RightStart.com Inc.
SECURED CONVERTIBLE BRIDGE NOTE
PURCHASE AGREEMENT
THIS SECURED CONVERTIBLE BRIDGE NOTE PURCHASE AGREEMENT (this
"Agreement") is made as of the 22nd day of June, 2000, by and among
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RightStart.com Inc., a Delaware corporation (the "Company"), Fred Kayne,
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Kayne Anderson Capital Partners, L.P., Kayne Anderson Diversified Capital
Partners, L.P., Arbco Associates, L.P., Kayne Anderson Non-Traditional
Investments, L.P., Kayne Anderson Offshore Limited, Palomar Ventures I, L.P.,
Sierra Ventures VII, L.P., Sierra Ventures Associates VII, L.C.C. and
Guidance Solutions, Inc. (each, an "Investor" and collectively, the
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"Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF SECURITIES.
1.1 Sale and Issuance of Securities.
Subject to the terms and conditions of this Agreement, the Investors agree
to purchase the Company's 10% Secured Convertible Bridge Notes (the "Bridge
Notes" or "Securities") in the aggregate principal amount of up to $1,662,914,
as more specifically set forth below:
(i) Fred Kayne agrees to purchase at the Closing, and the Company agrees to
sell to such Investor at the Closing, $200,000 in aggregate principal amount of
Bridge Notes.
(ii) Kayne Anderson Capital Partners, L.P. agrees to purchase at the
Closing, and the Company agrees to sell to such Investor at the Closing,
$325,000 in aggregate principal amount of Bridge Notes.
(iii) Kayne Anderson Diversified Capital Partners, L.P. agrees to purchase
at the Closing, and the Company agrees to sell to such Investor at the Closing,
$100,000 in aggregate principal amount of Bridge Notes.
(iv) Arbco Associates, L.P. agrees to purchase at the Closing, and the
Company agrees to sell to such Investor at the Closing, $200,000 in aggregate
principal amount of Bridge Notes.
(v) Kayne Anderson Non-Traditional Investments, L.P. agrees to purchase at
the Closing, and the Company agrees to sell to such Investor at the Closing,
$100,000 in aggregate principal amount of Bridge Notes.
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(vi) Kayne Anderson Offshore Limited agrees to purchase at the Closing, and
the Company agrees to sell to such Investor at the Closing, $75,000 in aggregate
principal amount of Bridge Notes.
(vii) Sierra Ventures VII, L.P. agrees to purchase at the Closing, and the
Company agrees to sell to such Investor at the Closing, $441,408 in aggregate
principal amount of Bridge Notes.
(viii) Sierra Ventures Associates VII, L.L.C. agrees to purchase at the
Closing, and the Company agrees to sell to such Investor at the Closing, $44,141
in aggregate principal amount of Bridge Notes.
(ix) Palomar Ventures I, L.P. agrees to purchase at the Closing, and the
Company agrees to sell to such Investor at the Closing, $121,691 in aggregate
principal amount of Bridge Notes.
(x) Guidance Solutions, Inc. agrees to purchase at the Closing, and the
Company agrees to sell to such Investor at the Closing, $52,631 in aggregate
principal amount of Bridge Notes.
Each of the Investors agrees to pay in cash by wire transfer of immediately
available funds at Closing to the Company payment in full for the Bridge Notes
so purchased by such Investor.
1.2 Closing.
The purchase and sale of the Bridge Notes shall take place at the offices
of Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California, at 10 a.m., on
June 22, 2000, or at such other time and place as the Company and Investors
shall mutually agree, either orally or in writing (which time and place are
designated as the "Closing").
Upon receipt of payment for the Bridge Notes at the Closing (in accordance
with Section 1.1 above), the Company shall deliver to each Investor a Bridge
Note (substantially in the form attached hereto as Exhibit A), which Bridge Note
shall be convertible at the option of the holder thereof into the Company's
common stock, par value $.01 per share (the "Common Stock"), in the aggregate
principal amount purchased by such Investor.
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, which exceptions shall be deemed to supplement and
inform the representations and warranties contained in this Agreement as if made
hereunder:
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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 and the Bridge Notes, to issue and sell the
Bridge Notes and to carry out the provisions of this 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 and the Bridge Notes and the performance of all
obligations of the Company hereunder and thereunder at the Closing has been
taken or will be taken prior to the Closing, and this Agreement and the Bridge
Notes, 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 Securities.
The Bridge Notes that are being purchased by the Investors 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, and will be
free of restrictions on transfer other than restrictions on transfer under this
Agreement, and under applicable state and federal securities laws. The Common
Stock issuable upon conversion of the Bridge Notes has been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Bridge Notes (and upon filing of an amendment to the Company's certificate of
incorporation increasing the number of share of Common Stock authorized for
issuance by the Company), 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 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 or the offer, sale or
issuance of the Bridge Notes by the Company, except (i) such filings as have
been made prior to the Closing, 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 therefore and (ii) such consents, approvals,
qualifications, orders or authorizations that, if not obtained, could not
reasonably be expected to have a material adverse effect on the Company.
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2.5 Capitalization and Voting Rights; Subsidiaries.
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, none of which are outstanding on the date of this Agreement.
(b) Common Stock. Twenty Million (20,000,000) shares of Common Stock, of
which 9,100,000 shares are issued and outstanding on the date of this Agreement.
(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.
Except for (i) the exercise privileges of the bridge warrants (the "Bridge
Warrants") and contingent warrants (the "Contingent Warrants") (to the extent
exercisable) issued pursuant to the Secured Bridge Note and Warrant Purchase
Agreement (as amended, the "Note and Warrant Purchase Agreement") dated April
18, 2000 between the Company and the Investors listed therein, and (ii) the
rights provided in the Investors' Rights Agreement, dated July 9, 1999 between
the Company and the investors listed therein (the "Investors' Rights
Agreement"), (iii) 1,822,500 options to purchase shares of the Company's Common
Stock granted under the RightStart.com 1999 Stock Option Plan (the "Option
Plan"), (iv) 182,000 shares of Common Stock issuable upon exercise of the
warrants issued to affiliates of Digital Coast Partners (formerly CEA Montgomery
Media L.L.C.), (v) 165,000 shares of Common Stock issuable upon exercise of the
warrant issued to Sierra Ventures VII, L.P. and its affiliates and (vi) 136,500
shares of Common Stock issuable upon exercise of the warrants issued to Oxygen
Media LLC and its affiliates, there are no outstanding options, warrants, rights
(including conversion or preemptive 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 195,000 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 except under the agreements set forth on
Schedule 2.6 to the Schedule of Exceptions.
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 or disclosed in this Agreement).
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2.6 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 2.6
of the Schedule of Exceptions.
2.7 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
(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.
("TRS") and the Company (the "Management Services Agreement"), (vi) pursuant to
the terms of an Intellectual Property Agreement dated July 9, 1999 between TRS
and the Company (the "Intellectual Property Agreement"),(vii) pursuant to the
terms of the Note and Warrant Purchase Agreement, the Security Agreement related
thereto and the bridge notes, Bridge Warrants, and Contingent Warrants issued
thereunder and (viii) those additional agreements set forth on Schedule 2.6 of
the Schedule of Exceptions.
2.8 Registration Rights.
Except as granted to Investors in connection with the transactions
contemplated by this Agreement, the Note and Warrant Purchase Agreement for the
Bridge Warrants and the Contingent Warrants (to the extent exercisable), the
Subscription Agreement between the Company and Oxygen Media, LLC, dated as of
December 30, 1999 (the "Oxygen Subscription Agreement") and the Investors'
Rights Agreement and the other agreements set forth on Schedule 2.7 to the
Schedule of Exceptions, 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.
2.9 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.
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2.10 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, and the consummation of the
transactions contemplated hereby, 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.
2.11 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 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.
2.12 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 Bridge Notes as set
forth in this Agreement are exempt from the registration requirements of the
Securities Act.
2.13 Title to Property and Assets; Leases.
Except for (i) liens filed in connection with the bridge notes granted
pursuant to the Note and Warrant Purchase Agreement, (ii) liens for current
taxes not yet delinquent, (iii) liens imposed by law and incurred in the
ordinary course of business for obligations not past due to carriers,
warehousemen, laborers, customs agents, materialmen and the like, (iv) liens in
respect of pledges or deposits under workers' compensation laws or similar
legislation or (v) 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)-(v) above, and
except as would not have a material adverse effect on the Company.
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2.14 Guarantees; Accounting Systems.
The Company is not a guarantor or indemnitor of any indebtedness of any
other firm, person or corporation. The Company maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
2.15 Patents and Trademarks.
To the best of its knowledge and except as set forth on Schedule 2.15, 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 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, the agreement(s)
between TRS and Guidance Solutions, Inc. regarding the development of the
Company's web site and pursuant to business development or affiliation
agreements. The Company has not granted to any person any 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 TRS
and Guidance Solutions, Inc. regarding the development of the Company's web site
and pursuant to business development or affiliation agreements.
2.16 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 Company's 1999 Stock 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.
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2.17 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 adverse 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.
