intellectual Property as defined herein; and
WHEREAS, Sub is a subsidiary of the Company formed for the purpose of
conducting the Company's catalog business, and engaging in the online retailing
of the Company's products for parents, infants and children and the other
activities more fully defined below as the Online Business;
WHEREAS, the Company desires to assign to Sub the Website IP, and to
grant Sub a non-exclusive, non-transferable, fully-paid up and royalty-free
license (except as otherwise set forth herein) to use the Right Start IP and the
goodwill associated therewith solely in connection with the Online Business, and
Sub desires to grant to the Company a non-exclusive, non-transferable, fully-
paid up and royalty-free license to use the Website IP and the goodwill
associated therewith solely in connection with the Retail Business.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. DEFINITIONS
1.01 Affiliate means any person or entity of any kind effectively
controlling, effectively controlled by or under common control with Company or
Sub.
1.02 Change in Control shall mean, and shall be deemed to have
occurred on the date the Sub enters into or is involved in any merger,
reorganization, consolidation or other business combination with any person or
entity other than an Affiliate or financial adviser, immediately after which
Sub's stockholders immediately prior to such transaction hold less than fifty
percent (50%) of the general voting power of Sub.
1.03 Confidential Information shall mean any information relating to
technical, marketing, product, customer and/or business affairs which is
disclosed in the course of this Agreement, including information relating to
products, trade secrets, software research and developments, inventions,
processes, techniques, designs or other technical and business information.
Confidential information shall not include any information which becomes
generally available to the public without breach of this Agreement, is in the
possession of the
<PAGE>
recipient party prior to its disclosure by the disclosing party or becomes
available from a third party not in breach of any obligations of confidentiality
to the disclosing party.
1.04 Content shall mean all information, marketing data, text, audio
files, video files, graphics or other material provided by Company for use in
connection with the Online Business.
1.05 Customer Information shall mean all lists of customers and
prospective customers and any other information regarding customers (and
prospective customers) of the Company's Retail Business in any format or medium
of expression existing on or after the Effective Date.
1.06 Derivative Work shall have the meaning in accordance with the
United States Copyright Act of 1976, as amended, 17 U.S.C. (S)101, namely, a
work based upon one or more pre-existing works that is embodied in any form in
which a work may be recast, transformed or adapted, including any work
consisting of editorial revisions, annotations, elaborations or other
modifications which, as a whole, represents an original work of authorship.
1.07 Guidance Solutions Content shall mean the source code (human
readable) and object code (machine readable), technology, methods, techniques,
software, algorithms, electronic commerce and database applications and rights
thereto owned by Guidance Solutions, Inc. which has been engaged by Company to
develop the Website.
1.08 Intellectual Property shall mean the Right Start IP and the
Website IP.
1.09 Marks refers to all trademarks, service marks, trade dress,
logos, brands and designs, trade names, Internet domain names, metatags, and
hyperlinks and any similar designation of source now known or hereafter devised
(and any combination thereof) owned or used by Company, including, without
limitation, those set forth on Exhibit A. Marks (excluding trade dress,
designs, domain names, metatags and hyperlinks) may also be referred to herein
as Trademarks.
1.10 Online Business shall mean the catalog and online retailing of
the Company's and Sub's products (including, without limitation, third party
products sold or distributed by either) or similar products for parents,
childcare providers, infants and children under age seventeen, together with
original or third party content presented or offered on the Website or otherwise
online or electronically by Sub, including, without limitation, the production,
procurement, sales, marketing, promotion and distribution of all of the
foregoing, and the collection, sale, and distribution of information regarding
the use and users of the Website and other customers.
1.11 Retail Business shall mean the retail sales of products for
parents, childcare providers, infants or children under age seventeen through
any sales medium except through online sales (or in any other electronic format)
or through catalog sales.
1.12 Right Start IP shall mean all Customer Information, and any
other information regarding customers of the Company's Retail Business, and all
Marks, and all goodwill associated therewith, copyrights and works subject to
copyright protection, patents,
2
<PAGE>
trade secrets and other proprietary and intangible property rights, and all
applications and registrations therefor and renewals and extensions thereof of
the Company, including, without limitation, those Marks set forth on Exhibit A
and the Patents set forth on Exhibit C; provided, however, that the term
-----------------
"Right Start IP" shall not include the Website IP (or anything else developed by
or for Sub on or after the Effective Date). Company shall use its best efforts
to provide to Sub Exhibits updated to reflect any after-acquired Right Start IP
which is necessary or useful to conduct, or material to, the Retail Business.
