Exhibit 1
THE RIGHT START, INC.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
April 6, 1998
To each of the parties listed
on the signature pages hereto
Gentlemen:
This letter agreement (the "Letter Agreement") is entered into by and among
The Right Start, Inc., a California corporation (the "Company"); ARBCO
Associates, L.P., ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Non-Traditional Investments, L.P., ▇▇▇▇▇
▇▇▇▇▇▇▇▇ Offshore Limited, Offense Group Associates, L.P., and Opportunity
Associates, L.P., (collectively, the "Purchasers"); Strategic Associates, L.P.
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Strategic Partners Fund, L.P., holders of the Company's
Convertible Debentures dated October 11, 1996, as amended on May 30, 1997, in
the aggregate original principal amount of $3,000,000 (the "Convertible
Debentures") (collectively, the "Debenture Holders"); and ▇▇▇▇ ▇▇▇▇▇, an
individual, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Non-Traditional Investments, L.P., ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Offshore Limited, ▇▇▇▇▇▇ ▇. ▇▇▇▇ & Company Money Purchase Plan, ARBCO
Associates, L.P., Offense Group Associates, L.P., Opportunity Associates, L.P.,
Strategic Associates, L.P., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, an individual, The Travelers
Indemnity Company, and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Strategic Partners Fund, L.P., holders of
the Company's 11.5% Senior Subordinated Notes due May 6, 2000 in the aggregate
original principal amount of $3,000,000 (the "Senior Notes") and warrants to
purchase shares of the Company's common stock issued in connection with the
Senior Notes (the "Senior Notes Warrants," and together with the Senior Notes,
the "Senior Notes Securities") (collectively, the "Noteholders"). The Senior
Notes Securities and the Convertible Debentures are collectively referred to
herein as the "Existing Securities." The Noteholders and the Debenture Holders
are collectively referred to herein as the "Existing Securityholders."
The parties hereby agree, subject to the terms and conditions set forth in
this Letter Agreement, that (a) the Company will issue, and the Purchasers will
purchase for an aggregate purchase price of $3,500,000, the Company's Senior
Subordinated Notes due May 6, 2000 (the "New Notes") having an aggregate
principal amount of $3,500,000 and warrants to purchase 3,500,000 shares of the
Company's common stock (the "New Warrants," and together with the New Notes, the
"New Securities"), on the same terms as the Senior Notes and Senior Notes
Warrants, respectively, except that no interest will be payable or accrue with
respect to the New Notes and the New Warrants will be exercisable at $1.00 per
share, subject to adjustment, and (b) the Existing Securityholders will exchange
their Existing Securities for the Preferred Stock (as defined below).
1. Purchase of New Securities
--------------------------
(a) Subject to the conditions set forth in Section 1(b) and the rights of
each Existing Securityholder (other than a Purchaser) set forth in Section 1(c)
of this Letter Agreement, the Company
agrees to issue, and the Purchasers agree to purchase on April 10, 1998 (the
"Funding Date") New Securities for an aggregate purchase price of $3,500,000, in
the allocations set forth in Schedule I hereto (or in such other allocations as
may be agreed upon by each affected Purchaser). Each New Note shall mature and
be payable upon the same terms as the Senior Notes and subject to the conditions
set forth in this Letter Agreement. In connection with the Recapitalization (as
defined below), each Purchaser agrees to exchange its New Securities for shares
of Series C Preferred Stock as provided below.
(b) The obligations of the Purchasers to purchase, and the Company to
issue, the New Securities on the Funding Date shall be subject to the prior
satisfaction of the following:
(1) the agreement by all of the Existing Securityholders to exchange
their Existing Securities for the Preferred Stock as contemplated herein;
(2) the waiver by all of the Existing Securityholders of their rights
to receive any and all interest payments accrued and owing after February
28, 1998, under the Existing Debt;
(3) the approval by the Board of Directors, including the affirmative
vote of each"disinterested" director on or prior to April 7, 1998, of the
transactions contemplated by this Letter Agreement; and
(4) the receipt by the Board of Directors of the Company of a favorable
opinion rendered by a qualified investment bank as to the fairness of the
Recapitalization, from a financial point of view, to the Company and its
shareholders.
