THE RIGHT START, INC.
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SECURITIES PURCHASE AGREEMENT
Dated as of May 6, 1997
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11.5% Senior Subordinated Notes due May 6, 2000
Warrants to Purchase Common Stock
TABLE OF CONTENTS
Page
Section 1. ISSUANCE OF SECURITIES 1
Section 1.1. Authorization 1
Section 1.2. Purchase and Sale of Securities; the
Closing 2
Section 1.3. Representations of the Purchaser 2
Section 2. REPRESENTATIONS OF THE COMPANY 3
Section 2.1. Organization and Authority of the
Company 3
Section 2.2. Business, Properties and Other
Information Regarding the Company 4
Section 2.3. Capital Stock 5
Section 2.4. Litigation; Observance of Statutes,
Regulations and Orders 5
Section 2.5. Title to Property 6
Section 2.6. Taxes 6
Section 2.7. Compliance with Laws and Other
Instruments of the Company 7
Section 2.8. Governmental Authorizations 7
Section 2.9. Licenses and Permits 7
Section 2.10. Compliance with ERISA 7
Section 2.11. Investment Company Act 9
Section 2.12. Environmental Compliance 9
Section 2.13. Maintenance of Insurance 9
Section 2.14. Labor Relations 9
Section 2.15. Assumptions or Guaranties of
Indebtedness of Other Persons 10
Section 2.16. Disclosure 10
Section 3. CONDITIONS OF CLOSING 10
Section 3.1. Proceedings Satisfactory 10
Section 3.2. Representations True; Officer's
Certificate 11
Section 3.3. Purchase Permitted by Applicable Laws 11
Section 3.4. Securities 11
Section 3.5. Registration Rights Agreement 11
Section 4. PREPAYMENT OF THE NOTES 12
Section 4.1. Optional Prepayment of the Notes 12
Section 4.2. Mandatory Prepayment 12
Section 4.3. Allocation of Prepayments 12
Section 4.4. Surrender of Notes; Notation Thereon 12
i
Section 4.5. Purchase of Notes 12
Section 5. COVENANTS 13
Section 5.1. Payment of Notes 13
Section 5.2. Observance of Statutes, Regulations and
Orders 13
Section 5.3. Corporate Existence 13
Section 5.4. Taxes 13
Section 5.5. Maintenance of Properties 13
Section 5.6. Books and Records 14
Section 5.7. Maintenance of Insurance 14
Section 5.8. Change of Control 14
Section 5.9. Limitations on Transactions with
Affiliates 14
Section 5.10. Investment Company Act 14
Section 5.11. Compliance with ERISA 14
Section 5.12. Access to Information 15
Section 6. SEC REPORTS 15
Section 7. DEFINITIONS 16
Section 7.1. Definitions 16
Section 7.2. Accounting Terms 22
Section 8. EVENTS OF DEFAULT; REMEDIES 22
Section 8.1. Events of Default Defined; Acceleration
of Maturity 22
Section 8.2. Annulment of Defaults 24
Section 8.3. Suits for Enforcement 24
Section 8.4. Remedies Cumulative 24
Section 8.5. Remedies Not Waived 25
Section 9. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES;
LOST NOTES
Section 10. HOME OFFICE PAYMENT 26
Section 11. TAXES 26
Section 12. MISCELLANEOUS 27
Section 12.1. Indemnification 27
Section 12.2. Expenses 27
Section 12.3. Amendments, Waiver and Consents 27
Section 12.4. Reliance on and Survival of
Representations 27
Section 12.5. Successors and Assigns 28
ii
Section 12.6. Notices 28
Section 12.7. Counterparts 28
Section 12.8. Governing Law 28
Section 12.9. Waiver of Jury Trial 29
Schedules
SCHEDULE I - Purchasers
SCHEDULE 2.13 - Insurance
Exhibits
EXHIBIT A - Form of Note
EXHIBIT B - Form of Warrant
EXHIBIT C - Form of Registration Rights Agreement
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THE RIGHT START, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of May 6, 1997
To each of the Purchasers
Listed on Schedule I hereto
Ladies and Gentlemen:
The Right Start, Inc., a California corporation (the "Company"),
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hereby agrees with the Purchasers as follows:
Section 1. ISSUANCE OF SECURITIES.
Section 1.1. Authorization.