1.13 The Right Start Website Content shall include, without
limitation, all files (including all Hypertext Markup Language (HTML) files),
text, graphics, graphics files in any file format, images, artwork, audio files,
audiovisual materials, and electronic commerce and database applications
(including such Content utilizing or displaying the name "Right Start") which
are (i) provided by third parties or the Company or (ii) created by or for Sub
in connection with the Website and in accordance with the terms and conditions
of this Agreement.
1.14 User Information shall mean any and all information with respect
to the use and users of the Website, including, without limitation, all user
profiles, click streams, cookie files, and information regarding frequency of
use, page views, hits, purchase history and all demographic data collected by or
on behalf of the Company or Sub. User Information shall also include all
catalog customer lists of the Company or Sub in existence on the Effective Date.
1.15 Website shall mean all content of the interactive electronic
commerce website located at the domain name www.RightStart.com.
------------------
1.16 Website IP refers to the Right Start Website Content and all of
the following as they relate to the Website or the Online Business: the
copyright registrations set forth on Exhibit B, the domain names set forth on
Exhibit D, and all trademarks, service marks, trade dress, logos ,brands and
designs, trade names, Internet domain names, metatags, and hyperlinks and any
similar designation of source now known or hereafter devised (and any
combination thereof) used in connection with the Website or the Online Business
(the "Sub Marks"), and all goodwill associated therewith, copyrights and works
subject to copyright protection, patents, trade secrets, the Content and other
proprietary and intangible property rights, and all applications and
registrations therefor and renewals and extensions thereof, including all
intellectual property hereafter created, developed or acquired by or for the
Company or Sub in the conduct of the Online Business.
2. GRANT OF LICENSE.
----------------
2.01 (a) License to Sub. Company hereby grants to Sub a worldwide,
--------------
non-exclusive (except as provided below), non-transferable (except as provided
below) fully paid-up and royalty-free license to use and fully exploit the Right
Start IP (and the goodwill associated therewith) and the Customer Information,
solely in connection with the Online Business and in accordance with the terms
and conditions of the Agreement (subject to the provisions of Article 4). Such
---------
license will be exclusive with respect to the Online Business and such
exclusivity will exclude the Company or any Affiliate of the Company or
successor from (1) using, exploiting, exercising or licensing any rights to the
Right Start IP or Customer Information in connection with any online, e-commerce
or catalog business retailing products for parents,
3
<PAGE>
childcare providers, infants or children under age seventeen (provided that the
Company may maintain hyperlinks, sites or pages (that utilize domain names other
than those within the definition of Website IP) that provide access exclusively
to (A) corporate information regarding the Company, and (B) a list of the
Company's retail locations, so long as such hyperlink, site or page provides a
link to the Website) or (2) engaging in or promoting any online, e-commerce or
catalog business retailing products for parents, childcare providers, infants or
children under age seventeen (provided that the Company may maintain hyperlinks,
sites or pages (that utilize domain names other than those within the definition
of Website IP) that provide access exclusively to (A) corporate information
regarding the Company, and (B) a list of the Company's retail locations, so long
as such hyperlink, site or page provides a link to the Website).
(b) License to Company. Sub hereby grants to Company a worldwide,
------------------
non-exclusive, fully paid-up and royalty-free license to use and fully exploit
the User Information and the Website IP for any purpose of the Retail Business
other than an electronic or online presence (provided that the Company may
maintain hyperlinks, sites or pages (that utilize domain names other than those
within the definition of Website IP) that provide access exclusively to (A)
corporate information regarding the Company, and (B) a list of the Company's
retail locations, so long as such hyperlink, site or page provides a link to the
Website) (Subject to the provisions of Article 4 and Article 7).
-----------------------
2.02. Assignment. Company hereby assigns to Sub all of its right,
----------
title and interest in and to the User Information and the Website IP (and the
goodwill associated therewith), in accordance with the terms and conditions of
the Agreement.