(c) Each Existing Securityholder (other than a Purchaser) shall have the
right to purchase New Securities on the same terms, and subject to the same
conditions, as the Purchasers. Any such Existing Securityholder electing to
purchase New Securities should indicate on the signature page hereof the
principal amount of New Notes (and corresponding number of New Warrants) such
Existing Securityholder desires to purchase; provided that the aggregate
principal amount purchasable by such Existing Securityholder shall not exceed
$3,500,000 (the maximum aggregate principal amount of New Notes to be issued)
multiplied by a fraction equal to (a) the aggregate principal amount of
Convertible Debentures and Senior Notes held by such Existing Securityholder
divided by (b) $6,000,000 (the aggregate principal amount of Convertible
Debentures and Senior Notes held by all Existing Securityholders). To the extent
any such Existing Securityholder elects to purchase New Securities, the
aggregate principal amount of New Notes and corresponding number of New Warrants
to be purchased by the Purchasers shall be reduced on a pro rata basis.
2. Recapitalization
----------------
As soon as reasonably practicable after the Funding Date, the Company
agrees, in consideration for the purchase of the New Securities, to undertake,
and the Purchasers and the Existing Securityholders agree to participate in, the
recapitalization of the Company (the "Recapitalization") as described herein.
The Recapitalization shall include the following and shall be undertaken in the
order set forth below:
(a) The Company shall seek approval for and effect an amendment to the
Company's Articles of Incorporation (the "Charter Amendment") and obtain all
other authorization necessary to issue Preferred Stock in connection with the
Recapitalization, with sufficient number of shares of each series of Preferred
Stock to accommodate the Recapitalization. The Charter Amendment also may
provide for the authorization of the Board of Directors to issue additional
shares of preferred stock from time to time after the Recapitalization, with the
rights, preferences, privileges and other terms of such additional shares
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to be determined by the Board of Directors, subject to the voting rights of
holders of the Preferred Stock. The Preferred Stock to be authorized in
connection with the Recapitalization shall include each of the following series:
(1) Series A Preferred Stock, par value $0.01 per share, which shall
have the rights, preferences, privileges, limitations and restrictions set
forth on Exhibit A attached hereto and incorporated herein by reference
(the "Series A Preferred Stock");
(2) Series B Preferred Stock, par value $0.01 per share, which shall
have the rights, preferences, privileges, limitations and restrictions set
forth on Exhibit B attached hereto and incorporated herein by reference
(the "Series B Preferred Stock" and together with the Series A Preferred
Stock, the "Preferred Stock"); and
(3) Series C Preferred Stock, par value $0.01 per share, which shall
have the rights, preferences, privileges, limitations and restrictions set
forth on Exhibit C attached hereto and incorporated herein by reference
(the "Series C Preferred Stock").
(b) The Company shall undertake the following simultaneous exchanges:
(1) an exchange whereby all Existing Securityholders shall exchange
their Existing Securities in the aggregate principal amount of $6,000,000,
for either Series A Preferred Stock and/or Series B Preferred Stock (the
"Preferred Stock Exchange"), as elected by each of the Existing
Securityholders on the signature page hereof, having an aggregate
preference upon liquidation ("Liquidation Preference") equal to the
aggregate principal amount of the Senior Notes and Convertible Debentures
so exchanged therefor; and
(2) the Company shall undertake an exchange whereby all holders of the
New Securities shall exchange their New Securities, in the aggregate
principal amount of $3,500,000, for Series C Preferred Stock having an
aggregate Liquidation Preference equal to the aggregate principal amount of
New Notes so exchanged therefor.
3. Exchange of Existing Securities for Preferred Stock
---------------------------------------------------
(a) After the Funding Date, each of the Existing Securityholders agrees as
follows:
(1) to exchange the Existing Securities for Series A Preferred Stock
and/or Series B Preferred Stock, as elected by each of the Existing
Securityholders on the signature pages hereof;
(2) to waive their right to receive any and all interest payments
accrued and owing after February 28, 1998, under the Existing Debt; and
(3) if the Company is unable to issue the Preferred Stock within two-
hundred forty (240) days after the Funding Date for reasons outside of the
control of the Company or the Purchasers, to subordinate the Senior Notes
and Convertible Debentures to the New Notes.