2.18 Insurance.
The Company carries or is covered by 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.
2.19 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.
2.20 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 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.
2.21 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.
2.22 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.
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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 Securities to be purchased by the Investor
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
participation 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 Securities are not 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 be
present if, notwithstanding such representations, the Investor has in mind
merely acquiring the Securities 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
Securities. 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 Securities 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.
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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 as the Company 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 Securities.
The Investor also represents that it has not been organized for the purpose of
acquiring the Securities.
3.6 Accredited Investor.
(a) The term "Accredited Investor" as used herein refers to:
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(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 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;
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(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 Securities may not be sold, transferred,
or otherwise disposed of without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Securities or an available exemption from registration
under the Securities Act, the Securities must be held indefinitely.
3.8 Legends.
To the extent applicable, each certificate or other document evidencing any
of the Securities shall be endorsed with the legends substantially in the form
set forth below:
(a) The following legend under the Securities Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1993, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT AND APPLICABLE LAWS OR SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
APPLICABLE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
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(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 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 any Investor that
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 date 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.
4.3 Qualifications.
All authorizations, approvals or permits, 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 Securities
pursuant to this Agreement shall have been duly obtained and effective as of the
Closing.
4.4 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.
4.5 Other Agreements and Filings.
The Company shall have executed and delivered the Security Agreement
substantially in the form attached hereto as Exhibit B and the Subordination and
Intercreditor Agreement in the form attached hereto as Exhibit C. The Company
shall have filed UCC-1 financing statements with the Secretary of State of
California, the Secretary of the Commonwealth of Pennsylvania and the
Prothonotary of the Cumberland County Pennsylvania.
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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 entity that are required in connection
with the lawful issuance and sale of the Securities pursuant to this Agreement
shall have been duly obtained and effective as of the Closing.
5.3 Other Agreements and Filings.
Each of the holders of the Company's outstanding bridge notes issued
pursuant to the Note and Warrant Purchase Agreement shall have executed and
delivered the Intercreditor Agreement in the form attached hereto as Exhibit C.
6. REGISTRATION RIGHTS.
6.1 Demand Registration. If the Company shall receive at any time after its
initial firm-commitment public offering (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 an of its securities to the public)
a written request from holders ("Holders") of shares of Common Stock issued or
to be issued upon exercise of any Bridge Notes ("Bridge Stock") holding at least
666,667 shares of Common Stock, that the Company file a registration statement
for its Common Stock, then the Company shall use commercially reasonable efforts
to effect such registration, on Form S-3 or successor form replacing Form S-3,
if practicable, as would permit or facilitate the sale and distribution of all
or such portion of such Bridge Stock as is specified in such request. For
purposes of this Agreement, the term "Restricted Securities" shall mean all
Bridge Notes and Bridge Stock that bear the restrictive legend set forth in
Section 8 of the Bridge Notes.
If the managing underwriter for the respective offering, if any, advises
the Company in writing that the inclusion in such registration of some or all of
the Bridge Stock sought to be registered by the Holder or Holders in its opinion
will cause the proceeds or the price per unit the Company or the requesting or
demanding holder of securities will derive from such registration to be reduced
or that the number of securities to be registered at the instance of the Company
or such requesting or demanding holder plus the number of securities sought to
be registered by the Holders is too large a number to be reasonably sold, the
13
<PAGE>
number of securities sought to be registered for each Holder shall be reduced
pro rata, in proportion to the number of securities sought to be registered by
all Holders (including Holders requesting registration pursuant to registration
rights granted under the Note and Warrant Purchase Agreement), to the extent
necessary to reduce the number of securities to be registered to the number
recommended by the managing underwriter (the "Recommended Number"), subject at
all times to those registration rights granted to certain holders of the
Company's securities set forth in the Investors' Rights Agreement, the Oxygen
Subscription Agreement and the Registration Rights Agreement dated October 30,
1999 between the Company and Guidance Solutions, Inc. (the "Guidance
Registration Rights Agreement").
6.2 Incidental Registration. If the Company at any time proposes to
register any of its securities under the Securities Act on Form S-1, S-2 or S-3
or the equivalent (otherwise than to register debt securities under Form S-3, or
any comparable successor form), whether of its own accord or at the request of
any holder or holders of such securities, it will each such time give written
notice to all holders of outstanding Restricted Securities of its intention so
to do.
Upon the written request of a holder or holders of any such Restricted
Securities given within 30 days after receipt of any such notice, the Company
will use commercially reasonable efforts to cause all Bridge Stock, the holder
or holders of which shall have so requested registration thereof, to be
registered under the Securities Act pursuant to such registration statement, all
to the extent requisite to permit the sale or other disposition (in accordance
with the intended methods thereof as aforesaid) by the prospective Holder or
Holders of the Bridge Stock so registered.
If the managing underwriter for the respective offering, if any, advises
the Company in writing that the inclusion in such registration of some or all of
the Bridge Stock sought to be registered by the Holder or Holders in its opinion
will cause the proceeds or the price per unit the Company or the requesting or
demanding holder of securities will derive from such registration to be reduced
or that the number of securities to be registered at the instance of the Company
or such requesting or demanding holder plus the number of securities sought to
be registered by the Holders is too large a number to be reasonably sold, the
number of securities sought to be registered for each Holder shall be reduced
pro rata, in proportion to the number of securities sought to be registered by
all Holders (including Holders requesting registration pursuant to registration
rights granted under the Note and Warrant Purchase Agreement) , to the extent
necessary to reduce the number of securities to be registered to the Recommended
Number, subject at all times to those registration rights granted to certain
holders of the Company's securities set forth in the Investors' Rights
Agreement, the Oxygen Subscription Agreement and the Guidance Registration
Rights Agreement.
6.3 Registration Procedures.
(a) If and whenever the Company is required by the provisions of this
Section 6 to use commercially reasonable efforts to effect the registration of
any of the Bridge Stock under the Securities Act, the Company will (except as
otherwise provided in this Agreement), as expeditiously as possible,
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<PAGE>
(i) cooperate with any underwriters for, and the Holders of, such
Brige Stock, and will enter into a usual and customary underwriting
agreement with respect thereto (provided that the Company shall not be
required to enter into more than two such underwriting agreements (one
for a domestic offering and one for an international offering) in
connection with any such registration) and take all such other
reasonable actions as are necessary or advisable to permit, expedite
and facilitate the disposition of such Bridge Stock in the manner
contemplated by the related registration statement, in each case to
the same extent as if all the securities then being offered were for
the account of the Company, and the Company will provide to any Holder
of Restricted Securities, any underwriter participating in any
distribution thereof pursuant to a registration statement, and any
attorney, accountant or other agent retained by any Holder or
underwriter, reasonable access to appropriate Company officers and
employees to answer questions and to supply information reasonably
requested by any such Holder, underwriter, attorney, accountant or
agent in connection with such registration statement;
(ii) furnish or cause to be furnished to each Holder of Bridge Stock
covered by such registration statement, addressed to such Holders, a
copy of the opinion of counsel for the Company, and a copy of the
"comfort" letter signed by the independent public accountants who have
certified the Company's financial statements included in the
registration statement, delivered on the closing date to the
underwriters of such Bridge Stock;
(iii) prepare and file with the Commission a registration statement
with respect to such securities and use commercially reasonable
efforts to cause such registration statement to become and remain
effective; and prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all
securities covered by such registration statement whenever the Holder
or Holders of such securities shall desire to sell or otherwise
dispose of the same; provided that no such registration statement will
be filed by the Company until counsel for the Holders of securities
included therein shall have had a reasonable opportunity to review the
same and to exercise their rights under clause (A) above with respect
thereto and no amendment to any such registration statement naming
such Holders as selling shareholders shall be filed with the
Commission until such Holders shall have had at least seven days to
review such registration statement as originally filed and theretofore
amended and to exercise their rights under clause (A) above;
15
<PAGE>
(iv) furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as such Holder may reasonably request in order to
facilitate the public sale or other disposition of the securities
owned by such Holder;
(v) use commercially reasonable efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each Holder shall
request, and do any and all other acts and things which may be
necessary or advisable to enable such Holder to consummate the public
sale or other disposition in such jurisdictions of the securities
owned by such Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified or to file therein
any general consent to service;
(vi) in the event of the issuance of any stop order suspending the
effectiveness of any registration statement or of any order suspending
or preventing the use of any prospectus or suspending the
qualification of any Bridge Stock for sale in any jurisdiction, use
commercially reasonable efforts promptly to obtain its withdrawal;
(vii) in the event any prospectus used in connection with the
distribution of Bridge Stock registered under the Securities Act
pursuant to the provisions of this Section 6 is discovered to contain
any untrue statement of any material fact or any omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, promptly provide each
Holder that shall have requested registration of Bridge Stock with
amended prospectuses correcting such statements;
(viii) otherwise use commercially reasonable efforts to comply with
all applicable rules and regulations of the Commission; and
(ix) list such securities on any securities exchange on which any
stock of the Company is then listed, if the listing of such securities
is then permitted under the rules of such exchange; provided, however,
that notwithstanding any other provision of this Section 6, the
Company shall not be required to maintain the effectiveness of any
registration statement for a period in excess of one year. From time
to time after a transfer of Bridge Notes, or Bridge Stock pursuant to
a registration statement, the Company will file all reports required
to be filed by it under the Securities Act, the Exchange Act and the
rules and regulations adopted by the Securities and Exchange
Commission thereunder, and will take such further action as any Holder
or Holders of Bridge Stock may reasonably request, all to the extent
required to enable such Holders to sell Bridge Stock pursuant to such
laws and regulations thereunder.