2.03 Ownership by the Company. All right, title and interest in and
------------------------
to the Customer Information and the Right Start IP, including all goodwill
associated therewith, shall remain vested in Company. Sub covenants that it
will not in any way challenge (1) Company's ownership of the Right Start IP or
the Customer Information or (2) the validity of the Right Start IP.
2.04. Ownership by Sub. All right, title and interest in and to the
----------------
User Information and the Website IP (including all goodwill associated
therewith) shall be the property of Sub. The Company covenants that it will not
in any way challenge (1) Sub's ownership of the Website IP or User Information
or (2) the validity of the Website IP.
2.05. Transferability. (a) Neither party hereto shall have the
---------------
right to assign or sublicense its licenses or sublicenses under this Agreement
unless (1) such party obtains the other party's prior written consent to such a
transfer of rights, and (2) such assignee or sublicensee shall assume in writing
the obligations of the licensing or sub-licensing party under this Agreement and
agree to be bound hereunder for the benefit of the other party; provided that
without regard to such restrictions (A) either party may assign such licenses or
sublicenses to a successor to substantially all its assets and (B) either party
may sublicense its licenses and sublicenses in connection with a partnership,
alliance, joint venture, distribution, advertising or similar arrangement that
does not constitute a mere brokering of the license or sublicense.
(b) Notwithstanding the immediately foregoing paragraph, both the
Company and Sub shall be prohibited from assigning or sublicensing (or in the
case of the Company, a
4
<PAGE>
further licensing) the "Right Start" name in a particular circumstance if, in
the opinion of an independent arbitrator recognized by American Arbitration
Association (the "AAA") appointed by consensus of the Board of Directors of the
Company and the Board of Directors of Sub, such assignment or sublicense would
substantially harm the image or reputation of the non-assigning/non-
sublicensing/non-licensing party or otherwise substantially diminish the value
of the non-assigning/non-sublicensing/non-licensing party's Intellectual
Property rights or the "Right Start" name in a particular circumstance. The non-
prevailing party shall pay the costs and expenses of such arbitrator if utilized
hereunder, and the arbitrator shall allocate between the parties fees and
expenses of counsel in connection with any such arbitration.
(c) Notwithstanding Section 2.05(a) and (b) above, the Company shall
-----------------------
be permitted to assign, pledge and grant a security interest in its Intellectual
Property to its Senior Lender to secure its obligations under any loan or credit
agreement with its Senior Lender without the consent of Sub, and the Company's
Intellectual Property and rights may be assigned, transferred or sublicensed by
the Company or its Senior Lender, by foreclosure or transfer in lieu thereof, in
connection with such Senior Lender's exercise of any remedies with respect to
such indebtedness without the consent of Sub; provided that any transferee,
including Senior Lender, who acquires ownership of or a sublicense in such
Intellectual Property or rights shall have principal offices or branches located
within the United States and shall assume in writing the obligations of the
Company under this Agreement and agree to be bound hereby. No consent of Sub,
and no assumption of Company's rights under this Agreement, shall be required
for any Senior Lender of the Company to exercise its rights against any
inventory of the Company bearing the trademarks or tradenames included in the
Intellectual Property and the exercise of such rights shall not be a breach
hereunder. Notwithstanding Section 2.05(a) and (b) above, Sub shall be permitted
-----------------------
to assign, pledge and grant a security interest in its Intellectual Property to
its Senior Lender to secure its obligations under any loan or credit agreement
with its Senior Lender without the consent of the Company, and Sub's
Intellectual Property and rights may be assigned, transferred or sublicensed by
Sub or its Senior Lender, by foreclosure or transfer in lieu thereof, in
connection with such Senior Lender's exercise of any remedies with respect to
such indebtedness without the consent of the Company; provided that any
transferee, including Senior Lender, who acquires ownership of or a sublicense
in such Intellectual Property or rights shall have principal offices or branches
located within the United States and shall assume in writing the obligations of
Sub under this Agreement and agree to be bound hereby. No consent of the
Company, and no assumption of Sub's rights under this Agreement, shall be
required for any Senior Lender of Sub to exercise its rights against any
inventory of Sub bearing the trademarks or tradenames included in the
Intellectual Property and the exercise of such rights shall not be a breach
hereunder. For purposes of this section, "Senior Lender" shall mean one or more
major financial institutions of good repute with principal offices or branches
located in the United States.
