UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1 )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
THE RIGHT START, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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<PAGE>
(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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THE RIGHT START, INC.
5388 Sterling Center Drive, Unit C
Westlake Village, California 91361
July 1, 2000
Dear Shareholders:
Our Annual Meeting of Shareholders will be held on August 1, 2000, at 9:00
a.m., at The Right Start retail store located at 13413 Ventura Boulevard,
Sherman Oaks, California, 91423. We urge you to attend this meeting to give us
an opportunity to meet you personally, to allow us to introduce to you the key
personnel responsible for the management of your Company, to show you a Right
Start retail store and to answer any questions you may have.
The formal Notice of Meeting, the Proxy Statement and the proxy card are
enclosed. A copy of the Annual Report to Shareholders describing the Company's
operations during the fiscal year ended January 29, 2000 is also enclosed.
We hope that you will be able to attend the meeting in person. Whether or
not you plan to attend the meeting, please sign and return the enclosed proxy
card promptly. A prepaid return envelope is provided for this purpose. Your
shares will be voted at the meeting in accordance with your proxy.
If you have shares in more than one name or if your stock is registered in
more than one way, you may receive more than one copy of the proxy materials. If
so, please sign and return each of the proxy cards you receive so that all of
your shares may be voted. We look forward to meeting you at the August 1, 2000
Annual Meeting of Shareholders.
Very truly yours,
/s/ Jerry R. Welch
Jerry R. Welch
Chairman of the Board, President
and Chief Executive Officer
3
<PAGE>
THE RIGHT START, INC.
5388 Sterling Center Drive, Unit C
Westlake Village, California 91361
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
---------------
To Be Held August 1, 2000
The Annual Meeting of The Right Start, Inc. (the "Company") will be held at
The Right Start retail store located at 13413 Ventura Boulevard, Sherman Oaks,
California on August 1, 2000, at 9:00 a.m. for the following purposes:
1. To elect six (6) directors to hold office until the next annual
meeting and until their successors are elected;
2. To ratify the appointment of Arthur Andersen LLP as independent
auditors for the fiscal year ending February 3, 2001 (Proposal 1);
3. To approve a proposed amendment to the Company's 1991 Employee
Stock Option Plan increasing the maximum aggregate number of shares of the
Company's common stock subject to the plan from 900,000 to 1,050,000 shares, an
increase of 150,000 shares (Proposal 2);
4. To approve a proposed amendment to the Company's 1995 Non-Employee
Director Plan increasing the maximum aggregate number of shares of the Company's
common stock subject to the plan from 200,000 to 275,000 shares, an increase of
75,000 shares (Proposal 3); and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on June 7, 2000, is the date of record for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting.
All shareholders are urged to attend the meeting in person or by proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED PREPAID RETURN ENVELOPE.
The Proxy is revocable and will not affect your right to vote in person in the
event you attend the meeting.
By Order of The Board of Directors
/s/ Gina M. Engelhard
Gina M. Engelhard
Secretary
Westlake Village, California
July 1, 2000
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THE RIGHT START, INC.
---------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
Solicitation and Revocation of Proxies
The enclosed Proxy is solicited by and on behalf of the Board of Directors
("Board of Directors") of The Right Start, Inc. (the "Company") for use in
connection with the Annual Meeting of Shareholders to be held on the 1st day of
August, 2000 at 9:00 a.m. and at any and all adjournments thereof.
The persons named as proxies were designated by the Board of Directors and
are officers or directors of the Company. Any Proxy may be revoked or superseded
by executing a proxy bearing a later date or by giving notice of revocation in
writing prior to, or at, the Annual Meeting, or by attending the Annual Meeting
and voting in person. All proxies which are properly completed, signed and
returned to the Company prior to the meeting, and not subsequently revoked, will
be voted in accordance with the instructions given in the Proxy. If a choice is
not specified in the Proxy, the Proxy will be voted FOR the election of the
director nominees listed below and FOR Proposal 1 to ratify the appointment of
Arthur Andersen LLP as independent auditors for the Company, FOR Proposal 2 to
approve a proposed amendment to the Company's 1991 Employee Stock Option Plan
(the "1991 Plan") increasing the maximum aggregate number of shares of the
Company's common stock subject to the 1991 Plan, and FOR Proposal 3 to approve a
proposed amendment to the Company's 1995 Non-Employee Director Stock Option Plan
(the "1995 Plan") increasing the maximum aggregate number of shares of the
Company's common stock subject to the 1995 Plan. "Broker non-votes" will be
counted for general quorum purposes but will not be considered as present or
entitled to vote.
This Proxy Statement and the accompanying Proxy are being mailed to
shareholders on or about July 1, 2000. The entire cost of the solicitation of
proxies will be borne by the Company. Expenses will also include reimbursements
paid to brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the meeting to beneficial owners of the
Company's common stock. It is contemplated that this solicitation will be
primarily by mail. In addition, some of the officers, directors and employees of
the Company may solicit proxies personally or by telephone, facsimile, telegraph
or cable; such persons will not be compensated for such solicitation.
Voting at the Meeting
The shares of common stock constitute the only class of securities of the
Company entitled to notice of, and to vote at, the Annual Meeting. Only
shareholders of record at the close of business on June 7, 2000, will be
entitled to vote at the meeting or any adjournment or postponement thereof. As
of May 22, 2000, there were 5,614,175 shares of common stock issued and
outstanding, each share being entitled to one vote on each matter to be voted
upon, except that voting for directors may be cumulative. A shareholder
intending to cumulate votes for directors must notify the Company of such
intention at the meeting prior to commencement of the voting for directors. If
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any shareholder has given such notice, every shareholder attending the meeting
may cumulate votes for candidates in nomination and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which the shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among two or more candidates. A
shareholder who is not in attendance at the meeting may not invoke cumulative
voting.
Discretionary authority to cumulate votes represented by proxies is
solicited by the Board of Directors because, in the event nominations are made
in opposition to the nominees of the Board of Directors, it is the intention of
the persons named in the enclosed Proxy to cumulate votes represented by proxies
for individual nominees in accordance with their best judgment in order to
assure the election of as many of the nominees to the Board of Directors as
possible.
The election of directors will require the affirmative vote of a plurality
of the shares of common stock voting in person or by proxy at the Annual
Meeting. The approval of Proposal 1, Proposal 2 and Proposal 3 will require the
affirmative vote of a majority of the shares of common stock present or
represented at the Annual Meeting and entitled to vote on such proposal.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information, as of May 1, 2000, with
respect to all those known by the Company to be the beneficial owners of more
than 5% of its outstanding common stock, each director who owns shares of common
stock, each executive officer named in the Summary Compensation Table (the
"Named Executive Officers"), and all directors and executive officers of the
Company as a group and any such person's ownership of common stock of the
Company's subsidiary, RightStart.com Inc ("RightStart.com").
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<TABLE>
<CAPTION>
---------------------------------------- --------------------- ----------- ----------------------- ----------
Name and Address Amount and Nature of Percent Amount and Nature Percent
of Beneficial Owner (1) Beneficial Ownership of of of Beneficial of
Company Common Stock Class Ownership of Class
RightStart.com
Common Stock
---------------------------------------- --------------------- ----------- ----------------------- ----------
<S> <C> <C> <C> <C>
Richard A. Kayne (2) 4,056,903 52.4% 5,568,334 60.6%
Kayne Anderson Investment Management, Inc. (2)
1800 Avenue of the Stars
Second Floor
Los Angeles, CA 90067
Fred Kayne (3) 721,545 12.2% 90,000 1.0%
Fortune Fashions
6501 Flotilla Street
Commerce, CA 90040
The Travelers Insurance (4) 407,355 7.1% N/A N/A
One Tower Square
Hartford, CT 06183
J. Carlo Cannell(5) 318,600 5.6% N/A N/A
Cannell Capital Management
600 California Street
San Francisco, CA 94108
Albert O. Nicholas 312,500 5.6% N/A N/A
Nicholas Co., Inc.