4. Covenants
---------
(a) Each party to this Letter Agreement hereby covenants and agrees as
follows:
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(1) to execute each of the documents the Company reasonably deems
necessary or desirable to effect the above-described transactions
including, without limitation, a registration rights agreement providing
that upon the request of a majority of the holders of the Series B
Preferred Stock or the Series C Preferred Stock, the Company will file a
shelf registration statement with respect to the shares of the Company's
common stock issuable upon conversion of such Preferred Stock;
(2) to use its reasonable best efforts to obtain all regulatory and
third party approvals as quickly as reasonably practicable, including the
approval of the Company's shareholders, necessary to consummate each of the
transactions contemplated by this Letter Agreement; and
(3) to vote their respective holdings of the Company's common stock in
favor of the transactions contemplated by this Letter Agreement, including
but not limited to the authorization of the Preferred Stock.
5. Representations and Warranties of the Existing Securityholders and the
----------------------------------------------------------------------
Purchasers
----------
Each Existing Securityholder and Purchaser represents and warrants for
itself with respect to the exchange of the Existing Securities or the New
Securities for Preferred Stock, as the case may be, that:
(a) such person or entity is an "accredited investor" within the meaning of
Rule 501 of Regulation D promulgated under the Securities Act and was not
organized for the specific purpose of acquiring such securities;
(b) such person or entity has sufficient knowledge and experience so as to
be able to evaluate the risks and merits of investment in the Company, and it is
able financially to bear the risks thereof;
(c) such securities are being acquired for investment purposes for such
person's or entity's own account, without a view to or for resale in connection
with, any distribution thereof, and such person or entity has no present
intention of selling or otherwise distributing the same in violation of the
Securities Act of 1933, as amended (the "Securities Act");
(d) such person or entity has been furnished with or given access to all
information which such person or entity considers necessary relating to the
Company and such securities and all information which such person or entity has
requested, and such person or entity has been afforded the opportunity to meet
with the management of the Company in order to ask all questions and receive all
answers as such person or entity has requested; and
(e) all actions necessary for the authorization, execution, delivery and
performance by such person or entity or entity of this Letter Agreement and the
consummation by it of the transactions contemplated herein have been taken. This
Letter Agreement is a valid and binding obligation of such person or entity,
enforceable in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization and moratorium laws and other laws of
general application affecting the enforcement of creditors' rights generally.
6. Miscellaneous
-------------
This Letter Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to its principles
of conflict of laws.
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This Letter Agreement constitutes and expresses the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings, inducements, commitments or
conditions, express or implied, oral or written, except as herein contained.
The express terms hereof control and supersede any course of performance or
usage of the trade inconsistent with any of the terms hereof. Neither this
Letter Agreement nor any portion or provision hereof may be changed, altered,
modified, supplemented, discharged, cancelled, terminated, or amended orally or
in any manner other than by an agreement, in writing signed by the parties
hereto.
The provisions of this Letter Agreement are independent of and separable
from each other. If any provision hereof shall for any reason be held invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
or enforceability of any other provision hereof, but this Letter Agreement shall
be construed as if such invalid or unenforceable provision had never been
contained herein.
This Letter Agreement may be executed in any number of counterparts, each
of which shall be an original and all of which, when taken together, shall
constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our agreement,
please so indicate by having an authorized representative sign this Letter
Agreement in the appropriate space provided below, make the required election of
either the Series A Preferred Stock or the Series B Preferred Stock and return
to us this Letter Agreement on or prior to April 6, 1998, whereupon this Letter
Agreement and your acceptance shall represent a binding agreement between you
and the Company with respect to the matters set forth herein; provided, however,
if each of the conditions set forth in Section 1(b) have not been satisfied (or
waived by the Purchasers or the Company, as the case may be) on or prior to the
Funding Date, this Letter Agreement shall be null and void and no party hereto
shall have any rights or obligations hereunder.