After foreclosure by or transfer in lieu thereof to a Senior Lender as
set forth in the immediately preceding paragraph, if such Senior Lender
transfers its rights in or to any Intellectual Property under this Section
-------
2.05(c), it shall be released from any obligations under this Agreement upon
- -------
consummation of such transfer.
5
<PAGE>
3. GRANT OF SUB-LICENSE.
--------------------
3.01 Sub-License. Company hereby grants to Sub a perpetual,
-----------
worldwide, exclusive, fully paid-up and royalty-free, unrestricted sub-license
and right to use, reproduce, modify, transfer, maintain and otherwise fully
exploit the Guidance Solutions Content and all of its Derivatives. This
sublicense shall survive termination of this Agreement and shall include,
without limitation, all rights to:
(a) develop, use, reproduce, broadcast, distribute or transmit in any
fashion, display, perform or otherwise exploit the Guidance
Solutions Content, as well as all Derivatives, in and for all
forms, media, platforms, etc. now or hereafter known or invented
by anyone; and
(b) create Derivatives or otherwise modify the Guidance Solutions
Content and Derivatives.
4. FORM OF USE.
-----------
4.01 Notices, Legends and other Intellectual Property.
------------------------------------------------
(a) By Sub:
------
(i) Sub shall use the Right Start IP in connection with the federal
registration symbol, (R), or the "TM" symbol, the federal copyright
symbol (C), and "Reg'd Patent" or "Patent Pending", as and if
applicable, and such other customary symbols, notices and legends as
may be reasonably required by Company.
(ii) With the exception of the trademarks, service marks, trade dress,
logos, brands and designs, trade names, Internet domain names,
metatags, and hyperlinks of Sub and its affiliates, Sub shall not use
the Trademarks owned by the Company so as to create composite or
unitary trademarks consisting or comprised of the Trademarks and any
other third party trademarks, service marks, trade dress, logos,
brands and designs, trade names, Internet domain names, metatags, or
hyperlinks without the prior written approval of Company.
(b) By the Company:
--------------
(i) The Company shall use the Website IP in connection with the
federal registration symbol, (R), or the "TM" symbol, the federal
copyright symbol (C), and "Reg'd Patent" or "Patent Pending", as and
if applicable, and such other customary symbols, notices and legends
as may be reasonably required by Sub.
(ii) With the exception of the trademarks, service marks, trade dress,
logos, brands and designs, trade names, Internet domain names,
metatags, and hyperlinks of the Company and its affiliates, the
Company shall not use the Sub Marks so as to create composite or
unitary trademarks consisting or comprised of the Trademarks and any
other third party trademarks, service marks, trade dress,
6
<PAGE>
logos, brands and designs, trade names, Internet domain names,
metatags, or hyperlinks without the prior written approval of Sub.
4.02 Quality Standards.
-----------------
(a) For Sub:
-------
(i) The Trademarks shall at all times be used in a form and manner
that is consistent with the registered or applied-for format of the
Trademarks or the then current practices of Company, and otherwise in
a form and manner that is reasonably in keeping with the image,
reputation and goodwill symbolized by and associated with the
Trademarks.
(ii) Sub shall only use the Trademarks in connection with the Online
Business, and goods and services that adhere to the standard of
quality exemplified by the then current practices of Company provided
by the Company to Sub in writing with reasonable notice (if such
practices are then actually followed by the Company and also are
enforced against its licensees other than Sub, if any) and which must
be in keeping with the image and goodwill symbolized and associated
with the Trademarks, the Retail Business and the Company.
(iii) Sub's use of the Trademarks shall not injure, disparage,
demean, or tarnish the reputation of Company, the Retail Business, the
Trademarks or the image, reputation or goodwill associated therewith;
provided, however, that legal competitive business practices of Sub
against the Company or third parties (or the effects thereof) shall
not violate this subsection.
(b) For the Company:
---------------
(i) The Website IP and the Trademarks shall at all times be used in a
form and manner that is consistent with the registered or applied-for
format of the Website IP and the Trademarks or the then current
practices of Sub, and otherwise in a form and manner that is
reasonably in keeping with the image, reputation and goodwill
symbolized by and associated with the Website IP and the Trademarks.