700 North Water Street
Milwaukee, WI 53202
Howard Kaplan 305,000 5.4% N/A N/A
99 Chauncy Street
Boston, MA 02111
Lloyd I. Miller, III (6) 285,900 5.1% N/A N/A
4550 Gordon Drive
Naples, FL 34102
Gina M. Engelhard (7)(13) 20,736 * 18,950 *
5388 Sterling Center Drive, Unit C
Westlake Village, CA 91361
Marilyn Platfoot (8)(13) 27,709 * 20,475 *
5388 Sterling Center Drive, Unit C
Westlake Village, CA 91361
Andrew Feshbach (9) 35,485 * N/A N/A
Big Dog Sportswear
121 Gray Avenue, Suite 300
Santa Barbara, CA 93101
Robert R. Hollman (9) 28,105 * N/A N/A
Hollman Property Company
1800 Avenue of the Stars
Suite 1400
Los Angeles, CA 90067
Jerry R. Welch (9)(10)(13) 223,661 3.8% 364,000 3.8%
Kayne Anderson Investment
Management, Inc.
1800 Avenue of the Stars
Second Floor
Los Angeles, CA 90067
Howard M. Zelikow (9)(10) 35,485 * N/A N/A
Kayne Anderson Investment
Management, Inc.
1800 Avenue of the Stars
Second Floor
Los Angeles, CA 90067
Ronald J. Blumenthal (11)(13) 33,320 * 6,825 *
5388 Sterling Center Drive, Unit C
Westlake Village, CA 91361
Raymond Springer (13)(14) N/A N/A * *
5388 Sterling Center Drive, Unit C
Westlake Village, CA 91361
All executive officers and directors 5,182,734 62.1% 6,068,584 62.6%
as a group (ten persons) (12)
--------------------
</TABLE>
<PAGE>
* Less than one percent.
(1) Except as otherwise noted below, the persons named in the table have
sole voting power and investment power with respect to all shares of
common stock shown as beneficially owned by them, subject to community
property laws where applicable.
(2) The 4,056,903 shares include (i) 125,616 shares held directly by Mr.
Kayne (including 35,485 shares which may be acquired within 60 days
upon exercise of options) and (ii) 3,931,287 shares held by managed
accounts of Kayne Anderson Capital Advisors, L.P.("KA Capital"), a
registered investment adviser (including 400,000 shares which may be
acquired upon conversion of the Series B Preferred Stock and 1,691,650
shares which may be acquired upon conversion of the Series C Preferred
Stock). Mr. Kayne has sole voting and dispositive power over the shares
he holds directly. He has shared voting and dispositive power along
with Kayne Anderson Investment Management, Inc. ("KAIM, Inc."), the
general partner of KA Capital, over the remaining shares. (Mr. Kayne is
the President, Chief Executive Officer and a Director of KAIM, Inc.,
and the principal stockholder of its parent company.) The shares held
by managed accounts of KA Capital include the following shares held by
investment funds for which KA Capital serves as general partner or
manager: 1,124,785 shares held by Kayne, Anderson Non- Traditional
Investments, L.P. (including 50,000 shares which may be acquired upon
conversion of the Series B Preferred Stock and 465,200 shares which may
be acquired upon conversion of the Series C Preferred Stock); 1,056,025
shares held by ARBCO Associates, L.P. (including 50,000 shares which
may be acquired upon conversion of the Series B Preferred Stock and
465,200 shares which may be acquired upon conversion of the Series C
Preferred Stock); 1,075,732 shares held by Kayne Anderson Diversified
Capital Partners, L.P. (including 133,333 shares which may be acquired
upon conversion of the Series B Preferred Stock and 465,200 shares
which may be acquired upon conversion of the Series C Preferred Stock);
465,145 shares held by Kayne Anderson Capital Partners, L.P. (including
91,667 shares which may be acquired upon conversion of the Series B
Preferred Stock and 211,450 shares which may be acquired upon
conversion of the Series C Preferred Stock); 197,100 shares held by
Kayne Anderson Offshore Limited (including 75,000 shares which may be
acquired upon conversion of the Series B Preferred Stock and 84,600
shares which may be acquired upon conversion of the Series C Preferred
Stock) and 12,500 shares managed in other accounts. KA Capital
disclaims beneficial ownership of the shares reported, except those
shares attributable to it by virtue of its general partner interests in
the limited partnerships holding such shares. Mr. Kayne disclaims
beneficial ownership of the shares reported, except those shares held
by him directly or attributable to him by virtue of his limited and
general partner interests in such limited partnerships and by virtue of
his indirect interest through the interest of KAIM, Inc. in such
limited partnerships. The foregoing is based on information provided by
Mr. Kayne and KA Capital to the Company as of May 1, 2000. The Company
owns 5,478,334 shares of common stock of RightStart.com In addition,
Mr. Kayne holds currently exercisable options to purchase 40,000 shares
of RightStart.com common stock and currently exercisable warrants to
purchase 50,000 shares of RightStart.com common stock.
(3) Of the 721,545 shares beneficially owned, 427,727 shares are held
directly by Mr. Kayne, 83,333 shares may be acquired upon conversion of
Series B Preferred Stock, 175,000 shares may be acquired upon
conversion of Series C Preferred Stock and 35,485 are underlying
currently exercisable options to purchase common stock. Mr. Kayne holds
currently exercisable options to purchase 40,000 shares of common stock
7
<PAGE>
of RightStart.com and currently exercisable warrants to purchase 50,000
shares of common stock of RightStart.com. The foregoing is based on
information provided by Mr. Kayne to the Company as of May 1, 2000.
(4) According to a Schedule 13G filed on February 12, 1999, Citicorp Inc.
is the sole stockholder of Associated Madison Companies, Inc., which is
the sole stockholder of PFS Services, Inc., which is the sole
stockholder of The Travelers Insurance Group, Inc., which is the sole
stockholder of The Travelers Insurance Company, all of which were
filers on this schedule. The Schedule 13G report assumes the exercise
of an undisclosed number of common stock warrants believed by the
Company to be its Series B Preferred Stock. The ownership calculation
could be somewhat smaller depending on the number of such securities
owned.
(5) According to a Schedule 13G filed on February 15, 2000, other members
of the reporting group are Tonga Partners, LP, The George S. Sarlo 1995
Charitable Remainder Trust, The Cuttyhunk Fund Limited, Goldman Sachs
and Anegada Fund, Ltd.
(6) According to a Schedule 13G filed on February 14, 2000, Mr. Miller
shares dispositive and voting power on 149,250 shares of the reported
securities as an adviser to the trustee of certain family trusts and
Mr. Miller has sole voting and dispositive power on 136,650 of the
reported securities owned by him personally and/or as the manager of a
limited liability company that is the general partner of a limited
partnership.
(7) Includes 145 shares currently exercisable options to purchase 20,000
shares of common stock and 591 shares held by the Company's Employee
Stock Ownership Plan for the benefit of Ms. Engelhard.
(8) Includes currently exercisable options to purchase 27,500 shares of
common stock and 152 and 57 shares held by the Company's Employee Stock
Purchase Plan and Employee Stock Ownership Plan, respectively, for the
benefit of Ms. Platfoot.
(9) All shares consist of currently exercisable options to purchase common
stock.
(10) Messrs. Welch and Zelikow are officers and Managing Directors of KAIM,
Inc.; however, they disclaim beneficial ownership with respect to
shares held by KAIM, Inc. or any of its affiliates.
(11) Includes currently exercisable stock options to purchase 32,500 shares
of common stock and 820 shares held by the Company's Employee Stock
Ownership Plan for the benefit of Mr. Blumenthal.
(12) Includes options and common stock beneficially owned by executive
officers and directors.
(13) All shares of RightStart.com reported consist of currently exercisable
options and warrants to purchase common stock of RightStart.com.