16
<PAGE>
(b) In connection with the registration of Restricted Securities under the
Securities Act pursuant to the provisions of this Section 6, each Holder of
Restricted Securities requesting such registration will (except as otherwise
provided in this Agreement), as expeditiously as possible,
(i) in the event of the issuance of any stop order suspending the
effectiveness of any registration statement or of any order suspending
or preventing the use of any prospectus or suspending the
qualification of any Restricted Securities for sale in any
jurisdiction, use its best efforts promptly to discontinue the
disposition of such Restricted Securities owned by such Holder in such
jurisdiction until such order has been withdrawn; and
(ii) in the event any prospectus used in connection with the
distribution of Restricted Securities registered under the Securities
Act pursuant to the provisions of this Section 6 is discovered to
contain any untrue statement of any material fact or any omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, use its best
efforts promptly to discontinue the disposition of such Restricted
Securities owned by such Holder until amended prospectuses correcting
such statements have been provided to such Holder.
6.4 Expenses; Limitations on Registration. All expenses incident to the
Company's performance of its obligations in connection with any registration of
the Holders' Bridge Stock under this Agreement including, without limitation,
printing expenses, fees and disbursements of counsel for the Company, fees of
the National Association of Securities Dealers, Inc. in connection with its
review of any offering contemplated in any registration statement and expenses
of any special audits to which the Company shall agree or which shall be
necessary to comply with governmental requirements in connection with any such
registration shall be paid by the Company. In addition, the Company shall pay
(i) all registration and filing fees for the Holders' Bridge Stock under federal
and state securities laws, and (ii) expenses of registering or qualifying under
or complying with the securities or blue sky laws of any jurisdictions.
Notwithstanding the foregoing, in the event a Holder withdraws its request for
registration of Bridge Stock other than by reason of (1) the Company's failure
to perform its obligations in connection with such registration, (2) the failure
to be timely satisfied of any closing condition contained in any underwriting
agreement entered into in connection with such registration and not within the
control of such Holder, (3) the termination of such underwriting agreement by
the underwriters party thereto other than by reason of the failure on the part
of such Holder to perform its obligations thereunder, or (4) the occurrence of
any change that may materially adversely affect the selling price or
marketability of the Bridge Stock for which registration was requested,
including, without limitation, (A) any material adverse change in the business,
business prospects, properties, condition (financial or otherwise) or operations
of the Company, (B) the suspension of trading in the Common Stock by the
Commission or any national securities exchange or automated quotation system or
trading in securities generally on the New York Stock Exchange or the
establishment of limited or minimum prices on any such national exchange or
quotation system, (C) the declaration of any banking moratorium by Federal, New
17
<PAGE>
York or California State authorities, or (D) the occurrence of any outbreak or
escalation of hostilities, the declaration by the United States of any national
emergency or war or the occurrence of any other calamity or crisis the effect of
which on financial markets is such as to make it impracticable to proceed with
the offering of the Bridge Stock, then such Holder shall bear such expenses. In
addition, under all circumstances, each Holder shall pay one hundred percent
(100%) of the gross underwriting spread or fees with respect to such Holder's
Bridge Stock covered by any registration pursuant to this Section 6.
It shall be a condition precedent to the obligation of the Company to take
any action pursuant to this Section 6 in respect of the securities which are to
be registered at the request of any prospective Holder that such prospective
Holder shall furnish to the Company such information regarding such Holder and
the securities held by such Holder and the intended method of disposition
thereof as the Company shall reasonably request and as shall be required in
connection with the action to be taken by the Company.
The Holders of Bridge Notes and Bridge Stock issued in connection therewith
shall be entitled to an aggregate of two effective demand registrations each
pursuant to Section 6.1 and an unlimited number of registrations pursuant to
requests made under Section 6.2; provided that any such registration request
made by the requisite number of Holders which request shall be withdrawn (other
than by reason of the Company's failure to perform its obligations hereunder or
a material adverse change in its financial position or business) by the Holders
of a majority in number of shares evidenced or covered by the Restricted
Securities sought to be so registered, after the respective registration
statement shall have become effective, shall be treated as an "effective"
registration for purposes of this Agreement.
6.5 Indemnification.
(a) In the event of any registration of any Bridge Stock under the
Securities Act pursuant to this Section 6, the Company shall indemnify and hold
harmless the Holder of such Bridge Stock and any underwriter thereof, and their
respective directors and officers, and each other Person, if any, who controls
such Holder or any such underwriter within the meaning of the Securities Act
("Controlling Person"), against any losses, claims, damages or liabilities,
joint or several, to which such Holder or underwriter or any such director or
officer or Controlling Person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, expenses,
damages or liabilities (or actions in respect thereof) that arise out of or are
based upon (A) any alleged untrue statement of any material fact contained, on
the effective date thereof, in any registration statement under which such
securities were registered under the Securities Act, or in any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or (B) any alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and shall reimburse such Holder or such director, officer or Controlling Person
for any legal or any other expenses reasonably incurred by such Holder or such
director, officer or Controlling Person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any alleged
untrue statement or alleged omission made in such registration statement,
18
<PAGE>
preliminary prospectus, prospectus, or amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Holder specifically for use therein. The indemnity provided in this subsection
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Holder or such director, officer or Controlling Person, and
shall survive the transfer of such securities by such Holder.
(b) Each Holder of any Restricted Securities shall, by acceptance thereof,
severally and not jointly, indemnify and hold harmless the Company and any
underwriter of such Restricted Securities and their respective directors and
officers and each other Person, if any, who controls the Company or such
underwriter (within the meaning of the Securities Act) against any losses,
claims, expenses, damages or liabilities, joint or several, to which the Company
or such underwriter or any such director or officer or any such Person may
become subject under the Securities Act or any other statute or at common law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) that arise out of or are based upon (A) any alleged untrue statement of
any material fact contained, on the effective date thereof, in any registration
statement under which Restricted Securities were registered under the Securities
Act, or in any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or (B) any alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such alleged untrue statement or alleged omission was contained (or
should have been contained) in written information furnished to the Company by
such Holder specifically for use therein, and shall reimburse the Company or
such director, officer or other Person for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such loss,
claim, damage, liability or action.
(c) Indemnification similar to that specified in clauses (i) and (ii) of
this Section 6.5 shall be given by the Company and each Holder of any Bridge
Stock (with such modifications as shall be appropriate) to each other and to any
underwriter with respect to any required registration or other qualification of
any Bridge Stock under any federal or state law or regulation of governmental
authority other than the Securities Act. The indemnity and expense
reimbursements obligations of the Company under clauses (i) and (ii) of this
Section 6(e) shall be in addition to any liability the Company may otherwise
have.
(d) Each Person (an "Indemnitor") who under the preceding provisions of
this Section 6.5 agrees to indemnify another Person (the "Indemnitee") shall
have the right, subject to the provisions hereto, to designate counsel
(acceptable to the Indemnitee) to defend any case or proceeding against the
Indemnitee arising in respect of any claim of liability for which such
indemnification may be claimed, to the end that duplication of legal expense may
be minimized; provided that, if the Indemnitee notifies the Indemnitor that the
former has been advised by its counsel that any single counsel in such case or
proceeding would have a conflict of interest in representing both the Indemnitor
and the Indemnitee, the Indemnitee may designate its own counsel in such case or
proceeding and, to the extent so provided above in this Section 6.5, shall be
entitled to be reimbursed by Indemnitor for its legal expenses reasonably
incurred in connection with defending itself in such case or proceeding.
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<PAGE>
7. MISCELLANEOUS.
7.1 Covenant Regarding Dilution Protection.
The Company has issued equity interests to members of the Company's
management team and its directors, consultants and advisors in order to retain
and incentivize such persons. In order to protect the equity interests in the
Company held by management and the Company's directors, consultants and advisors
and to maintain the current incentive structure, the Company and each of the
Investors hereby agree to take such action as may be reasonably required to
protect the current equity interests held by management and the Company's
directors, consultants and advisors from dilution caused by the conversion of
the Bridge Notes, the Bridge Warrants and/or the Contingent Warrants into Common
Stock. No member of management or the Company's directors, consultants or
advisors shall have rights as a third party beneficiary or otherwise by reason
of the foregoing provision.
7.2 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.
7.3 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.
7.4 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.
7.5 Governing Law.
This Agreement shall be governed by and construed under the laws of the
State of New York (excluding the choice of law provisions thereof).
7.6 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.
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<PAGE>
7.7 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.
7.8 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 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.
7.9 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.