THE RIGHT START, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Financial Officer and Vice
President of Finance and Administration
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AGREED TO AND ACCEPTED AS OF THE DATE
FIRST SET FORTH ABOVE
ARBCO ASSOCIATES, L.P.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
------------------------------------
Title:
------------------------------------
In accordance with the terms of this Letter Agreement,
ARBCO Associates, L.P. makes the following election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $ 100%
----------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ NON-TRADITIONAL INVESTMENTS, L.P.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
------------------------------------
Title:
--------------------------------------
In accordance with the terms of this Letter Agreement,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Non-Traditional Investments, L.P.
makes the following election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ OFFSHORE LIMITED
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
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In accordance with the terms of this Letter Agreement,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Offshore Limited makes the following
election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
OFFENSE GROUP ASSOCIATES, L.P.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
------------------------------------
Title:
------------------------------------
In accordance with the terms of this Letter Agreement,
Offense Group Associates, L.P. makes the following
election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
OPPORTUNITY ASSOCIATES, L.P.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
--------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
In accordance with the terms of this Letter Agreement,
Opportunity Associates, L.P. makes the following
election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
STRATEGIC ASSOCIATES, L.P.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Title: General Partner
------------------------------------
In accordance with the terms of this Letter Agreement,
Strategic Associates, L.P. makes the following
election:
Series A Preferred Stock $157,500
----------------
Series B Preferred Stock $ 52,500
----------------
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Principal Amount of New Notes to be
purchased (including corresponding
number of New Warrants):$ 0
------------------
(maximum of $122,500)
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Strategic Partners Fund, L.P.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Title: General Partner
------------------------------------
In accordance with the terms of this Letter Agreement,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Strategic Partners Fund, L.P. makes
the following election:
Series A Preferred Stock $2,842,500
----------------
Series B Preferred Stock $ 947,500
----------------
Principal Amount of New Notes to be
purchased (including corresponding
number of New Warrants): $ 0
-----------------
(maximum of $2,210,833)
▇▇▇▇ ▇▇▇▇▇
By: /s/ ▇▇▇▇ ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
-------------------------------------
Title:
-------------------------------------
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In accordance with the terms of this Letter Agreement,
▇▇▇▇ ▇▇▇▇▇ makes the following election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
Principal Amount of New Notes to be
purchased (including corresponding
number of New Warrants): $
-----------------
(maximum of $145,833)
▇▇▇▇▇▇ ▇. ▇▇▇▇ & COMPANY MONEY PURCHASE PLAN
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------------
Title: Trustee
------------------------------------
In accordance with the terms of this Letter Agreement,
▇▇▇▇▇▇ ▇. ▇▇▇▇ & Company Money Purchase Plan makes
the following election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
Principal Amount of New Notes to be
purchased (including corresponding
number of New Warrants): $ 116,667
-----------------
(maximum of $116,667)
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
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In accordance with the terms of this Letter Agreement,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ makes the following election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
Principal Amount of New Notes to be
purchased (including corresponding
number of New Warrants): $
----------------
(maximum of $87,500)
THE TRAVELERS INDEMNITY COMPANY
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
Title: Senior Vice President
------------------------------------
In accordance with the terms of this Letter Agreement,
The Travelers Indemnity Company makes the following
election:
Series A Preferred Stock $
----------------
Series B Preferred Stock $100%
----------------
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SCHEDULE I
----------
SCHEDULE OF PURCHASERS
Purchasers Amount of Notes Purchased
---------- -------------------------
ARBCO Associates, L.P. $1,000,000
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Non-Traditional
Investments, L.P. 1,000,000
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Offshore Limited 250,000
Offense Group Associates, L.P. 1,000,000
Opportunity Associates, L.P. 250,000
----------
TOTAL: $3,500,000
==========
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EXHIBIT A
THE RIGHT START, INC.
SERIES A PREFERRED STOCK
SUMMARY OF TERMS
ISSUER: The Right Start, Inc., a California corporation (the "Company").
-------
SECURITY: Series A Preferred Stock, par value $0.01 per share (the "Series
------
A Preferred Stock").
------------------
EXCHANGE
PRICE: $1,000 principal amount of Existing Debt per ten shares of Series
A Preferred Stock.
PRIORITY: The Series A Preferred Stock will rank senior to the Company's
common stock (the "Common Stock") and pari passu with the
----------
Company's Series B Preferred Stock and Series C Preferred Stock
with respect to liquidation, and shall be senior or pari passu
----------
with any other preferred stock subsequently issued by the
Company; provided however, that the Series A Preferred Stock
--------
shall be senior to the Series B Preferred Stock and the Series C
Preferred Stock from and after June 1, 2002.
LIQUIDATION
PREFERENCE: $100 per share of Series A Preferred Stock (the "Liquidation
-----------
Value").