(14) Mr. Springer has an option to purchase 150,000 shares of common stock
of RightStart.com. Such option is not exercisable within 60 days.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Executive
---------
Name Age Position Officer Since
---- --- -------- -------------
<S> <C> <C> <C>
Jerry R. Welch 49 Chairman of the Board, 1996
President and Chief
Executive Officer
Gina M. Engelhard 36 Chief Financial Officer and 1994
Secretary
Marilyn Platfoot 44 Executive Vice President-Retail 1996
Ronald J. Blumenthal 53 Senior Vice President 1994
8
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Raymond P. Springer 49 Executive Vice President and 1999
Chief Financial Officer of
RightStart.com
</TABLE>
All officers serve at the discretion of the Board of Directors except Mr.
Springer who serves at the discretion of the Board of Directors of
RightStart.com.
Business Experience of Executive Officers
JERRY R. WELCH became Chief Executive Officer of the Company in March 1996,
assumed the position of President in September 1996 and has served as Chairman
of the Board since August 1995. Mr. Welch also serves as an officer and a
Managing Director of Kayne Anderson Investment Management, Inc. and has served
in such capacity since January 1993. Mr. Welch held the positions of Chairman
of the Board from April 1993 to September 1999 and Chief Executive Officer from
August 1994 to September 1999 of Glacier Water Services, Inc. a retailer of
vended water. Mr. Welch continues to serve as a member of the board of directors
of Glacier Water Services, Inc. and has served in such capacity since April
1993.
GINA M. ENGELHARD became Chief Financial Officer of the Company in May 1994
and Secretary in August 1995. Ms. Engelhard served as a Senior Manager with
Price Waterhouse in Woodland Hills, California from January 1986 until April
1994.
MARILYN PLATFOOT became Executive Vice President-Retail in August 1999.
Prior to that, Ms. Platfoot served as Senior Vice President-Retail Operations
and Human Resources from May 1999 to August 1999 and Vice President-Retail
Operations of the Company from April 1996 to April 1999. Ms. Platfoot previously
served as Western Regional Manager for Brookstone Stores from 1992 to 1996.
RONALD J. BLUMENTHAL became Senior Vice President of the Company in
September 1996 and served as Vice President-Retail Operations from December 1993
to September 1996. Prior to joining the Company, Mr. Blumenthal served as Vice
President of Store Operations for Cost Plus Imports from 1990 until 1993.
RAYMOND P. SPRINGER became Executive Vice President and Chief Financial
Officer of RightStart.com in December 1999. From August 1999 to December 1999,
Mr. Springer served as Senior Vice President and Chief Financial Officer of
Payless Cashways Inc., a retailer of building materials and home improvement
products. From April 1996 to June 1999, Mr. Springer was employed as Executive
Vice President and Chief Financial Officer of Jumbo Sports, Inc., a sporting
goods retailer located in Florida. Jumbo Sports filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code in December 1998.
From 1987 to 1996, Mr. Springer was the Executive Vice President and Chief
Financial Officer of Kash n' Karry Food Stores, Inc., a grocery store chain
located in Florida.
ELECTION OF DIRECTORS
The Board of Directors proposes the election of six (6) directors, each
director to hold office until the next annual meeting and until such directors'
respective successors are elected and qualified. Unless authority to vote for
directors has been withheld in the Proxy, the persons named in the enclosed
Proxy intend to vote at the meeting for the election of the nominees presented
below. All nominees have consented to serve as a director for the ensuing year.
Although the Board of Directors does not contemplate that any of the nominees
will be unable to serve, if any nominee withdraws or otherwise becomes
unavailable to serve, the persons named in the enclosed Proxy will vote for any
substitute nominee designated by the Board of Directors.
The candidates in the election of directors receiving the highest number of
affirmative votes of the shares entitled to vote, up to the number of directors
to be elected by such shares, will be elected. Votes against a candidate and
votes withheld, including broker non-votes, have no legal effect on the
election; however all such votes count as a part of the quorum. The names and
certain information concerning the persons to be nominated as directors at the
Annual Meeting are set forth below.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH
OF THE NOMINEES NAMED BELOW.
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Directors and Nominees
<TABLE>
<CAPTION>
Name Age Director Since Business Experience
---- --- -------------- -------------------
<S> <C> <C> <C>
Andrew Feshbach 39 1995 Mr. Feshbach is a Vice President of
Fortune Financial, Chief Executive
Officer of Big Dog Holdings, Inc. and
an Executive Vice President of Fortune
Fashions. Previously, Mr. Feshbach
was a partner in Maiden Lane, a
merchant bank, and a Vice President in
the Mergers and Acquisitions Group of
Bear Stearns & Co. Inc.
Robert R. Hollman 56 1995 Mr. Hollman is president of Hollman
Property Company and was President and
Chief Executive Officer of Topa
Management Company from 1971 to 1999.
Fred Kayne 61 1995 Mr. Kayne is President and Chairman of
Fortune Financial, where he is
responsible for directing all of its
investment activities. Mr. Kayne is
also President of Fortune Fashions and
Chairman of Big Dog Sportswear. Mr.
Kayne was a partner of Bear, Stearns &
Co. Inc. until its initial public
offering in 1985, after which time he
was a Managing Director and a member
of the Board of Directors of Bear,
Stearns & Co. Inc. until he resigned in
1986. Fred Kayne and Richard A. Kayne
are brothers.
Richard A. Kayne 55 1995 Mr. Kayne currently serves as President
and Chief Executive Officer and a
Director of Kayne Anderson Investment
Management, Inc., and its broker dealer
affiliate, K.A. Associates, Inc. Mr.
Kayne has been with Kayne Anderson
Investment Management, Inc. since 1984
when it was founded by Mr. Kayne and
John E. Anderson. He is also Chairman
of the Board of Glacier Water Services,
Inc. Richard A. Kayne and Fred Kayne
are brothers.
Jerry R. Welch 49 1995 See "Business Experience of Executive
Officers" above.
Howard M. Zelikow 66 1995 Mr. Zelikow has been a Managing
Director of Kayne Anderson Investment
Management, Inc. since 1988. Mr.
Zelikow has been a director of
Financial Security Assurance Holdings
Ltd. since 1996 and has served as a
director of Queensway Financial
Holdings Limited since 1993. Mr.
Zelikow was a director of Victoria
Financial Corporation from 1991 to
1995, a director of Capital Guaranty
Corporation from 1994 to 1995, and a
director of Nobel Insurance Limited
from 1989 to 1993. Mr. Zelikow has
been a director of The Navigators
Group, Inc. since 1999.
</TABLE>
The Directors of the Company serve until their successors are elected and
duly qualified at next year's Annual Meeting of Shareholders, which is expected
to be held on or about June 2001. During the fiscal year ended January 29, 2000
("Fiscal 1999"), the Company's Audit Committee (the "Audit Committee") consisted
of Messrs. Feshbach, Hollman and Zelikow who are also the current members of the
Audit Committee and the Company's Compensation Committee (the "Compensation
Committee") consisted of Messrs. Richard Kayne and Fred Kayne. The Board of
Directors will adopt a new charter for the Audit Committee prior to June 14,
2000. The Board of Directors does not have a standing Nominating Committee. The
The Audit Committee, which includes one independent director, meets periodically
with the Company's independent public accountants, management and internal
auditors to discuss accounting principles, financial and accounting controls,
the scope of the annual audit, regulatory compliance and other matters. The
Audit Committee also advises the Board of Directors on matters related to
accounting and auditing and reviews management's selection of independent public
10
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accountants. The independent public accountants and the internal auditors have
complete access to the Audit Committee without management present to discuss
results of their audit and their opinions on the adequacy of internal controls,
the quality of financial reporting and other accounting and auditing matters.
The Compensation Committee reviews the Company's general compensation strategy
and reviews and reports to the Board of Directors with respect to compensation
of officers and employee benefit programs.
Your proxy cannot be voted for a number of persons greater than the number
of nominees named.