7.10 Expenses.
The Company and each of the Investors shall pay all their own costs and
expenses (including attorneys' fees and expenses) in connection with the
preparation, execution and delivery of this Agreement and other documents to be
delivered hereunder.
7.11 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 aggregate
outstanding principal amount of the Bridge Notes (considered for purposes hereof
as if any conversion thereof into Bridge Stock had not yet occurred). 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.
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<PAGE>
7.12 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
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.
7.13 Effect of Amendment or Waiver.
The Investors acknowledge that by the operation of Section 7.10 hereof the
holders of more than fifty percent (50%) of the aggregate outstanding principal
amount of the Bridge Notes (considered for purposes hereof as if any conversion
thereof into Bridge Stock had not yet occurred) will have the right and power to
diminish or eliminate all rights of an Investor under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RIGHTSTART.COM INC.
By /s/Raymond Springer
---------------------------
Raymond Springer
Chief Financial Officer and
Executive Vice President
Address: RightStart.com Inc.
5388 Sterling Center Drive, Unit C
Westlake Village, California
91361
Facsimile: 818.707.7132
/s/Fred Kayne
---------------------------
Fred Kayne
Address: c/o Fortune Financial
1800 Avenue of the Stars, Ste.
1112
Los Angeles, California 90067
Facsimile: 310.551.3077
KAYNE ANDERSON CAPITAL PARTNERS, L.P.
By: KAYNE ANDERSON CAPITAL ADVISORS, L.P.,
its general partner
By: KAYNE ANDERSON CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By: /s/Richard Kayne
---------------------------
Richard Kayne
President
<PAGE>
KAYNE ANDERSON DIVERSIFIED CAPITAL
PARTNERS, L.P.
By: KAYNE ANDERSON CAPITAL ADVISORS, L.P.,
its general partner
By: KAYNE ANDERSON CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By: /s/Richard Kayne
---------------------------
Richard Kayne
President
ARBCO ASSOCIATES, L.P.
By: KAYNE ANDERSON CAPITAL ADVISORS, L.P.,
its general partner
By: KAYNE ANDERSON CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By: /s/Richard Kayne
---------------------------
Richard Kayne
President
KAYNE ANDERSON NON-TRADITIONAL
INVESTMENTS, L.P.
By: KAYNE ANDERSON CAPITAL ADVISORS, L.P.,
its general partner
By: KAYNE ANDERSON CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By: /s/Richard Kayne
---------------------------
Richard Kayne
President
KAYNE ANDERSON OFFSHORE LIMITED
By: KAYNE ANDERSON CAPITAL ADVISORS, L.P.,
its general partner
By: KAYNE ANDERSON CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By: /s/David Shladovsky
---------------------------
Name: David Shladovsky
Title: General Counsel and Secretary
Address: 1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
<PAGE>
PALOMAR VENTURES I, L.P.
By: /s/ Jim Gauer
---------------------------
Jim Gauer, its general partner
Address:________________________________
GUIDANCE SOLUTIONS, INC.
By: /s/Gary Burnison
---------------------------
Name: Gary Burnison
Title: Chief Financial Officer
Address:________________________________
SIERRA VENTURES VII, L.P.
By: /s/Peter Wendell
---------------------------, its
General Partner
Address:________________________________
SIERRA VENTURES ASSOCIATES VII, L.L.C.
By: /s/ Peter Wendell
---------------------------, its
Managing Member
Address:________________________________
<PAGE>
Exhibit A
Form of Secured Convertible Bridge Note
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES
LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS PURSUANT TO REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY REQUIRED REGISTRATION OR
QUALIFICATION UNDER ANY STATE SECURITIES LAWS, OR THE PROPOSED TRANSACTION DOES
NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER FEDERAL OR STATE SECURITIES
LAWS.
RIGHTSTART.COM INC. SECURED CONVERTIBLE BRIDGE NOTE
Westlake Village, California
June _____, 2000
RightStart.com Inc., a Delaware corporation (the "Company"), the principal
office of which is located at 5388 Sterling Center Drive, Unit C, Westlake
Village, California, for value received hereby promises to pay to
_____________________________ ("Holder"), or its registered assigns, the sum of
________________________ Dollars ($______________), or such lesser amount as
shall then equal the outstanding principal amount hereof and any unpaid accrued
interest hereon, as set forth below, on the earlier to occur of (i) October
____, 2000, or (ii) when declared due and payable by the Holder upon the
occurrence of an Event of Default (as defined below). Payment for all amounts
due hereunder shall be made by mail to the registered address of the Holder.
This Note is issued in connection with the transactions described in Section 1.1
of that certain Secured Convertible Bridge Note Purchase Agreement between the
Company and the Investors named therein, dated as of June _____, 2000, as the
same may from time to time be amended, modified or supplemented (the "Purchase
Agreement"). The holder of this Note is subject to certain restrictions set
forth in the Purchase Agreement and shall be entitled to certain rights and
privileges set forth in the Purchase Agreement. This Note is one of the Notes
referred to as the "Bridge Notes" in the Purchase Agreement.
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees:
1. Definitions. As used in this Note, the following terms, unless the
context otherwise requires, have the following meanings:
(i) "Company" means RightStart.com Inc., a Delaware corporation
and includes any corporation which shall succeed to or assume the
obligations of the Company under this Note.
(ii) "Holder," when the context refers to a holder of this Note,
shall mean any person who shall at the time be the registered
holder of this Note.
<PAGE>
(iii) "Affiliate" of any Person means a Person (1) that directly
or indirectly controls, or is controlled by, or is under common
control with, such other Person, (2) that beneficially owns ten
percent (10%) or more of the Voting Stock of such other Person,
or (3) ten percent (10%) or more of the Voting Stock (or in the
case of a Person which is not a corporation, ten percent (10%) or
more of the equity interest) of which is owned by such other
Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
(iv) "Person" shall include an individual, a corporation, an
association, a partnership, a limited liability company, a trust
or estate, a government, foreign or domestic, and any agency or
political subdivision thereof, or any other entity.
(v) "Voting Stock" shall mean any equity security entitling the
holder of such security to vote at meetings of shareholders
except an equity security which entitles the holder of such
security to vote only upon the occurrence of some contingency,
unless that contingency shall have occurred and be continuing.
2. Interest. On October _____, 2000 or upon earlier repayment, the
Company shall pay interest at the rate of ten percent (10%) per annum
(the "Initial Interest Rate") on the principal of this Note
outstanding during the period beginning on the date of issuance of
this Note and ending on the date that the principal amount of this
Note becomes due and payable or is earlier repaid. The Company agrees
(to the extent it may lawfully do so) that it will not at any time
insist upon, plead or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive the Company from paying all
or a portion of the principal of or interest on this Note as
contemplated in this Note, wherever enacted, now or at any time later
in force, or that may materially affect the covenants or the
performance of this Note in any manner inconsistent with its
provisions. The Company expressly waives all benefit or advantage of
any such law, and will not hinder, delay or impede the execution of
any power granted to the Holders, but will suffer and permit the
execution of every such power as though no such law had been enacted.
If a court of competent jurisdiction prescribes that the Company may
not waive its rights to take the benefit or advantage of any stay or
extension law or any usury law or other law in accordance with the
prior sentence, then the obligation to pay interest on the Note shall
be reduced to the maximum legal limit under applicable law governing
the interest payable in connection with the Note, and any amount of
interest paid by the Company that is deemed illegal shall be deemed to
have been a prepayment of principal (without penalty or premium) on
the Note.
<PAGE>
3. Conversion.
3.1 Optional Conversion into Common Stock. This Note shall be
convertible at the option of the Holder, at any time prior to receipt of
notice from the Company of the Company's intent to repay in full this Note
(if this Note is actually paid in full within fifteen (15) days of the date
of such notice), into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing (i) the sum of (A) the principal
amount of this Note and (B) the amount of any accrued and unpaid interest
owing with respect to this Note on such date, by (ii) $0.25 (as adjusted
for splits and the like) (the "Conversion Price").
3.2 Mechanics of Optional Conversion. To convert this Note into shares
of Common Stock, the Holder shall give written notice to the Company (which
notice may be given by facsimile transmission) that such Holder elects to
convert the same and shall state therein the principal amount of this Note
and the name or names in which such Holder wishes the certificate or
certificates for shares of Common Stock to be issued. Promptly thereafter
the Holder shall surrender the certificate representing this Note, duly
endorsed, at the office of the Company, or at such other place designated
by the Company. The Company shall, immediately upon receipt of such
certificates, issue and deliver to or upon the order of such holder,
against delivery of the certificates representing this Note, a certificate
or certificates for the number of shares of Common Stock as applicable, to
which such holder shall be entitled. The Company shall promptly effect such
issuance and shall transmit the certificates promptly after the receipt of
such notice. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date such notice of conversion is
given. The Person or Persons entitled to receive the shares of Common
Stock, issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares at the close of business on
such date.
3.3 Fractional Shares. No fractional shares of Common Stock shall be
issued upon the conversion of this Note. If any conversion of this Note
would result in the issuance of a fraction of a share of Common Stock, the
Company shall, in lieu of issuing any fractional share, pay the Holder a
sum in cash equal to the product of (i) the Conversion Price and (ii) such
fraction.