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The Company has duly authorized (a) an issue of its 11.5% Senior
Subordinated Notes due May 6, 2000 (the "Notes") in the aggregate principal
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amount of $3,000,000 and (b) an issue of warrants (the "Warrants") to purchase
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an aggregate of 475,000 Stock Units, initially covering 475,000 shares of the
Company's common stock and exercisable at $3.00 per Stock Unit (as defined in
the Warrants). Each Note shall be in the form of Exhibit A and shall mature,
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bear interest and be payable and shall be otherwise as provided herein and
therein. Each Warrant shall be in the form of Exhibit B and shall be
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exercisable, transferable and subject to adjustment and shall be otherwise as
provided herein and therein.
As used herein, the term "Notes" and "Warrants" shall include all
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notes or warrants, as the case may be, originally issued pursuant to this
Securities Purchase Agreement (the "Agreement") and all notes or warrants
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delivered in substitution or exchange for any of such notes or warrants and,
where applicable, shall include the singular number as well as the plural. The
term "Note" shall mean one of the Notes and the terms "Warrant" shall mean one
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of the Warrants. The Notes and Warrants issued to the Purchasers pursuant to
this Agreement, and the certificates and other instruments from time to time
evidencing the same, are herein sometimes collectively called the "Securities."
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Section 1.2. Purchase and Sale of Securities; the Closing. The
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Company shall sell to the Purchasers and, subject to the terms and conditions
hereof, the Purchasers shall purchase from the Company (a) Notes in an aggregate
principal amount of $3,000,000 and (b) Warrants to purchase an aggregate of
475,000 Stock Units, at a combined purchase price equal to 100% of the aggregate
principal amount of the Notes. The Purchasers and the Company agree and
acknowledge that the value of the Warrants is equal to $0.74 per Stock Unit
covered thereby on the Closing Date. The Purchasers and the Company agree and
acknowledge that for purposes of determining whether there is any original issue
discount on the Notes, the proper rate of discount for determining the Notes'
value is 11.5% and the Purchasers and each subsequent Holder and the Company
agree to report payments of interest on the Notes consistent with this
determination of value.
The closing (the "Closing") of such purchase of the Securities shall
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be held at 7:00 a.m., Los Angeles time, on May 6, 1997 (the "Closing Date"),
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at the office of Milbank, Tweed, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, Los Angeles, or at such other
time or place as the parties hereto may mutually agree; provided, however, that
if the Closing Date shall not have occurred within ten (10) Business Days after
the date hereof, the Purchasers' obligation to purchase and pay for the Notes
hereunder shall be terminated and the Purchasers shall have no liability or
further obligations hereunder.
On the Closing Date, the Company shall deliver to each Purchaser one
or more certificates representing the Notes and Warrants, registered in such
Purchaser's name or in the name of such Purchaser's nominee in any
denominations, all as such Purchaser may specify by notice delivered to the
Company at least two days prior to the Closing Date (or, in the absence of such
notice, one certificate representing the Notes and one certificate representing
the Warrants, registered in such Purchaser's name), duly executed and dated the
Closing Date, against each Purchaser's delivery to the Company of immediately
available funds in the amount of the purchase price.
Section 1.3. Representations of the Purchaser. Each Purchaser
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represents and warrants to the Company that:
(a) Purchaser is an "accredited investor" within the meaning of Rule
501 under the Securities Act and was not organized for the specific purpose of
acquiring the Securities.
(b) Purchaser has sufficient knowledge and experience so as to be able
to evaluate the risks of merits of investment in
2
the Company, and it is able financially to bear the risks thereof.
(c) On the Closing Date, Purchaser is acquiring the Securities for
such Purchaser's own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof in violation of the
Securities Act.
Section 2. REPRESENTATIONS OF THE COMPANY. The Company represents
and warrants to each of the Purchasers as of the date hereof and as of the
Closing Date that:
Section 2.1. Organization and Authority of the Company.
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(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, and has all
requisite power and authority to own or hold under lease the property it
purports to own or hold under lease, to transact the business it transacts and
proposes to transact. The Company has all requisite power and authority to
execute and deliver this Agreement, the Securities, and any other documents or
agreements contemplated hereby and thereby, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereunder and
thereunder. The Company is duly qualified as a foreign corporation and is in
good standing in each jurisdiction in which the character of the properties
owned or held under lease by it or the nature of the business transacted by it
requires such qualification except such jurisdictions, if any, in which the
failure to be so qualified or in good standing will not have a Material Adverse
Effect on the Company.