Attendance at Meetings
During Fiscal 1999, the Board of Directors held a total of four meetings,
the Compensation Committee held one meeting and the Audit Committee held one
meeting. No member of the Board of Directors, Compensation Committee or Audit
Committee attended fewer than 75% of the meetings of the Board of Directors,
Compensation Committee or Audit Committee.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Compensation
The following table sets forth summary information concerning compensation
paid or accrued by the Company for services rendered during the fiscal years
ended January 29, 2000, January 30, 1999 and January 31, 1998. to the Company's
Chief Executive Officer and the three other executive officers of the Company
and to one executive officer of RightStart.com, each of whom received
compensation (on an annualized basis) of at least $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ---------------------------------------------
Fiscal Other Annual Securities Underlying Securities Underlying
Name and Principal Position Year Salary Bonus Compensation (1) Company Options (#) RightStart.com Options(#)
--------------------------- ---------- -------- ----- ---------------- --------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Jerry R. Welch (2) 1999 $ 31,000 -0- $ -0- $ -0- 500,000
Chairman of the Board, 1998 -0- -0- -0- 211,669 -0-
President and Chief 1997 -0- -0- -0- 7,383 -0-
Executive Officer
Marilyn Platfoot 1999 160,000 -0- -0- -0- 81,900
Executive Vice President 1998 137,615 -0- 62 77,500 -0-
Retail 1997 115,000 -0- -0- 7,500 -0-
Ronald J. Blumenthal 1999 148,000 -0- -0- -0- 27,300
Senior Vice President-Real Estate 1998 135,000 -0- -0- 62,500 -0-
1997 135,000 -0- -0- 7,500 -0-
Gina M. Engelhard 1999 130,000 -0- -0- -0- 91,000
Chief Financial Officer 1998 113,292 -0- -0- 60,000 -0-
Senior Vice President 1997 105,000 -0- -0- 5,000 -0-
and Secretary
Raymond P. Springer 1999 38,462 -0- 1,300 -0- 150,000
Executive Vice President and 1998 -0- -0- -0- -0- -0-
Chief Financial Officer 1997 -0- -0- -0- -0- -0-
RightStart.com
</TABLE>
(1) Amounts shown include Company contributions under the Company's Employee
Stock Ownership Plan and the Company's Employee Stock Purchase Plan, as
applicable, for the listed executive officers.
(2) Mr. Welch receives no compensation for serving as Chief Executive Officer or
President of the Company, but receives $100,000 per annum for serving as Chief
Executive Officer and President of RightStart.com.
(3) Mr. Springer became Executive Vice President and Chief Financial Officer of
RightStart.com in December 1999. On an annual basis for fiscal 1999, Mr.
Springer's salary would have been $250,000.
11
<PAGE>
Directors' Fees
All of the Company's non-employee directors receive directors' fees of
$3,000 per quarter. All of the members of the Board of Directors have elected,
in lieu of such compensation, to receive options to purchase common stock of the
Company at the fair market value on the date the options are granted.
Option Grants in the fiscal year Ended January 29, 2000 ("Fiscal 1999")
The following table provides certain information regarding stock options
granted to the Named Executive Officers during Fiscal 1999. No options were
granted to Named Executive Officers that would permit such officers to purchase
common stock of the Company. All options reported in the following table are
options for the purchase of common stock of RightStart.com.
Option Grants in Fiscal 1999
<TABLE>
<CAPTION>
Individual Grants
(RightStart.com)
----------------------------------------------
Potential
% of Realizable Value
Total at Assumed Annual
Number of Options Rates of Stock
Common Granted Price
Shares to Appreciation for
Underlying Employees Option Term(3)
Options in Fiscal Exercise Price Expiration ------------------
Name Granted(1) 1999 (per share)(2) Date 5% 10%
---- ---------- --------- -------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jerry R. Welch(4)....... 364,000 20.57% $0.45 6/1/09 $266,813 $ 424,855
136,000 7.68 0.45 9/10/09 99,688 158,737
Marilyn Platfoot (5).... 81,900 4.62 0.45 6/1/09 60,032 95,592
Ron Blumenthal (6)...... 27,300 1.54 0.45 6/1/09 20,010 31,864
Gina Engelhard (7)...... 72,800 4.11 0.45 6/1/09 53,363 84,971
Raymond P. Springer (8). 150,000 8.47 3.75 10/27/09 916,253 1,458,980
</TABLE>
--------
(1) RightStart.com granted options for an aggregate of 1,769,500 shares of
common stock to our employees under its 1999 Stock Option Plan during Fiscal
1999. See "1999 Stock Option Plan" below.
(2) All options were granted at an exercise price equal to the fair market value
of the common stock, as determined by the Board of Directors on the date of
grant, other than those options that expire on September 10, 2009.
(3) The potential realizable value is calculated assuming the exercise price on
the date of grant appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price and sold on the
last day of its term at the appreciated price. All options listed have a term of
10 years. Stock price appreciation of 5% and 10% is assumed pursuant to the
rules of the Securities and Exchange Commission. There can be no assurance that
the actual stock price will appreciate over the 10-year option term at the
assumed 5% and 10% levels or at any other defined level. Unless the market price
of the common stock appreciates over the option term, no value will be realized
from the option grants made to the named executive officers.
(4) Mr. Welch's option to purchase 364,000 shares of common stock became
immediately exercisable and fully vested on the date of grant. Mr. Welch's
option to purchase 136,000 shares of common stock becomes exercisable at the
rate of 1/4th of the total number of shares underlying the option on September
10, 2000 and 1/48th of the total number of shares underlying the option monthly
from and after September 10, 2000.
(5) Ms. Platfoot's option becomes exercisable at the rate of 1/4th of the total
number of shares underlying the option on June 1, 2000 and 1/48th of the total
number of shares underlying the option monthly from and after June 1, 2000.
(6) Mr. Blumenthal's option becomes exercisable at the rate of 1/4th of the
total number of shares underlying the option on June 1, 2000 and 1/48th of the
total number of shares underlying the option monthly from and after June 1,
2000.
(7) Ms. Engelhard's option becomes exercisable at the rate of 1/4th of the total
number of shares underlying the option on June 1, 2000 and 1/48th of the total
number of shares underlying the option monthly from and after June 1, 2000.
12
<PAGE>
(8) Mr. Springer's option becomes exercisable at the rate of 1/4th of the total
number of shares underlying the option on October 27, 2000 and 1/48th of the
total number of shares underlying the option monthly from and after October 27,
2000.
Aggregate Option Exercises in Fiscal 1999 and Option Values at Fiscal Year End
The following table provides certain information regarding the exercise of
stock options to purchase stock of the Company and RightStart.com held by the
Named Executive Officers during Fiscal 1999 and the number of options and the
value of Company options held as of the end of such fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised Number of Securities
Underlying Unexercised In-The-Money Options Underlying Unexercised
COMPANY Options At At Fiscal RIGHTSTART.COM Options
Fiscal Year End (#) Year End($)(1) At Fiscal Year End (#)
-------------------- ------------------------ ------------------------
Shares Acquired
Name on Exercise (#) Value Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable Exercisable Unexercisable
---- -------------- -------------------- ----------- ------------- ----------- ------------- ----------- -------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jerry R. Welch -0- -0- 223,661 -0- $2,993,158 $ -0- 364,000 136,000
Marilyn Platfoot -0- -0- 27,500 50,000 362,187 631,250 20,745 61,155
Ronald J. Blumenthal -0- -0- 32,500 30,000 435,313 378,750 6,825 20,475
Gina M. Engelhard -0- -0- 20,000 40,000 262,500 505,000 18,950 53,850
Raymond P. Springer -0- -0- -0- -0- -0- -0- -0- 150,000
--------------------
</TABLE>
(1) On January 28, 2000 (the last day the Company's common stock was traded in
Fiscal 1999), the closing sale price of the Company's common stock on the Nasdaq
National Market System was $16.125 per share.
Employment Agreements
No employment agreements are currently in effect between the Company and
any of its employees.