(ii) The Company shall only use the Website IP in connection with the
Retail Business, all of which must adhere to the standard of quality
exemplified by the then current practices of Sub provided by Sub to
the Company in writing with reasonable notice (if such practices are
then actually followed by Sub and also are enforced against its
licensees other than the Company, if any) and which must be in keeping
with the image and goodwill symbolized and associated with the Website
IP, the Online Business and Sub; provided, however, that such
-----------------
standards and any criteria for approval will be applied to the Company
on a nondiscriminating basis.
(iii) The Company's use of the Website IP and the Trademarks shall
not injure, disparage, demean or tarnish the reputation of Sub, the
Online Business, the
7
<PAGE>
Website IP or the image, reputation or goodwill associated therewith;
provided, however, that legal competitive business practices of the
Company against Sub or third parties (or the effects thereof) shall
not violate this subsection.
4.03 Quality Control. (a) Sub shall submit to Company, for
----------------
Company's prior written approval, which approval shall not be unreasonably
withheld or delayed, three samples of any proposed use of the Trademarks (other
than for routine advertising or any other use consistent with previously
approved uses or consistent with Company's generally applicable TM guidelines or
any specific guidelines provided by the Company to Sub). Company shall provide
its written approval or disapproval of the proposed use of the Trademarks to
Sub. If Company does not provide its written approval within 10 days following
such submission, approval shall be deemed granted. Company shall provide, at
Sub's request, a written explanation of its reasons for withholding approval
within 10 days after notice of such request, in sufficient detail to enable Sub
to correct the basis for Company's rejection of the submitted material. Sub
shall ensure that representative samples of its use of the Trademarks are
periodically submitted to Company, in order to further enable Company to
exercise control over the nature and quality of the goods and services provided
under the Trademarks.
(b) The Company shall submit to Sub, for Sub's prior written approval,
which approval shall not be unreasonably withheld or delayed, three samples of
any proposed use of the Sub Marks (other than for routine advertising or any
other use consistent with previously approved uses or consistent with Sub's
generally applicable TM guidelines or any specific guidelines provided by Sub to
the Company). Sub shall provide its written approval or disapproval of the
proposed use of the Sub Marks to the Company. If Sub does not provide its
written approval within 10 days following such submission, approval shall be
deemed granted. Sub shall provide, at the Company's request, a written
explanation of its reasons for withholding approval within 10 days after notice
of such request, in sufficient detail to enable the Company to correct the basis
for Sub's rejection of the submitted material. The Company shall ensure that
representative samples of its use of the Sub Marks are periodically submitted to
Sub, in order to further enable Sub to exercise control over the nature and
quality of the goods and services provided under the Sub Marks.
4.04 Infringement Proceedings. (a) Subject to 4.4(b), each party
------------------------
shall promptly notify the other party in writing of any actual or suspected
unauthorized third party use of the Right Start IP, Confidential Information of
the Company and the Customer Information, as such use comes to a party's
attention. If the Company elects to defend or enforce its rights relating to
such alleged infringement, it shall be entitled to choose counsel for such
purpose and the Company shall afford Sub the opportunity to participate in (1)
the communication in writing or orally with the alleged infringer; and (2) the
enforcement or defense of their rights in, to and under the Right Start IP,
Confidential Information of the Company and the Customer Information; and (3)
the undertaking of infringement, unfair competition or other proceedings
involving the Right Start IP, Confidential Information of the Company or the
Customer Information; provided, however, that if the Company elects not to
defend or enforce its rights against such alleged infringer, Sub shall be
entitled to exercise any of the foregoing rights alone (including retention of
its choice of counsel) and the Company agrees to cooperate with Sub in the
exercise of such rights. Damages from such alleged infringer, if recovered by
either of the
8
<PAGE>
parties, shall be equitably apportioned between the Company and Sub in
accordance with relative damage suffered by the parties from such infringement.
(b) Subject to Section 4.4(a), each party shall promptly notify the
other party in writing of any actual or suspected unauthorized third party use
of the Website IP, the User Information and the Confidential Information of Sub,
as such use comes to a party's attention. If Sub elects to defend or enforce its
rights relating to such alleged infringement, it shall be entitled to choose
counsel for such purpose and Sub shall afford the Company the opportunity to
participate in the (1) communication in writing or orally with the alleged
infringer; and (2) the enforcement or defense of their rights in, to and under
the Website IP, the User Information and the Confidential Information of Sub;
and (3) the undertaking of infringement, unfair competition or other proceedings
involving the Website IP, the User Information or the Confidential Information
of Sub; provided, however, that if Sub elects not to defend or enforce its
rights against such alleged infringer, the Company shall be entitled to exercise
any of the foregoing rights alone (including retention of its choice of counsel)
and Sub agrees to cooperate with the Company in the exercise of such rights.