-----
VOTING RIGHTS: Consent of the holders of at least a majority of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock voting together as a single class, will be required for (a)
any sale by the Company of a substantial portion of its assets,
(b) any merger of the company with another entity, (c) each
amendment of the company's articles of incorporation, and (d) any
action that (i) increases the authorized number of shares of
preferred stock of the Company of any series, (ii) creates any
new class or series of shares having preference over or being on
a parity with the Series A Preferred Stock, Series B Preferred
Stock, and Series C Preferred Stock, or (iii) creates any
contractually subordinated debt of the company. Such consent
shall not be unreasonably withheld. Except for such consent
rights and such voting rights as may be provided by applicable
law, the Series A Preferred Stock shall have no voting rights as
a separate series except the right to vote as a separate series
within the class of preferred stock as to any matters regarding
the modification of the
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rights, privileges or terms of the Series A Preferred Stock and
otherwise in accordance with applicable law.
MANDATORY
REDEMPTION: The Series A Preferred Stock shall be redeemed by the Company on
May 31, 2002 for cash (subject to the legal availability of funds
therefor) at a price per share equal to the Liquidation Value.
The Series A Preferred Stock shall also be redeemed by the
Company for cash (subject to the legal availability of funds
therefor) at a price per share equal to the Liquidation
Value upon the occurrence of a Change of Control (as defined
below).
Change of Control shall be defined as:
a) any merger or consolidation of the Company where the
Company is not the surviving corporation or as a result
of which ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and its affiliates cease to
beneficially own (as beneficial ownership is defined in
Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) and control, directly or indirectly, at least
twenty-five (25%) percent of the issued and outstanding
shares of each class of capital stock of the Company
entitled (without regard to the occurrence of any
contingency) to vote for the election of a majority of
the members of the board of directors of the Company;
or
b) any sale or transfer of all or substantially all of the
Company's assets or stock.
The Series A Preferred Stock shall also be mandatorily
redeemable by the Company for cash (subject to the legal
availability of funds therefor) at a price per share equal
to the Liquidation Value if the Company shall consummate the
sale or a series of related sales for cash of equity
securities the net proceeds to the Company from which (after
deduction of discounts, commissions and other offering
expenses) shall equal or exceed the sum of $12,000,000 plus
----
the amount of Series A Preferred Stock originally issued
pursuant to the Preferred Stock Exchange.
DIVIDEND: There shall be no dividends on the Series A Preferred Stock
prior to June 1, 2002. Thereafter, dividends on the Series A
Preferred Stock shall cumulate and accrue on a daily basis
without interest, at the rate of $15.00 per share per annum.
After June 1, 2002, the holders of the Series A Preferred
Stock shall be entitled to receive, out of funds legally
available for such purpose, quarterly payments of dividends
on the Series A
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Preferred Stock. The cumulation and accrual of dividends on the
Series A Preferred Stock after June 1, 2002 shall occur
regardless of whether or not the Company shall have funds legally
available for the payment of dividends.
In no event, so long as any Series A Preferred Stock shall remain
outstanding, shall any dividend whatsoever be declared or paid
upon, nor shall any distribution be made upon, any Common Stock,
other than a dividend or distribution payable in shares of Common
Stock, nor (without the written consent of the holders of 50% of
the outstanding shares of Series A Preferred Stock) shall any
shares of Common Stock be purchased or redeemed by the Company,
nor shall any moneys be paid to or made available for a sinking
fund for the purchase or redemption of any Common Stock.
INFORMATION
RIGHTS: The Company will timely furnish the holders of the Series A
Preferred Stock with annual, quarterly and monthly financial
statements. Representatives of such holders will have the right,
upon reasonable notice, to inspect the books and records of the
Company.
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EXHIBIT B
THE RIGHT START, INC.
SERIES B CONVERTIBLE PREFERRED STOCK
SUMMARY OF TERMS
ISSUER: The Right Start, Inc., a California corporation (the "Company").
-------
SECURITY: Series B Convertible Preferred Stock, par value $0.01 per share
(the "Series B Preferred Stock").
------------------------
EXCHANGE
PRICE: $1,000 principal amount of Existing Debt per ten shares of Series
B Preferred Stock.