Stock Compensation Programs
We have two stock option plans, an employee stock ownership plan and an
employee stock purchase plan. RightStart.com has a stock purchase plan in which
the Named Executive Officers participate.
1991 Employee Stock Option Plan
The Company adopted the 1991 Employee Stock Option Plan (the "1991 Stock
Option Plan") in October 1991 in order to provide a means of encouraging certain
officers and employees of the Company to obtain a proprietary interest in the
enterprise and thereby create an additional incentive for such persons to
further the Company's growth and development. The 1991 Stock Option Plan, as
amended through the date of the Annual Meeting, covers an aggregate of 900,000
shares of the Company's common stock. Options outstanding under this plan have
terms ranging from three to ten years (depending on the terms of the individual
grant). The information regarding the 1991 Stock Option Plan provided herein is
qualified in its entirety by the full text of such plan, copies of which have
been filed with the Securities and Exchange Commission. Options for 815,160
shares were outstanding as of January 29, 2000 under the 1991 Stock Option Plan,
375,960 of which were exercisable.
The 1991 Stock Option Plan provides for the granting to officers and
other key employees, including directors, of the Company or any parent or
subsidiary, incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and for the granting to officers, key
employees, consultants and directors (even it not employed by the Company), of
nonstatutory stock options. If an optionee would have the right in any calendar
year to exercise for the first time incentive stock options for shares having an
aggregate fair market value (under all of the Company's plans and determined for
each share as of the date the option to purchase the shares was granted) in
excess of $100,000, any such excess options will be treated as nonstatutory
stock options.
The 1991 Stock Option Plan may be administered by the Board of
Directors or a committee of the Board of Directors. The administrator determines
13
<PAGE>
the terms of options granted under the 1991 Stock Option Plan, including the
number of shares subject to an option, the exercise price, and the term and
exercisability of options. The administrator may also amend the terms of options
granted under the 1991 Stock Option Plan (with the consent of the holder),
including accelerating the date on which the options become exercisable. The
exercise price of all stock options granted under the 1991 Stock Option Plan
generally must be at least equal to the fair market value of the Company's
common stock on the date of grant. Payment of the purchase price of options may
be made in cash, by check, by the optionee's promissory note with terms approved
by the administrator, other Company common stock, cancellation of indebtedness,
through broker assisted cashless exercises, through margin loans or as
determined by the administrator.
Generally, options granted under the 1991 Stock Option Plan may not
have a term in excess of ten years and are nontransferable. The administrator
determines the vesting terms of options at the time of grant.
Upon a merger, consolidation or other reorganization (including the
sale of substantially all of the Company's assets) in which the Company is not
the surviving corporation, the 1991 Stock Option Plan and all unexercised
options terminate unless a successor provides substantially similar
consideration to the option holders as provided to the Company's shareholders or
substitutes substantially equivalent options covering shares of the successor
corporation. If no such provision is made, then the administrator must provide
not less than 30 days written notice of the anticipated effective date of the
transaction and all options will be accelerated and exercisable on the effective
date.
Unless terminated earlier, the 1991 Stock Option Plan will terminate in
October 2001. Options granted before expiration of the plan will unaffected by
its expiration. The Board of Directors has the authority to amend, modify,
suspend or terminate the 1991 Stock Option Plan as long as such action does not
affect or impair any rights or obligations of the holders of any outstanding
options and provided that shareholder approval for any amendment or modification
to the 1991 Stock Option Plan shall be obtained to the extent and degree
required.
The Board of Directors of the Company has proposed an amendment to the 1991
Stock Option Plan to increase the maximum number of shares of common stock
issuable under such plan from 900,000 to 1,050,000 shares (an increase of
150,000 shares), subject to the approval of the shareholders of the Company as
provided herein. The amendment to the 1991 Stock Option Plan, as approved by the
Board of Directors, is set forth in its entirety in Proposal 2 below. The
Company proposes to increase the aggregate number of shares of common stock
issuable under both the 1991 Stock Option Plan and the 1995 Stock Option Plan by
225,000 shares.
1995 Non-Employee Directors Option Plan
In October 1995, the Company adopted the 1995 Non-Employee Directors Option
Plan (the "1995 Stock Option Plan"). The 1995 Stock Option Plan, as amended
through the date of the Annual Meeting, covers an aggregate of 200,000 shares of
common stock. The information regarding the 1995 Stock Option Plan provided
herein is qualified in its entirety by the full text of such plan, copies of
which have been filed with the Securities and Exchange Commission. The 1995
Stock Option Plan provides for the annual issuance on the date of the annual
meeting, to each non-employee director, of options to purchase 1,500 shares of
common stock. In addition, each director is entitled to make an election to
receive, in lieu of directors' fees, additional options to purchase common
stock. Options outstanding under this plan have terms ranging from five to ten
years (depending on the terms of the individual grant). The amount of additional
options is determined based on an independent valuation such that the value of
the options issued is equivalent to the fees that the director would be
otherwise entitled to receive. Options issued under this plan vest on the
anniversary date of their grant and upon termination of Board membership.
164,747 options were are outstanding under the 1995 Stock Option Plan as of
January 29, 2000, 146,477 of which were exercisable.
The Board of Directors of the Company has proposed an amendment to the 1995
Stock Option Plan to increase the maximum number of shares of common stock
issuable under such plan from 200,000 to 275,000 shares (an increase of 75,000
shares), subject to the approval of the shareholders of the Company as provided
herein. The amendment to the 1995 Stock Option Plan, as approved by the Board of
Directors, is set forth in its entirety in Proposal 3 below. The Company
proposes to increase the aggregate number of shares of common stock issuable
under both the 1991 Stock Option Plan and the 1995 Stock Option Plan by 225,000
shares.
The 1995 Stock Option Plan provides for the granting to directors of the
14
<PAGE>
Company who have not been employees of the Company or any subsidiary for at
least one year preceding membership on the Board of Directors, options that are
not intended to qualify as incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended. The Compensation Committee
administers the 1995 Stock Option Plan.
The exercise price for each option granted under the 1995 Stock Option
Plan is the fair market value of the common stock underlying that option on the
first trading day preceding its grant. Payment of the purchase price of options
may be made in cash, by certified cashier's check, bank draft or money order, by
delivery of Company common stock owned by the optionee for at least six months
(if the Compensation Committee and applicable law permit) or as determined by
the Compensation Committee. Options granted under the 1995 Stock Option Plan are
generally nontransferable.
Upon a merger, reorganization or other business combination in which the
Company is the surviving corporation, optionees will be entitled to receive
substitute stock options on terms and conditions that substantially preserve the
value, rights and benefits of the affected option unless the Company elects to
pay all optionees the difference between the fair market value of the options
and their exercise price. If the Company is not the surviving corporation and
does not elect to pay all optionees the difference between the fair market value
of the options and their exercise price, each optionee will receive substitute
options in the surviving or resulting corporation on such terms and conditions
as preserve the value, rights and benefits of the affected options. Upon a
Change of Control (as defined in the 1995 Stock Option Plan), including certain
acquisitions of more than 50% of the Company's common stock, approval by the
Company's shareholders of certain reorganizations, mergers, consolidations or
approval by the Company's shareholders of a liquidation or substantial
dissolution of the Company or the sale of all or substantially all of the assets
of the Company (other than to a wholly-owned subsidiary), all options held by
directors at such time become fully vested and exercisable. Within 10 days after
a Change of Control involving the acquisition of the Company's stock, optionees
may require the Company to purchase their options for the difference between
fair market value and the exercise price.
Unless terminated earlier, the 1995 Stock Option Plan will terminate in
October 2005. Options granted before expiration of the plan will unaffected by
its expiration. The Compensation Committee has the authority to amend or revise
the 1995 Stock Option Plan so long as such action does not alter or impair
rights or obligations of any outstanding option. Terms related to amount, price
and timing of annual grants and deferral rights under the 1995 Stock Option Plan
may not, however, be amended more than once in any six-month period except to
comply with the Internal Revenue Code of 1986, as amended, the Employee
Retirement Income Security Act of 1974, as amended, or the rules promulgated
thereunder. In addition, shareholder approval is required to increase the
maximum number of shares that may be granted under the plan, change the minimum
exercise price, increase the maximum term under the plan for any option,
materially modify the plan's eligibility requirements, change the term of the
plan or materially increase the benefits accruing to plan participants.