Damages from such alleged infringer, if recovered by either of the parties,
shall be equitably apportioned between the Company and Sub in accordance with
relative damage suffered by the parties from such infringement.
5. TERM AND TERMINATION.
--------------------
5.01 Term. The term of this Agreement (and all licenses hereunder)
----
shall commence on the date of this Agreement and shall continue until terminated
in accordance with the procedures set forth in this Agreement; provided,
however, that to the extent that any license or sub-license granted hereunder
continues upon termination of this Agreement (as specifically set forth in
Section 5.04 below or otherwise herein) (a "Post-Term License") such Post-Term
Licenses shall continue but any particular activity under such Post-Term License
shall be subject to termination if, in the opinion of an independent recognized
arbitrator by the AAA appointed by the consensus of the Board of Directors of
the Company and the Board of Directors of Sub, such activity under such Post-
Term License would substantially harm the image of the owner of the Intellectual
Property to which the Post-Term License relates or otherwise substantially
diminish the value of such party's Intellectual Property rights or the "Right
Start" name. The non-prevailing party shall pay the costs and expenses of such
arbitrator if utilized, and the arbitrator shall allocate between the parties
the fees and expenses of counsel in connection with any such arbitration.
5.02 Termination for Change in Control of Sub. In the event of a
----------------------------------------
Change in Control of Sub in which the acquiror is a direct competitor of the
Company, Sub shall provide notice to the Company no less than 10 days prior to
entering into a definitive agreement giving effect to such Change of Control.
Thereafter, the Company may terminate this Agreement (in accordance with the
terms of Section 5.01 and 5.04 hereof) within 30 days by giving Sub notice of
termination due to a Change of Control. If Sub fails to provide notice to the
Company in accordance with this paragraph, this Agreement may be terminated at
the Company's option at any time, within 60 days of the later of when the Change
of Control is actually consummated or the date on which the Company discovers
that a Change of Control has occurred.
9
<PAGE>
5.03 Termination for Cause. If either party materially breaches
---------------------
this Agreement and does not cure such failure within 30 business days after
written notice is given by the other party specifying the nature of the material
breach, the non-breaching party may, upon further notice to the breaching party
within 10 days of the end of the 30-day period, terminate this Agreement as of
the date specified in such notice of termination.
5.04 Effect of Termination. Subject to Section 5.01 above, in the
---------------------
event of a termination of this Agreement for any reason, and with the exception
of licenses granted hereunder to the extent they relate to (A) Customer
Information used by Sub in the Online Business at the time of termination and
(B) the "Right Start" name and other Right Start IP actively used in the Online
Business at the time of termination, and selling out inventory, and excluding
any intellectual property owned by Sub, Sub shall (1) cease any and all use of
the Right Start IP and the Confidential Information of the Company; and (2)
deliver to Company all copies of the remaining stock of printed or other
material bearing the Right Start IP, any other designation which is the same or
confusingly similar to the Right Start IP or the Confidential Information of the
Company, and all other materials, files, goods and documentation relating or
referring to the Right Start IP or the Confidential Information of the Company
in Sub's possession. In the event of a termination of this Agreement for any
reason, and with the exception of licenses granted hereunder to the extent they
relate to User Information used by the Company in the Retail Business at the
time of termination, and selling out inventory, and excluding any intellectual
property owned by the Company, the Company shall (1) cease any and all use of
the Website IP, the User Information, and the Confidential Information of Sub,
and (2) deliver to Sub all copies of the remaining stock of printed or other
material bearing the Website IP, any other designation which is the same or
confusingly similar to the Website IP or the Confidential Information of Sub,
and all other materials, files, goods and documentation relating or referring to
the Website IP, the User Information or the Confidential Information of Sub in
the Company's possession.