PRIORITY: The Series B Preferred Stock will rank senior to the Company's
common stock (the "Common Stock") and pari passu with the
----------
Company's Series A Preferred Stock and Series C Preferred Stock
with respect to liquidation, and shall be senior to or pari passu
----------
with any other preferred stock subsequently issued by the
Company; provided however, that the Series A Preferred Stock
--------
shall be senior with respect to liquidation to the Series B
Preferred Stock and Series C Preferred Stock from and after June
1, 2002.
LIQUIDATION
PREFERENCE: $100 per share of the Series B Preferred Stock (the "Liquidation
-----------
Value").
------
VOTING RIGHTS: Consent of the holders of at least a majority of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock voting together as a single class, will be required for (a)
any sale by the Company of a substantial portion of its assets,
(b) any merger of the company with another entity, (c) each
amendment of the company's articles of incorporation, and (d) any
action that (i) increases the authorized number of shares of
preferred stock of the Company of any series, (ii) creates any
new class or series of shares having preference over or being on
a parity with the Series A Preferred Stock, Series B Preferred
Stock, and Series C Preferred Stock, or (iii) creates any
contractually subordinated debt of the company. Such consent
shall not be unreasonably withheld. Except for such consent
rights and such voting rights as may be provided by applicable
law, the Series B Preferred Stock shall have no voting rights as
a separate series except the right to vote as a separate series
within the class of Preferred Stock as to any matters regarding
any modification of
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the rights, privileges or terms of the Series B Preferred Stock
or otherwise in accordance with applicable law.
OPTIONAL
CONVERSION: Series B Preferred Stock shall be convertible in whole or in part
at any time, and from time to time, at the option of the holders
into shares of the Company's Common Stock at a rate equal to
$1.50 per share, the "Conversion Price").
----------------
ANTI-DILUTION
PROVISIONS: The Series B Preferred Stock will be subject to anti-dilution
provisions providing for adjustments to the Conversion Price
upon:
(a) Dividend or distribution of shares of Common Stock to holders
of Common Stock;
(b) Subdivision or combination of the outstanding shares of
Common Stock.
MANDATORY
REDEMPTION: The Series B Preferred Stock shall be mandatorily redeemable by
the Company for cash (subject to the legal availability of funds
therefor) at a price per share equal to the Liquidation Value
upon the occurrence of a Change of Control (as defined below).
In connection with any such event, the Company shall provide the
holders of the Series B Preferred Stock with prior written notice
no later than 30 days in advance of a mandatory redemption due to
a Change of Control.
Change of Control shall be defined as,
a) any merger or consolidation of the Company where the Company
is not the surviving corporation or as a result of which ▇▇▇▇▇
▇▇▇▇▇▇▇▇ and its affiliates cease to beneficially own (as
beneficial ownership is defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) and control, directly or
indirectly, at least twenty-five (25%) percent of the issued and
outstanding shares of each class of capital stock of the Company
entitled (without regard to the occurrence of any contingency) to
vote for the election of a majority of the members of the board
of directors of the Company; or
b) any sale or transfer of all or substantially all of the
Company's assets or stock.
INFORMATION
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RIGHTS: The Company will timely furnish the holders of the Series B
Preferred Stock with annual, quarterly and monthly financial
statements. Representatives of such holders will have the right,
upon reasonable notice, to inspect the books and records of the
Company.
PREEMPTIVE
RIGHTS: If the Company proposes to offer additional securities (other
than employee incentive stock or stock options, securities issued
in a public offering or the acquisition of another company, or
shares issued upon conversion or exercise of outstanding
securities), the Company will first offer all such securities to
the holders of the Series B Preferred Stock and the Series C
Preferred Stock (or Common Stock issued upon conversion of the
Series B Preferred Stock or Series C Preferred Stock) on a pro
rata basis. Such preemptive rights will not be transferable and
will terminate with respect to any shares of Series B Preferred
Stock or Series C Preferred Stock (or common stock issued upon
conversion of the Series B Preferred Stock or Series C Preferred
Stock), as the case may be, upon the earlier of (a) the transfer
of such shares or (b) the fifth anniversary of the Preferred
Stock Exchange.
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EXHIBIT C
THE RIGHT START, INC.
SERIES C CONVERTIBLE PREFERRED STOCK
SUMMARY OF TERMS
ISSUER: The Right Start, Inc., a California corporation (the "Company").
-------
SECURITY: Series C Convertible Preferred Stock, par value $0.01 per share
(the "Series C Preferred Stock").