The weighted average exercise price of the Company's outstanding options
under the 1991 Stock Option Plan and the 1995 Stock Option Plan at January 29,
2000 was $4.33.
RightStart.com 1999 Stock Option Plan
The Board of Directors of RightStart.com adopted the RightStart.com
1999 Stock Option Plan (the "RightStart.com 1999 Stock Option Plan") in April
1999 and RightStart.com's stockholders approved it in June 1999. RightStart.com
has reserved a total of 2,018,000 shares of common stock for issuance under the
RightStart.com 1999 Stock Option Plan. As of January 29, 2000, options to
purchase 1,769,500 shares of common stock with a weighted average exercise price
of $1.09 had been granted and are outstanding, none of which has been exercised
as of the date hereof.
The RightStart.com 1999 Stock Option Plan provides for the
granting to employees, including officers and directors, of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and for the granting to employees, consultants and nonemployee
directors, of nonstatutory stock options. If an optionee would have the right
in any calendar year to exercise for the first time incentive stock options for
shares having an aggregate fair market value (under all RightStart.com plans
and determined for each share as of the date the option to purchase the shares
was granted) in excess of $100,000, any such excess options will be treated
as nonstatutory stock options.
The RightStart.com 1999 Stock Option Plan may be administered by the
board of directors of RightStart.com or a committee of the board of
15
<PAGE>
directors or RightStart.com. The compensation committee or the board of
directors of RightStart.com administers the RightStart.com 1999 Stock
Option Plan. The compensation committee determines the terms of options and
stock purchase rights granted under the RightStart.com 1999 Stock Option Plan,
including the number of shares subject to an option or stock purchase right,
the exercise or purchase price, and the term and exercisability of options.
The compensation committee may also amend the terms of options and stock
purchase rights granted under the RightStart.com 1999 Stock Option Plan,
including changing or accelerating the date on which the options become
exercisable. The exercise price of all incentive stock options granted under
the RightStart.com 1999 Stock Option Plan generally must be at least equal to
the fair market value of RightStart.com's common stock on the date of grant.
The compensation committee has the authority to grant non-qualified stock
options at prices below fair market value. Payment of the purchase price of
options and stock purchase rights may be made in cash, by certified check,
bank draft or money order or as determined by the compensation committee.
Generally, options granted under the RightStart.com 1999 Stock Option
Plan have a term of ten years and are nontransferable. Generally, options
granted under the RightStart.com 1999 Stock Option Plan vest 25% on the
first anniversary of grant and monthly thereafter over three years. The
compensation committee, however, has the flexibility to determine the
vesting terms of options at the time of grant.
Upon the happening of a Merger Event (as defined in the RightStart.com
1999 Stock Option Plan), including a merger, reorganization, business
combination, the sale of all or substantially all of RightStart.com's
assets or if the composition of the board of directors is altered as
described in th RightStart.com 1999 Stock Option Plan, options granted
thereunder will become immediately and fully exercisable. The holders of
options may then either exercise their options and participate in such
transaction on substantially the same terms as RightStart.com stockholders or
receive substitute options from the surviving corporation, if applicable.
Unless terminated earlier, the RightStart.com 1999 Stock Option Plan
will terminate in June 2009. The board of RightStart.com has the authority to
amend or terminate the RightStart.com 1999 Stock Option Plan as long as such
action does not materially and adversely affect any outstanding option and
provided that stockholder approval for any amendments to the Rightstart.com
1999 Stock Option Plan shall be obtained to the extent required by
applicable law. Amendment of the RightStart.com 1999 Stock Option Plan,
however, will not affect the exercisability of options granted under the
such plan prior to its expiration.
Company Employee Stock Purchase Plan
The Company matches employees' contributions to the Company Employee Stock
Purchase Plan at a rate of 50%. The Company's contributions amounted to $12,000,
$14,000 and $24,000, in Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.
Company Employee Stock Ownership Plan
The Company Employee Stock Ownership Plan is funded exclusively by
discretionary contributions determined by the Board of Directors. No
contributions were authorized for Fiscal 1999, Fiscal 1998 or Fiscal 1997.
Compensation Committees Interlocks and Insider Participation
Richard Kayne and Fred Kayne, each directors of the Company, are each
members of the Company's Compensation Committee. Richard Kayne has participated
indirectly in transactions requiring disclosure under the section "Certain
Relationships and Related Transactions."
Compensation Committee Report on Executive Compensation
The Compensation Committee is responsible for approving compensation
programs for the Company's management. During Fiscal 1999, the Compensation
Committee consisted of Messrs. Richard Kayne and Fred Kayne.
The Compensation Committee believes that the compensation provided to
employees of the Company must be competitive for the Company to attract or
obtain highly qualified and experienced key employees. The Company provides
salary and stock-based incentives to its officers. The Compensation Committee
uses stock-based incentives to attempt to give its executives a long-term stake
in the Company and to reward strong performance. Based upon a preliminary
review, the Compensation Committee believes that, overall, the Company's
compensation programs are competitive with those of comparable companies.
16
<PAGE>
Mr. Welch receives no compensation for serving as a director, Chief
Executive Officer or President of the Company but receives $100,000 per annum
for serving as Chief Executive Officer and President of RightStart.com and
received stock options in RightStart.com during Fiscal 1999. The compensation
received by Mr. Welch from RightStart.com is set by the compensation committee
of RightStart.com.
COMPENSATION COMMITTEE
Richard A. Kayne Fred Kayne
Notwithstanding anything to the contrary set forth in the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the foregoing Report, and
the performance graph immediately following, shall not be incorporated by
reference into any such filings.
Performance Graph
This graph compares the cumulative total return to shareholders of the
Company, the Nasdaq National Market (the "Broad Market") index and a peer group
of companies (the "Industry Index")(1).
[Performance Graph Appears Here]
<TABLE>
<CAPTION>
Fiscal Year
Ending
<S> <C> <C> <C> <C> <C> <C>
-----------------
5/25 5/24 1/31 1/30 1/29 1/28
1995 1996 1997 1998 1999 2000 (2)
---- ---- ---- ---- ---- ----
Company $100 $260.00 207.50 70.00 120.00 322.50
Broad Market 100 139.32 114.18 116.14 134.06 92.77
Peer Group 100 141.15 156.83 184.72 288.30 431.26
</TABLE>
(1) The Industry Index chosen is an index of specialty retailers compiled
by Media General Group that includes forty-three publicly traded
companies offering a wide array of specialty retail goods.
(2) On May 18, 2000 the closing price for the Company's common stock was
$4.25 compared to $16.125 on January 28, 2000.
Assumes $100 invested at the beginning of the periods presented and assumes
dividends have been reinvested.
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's officers and directors and persons who
beneficially own more than 10% of the Company's common stock to file reports of
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission.
Officers, directors and 10% stockholders are required by the Securities and
Exchange Commission to furnish the Company with copies of all Forms 3, 4 and 5
as filed.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all of its officers, directors and greater
than 10% beneficial owners complied with all the filing requirements applicable
to them with respect to transactions during Fiscal 1999.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
During Fiscal 1999, Kayne Anderson Investment Management, Inc.
provided management, consulting and advisory services to the Company for which
it received a fee of $112,500.
17
<PAGE>
Management Services Agreement. The Company and RightStart.com
have entered into a management services agreement, dated as of July 9, 1999.
Pursuant to the management services agreement, the Company provides basic
services, inventory supply services and promotional services to RightStart.com
as detailed below:
Basic Services. The Company has agreed to provide RightStart.com with
various services from time to time, including, among others, services for
personnel/human resources, benefits administration, payroll processing,
insurance, tax, cash management, merchandising, advertising, inventory
management, employee relations, employee benefits, customer relations,
financial, legal, order fulfillment and collection, accounting,
telecommunications, catalog production assistance and credit card processing.