6. REPRESENTATIONS AND WARRANTIES; DISCLAIMER.
------------------------------------------
6.01 Each party represents and warrants that, except as authorized
hereunder, neither it nor any Intellectual Property shall to its knowledge
infringe upon any third party intellectual property rights, including, without
limitation, trademarks, copyrights, patents and trade secrets.
6.02 DISCLAIMER. NEITHER PARTY MAKES ANY REPRESENTATIONS OR
----------
WARRANTIES, EXPRESS OR IMPLIED, REGARDING OR RELATING TO THE INTELLECTUAL
PROPERTY, AND EACH PARTY EXPLICITLY DISCLAIMS ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A SPECIFIC PURPOSE.
7. COVENANTS.
---------
(a) Confidentiality. Each party agrees to hold in strict confidence,
---------------
and to use reasonable efforts to cause its employees and representatives to hold
in strict confidence all Confidential Information of the other party furnished
to or obtained by it in the course of this
10
<PAGE>
Agreement except to the extent that (i) such information has been in the public
domain through no fault of it, (ii) disclosure or release is compelled by
judicial or administrative process, or (iii) disclosure or release is necessary
pursuant to requirements of law or the requirements of any governmental entity
including, without limitation, disclosure requirements under the Securities
Exchange Act of 1934, as amended. This Section 7 shall survive termination of
this Agreement indefinitely.
(b) Promotion. The Management Services Agreement dated as of the date
---------
hereof between Parent and Sub contains a promotional covenant that continues in
effect until this Agreement is terminated in accordance with Section 5 herein
---------
(regardless of termination of such Management Services Agreement prior to the
date of termination of this Agreement).
8. MISCELLANEOUS PROVISIONS.
------------------------
8.01 Notices. Except as otherwise specified in this Agreement, all
-------
notices, requests, consents, approvals, agreements, authorizations,
acknowledgements, waivers and other communications required or permitted under
this Agreement shall be in writing and shall be deemed given when sent by
telecopy to the telecopy number specified below. A copy of any such notice shall
also be sent by express air mail on the date such notice is transmitted by
telecopy to the address specified below:
In the case of Company:
The Right Start, Inc.
5388 Sterling Center Drive Unit C
Westlake Village, CA 91361
Attention: President
---------
Telecopy No. (818) 707-7132
with a copy to:
Milbank, Tweed, Hadley & McCloy LLP
601 South Figueroa Street, 30th Floor
Los Angeles, CA 90017
Attention: Kenneth Baronsky
---------
Telecopy No. 213-629-5063
In the case of Sub:
RightStart.com Inc.
5388 Sterling Center Drive Unit C
Westlake Village, CA 91361
Attention: President
---------
Telecopy No. (818) 707-7132
11
<PAGE>
with a copy to:
Sierra Ventures VII LP
3000 Sand Hill Road
Building 4, #210
Menlo Park, CA 94025
Attn: Mr. Robert J. Simon
Telecopy No. (650) 854-5593
A party may change its address or telecopy number for notification purposes by
giving the other party notice of the new address or telecopy number and the date
upon which it shall become effective.
8.02 Headings. The article and section headings are for reference and
--------
convenience only and shall not be considered in the interpretation of this
Agreement.
8.03 Severability. If any provision of this Agreement is held by a
------------
court of competent jurisdiction to be contrary to law, then the remaining
provisions of this Agreement, if capable of substantial performance, shall
remain in full force and effect.
8.04 Third Party Beneficiaries. Each party intends that this
-------------------------
Agreement shall not benefit, or create and right or cause of action in or on
behalf of any person or entity other than the parties.
8.05 Waivers. No delay or omission by either party in the exercise
-------
of any right or power it has under this Agreement shall impair or be construed
as a waiver of such right or power. A waiver by any party of any breach or
covenant shall not be construed to be a waiver of any succeeding breach or any
other covenant. All waivers must be in writing and signed by the party waiving
its rights.
8.06 Entire Agreement. This Agreement represents the entire
----------------
agreement between the parties with respect to its subject matter, and there are
no other representations, understandings or agreements between the parties
relative to such subject matter.
8.07 Amendments. No amendment to, or change, waiver or discharge of,
----------
any provision of this Agreement shall be valid unless in writing and signed by
an authorized representative of each of the parties.