3.4 Transferability of Common Stock Issued upon Conversion of a Note.
The Common Stock issued upon conversion of a Note may be transferred, or
divided into two or more certificates representing shares of Common Stock
of smaller denomination, subject to the same conditions imposed on transfer
of a Note set forth in Section 8 below.
4. Events of Default. If any of the events specified in this Section 4
shall occur (herein individually referred to as an "Event of
Default"), the entire principal and unpaid accrued interest on the
Notes shall become immediately due and payable:
<PAGE>
(i) Default in the payment of the principal and unpaid accrued
interest of the Notes when due and payable; or
(ii) The institution by the Company of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by it to
institution of bankruptcy or insolvency proceedings against it or
the filing by it of a petition or answer or consent seeking
reorganization or release under the federal Bankruptcy Act, or
any other applicable federal or state law, or the consent by it
to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee or other similar official
of the Company, or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors;
or
(iii) If, within ninety (90) days after the commencement of an
action against the Company (and service of process in connection
therewith on the Company) seeking any bankruptcy, insolvency,
reorganization, liquidation, dissolution or similar relief under
any present or future statute, law or regulation, such action
shall not have been resolved in favor of the Company or all
orders or proceedings thereunder affecting the operations or the
business of the Company shall not have been stayed, or if the
stay of any such order or proceeding shall thereafter be set
aside, or if, within ninety (90) days after the appointment
without the consent or acquiescence of the Company of any
trustee, receiver or liquidator of the Company or of all or any
substantial part of the properties of the Company, such
appointment shall not have been vacated.
5. Early Repayment. The Company may repay this Note in whole or in part
at any time after notice to the Holder at a price equal to the
principal amount of this Note being repaid plus accrued and unpaid
interest thereon. Upon receipt of notice of prepayment of this Note in
full to the holder hereof, such holder shall no longer be entitled to
convert this Note so long as prepayment in full is made by the Company
in accordance with the terms of this section within fifteen (15) days
of the date of such notice of prepayment. The Company shall provide
the Holder with not less than 3 days prior written notice of its
intent to make any such repayment which notice shall state (i) the
aggregate principal amount of this Note to be repaid, (ii) the accrued
principal to be paid, (iii) the date set for repayment, (iv) the place
where repayment will be made, (v) that, if this Note is being repaid
in part, new Notes in an aggregate principal amount equal to the
unrepaid portion of this Note will be issued to the Holder, (vi) that
this Note must be surrendered to receive the repayment amount and
(vii) that, unless the Company fails to make the amount necessary for
repayment of the Note available to this Holder, the Note will cease to
accrue interest on and after the date set for repayment. Upon
surrender of this Note after such notice for repayment, the Company
shall pay the Holders the amount set forth in such notice together
with accrued and unpaid principal thereon in accordance with Section
2. If the amount necessary for repayment of this Note has been made
<PAGE>
available to the Holder as set forth in such notice, this Note will
cease to accrue interest on and after the date set for repayment. Any
partial repayment of the Notes shall be made pro rata among the
holders of all of the Notes. Upon surrender of this Note for partial
repayment, the Company shall issue a new Note equal in aggregate
principal amount to the unrepaid portion of this Note so surrendered.
6. Assignment. Subject to the restrictions on transfer described in
Section 8 below, the rights and obligations of the Company and the
Holder of this Note shall be binding upon and benefit the successors,
assigns, heirs, administrators and transferees of the parties.
7. Waiver and Amendment. Any provision of this Note may be amended,
waived or modified upon the written consent of the Company and holders
of at least a majority of the aggregate outstanding principal amount
of all then outstanding Notes issued pursuant to the Purchase
Agreement. Notwithstanding the immediately preceding sentence,
however, this Note may not be amended without the Holder's consent if
such amendment would (i) reduce the rate at which interest accrues on
this Note, (ii) reduce the principal of this Note or change the fixed
maturity, (iii) waive a default in payment of principal of, or
interest on, this Note or (iv) amend this Section 7.
8. Restrictions on Transferability. The Notes shall not be transferable
except upon the conditions specified in this Section 8.
8.1 Transfer to an Affiliate. The Holder shall have the right
to transfer any Notes to any Affiliate of the Holder, in each case
free of the restrictions imposed by this Section 8 other than the
requirement as to the legending of the certificates for such Notes
specified in Section 8.3. No opinion of counsel shall be required
for a transfer of Notes to an Affiliate of the Holder.
8.2 Transfer to a Non-Affiliate. The Holder and his or her or
her subsequent transferees shall have the right to transfer any Note
to a non-Affiliate of Holder as follows:
(a) Prior to any transfer or attempted transfer of any Notes
to a non-Affiliate of Holder, the holder of such Note shall give
written notice to the Company of such holder's intention to
effect such transfer. Each such notice shall describe the manner
and circumstances of the proposed transfer in reasonable detail.
(b) Upon receipt of such notice, the Company may request an
opinion of counsel of a transferring holder to the effect that
such proposed transfer may be effected without registration under
the Securities Act. Upon receipt of such opinion, or if the
Company does not request such an opinion, within five (5)
Business Days after receiving notice of the proposed transfer,
the Company shall, as promptly as practicable, so notify the
holder of such Notes and such holder shall thereupon be entitled
to transfer such Notes in accordance with the terms of the notice
delivered by such holder to the Company. Each Note so transferred
<PAGE>
shall bear the restrictive legend set forth in Section 8.3,
unless in the opinion of the Company or the opinion of such
counsel, if requested, pursuant to Rule 144(k) of the Securities
Act or otherwise, such legend is not required in order to ensure
compliance with the Securities Act. The fees and expenses of
counsel for any such opinion shall be paid by the Company.
8.3 Restrictive Legend. Unless and until this Note has been
registered under the Securities Act, this Note and each Note issued
on partial repayment of this Note or issued to any transferee of any
such Note, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED
UNDER ANY STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS PURSUANT TO REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND ANY REQUIRED REGISTRATION OR
QUALIFICATION UNDER ANY STATE SECURITIES LAWS, OR THE PROPOSED
TRANSACTION DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER
FEDERAL OR STATE SECURITIES LAWS."
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, excluding that body of
law relating to conflict of laws.
10. Heading: References. All headings used herein are used for convenience only
and shall not be used to construe or interpret this Note. Except where
otherwise indicated, all references herein to Sections refer to Sections
hereof.
IN WITNESS WHEREOF, the Company has caused this Note to be issued this
22nd day of June, 2000.
RIGHTSTART.COM INC.
By: ______________________
Raymond Springer
Chief Financial Officer and Executive
Vice President
<PAGE>
Exhibit B
Form of Security Agreement
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement") dated as of June
22, 2000 is made among RightStart.com Inc. (the "Obligor") and the Lenders
referred to below.
The Secured Convertible Bridge Note Purchase Agreement dated
as of even date herewith (the "Bridge Note Purchase Agreement") between the
Obligor and the investors identified in the Bridge Note Purchase Agreement (the
"Lenders") provides, subject to its terms and conditions, for certain loans to
the Obligor. It is a condition to the obligations of the Lenders under the
Bridge Note Purchase Agreement that the Obligor executes and delivers, and
grants the Liens provided for in, this Agreement. The security interest created
by this Agreement, however, shall at all times be subject to that certain
Subordination and Intercreditor Agreement dated as of the date hereof by and
among the Company and the Lenders (the "Intercreditor Agreement").
To induce the Lenders to enter into, and to extend credit
under, the Bridge Note Purchase Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Obligor agrees to pledge and grant a security interest in the Collateral as
security for the Secured Obligations. Accordingly, the Obligor agrees with the
Lenders as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms. Unless otherwise defined, all capitalized terms used
in this Agreement that are defined in the Bridge Note Purchase Agreement or the
Bridge Notes (including terms incorporated by reference) shall have the
respective meanings assigned to them in the Bridge Note Purchase Agreement or
the Bridge Notes. In addition, the following terms shall have the following
meanings under this Agreement:
"Accounts" shall have the meaning assigned to that term in
Section 2.01(a).
"Basic Documents" shall mean the Bridge Note Purchase
Agreement, the Bridge Notes and this Agreement, collectively.
"Casualty Event" shall mean, with respect to any property of
any Person, any loss of or damage to, or any condemnation or other taking of,
such property for which such Person receives insurance proceeds, or proceeds of
a condemnation award or other compensation.
"Collateral" shall have the meaning assigned to that term in
Section 2.01.
"Copyright Collateral" shall mean all Copyrights, whether now
owned or in the future acquired by the Obligor.
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<PAGE>
"Copyrights" shall mean, collectively, (a) all copyrights,
copyright registrations and applications for copyright registrations, (b) all
renewals and extensions of all copyrights, copyright registrations and
applications for copyright registration and (c) all rights, now existing or in
the future coming into existence, (i) to all income, royalties, damages and
other payments (including in respect of all past, present or future
infringements) now or in the future due or payable under or with respect to any
of the foregoing, (ii) to sue for all past, present and future infringements
with respect to any of the foregoing and (iii) otherwise accruing under or
pertaining to any of the foregoing throughout the world.