------------------------
EXCHANGE
PRICE: $1000 principal amount of debt, represented by the new Senior
Subordinated Notes due 2000, per ten shares of Series C Preferred
Stock.
PRIORITY: The Series C Preferred Stock will rank senior to the Company's
common stock (the "Common Stock") and pari passu with the
----------
Company's Series A Preferred Stock and Series B Preferred Stock
with respect to liquidation, and shall be senior to or pari passu
----------
with any other preferred stock subsequently issued by the
Company; provided however, that the Series A Preferred Stock
-------- -------
shall be senior with respect to liquidation to the Series B
Preferred Stock and the Series C Preferred Stock from and after
June 1, 2002.
LIQUIDATION
PREFERENCE: $100 per share of Series C Preferred Stock (the "Liquidation
-----------
Value").
-----
VOTING RIGHTS: Consent of the holders of at least a majority of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock voting together as a single class, will be required for (a)
any sale by the Company of a substantial portion of its assets,
(b) any merger of the company with another entity, (c) each
amendment of the company's articles of incorporation, and (d) any
action that (i) increases the authorized number of shares of
preferred stock of the Company of any series, (ii) creates any
new class or series of shares having preference over or being on
a parity with the Series A Preferred Stock, Series B Preferred
Stock, and Series C Preferred Stock, or (iii) creates any
contractually subordinated debt of the company. Such consent
shall not be unreasonably withheld. Except for such consent
rights and such voting rights as may be provided by applicable
law, the Series C Preferred Stock shall have no voting rights as
a separate series except the right to vote as a separate series
within the class of Preferred Stock as to any matters regarding
any modification of
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the rights, privileges or terms of the Series C Preferred Stock
or otherwise in accordance with applicable law.
OPTIONAL
CONVERSION: The Series C Preferred Stock shall be convertible in whole or in
part at any time, and from time to time, at the option of the
holders into shares of the Company's Common Stock at a rate equal
to $1.00 per share, the "Conversion Price").
----------------
ANTI-DILUTION
PROVISIONS: The Series C Preferred Stock will be subject to anti-dilution
provisions providing for adjustments to the Conversion Price
upon:
(a) Dividend or distribution of shares of Common Stock to holders
of Common Stock;
(b) Subdivision or combination of the outstanding shares of
Common Stock.
MANDATORY
REDEMPTION: The Series C Preferred Stock shall be mandatorily redeemable by
the Company for cash (subject to the legal availability of funds
therefor) at a price per share equal to the Liquidation Value
upon the occurrence of a Change of Control (as defined below).
In connection with any such event, the Company shall give the
holders of the Series C Preferred Stock prior written notice no
later than 30 days in advance of a mandatory redemption due to a
Change of Control.
Change of Control shall be defined as,
a) any merger or consolidation of the Company where the Company
is not the surviving corporation or as a result of which ▇▇▇▇▇
▇▇▇▇▇▇▇▇ and its affiliates cease to beneficially own (as
beneficial ownership is defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) and control, directly or
indirectly, at least twenty-five (25%) percent of the issued and
outstanding shares of each class of capital stock of the Company
entitled (without regard to the occurrence of any contingency) to
vote for the election of a majority of the members of the board
of directors of the Company; or
b) any sale or transfer of all or substantially all of the
Company's assets or stock.
INFORMATION
RIGHTS: The Company will timely furnish the holders of the Series C
Preferred Stock with annual, quarterly and monthly financial
statements.
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Representatives of such holders will have the right, upon
reasonable notice, to inspect the books and records of the
Company.
PREEMPTIVE
RIGHTS: If the Company proposes to offer additional securities (other
than employee incentive stock or stock options, securities issued
in a public offering or the acquisition of another company, or
shares issued upon conversion or exercise of outstanding
securities), the Company will first offer all such securities to
the holders of the Series B Preferred Stock and the Series C
Preferred Stock (or Common Stock issued upon conversion of the
Series B Preferred Stock or Series C Preferred Stock) on a pro
rata basis. Such preemptive rights will not be transferable and
will terminate with respect to any shares of Series B Preferred
Stock or Series C Preferred Stock (or common stock issued upon
conversion of the Series B Preferred Stock or Series C Preferred
Stock), as the case may be, upon the earlier of (a) the transfer
of such shares or (b) the fifth anniversary of the Preferred
Stock Exchange.
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