However, RightStart.com is free at any time to perform any of these services for
itself or contract with other third parties to supply these services. In
accordance with the terms of the management services agreement, as consideration
for such services, RightStart.com pays the Company an amount equal to Direct
Cost (as defined below) plus five percent. "Direct Cost" is defined with respect
to each service as the direct out-of-pocket expenses paid to third parties or
incurred by the Company in connection with providing such service and a
proportionate share of all overhead expenses directly attributable to providing
such service, including, without limitation, shipping, handling, travel
expenses, personnel costs, professional fees, printing and postage.
Inventory Supply Services. The Company has agreed to supply
RightStart.com with Common Inventory (as defined below) when and as requested
and Internet-Only Inventory (as defined below) on a pre-ordered just-in-time
basis through August 31, 2000. RightStart.com's inventory is stored separately
from that of the Company after RightStart.com places an order and the Company
fills it. RightStart.com is required to pre-order and purchase Internet-Only
Inventory and, after August 31, 2000, Common Inventory, as needed to meet
expected customer demand. "Common Inventory" is defined as all inventory
purchased for RightStart.com by the Company that is carried for sale in the
Company's retail stores and either on RightStart.com's online store or through
its catalog operations. The Company is required to purchase inventory at
RightStart.com's request through the term of the management services agreement
though RightStart.com is not required to purchase such inventory through the
Company. Common Inventory consists primarily of merchandise for infants and
children from birth to age three years old and their caregivers. "Internet-Only
Inventory" is defined as the inventory of products sold or carried for sale only
by RightStart.com on its online stores or through its catalog operations and not
sold or carried for sale in the Company's retail stores. Internet-Only Inventory
consists primarily of merchandise for children ages four to 12 years old. The
Company supplies RightStart.com with Common Inventory and Internet-Only
Inventory at a price equal to 102% of the aggregate of direct cost of the goods,
the inbound freight charges and all other costs charged to the Company by its
suppliers. The Company has also agreed to accept returns from RightStart.com's
customers of products purchased from RightStart.com's online store. The amount
refunded to a customer is charged to RightStart.com. In the case of saleable
Common Inventory the inventory cost or vendor credit is credited to
RightStart.com. In the case of Internet-Only Inventory, if saleable, the
inventory cost or vendor credit is transferred to RightStart.com's Internet-Only
Inventory balance at inventory cost including freight or, if not saleable, is
credited to RightStart.com's account at the amount of any vendor credit
received.
Promotional Services. The Company has agreed to promote RightStart.com
as its exclusive online and catalog distribution channel for products for
parents, childcare providers, infants and children under age seventeen. The
Company also has agreed to provide RightStart.com with the following promotional
services: (i) prominent references to RightStart.com on customer bags, customer
receipts, labels, invoices, counter cards, in-store audio programming, emails,
letterhead, mailers, advertising and on other items to the extent such reference
can be made at a low incremental cost and (ii) in-store signs promoting
RightStart.com in all the Company's retail stores. The Company's retail store
employees are given incentives to implement RightStart.com marketing and
merchandising programs.
RightStart.com may terminate the management services agreement in full
or on a service-by-service basis (a) upon 30 days prior written notice to the
Company with respect to services provided therein, (b) upon the occurrence of a
material breach by the Company which is not cured within 30 days of receipt of
written notice from RightStart.com, (c) upon the occurrence of events relating
to the bankruptcy of the Company, (d) upon the liquidation, other termination,
sale or transfer of the Company's business or substantially all of its assets or
(e) if the Company becomes insolvent or unable to pay its debts as they mature
or makes an assignment for the benefit of its creditors. The management services
agreement may be terminated by the Company in full or on a service-by-service
basis (a) at any time after December 31, 2000, upon 120 days prior written
notice to RightStart.com if (i) RightStart.com's annual sales run rate is
projected to be in excess of $40 million or (ii) the Company is required to make
expenditures for basic services or inventory supply services of $15,000 or more
18
<PAGE>
in any month on RightStart.com's behalf if such amount is not reimbursed or
otherwise paid by RightStart.com, (b) upon the occurrence of a material breach
by RightStart.com which is not cured within 60 days of receiving written notice
from the Company (except that if the material breach relates to RightStart.com's
failure to pay for the services received in accordance with the management
services agreement, it must be cured within 30 days), (c) upon the occurrence of
events relating to a RightStart.com bankruptcy, (d) upon the liquidation, other
termination, sale or transfer of RightStart.com's business or substantially all
of RightStart.com's assets or (e) if RightStart.com becomes insolvent or unable
to pay its debts as they mature or makes an assignment for the benefit of its
creditors.
Intellectual Property Agreement. The Company and RightStart.com have
entered into an intellectual property agreement, dated as of July 9, 1999,
pursuant to which the Company (i) assigned to RightStart.com the Website IP (as
defined below) and User Information (as defined below), (ii) granted
RightStart.com a worldwide, non-exclusive, (except with respect to online usage)
non-transferable, fully-paid up and royalty-free license to use the Right Start
IP (as defined below) solely in connection with its online and catalog retail
sales of products for parents, childcare providers, infants and children and
(iii) granted RightStart.com a perpetual, worldwide, exclusive, fully-paid up
and royalty-free, unrestricted sublicense and right to use the source code and
object code and certain other intellectual property owned by Guidance Solutions,
which the Company engaged to develop the website located at www.rightstart.com.
Pursuant to the intellectual property agreement, RightStart.com granted to the
Company a worldwide, non-exclusive, fully-paid up and royalty-free license to
use the Website IP and User Information solely in connection with the Company's
retail sales of parents', childcare, infants' and children's products (other
than through online or catalog sales). "Website IP" is defined as all files,
text, graphics, graphics files in any file format, images, artwork, audio files,
audiovisual materials and e-commerce and database applications provided by third
parties or the Company or created by or for RightStart.com in connection with
the Website and certain copyright registrations, all domain names, all
trademarks, all service marks, all trade dress, all logos, all brands and
designs, all trade names, all Internet domain names, all metatags and hyperlinks
used in connection with the Website and the online and catalog retailing of
parents', childcare, infants' and children's products. "Right Start IP" is
defined as all lists of customers and prospective customers used in connection
with the Company's retail sales of infants' and children's products other than
through online or catalog sales. "User Information" is defined as all
information with respect to the use and users of RightStart.com's website,
including all catalog customer lists of the Company or RightStart.com that
existed on July 9, 1999, the date of the agreement.
The intellectual property agreement is perpetual unless terminated. The
intellectual property agreement may be terminated by the Company (a) upon the
occurrence of mergers, reorganizations, consolidations or other business
combinations (other than with an affiliate or financial advisor) as a result of
which RightStart.com's stockholders immediately prior to such transaction hold
less than 50% of the voting power of RightStart.com and in which the acquirer is
a direct competitor of the Company by giving RightStart.com written notice
within 30 business days of receiving written notice from RightStart.com of such
change of control and (b) upon the occurrence of a material breach by
RightStart.com that is not cured within 30 business days of receipt of written
notice from the Company. RightStart.com may terminate the intellectual property
agreement upon the occurrence of a material breach by the Company which is not
cured within 30 days of receipt of written notice from RightStart.com.
Lease. Since May 1, 1999, RightStart.com has subleased office space on
a month-to-month basis from the Company. Rent expense under this sublease
totaled $18,000 for 1999. The monthly rent cost is approximately $12,500
effective January 1, 2000.
RightStart.com has no formal agreement with the Company to continue this
sublease.
The Company and RightStart.com each has entered into indemnification
agreements with its directors which may require them, among other things, to
indemnify such directors against liabilities that may arise by reason of their
status or service as directors, other than liabilities arising from willful
misconduct of a culpable nature, and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified.