"Documents" shall have the meaning assigned to that term in
Section 2.01(e).
"Equipment" shall have the meaning assigned to that term in
Section 2.01(d).
"Governmental Approvals" shall mean any authorization,
application, consent, approval, order, consent decree, license, franchise,
lease, ruling, permit, tariff, rate, certification, exemption, filing or
registration by or with any Governmental Authority.
"Governmental Authority" shall mean any government,
governmental or quasi-governmental department, ministry, commission, board,
bureau, agency, regulatory authority, instrumentality of any government (central
or local), judicial, legislative or administrative body, domestic or foreign,
federal, state or local, having jurisdiction over the Person or matter in
question.
"Instruments" shall have the meaning assigned to that term in
Section 2.01(b).
"Intellectual Property" shall mean all Copyright Collateral,
all Patent Collateral and all Trademark Collateral, together with (a) all
inventions, processes, production methods, proprietary information, know-how and
trade secrets; (b) all licenses or user or other agreements granted to the
Obligor with respect to any of the foregoing, in each case whether now or in the
future owned or used, including the licenses or other agreements with respect to
the Copyright Collateral, the Patent Collateral or the Trademark Collateral; (c)
all information, customer lists, identification of suppliers, data, plans,
blueprints, specifications, designs, drawings, recorded knowledge, surveys,
engineering reports, test reports, manuals, materials standards, processing
standards, performance standards, catalogs, computer and automatic machinery
software and programs; (d) all field repair data, sales data and other
information relating to sales or service of products now or in the future
manufactured; (e) all accounting information and all media in which or on which
any information or knowledge or data or records may be recorded or stored and
all computer programs used for the compilation or printout of that information,
knowledge, records or data; (f) all Governmental Approvals now held or in the
future obtained by the Obligor in respect of any of the foregoing; and (g) all
causes of action, claims and warranties now owned or in the future acquired by
the Obligor in respect of any of the foregoing. Intellectual Property shall
include all of the foregoing owned or acquired by the Obligor on a worldwide
basis.
"Inventory" shall have the meaning assigned to that term in
Section 2.01(c).
"Lien" shall mean, with respect to any property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such property or any agreement to give, or notice of, any of the foregoing.
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<PAGE>
"Obligations" means all obligation of every nature of Obligor
from time to time owed to Lenders under the Basic Documents or for fees or
expenses, reimbursements and indemnifications and other amounts due or to become
due thereunder. Time is of the essence in the performance of all Obligations,
except as otherwise expressly provided in the Basic Documents.
"Patent Collateral" shall mean all Patents, whether now owned
or in the future acquired by the Obligor.
"Patents" shall mean, collectively, (a) all patents and patent
applications, (b) all reissues, divisions, continuations, renewals, extensions
and continuations-in-part of all patents or patent applications and (c) all
rights, now existing or in the future coming into existence, (i) to all income,
royalties, damages, and other payments (including in respect of all past,
present and future infringements) now or in the future due or payable under or
with respect to any of the foregoing, (ii) to sue for all past, present and
future infringements with respect to any of the foregoing and (iii) otherwise
accruing under or pertaining to any of the foregoing throughout the world,
including all inventions and improvements described or discussed in all such
patents and patent applications.
"Secured Obligations" shall mean (a) any and all Obligations
and (b) any and all obligations of the Obligor for the performance of its
agreements, covenants and undertakings under or in respect of the Basic
Documents.
"Trademark Collateral" shall mean all Trademarks, whether now
owned or in the future acquired by the Obligor. Notwithstanding the foregoing,
the Trademark Collateral shall not include any Trademark that would be rendered
invalid, abandoned, void or unenforceable by reason of its being included as
part of the Trademark Collateral.
"Trademarks" shall mean, collectively, (a) all trade names,
trademarks and service marks, logos, trademark and service mark registrations
and applications for trademark and service mark registrations, (b) all renewals
and extensions of any of the foregoing and (c) all rights, now existing or in
the future coming into existence, (i) to all income, royalties, damages and
other payments (including in respect of all past, present and future
infringements) now or in the future due or payable under or with respect to any
of the foregoing, (ii) to sue for all past, present and future infringements
with respect to any of the foregoing and (iii) otherwise accruing under or
pertaining to any of the foregoing throughout the world, together, in each case,
with the product lines and goodwill of the business connected with the use of,
or otherwise symbolized by, each such trade name, trademark and service mark.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect in the State of California from time to time or, by reason of
mandatory application, any other applicable jurisdiction.
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<PAGE>
1.02 Interpretation. In this Agreement, unless otherwise indicated, the
singular shall include the plural and plural the singular; words importing any
gender shall include the other gender; references to statutes or regulations
shall be construed as including all statutory or regulatory provisions
consolidating, amending or replacing the statute or regulation referred to;
references to "writing" shall include printing, typing, lithography and other
means of reproducing words in a tangible visible form; the words "including"
"includes" and "include" shall be deemed to be followed by the words "without
limitation"; references to articles, sections (or subdivisions of sections),
exhibits, annexes or schedules are to this Agreement; references to agreements
and other contractual instruments shall be deemed to include all subsequent
amendments, extensions and other modifications to those instruments (without,
however, limiting any prohibition on any such amendments, extensions or
modifications by the terms of the Basic Documents); and references to Persons
shall include their respective successors and permitted assigns and, in the case
of Governmental Authorities, Persons succeeding to their respective functions
and capacities.
ARTICLE II
COLLATERAL
2.01 Grant. As collateral security for the prompt payment in full when due
(whether at stated maturity, upon acceleration, on any optional or mandatory
prepayment date or otherwise) and performance of the Secured Obligations, the
Obligor hereby pledges and grants to the Lenders, a security interest in all of
the Obligor's right, title and interest in and to the following property,
whether now owned or in the future acquired by the Obligor and whether now
existing or in the future coming into existence (collectively, the
"Collateral"):
(a) all accounts and general intangibles (each as defined in the
Uniform Commercial Code) of the Obligor constituting a right to the payment
of money, whether or not earned by performance, including all moneys due
and to become due to the Obligor in repayment of any loans or advances, in
payment for goods (including Inventory and Equipment) sold or leased or for
services rendered, in payment of tax refunds and in payment of any
guarantee of any of the foregoing (collectively, the "Accounts");
(b) all instruments, chattel paper or letters of credit (each as
defined in the Uniform Commercial Code) of the Obligor evidencing,
representing, arising from or existing in respect of, relating to, securing
or otherwise supporting the payment of, any of the Accounts (collectively,
the "Instruments");
(c) all inventory (as defined in the Uniform Commercial Code) and all
other goods of the Obligor that are held by the Obligor for sale, lease or
furnishing under a contract of service (including to its Affiliates), that
are so leased or furnished or that constitute raw materials, work in
process or material used or consumed in its business, including all spare
parts and related supplies, all goods obtained by the Obligor in exchange
for any such goods, all products made or processed from any such goods and
all substances, if any, commingled with or added to any such goods
(collectively, the "Inventory");
(d) all equipment (as defined in the Uniform Commercial Code) and all
other goods of the Obligor that are used or acquired for use primarily in
its business, including all spare parts and related supplies, all goods
obtained by the Obligor in exchange for any such goods, all substances, if
any, commingled with or added to those goods and all upgrades and other
improvements to those goods, in each case to the extent not constituting
Inventory (collectively, the "Equipment");
5
<PAGE>
(e) all documents of title (as defined in the Uniform Commercial Code)
or other receipts of the Obligor covering, evidencing or representing
Inventory or Equipment (collectively, the "Documents");
(f) all contracts and other agreements of the Obligor relating to the
sale or other disposition of all or any part of the Inventory, Equipment or
Documents and all rights, warranties, claims and benefits of the Obligor
against any Person arising out of, relating to or in connection with all or
any part of the Inventory, Equipment or Documents of the Obligor, including
any such rights, warranties, claims or benefits against any Person storing
or transporting any such Inventory or Equipment or issuing any such
Documents;
(g) all other accounts or general intangibles of the Obligor not
constituting Accounts, including, to the extent related to all or any part
of the other Collateral, all books, correspondence, credit files, records,
invoices, tapes, cards, computer runs and other papers and documents in the
possession or under the control of the Obligor or any computer bureau or
service company from time to time acting for the Obligor;
(h) all other tangible and intangible property of the Obligor,
including all Intellectual Property; and
i) all proceeds and products in whatever form of all or any part of
the other Collateral, including all proceeds of insurance and all
condemnation awards and all other compensation for any Casualty Event with
respect to all or any part of the other Collateral (together with all
rights to recover and proceed with respect to the same), and all
accessories to, substitutions for and replacements of all or any part of
the other Collateral.