8.08 Governing Law. This Agreement and the rights and obligations of
-------------
the parties hereunder shall be governed by and construed in accordance with
United States trademark laws and the laws of the State of California, without
giving effect to the principles thereof relating to the conflicts of laws.
8.09 Covenant of Further Assurances. Company and Sub covenant and
------------------------------
agree that, subsequent to the execution and delivery of this Agreement and
without additional consideration, each of Company and Sub shall execute and
deliver any further legal instruments and perform any acts which are or may
become necessary to effectuate the purposes of this
12
<PAGE>
Agreement to perfect or otherwise preserve and maintain Company's rights in and
to the Intellectual Property.
13
<PAGE>
IN WITNESS WHEREOF, each of Company and Sub has caused this Agreement
to be signed and delivered by its duly authorized representative.
The Right Start, Inc.
By: /s/ Gina M. Engelhard
------------------------
Name: Gina M. Engelhard
Title: Chief Financial Officer and Secretary
RightStart.com Inc.
By: /s/ Jerry R. Welch
---------------------
Name: Jerry R. Welch
Title: President
<PAGE>
STATE OF )
------------------
) SS.
COUNTY OF )
-----------------
On this day of , 1999, there appeared before me
--- ----------------
, personally known to me, who acknowledged that he/she signed
- ----------------
the foregoing Intellectual Property Agreement as his/her voluntary act and deed
with full authority to do so.
------------------------
Notary Public
15
<PAGE>
EXHIBIT 99.1
Monday July 12, 1:25 pm Eastern Time
Company Press Release
The Right Start Inc. Announces Closing of Financing for Internet Subsidiary
WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)--July 12, 1999--The Right Start Inc.
(Nasdaq:RTST - news) Monday announced that its Internet subsidiary,
---- ----
Rightstart.com Inc. has entered into an agreement providing for a $15 million
private placement of convertible preferred stock of Rightstart.com.
Investors funded $12 million of the financing last Friday and an additional $3
million will be funded in approximately a week. The subsidiary owns and, through
a service agreement with The Right Start, operates the company's new e-commerce
site, www.rightstart.com.
------------------
The site opened for business over the Internet on June 29, 1999.
The convertible preferred stock, which represents approximately 33% on a fully
diluted basis, of the equity of the subsidiary, was purchased by two prominent
venture capital firms, Sierra Ventures and Palomar Ventures, and certain of
their affiliates. Proceeds from the financing will be used to fund marketing and
advertising expenditures, further site development and for working capital.
Jerry R. Welch, chairman and chief executive officer of The Right Start and
Rightstart.com, said, "We are very excited about having Sierra Ventures and
Palomar Ventures as our partners in Rightstart.com. Their expertise in
technology and in the Internet complements our strengths in the retailing of
children's products and, together, we intend to make Rightstart.com the leading
company in our space on the Internet."
David C. Schwab, general partner of Sierra Ventures, said, "Rightstart.com
represents the next generation in online retailing. The combination of Right
Start's outstanding brand name with both online and physical stores provides
customers with an exceptional level of customer service and convenience."
"Palomar Ventures is pleased to back the trusted brand of 'The Right Start,'"
said Jim Gauer of Palomar Ventures. "Parents know that by shopping at
Rightstart.com they will ensure that the best products have been selected for
their children."
The Right Start Inc. is a leading merchant of unique, high quality products for
infants and young children up to age 4. The company was founded in 1985 and
capitalizes on the increasing number of baby boomers who have become middle- to
upper-income new parents. The company's products are distributed through its 43
retail stores, The Right Start catalog and its Internet site,
www.rightstart.com.
Statements in this announcement that are not purely historical are forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements with respect to the
financial condition and results of operations of the
<PAGE>
company involve risks and uncertainties which are detailed further in the
filings of the company with the Securities and Exchange Commission, including,
but not limited to, the company's Registration statement on Form S-3 (File No.
333-08157) and its Annual Report on Form 10-K/A for the year ended Jan. 30,
1999. In addition, the company's new e-commerce site has no online operating
history and there can be no assurance it will be profitable.
The securities issued in the financing referred to above were not registered
under the Securities Act of 1933 and may not be offered or sold in the United
States absent registration or an applicable exemption from registration
requirements.
Contact:
The Right Start Inc., Westlake Village
Jerry R. Welch or Gina M. Engelhard, 818/707-7100
2