In April 2000, RightStart.com sold secured bridge notes in the
aggregate principal amount $2,180,000 (the "Bridge Notes") and warrants to
purchase 109,000 shares of its common stock at an exercise price of $6.70 to
affiliates, to provide funding until RightStart.com can obtain additional equity
financing. A default on the Bridge Notes would permit such holders to foreclose
on the assets of RightStart.com and require RightStart.com, to the extent it has
not already done so, to issue to the holders of the notes, warrants to purchase
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an aggregate of 8,720,000 shares, or approximately 48.9% of the outstanding
common stock of RightStart.com, at an exercise price of $0.25 per share.
PROPOSAL ONE
------------
RATIFICATION OF
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The firm of Arthur Andersen LLP was selected by the Board of Directors,
upon recommendation of the Audit Committee of the Board of Directors, to act as
the Company's independent accountants for the fiscal year ending February 3,
2001. Neither the firm nor any of its members has any relationship with the
Company or any of its affiliates except in the firm's capacity as the Company's
auditor. The Board of Directors is asking for ratification of such appointment
by the Company's shareholders.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and will have the opportunity to make statements if they so
desire and respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP.
PROPOSAL TWO
------------
APPROVAL OF AMENDMENT TO 1991 EMPLOYEE STOCK OPTION PLAN
The Board of Directors has proposed to amend Article 3 of the Company's
1991 Stock Option Plan to increase the maximum number of shares of the Company's
common stock subject to the 1991 Stock Option Plan from 900,000 to 1,050,000
shares, an increase of 150,000 shares. The proposed amendment to the 1991 Plan
reads as follows:
"3. Shares Subject to the Plan.
--------------------------
The stock issuable under this Plan shall be shares of the
Company's authorized but unissued or reacquired Common Stock ("Common
Stock"). The total number of shares of Common Stock that may be issued
under this Plan shall not exceed 1,050,000 shares in the aggregate, subject
to adjustment as provided in Section 8 below."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSED
AMENDMENT TO THE 1991 STOCK OPTION PLAN.
PROPOSAL THREE
--------------
APPROVAL OF AMENDMENT TO 1995 NON-EMPLOYEE DIRECTORS OPTION PLAN
The Board of Directors has proposed to amend section 12 of the Company's
1995 Stock Option Plan to increase the maximum number of shares of the Company's
common stock subject to the 1995 Stock Option Plan from 200,000 to 275,000
shares, an increase of 75,000 shares. The proposed amendment to the 1995 Stock
Option Plan reads as follows:
"12. Common Shares Subject to Options.
--------------------------------
The maximum aggregate number of shares of common stock with respect to
which Options may be granted from time to time under the Plan is
275,000 shares, subject to adjustment as provided in Section 6 of the
Plan."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSED
AMENDMENT TO THE 1995 STOCK OPTION PLAN.
ANNUAL REPORT
The Annual Report of the Company including financial statements for Fiscal
1999 is being forwarded to each shareholder together with this Proxy Statement.
OTHER MATTERS
The Board of Directors has no knowledge of any other matters that may come
before the Annual Meeting. If any other matters shall properly come before the
meeting, the persons named in the Proxies will have discretionary authority to
vote the shares thereby represented in accordance with their best judgment.
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<PAGE>
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the Company's next
Annual Meeting of Shareholders must be received by the Secretary of the Company
prior to April 1, 2001 for inclusion in the Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held in June of 2001.
Please return your proxy as soon as possible. Unless a quorum consisting of
a majority of the outstanding shares entitled to vote is represented at the
Annual Meeting, no business can be transacted. Therefore, please be sure to date
and sign your proxy exactly as your name appears on your stock certificate and
return it in the enclosed postage prepaid return envelope. Please act promptly
to ensure that you will be represented at this important meeting.
/s/ Gina M. Engelhard
Gina M. Engelhard
Secretary
Dated: July 1, 2000
AVAILABILITY
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, AS AMENDED AND FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE PROVIDED TO SHAREHOLDERS
WITHOUT CHARGE UPON WRITTEN REQUEST TO: THE CORPORATE SECRETARY, THE RIGHT
START, INC., 5388 STERLING CENTER DRIVE, UNIT C, WESTLAKE VILLAGE, CALIFORNIA
91361.
FORWARD-LOOKING STATEMENTS
This Proxy Statement contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended. The forward-looking
statements in this Proxy Statement are intended to be subject to the safe harbor
protection provided by Sections 27A and 21E. All forward-looking statements
involve risks and uncertainties. Although the Company believes that its
expectations are based upon reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not materially differ from its expectations. For factors that may
cause actual results to materially differ from expectations and underlying
assumptions, see the Company's Registration Statement on Form S-3 (File No. 333-
84319) and periodic reports, including the Annual Report on Form 10-K/A, as
amended, Fiscal 1999, filed by the Company with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on any
forward-looking statements, which speak only as of the date thereof. The Company
undertakes no obligation to publicly release any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof.
INCORPORATION BY REFERENCE
The financial and other information required pursuant to Item 13 (a) of
Proxy Rule 14A-101/Schedule 14a is hereby incorporated by reference into this
proxy statement from the information provided in the Company's previously filed
Form 10-K/A for Fiscal 1999. All documents subsequently filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
date of the Company's 2001 annual meeting of shareholders shall be deemed to be
incorporated by reference into this proxy statement.
21
<PAGE>
PROXY
THE RIGHT START, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
JERRY R. WELCH, with full power of substitution, is hereby appointed proxy to
vote the stock of the undersigned in The Right Start, Inc. at the Annual Meeting
of Shareholders on August 1, 2000, and at any adjournments, to be held at The
Right Start retail store located at 13413 Ventura Boulevard, Sherman Oaks,
California.
MANAGEMENT RECOMMENDS THAT YOU VOTE "FOR" AUTHORITY ON ELECTION OF DIRECTORS
AND FOR THE BOARD'S PROPOSALS ONE, TWO AND THREE.
ELECTION OF DIRECTORS
[_] FOR all Nominees listed [_] WITHHOLD
below (except as AUTHORITY to
indicated to the vote for all
contrary below) Nominees listed
below
Jerry Welch, Richard Kayne, Fred Kayne, Andrew Feshbach, Robert Hollman and
Howard Zelikow.
INSTRUCTION: To withhold authority to vote for any individual Nominee, write
that Nominee's name in the space provided below.
-------------------------------------------
PROPOSAL 1. RATIFICATION OF AUDITORS [_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL 1 ratification of appointment of Arthur Andersen LLP as auditors for
the fiscal year ending February 3, 2001.
PROPOSAL 2. APPROVAL OF AMENDMENT TO 1991 STOCK OPTION PLAN
[_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL 2 approval of amendment to The Right Start, Inc. 1991 Employee Stock
Option Plan increasing the maximum aggregate number of shares of the Company's
common stock subject to the plan from 900,000 to 1,050,000 shares.
PROPOSAL 3. APPROVAL OF AMENDMENT TO THE 1995 NON-EMPLOYEE DIRECTOR PLAN
[_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL 3 approval of amendment to The Right Start, Inc. 1995 Stock Option Plan
increasing the maximum aggregate number of shares of the Company's common stock
subject to the plan from 200,000 to 275,000 shares.
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof,
including procedural and other matters relating to the conduct of the meeting.
THE PROXY WILL BE VOTED AS DIRECTED. UNLESS OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF THE SIX DIRECTOR NOMINEES AND FOR PROPOSALS 1,
2 and 3.
Please sign exactly as name appears hereon.
----------------------------------
----------------------------------
Dated: _____________________, 2000
When shares are held by joint
tenants, both should sign. When
signing as attorney, as executor,
administrator, trustee or
guardian, please indicate as such.
If a corporation, please sign in
full corporate name by President
or other authorized officer. If
a partnership, please sign in
partnership name by authorized
person.
PLEASE DATE, SIGN AND RETURN THIS CARD IN THE ENCLOSED ENVELOPE.
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