2.02 Perfection. Concurrently with the execution and delivery of this
Agreement, the Obligor will (i) file such financing statements and other
documents in such offices as are necessary or as the Lenders may reasonably
request to perfect and establish the priority of the Liens granted by this
Agreement, (ii) deliver and pledge to the Lenders any and all Instruments,
endorsed or accompanied by such instruments of assignment and transfer in such
form and substance as the Lenders may request, and (iii) take all such other
actions as are necessary or as the Lenders may request to perfect and establish
the priority of the Liens granted by this Agreement.
2.03 Preservation and Protection of Security Interests. The Obligor will
give, execute, deliver, file or record any and all financing statements,
notices, contracts, agreements or other instruments, obtain any and all
Governmental Approvals and take any and all steps that may be necessary or as
the Lenders reasonably may request to create, perfect, establish the priority
of, or to preserve the validity, perfection or priority of, the Liens granted by
this Agreement or to enable the Lenders to exercise and enforce their rights,
remedies, powers and privileges under this Agreement with respect to those
Liens.
2.04 Use of Intellectual Property. So long as no Event of Default has
occurred and is continuing, the Obligor shall be permitted to exploit, use,
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<PAGE>
enjoy, protect, license, sublicense, assign, sell, dispose of or take other
actions with respect to the Intellectual Property in the ordinary course of the
business of the Obligor. In furtherance of the foregoing, so long as no Event of
Default has occurred and is continuing, the Lenders will from time to time, upon
the request of the Obligor, execute and deliver any instruments, certificates or
other documents, in the form so requested, which such Obligor certifies are
appropriate (in its judgment) to allow them to take any action permitted above.
The exercise of rights, remedies, powers and privileges under Section 5.01 by
the Lenders shall not terminate the rights of the holders of any licenses or
sublicenses previously granted by the Obligor in accordance with the first
sentence of this Section 2.05.
2.05 Instruments. So long as no Event of Default has occurred and is
continuing, the Obligor may retain for collection in the ordinary course of
business any Instruments obtained by it in the ordinary course of business, and
the Lenders will, promptly upon the request, and at the expense of, the Obligor,
make appropriate arrangements for making any Instruments pledged by the Obligor
available to the Obligor for purposes of presentation, collection or renewal.
Any such arrangement shall be effected, to the extent deemed appropriate by the
Lenders, against a trust receipt or like document.
2.06 Use of Collateral. So long as no Event of Default has occurred and is
continuing, the Obligor shall, in addition to its rights under Sections 2.05 and
2.06, in respect of the Collateral contemplated in those sections, be entitled
to use and possess the other Collateral and to exercise its rights, title and
interest in all contracts, agreements, licenses and Governmental Approvals,
subject to the rights, remedies, powers and privileges of the Lenders under
Article V and to that use, possession or exercise not otherwise constituting an
Event of Default.
2.07 Rights and Obligations.
(a) The Obligor shall remain liable to perform its duties and
obligations under the contracts and agreements included in the Collateral
in accordance with their respective terms to the same extent as if this
Agreement had not been executed and delivered. The exercise by the Lender
of any right, remedy, power or privilege in respect of this Agreement shall
not release the Obligor from any of its duties and obligations under those
contracts and agreements. No Lender shall have any duty, obligation or
liability under those contracts and agreements or in respect to any
Governmental Approval included in the Collateral by reason of this
Agreement or any other Basic Document, nor shall any Lender be obligated to
perform any of the duties or obligations of the Obligor under any such
contract or agreement or any such Governmental Approval or to take any
action to collect or enforce any claim (for payment) under any such
contract or agreement or Governmental Approval.
(b) No Lien granted by this Agreement in the Obligor's right, title
and interest in any contract, agreement or Governmental Approval shall be
deemed to be a consent by any Lender to any such contract, agreement or
Governmental Approval.
(c) No reference in this Agreement to proceeds or to the sale or other
disposition of Collateral shall authorize the Obligor to sell or otherwise
dispose of any Collateral.
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<PAGE>
(d) No Lender shall be required to take steps necessary to preserve
any rights against prior parties to any part of the Collateral.
2.08 Termination. When all Secured Obligations have been paid in full, this
Agreement shall automatically terminate, and the Lenders will forthwith cause to
be assigned, transferred and delivered, against receipt but without any
recourse, warranty or representation whatsoever, any remaining Collateral and
money received in respect of the Collateral, to or on the order of the Obligor.
The Lenders will also execute and deliver to the Obligor upon that termination
such Uniform Commercial Code termination statements and such other documentation
as is reasonably requested by the Obligor to effect the termination and release
of the Liens granted by this Agreement on the Collateral.
ARTICLE III
REPRESENTATIONS
As of the date hereof and as of the date of each extension of
credit by the Lenders, the Obligor represents and warrants to each Lender as
follows:
3.01 Title. The Obligor is the sole beneficial owner of the Collateral in
which it purports to grant a Lien pursuant to this Agreement, and the Collateral
is free and clear of all Liens, except for the Liens granted by this Agreement,
and Liens granted under the Security Agreement dated as of April 18, 2000, as
amended, between the Company and the other parties listed therein (the "Existing
Security Agreement"), and any Lien permitted to be prior to such granted Liens
in the following sentence. The Liens granted by this Agreement in favor of the
Lenders have attached and constitute a perfected security interest in all of
that collateral (other than Intellectual Property registered or otherwise
located outside of the United States of America) prior to all other Liens (other
than the Liens pursuant to the Existing Security Agreement and Liens imposed for
taxes, assessments or charges not yet due or which are being contested in good
faith; carriers', mechanics', warehouseman's, artisans', service suppliers',
depositaries' or other like Liens; pledges or deposits in respect of workers'
compensation, unemployment insurance and other social security legislation;
Liens to secure performance contracts, leases, statutory obligations, surety and
appeal bonds and other like obligations; easements, rights or way, restrictions
and other similar encumbrances; Liens to secure purchase money indebtedness; and
any extension renewal or replacement of any such Liens).
ARTICLE IV
COVENANTS
4.01 Books and Records. The Obligor will:
(a) keep full and accurate books and records relating to the
Collateral and stamp or otherwise mark those books and records in such
manner as the Lenders reasonably may require in order to reflect the Liens
granted by this Agreement;
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(b) prior to filing, either directly or through an administrative
agent, licensee or other designee, any application for any Copyright,
Patent or Trademark, furnish to the Lenders prompt notice of that proposed
filing; and
(c) permit representatives of the Lenders, upon reasonable notice, at
any time during normal business hours to inspect and make abstracts from
its books and records pertaining to the Collateral, permit representatives
of the Lenders to be present at the Obligor's place of business to receive
copies of all communications and remittances relating to the Collateral and
forward copies of any notices or communications received by the Obligor
with respect to the Collateral, all in such manner as the Lenders may
request.
4.02 Removals, Etc. Without at least 30 days' prior written notice to the
Lenders, the Obligor will not (i) maintain any of its books and records with
respect to the Collateral at any office or maintain its principal place of
business at any place, or permit any Inventory or Equipment to be located
anywhere, other than at the address initially indicated for notices to it under
Section 6.02 or at the warehouse in Pennsylvania at which it currently keeps
Inventory and Equipment or in transit from one of those locations to another or
(ii) change its corporate name, or the name under which it does business, from
the name shown on the signature pages to this Agreement.
4.03 Sales and Other Liens. Except with the authorization of the Lenders as
specified in Section 6.01, the Obligor will not dispose of any Collateral,
create, incur, assume or suffer to exist any Lien upon any Collateral or file or
suffer to be on file or authorize to be filed, in any jurisdiction, any
financing statement or like instrument with respect to all or any part of the
Collateral in which the Lenders are not named as the sole secured parties.
4.04 Further Assurances. The Obligor will, from time to time upon the
written request of the Lenders, execute and deliver such further documents and
do such other acts and things as the Lenders may reasonably request in order
fully to effect the purposes of this Agreement.