(b) The execution, delivery and performance of this Agreement, the
Securities, and any other documents or agreements to which the Company is a
party contemplated hereby and thereby, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized and approved by the
Board of Directors. Each of this Agreement, the Securities, and any other
document or agreement to which the Company is a party contemplated hereby or
thereby has been (or on the Closing Date will have been) duly authorized,
executed and delivered by, and each is (or, when duly executed and delivered on
the Closing Date, will be) the valid and binding obligation of, the Company,
enforceable in accordance with its terms, except as may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws or by
legal or equitable principles relating to or limiting creditors' rights
generally.
3
Section 2.2. Business, Properties and Other Information Regarding
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the Company.
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(a) The Company has delivered to each of the Purchasers copies of the
audited report of the Company's independent accountants for the transition
period ended February 1, 1997 containing balance sheets of the Company as of the
last day of the eight month period ended February 1, 1997 and the fiscal year
ended June 1, 1996, and the related statements of operations, stockholders'
equity and cash flows of the Company for the eight month period ended February
1, 1997 and the fiscal year ended June 1, 1996 (such financial statements being
referred to collectively herein as the "Financial Statements"). The Financial
--------------------
Statements fairly present the financial position of the Company as of the
respective dates of such balance sheets and the results of the Company's
operations for the respective periods covered by such statements of operations,
stockholders' equity and cash flows. The Financial Statements are true,
accurate and complete in all material respects and have been prepared in
accordance with GAAP consistently applied throughout the periods involved.
There are no material liabilities, contingent or otherwise, of the Company as of
the date hereof and as of the Closing Date required to be reflected in a balance
sheet prepared in accordance with GAAP which are not reflected in such balance
sheets. Since February 1, 1997, the Company has continued to experience
operating losses. However, there have been no changes in the assets,
liabilities or financial position of the Company from that set forth in such
balance sheet as of such date, other than such continued operating losses and
changes in the ordinary course of business.
(b) As of their respective dates, neither the Financial Statements
nor any certificate executed by the Company in connection with the transactions
contemplated hereby and thereby, contained any untrue statement of a material
fact or omitted to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Since February 1, 1997, there has been no change in the business,
prospects, properties, condition (financial or otherwise) or operations which
has had a Material Adverse Effect on the Company. To the best of the Company's
knowledge, no fact has had a Material Adverse Affect or, so far as the Company
can reasonably foresee, will have a Material Adverse Effect on the Company, or
materially adversely affect the ability of the Company to perform its respective
obligations under this Agreement, the Securities, or any other documents or
agreements contemplated hereby and thereby.
4
Section 2.3. Capital Stock.
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(a) The authorized capital stock of the Company consists of
25,000,000 shares of Common Stock, no par value per share (the "Common Stock").
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On the date hereof and on the Closing Date, 8,593,639 shares of Common Stock are
and will be issued and outstanding, all of which shares have been duly and
validly issued and are fully paid and nonassessable. On the date hereof and on
the Closing Date, no shares of Preferred Stock have or will have been issued.
(b) The Company does not have outstanding any capital stock or other
securities convertible into or exchangeable for any of its capital stock or any
rights to subscribe for or to purchase, or any options for the purchase of, or
any agreements (contingent or otherwise) providing for the issuance of, or any
calls, commitments or claims of any character relating to, any of its capital
stock or any securities convertible into or exchangeable for any of its capital
stock, other than (i) stock options issued under the Company's stock option
plans, (ii) the Convertible Debenture dated October 11, 1996 issued to Strategic
Associates, L.P., and (ii) the Convertible Debenture dated October 11, 1996
issued to ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Strategic Partners, L.P.
(c) The Company does not have any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any of its capital stock
or obligation evidencing the right of the holder thereof to purchase any of its
capital stock, other than the Company's obligation to repurchase stock owned by
an employee under The Right Start, Inc. Employee Stock Purchase Plan after such
employee elects to withdraw from such plan. There is not in effect any
agreement by the Company (other than the Warrants) pursuant to which any holders
of securities of the Company have a right to cause the Company to register such
securities under the Securities Act, other than (i) the shelf registration on
file with the Commission for ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to register shares of common stock
owned by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, (ii) the Registration Rights Agreement dated October
11, 1996 between the Company and Strategic Associates, L.P., and (iii) the
Registration Rights Agreement dated October 11, 1996 issued to ▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Strategic Partners, L.P.
