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 BRIDGE NOTE
Westlake Village, California
April 18, 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 Fred Kayne
("Holder"), or its registered assigns, the sum of ONE MILLION Dollars
($1,000,000), 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 18, 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 Bridge Note and
Warrant Purchase Agreement between the Company and the Investors named therein,
dated as of April 18, 1999, 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) "Contingent Warrants" shall have the meaning ascribed to that term
in the Purchase Agreement.
(v) "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.
(vi) "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 18, 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.
3. Events of Default. If any of the events specified in this Section 3
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.
Upon an Event of Default under Section 3(i), the Company shall, to the
extent it has not already done so, issue to the Holder of this Note,
Contingent Warrants to purchase a number of shares of the Company's
common stock, par value $.01 per share, equal to the aggregate principal
amount of this Note with respect to which such Event of Default exists
multiplied by the quotient of (i) 12,000,000 divided by (ii) $3,000,000.
4. 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. 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 an 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
<PAGE>
repayment of this Note has been made available to the Holder as set
forth in such notice, this Note will cease to accrue interest on an
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.
5. Assignment. Subject to the restrictions on transfer described in Section
6 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.
6.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 6.
7.Restrictions on Transferability. The Notes shall not be transferable
except upon the conditions specified in this Section 7.
7.1 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 7 other than the
requirement as to the legending of the certificates for such Notes
specified in Section 7.3. No opinion of counsel shall be required for
a transfer of Notes to an Affiliate of the Holder.
7.2 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
<PAGE>
the Company. Each Note so transferred shall bear the restrictive
legend set forth in Section 6.3, 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.
7.3 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."
8. 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.
9. 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
18th day of April, 2000.
RIGHTSTART.COM INC.
By: /s/Jerry R. Welch
---------------------
Jerry R. Welch
President and Chief Executive Officer
Name of Holder: Fred Kayne
Address: c/o Fortune Financial
1800 Avenue of the Stars, Suite 1112
Los Angeles, California 90067