ARTICLE V
REMEDIES
5.01 Events of Default, Etc. If any Event of Default has occurred and is
continuing:
(a) The Lenders in their discretion may require the Obligor to, and
the Obligor will, assemble the Collateral owned by it at such place or
places, reasonably convenient to both the Lenders and the Obligor,
designated in the Lenders request;
(b) the Lenders in their discretion may make any reasonable compromise
or settlement it deems desirable with respect to any of the Collateral and
may extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, all or any part of the Collateral;
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(c) the Lenders in their discretion may, in its name or in the name of
the Obligor or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange for
all or any part of the Collateral, but shall be under no obligation to do
so;
(d) the Lenders in their discretion may, upon 5 business days' prior
written notice to the Obligor of the time and place, sell, lease or
otherwise dispose of all or any part of the Collateral that is then in or
subsequently comes into the possession, custody or control of any other
Lender or any of their respective agents, at such place or places as the
Lenders deem best, for cash, for credit or for future delivery (without
thereby assuming any credit risk) and at public or private sale, without
demand of performance or notice of intention to effect any such disposition
or of the time or place of any such sale (except such notice as is required
above or by applicable statute and cannot be waived), and any Lender or any
other Person may be the purchaser, lessee or recipient of all or any part
of the Collateral so disposed of at any public sale (or, to the extent
permitted by law, at any private sale) and thereafter hold the same
absolutely, free from any claim or right of whatsoever kind, including any
right or equity of redemption (statutory or otherwise), of the Obligor, and
the Obligor hereby waives and releases any such demand, notice and right or
equity. In the event of any sale, license or other disposition of any of
the Trademark Collateral, the goodwill connected with and symbolized by the
Trademark Collateral subject to that disposition shall be included, and the
Obligor will supply to the Lenders or their designee, for inclusion in that
sale, assignment or other disposition, all Intellectual Property relating
to that Trademark Collateral. The Lenders may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
the sale, and that sale may be made at any time or place to which the sale
may be so adjourned; and
(e) the Lenders shall have, and in their discretion may exercise, all
of the rights, remedies, powers and privileges with respect to the
Collateral of a secured party under the Uniform Commercial Code (whether or
not the Uniform Commercial Code is in effect in the jurisdiction where
those rights, remedies, powers and privileges are asserted) and such
additional rights, remedies, powers and privileges to which a secured party
is entitled under the laws in effect in any jurisdiction where any rights,
remedies, powers and privileges in respect of this Agreement or the
Collateral may be asserted, including the right, to the maximum extent
permitted by law, to exercise all voting, consensual and other powers of
ownership pertaining to the Collateral as if the Lenders were the sole and
absolute owners of the Collateral (and the Obligor will take all such
action as may be appropriate to give effect to that right).
The proceeds of, and other realization upon, the Collateral by
virtue of the exercise of remedies under this Section 5.01 shall be applied in
accordance with Section 5.04.
5.02 Deficiency. If the proceeds of, or other realization upon, the
Collateral by virtue of the exercise of remedies under Section 5.01 are
insufficient to cover the costs and expenses of that exercise and the payment in
full of the other Secured Obligations, the Obligor shall remain liable for any
deficiency.
5.03 Private Sale. No Lender shall incur any liability as a result of the
sale, lease or other disposition of all or any part of the Collateral at any
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private sale pursuant to Section 5.01 conducted in a commercially reasonable
manner. The Obligor hereby waives any claims against any Lender that may arise
by reason of the fact that the price at which the Collateral may have been sold
at such a private sale was less than the price that might have been obtained at
a public sale or was less than the aggregate amount of the Secured Obligations,
even if the Lenders accept the first offer received and do not offer the
Collateral to more than one offeree.
5.04 Application of Proceeds. Except as otherwise expressly provided in
this Agreement and subject to the Intercreditor Agreement, the proceeds of, or
other realization upon, all or any part of the Collateral by virtue of the
exercise of remedies under Section 5.01 and any other cash at the time held by
the Lenders under Section 5.01 shall be applied by the Lenders:
First, to the payment of the costs and expenses of that
exercise of remedies, including reasonable out-of-pocket costs and expenses of
the Lenders, the fees and expenses of its agents and counsel and all other
expenses incurred and advances made by the Lenders in that connection;
Next, to the payment in full of the remaining Secured
Obligations equally and ratably in accordance with their respective amounts then
due and owing or as the Lenders holding the same may otherwise agree; and
Finally, subject to the rights of the other holder of any Lien
in the relevant Collateral, to the payment to the Obligor or as a court of
competent jurisdiction may direct of any surplus then remaining.
As used in this Section 5, "proceeds" of Collateral shall mean
cash, securities and other property realized in respect of, and distributions in
kind of, Collateral, including any property received under any bankruptcy,
reorganization or other similar proceeding as to the Obligor or any issuer of,
or account debtor or other obligor on, any of the Collateral.
ARTICLE VI
MISCELLANEOUS
6.01 Administration. Action permitted to be taken by Lenders under
this Agreement shall be permitted to be taken only upon approval of Lenders
holding not less than a majority of the aggregate outstanding principal amount
of the Bridge Notes.
6.02 Notices. All notices, requests and other communications provided for
in this Agreement shall be given or made in writing and delivered by hand or
courier service, mailed by certified or registered mail or sent by telecopy to
the intended recipient as specified below or, as to any party, at such other
address as is designated by that party in a notice to each other party. Except
as otherwise provided in this Agreement, all such communications shall be deemed
to have been duly given or made upon receipt.
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To the Obligor: RightStart.com Inc.
5388 Sterling Center Drive, Unit C
Westlake Village, CA 91361
Telephone: 818.707.7100
Telecopy: 818.707.7132
Attention: President and General Counsel
To the Lenders: At the address set forth in the Purchase Agreement.
6.03 Expenses, Etc. The Obligor will pay all out-of-pocket expenses
(including reasonable counsels' fees and expenses) of each Lender in connection
with any enforcement or collection proceeding (including any bankruptcy,
reorganization, restructuring, "work out" or other similar proceeding) as to any
of the obligations of the Obligor under this Agreement, the negotiation of any
restructuring or "work out"(whether or not consummated) or the enforcement of
this Section 6.03. All amounts due under this Agreement not paid when due shall
bear interest until paid at a rate per annum equal to the post-default rate
under the Bridge Notes.
6.04 Waiver. No failure or delay by any Lender in exercising any remedy,
right, power or privilege under this Agreement or any other Basic Document shall
operate as a waiver of that remedy, right, power or privilege, nor shall any
single or partial exercise of that remedy, right, power or privilege preclude
any other or further exercise of that remedy, right, power or privilege or the
exercise of any other remedy, right, power or privilege. The remedies, rights,
powers and privileges provided by this Agreement are cumulative and not
exclusive of any remedies, rights, powers or privileges provided by the other
Basic Documents or by law.
6.05 Amendments, Etc. No provision of this Agreement may be waived,
modified or supplemented except by an instrument in writing signed by the
Obligor and the Lenders (as specified in Section 6.01). Any modification,
supplement or waiver shall be for such period and subject to such conditions as
shall be specified in the written instrument effecting the same and shall be
binding upon each Lender and the Obligor, and any such waiver shall be effective
only in the specific instance and for the purpose for which given.
6.06 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of its parties and their respective successors and assigns.
The Obligor may not assign or transfer its rights or obligations under this
Agreement without the prior written consent of the Lenders (as specified in
Section 6.01).
6.07 Survival. Each representation and warranty made, or deemed to be made
by a notice of any extension of credit, in or pursuant to this Agreement shall
survive the making or deemed making of that representation and warranty, and no
Lender shall be deemed to have waived, by reason of making any extension of
credit, any Event of Default that may arise by reason of that representation or
warranty proving to have been false or misleading, notwithstanding that such or
any other Lender may have had notice or knowledge or reason to believe that such
representation or warranty was false or misleading at the time that extension of
credit was made.
6.08 Agreements Superseded. This Agreement supersedes all prior agreements
and understandings, written or oral, among the parties with respect to the
subject matter of this Agreement.
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6.09 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of that prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable that provision in any other jurisdiction.
6.10 Captions. The table of contents, captions and section headings
appearing in this Agreement are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of that taken together shall constitute one and the same
instrument, and any of the parties to the Agreement may execute this Agreement
by signing any such counterpart. Delivery of an executed counterpart of a
signature page to this Agreement by hand or by telecopy shall be effective as
the delivery of a fully executed counterpart of this Agreement.
6.12 Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF
CALIFORNIA. THE OBLIGOR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE
UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA AND OF ANY
CALIFORNIA STATE COURT SITTING IN LOS ANGELES, CALIFORNIA FOR THE PURPOSES OF
ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE OBLIGOR IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
IN THE FUTURE HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
6.13 Waiver of Jury Trial. THE OBLIGOR AND THE LENDERS HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
RIGHTSTART.COM INC.
By:
--------------------------------------
Raymond Springer
Chief Financial Officer and Executive Vice
President
By:
--------------------------------------
Fred Kayne
KAYNE ANDERSON CAPITAL
PARTNERS, L.P.
By:
--------------------------------------
Name: Richard Kayne
Title: President
ARBCO ASSOCIATES, L.P.
By:
--------------------------------------
Name: Richard Kayne
Title: President
KAYNE ANDERSON DIVERSIFIED
CAPITAL PARTNERS, L.P.
By:
--------------------------------------
Name: Richard Kayne
Title: President
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KAYNE ANDERSON NON-TRADITIONAL
INVESTMENTS, L.P.
By:
--------------------------------------
Name: Richard Kayne
Title: President
KAYNE ANDERSON OFFSHORE LIMITED
By:
--------------------------------------
Name: David Shladovsky
Title: General Counsel and Secretary
PALOMAR VENTURES I, L.P.
By:
--------------------------------------
GUIDANCE SOLUTIONS, INC.
By:
--------------------------------------
Name: Gary Burnison
Title: Chief Financial Officer
Address: 4234 Del Rey Avenue
Marina del Rey, CA 90292
SIERRA VENTURES VII, L.P.
By:
--------------------------------------
Address: 3000 Sand Hill Road
Menlo Park, CA 94025
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SIERRA VENTURES ASSOCIATES VII, L.L.C.
By:
--------------------------------------
Address: 3000 Sand Hill Road
Menlo Park, CA 94025
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