Section 2.4. Litigation; Observance of Statutes, Regulations and
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Orders.
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(a) There are no actions, suits or proceedings pending or, to the
best knowledge of the Company, threatened against or affecting the Company or
any of its properties in any court or before any arbitrator of any kind or
before or by any
5
Governmental Body except actions, suits or proceedings arising in the ordinary
course of business which individually or in the aggregate, if adversely
determined, would not have a Material Adverse Effect on the Company or
materially adversely affect its ability to perform its obligations under this
Agreement, the Securities, and any other document or agreement contemplated
hereby or thereby.
(b) The Company is not in default under any order of any court,
arbitrator or Governmental Body, or is subject to or a party to any Order of any
court or Governmental Body arising out of any action, suit or proceeding under
any statute or other law respecting antitrust, monopoly, restraint of trade,
unfair competition or similar matters. The Company is not in violation of any
statute or other rule or regulation of any Governmental Body the violation of
which would have a Material Adverse Effect on the Company or materially
adversely affect its ability to perform its obligations under this Agreement,
the Securities, and any other document or agreement contemplated hereby or
thereby.
Section 2.5. Title to Property.
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(a) The Company has good and marketable title to its real properties
and good and merchantable title to each of its other properties as are reflected
on the Financial Statements, except for personal property sold or otherwise
disposed of in the ordinary course of business. All properties of the Company
are free and clear of all Liens, other than Permitted Liens.
(b) The Company enjoys full and undisturbed possession under all
leases necessary in any material respect for the operation of its business (the
"Leases"). None of the Company's Leases contain any unusual or burdensome
------
provisions which, individually or in the aggregate, are likely to materially
impair the operation of the business of the Company. The Company's Leases are
valid and subsisting and are in full force and effect, and there are no existing
material defaults by the Company or events that with notice or lapse of time or
both would constitute material defaults by the Company under any of the Leases.
Section 2.6. Taxes. The Company has filed all tax returns which are
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required to have been filed in any jurisdiction, and has paid all taxes shown to
be due and payable on such returns and all other taxes and assessments payable
by the Company to the extent the same have become due and payable and before
they have become delinquent, except for any taxes and assessments the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company has set aside on
its books reserves (segregated to the extent required by GAAP)
6
deemed by it to be adequate. The Company knows of no proposed material tax
assessment against the Company and in the opinion of the Company all tax
liabilities are adequately provided for on the books of the Company.
Section 2.7. Compliance with Laws and Other Instruments of the
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Company. The consummation of the transactions contemplated by this Agreement
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and the execution, delivery and performance of the terms and provisions of this
Agreement, the Securities, or any other document or agreement contemplated
hereby or thereby will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of the Company under, any material indenture, mortgage, deed of
trust, bank loan or credit agreement, corporate charter, by-laws or other
material agreement or instrument to which the Company is a party or by which the
Company or any of its properties may be bound or affected, (ii) conflict with or
result in a breach of any of the terms, conditions or provisions of any Order of
any court, arbitrator or Governmental Body applicable to the Company, or (iii)
violate any provision of any statute or other rule or regulation of any
Governmental Body applicable to the Company.
Section 2.8. Governmental Authorizations. No consent, approval or
---------------------------
authorization of, or registration, filing or declaration with, any Governmental
Body is required for the issuance of the Securities or the valid execution and
delivery of the Securities or for the performance by the Company of this
Agreement, the Securities, and any other documents or agreements contemplated
hereby and thereby.
Section 2.9. Licenses and Permits. The Company possesses all
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licenses, permits, franchises, authorizations, patents, copyrights, trademarks
and trade names, or rights thereto, required to conduct its business
substantially as now conducted and as currently proposed to be conducted,
without known conflict with the rights of others.
Section 2.10. Compliance with ERISA.
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(a) Neither the Company nor any Related Person (as defined below) has
breached the fiduciary rules of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or engaged in any transaction in connection with
which the Company or any Related Person could be subjected to a suit for
damages, a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax
imposed by Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code"), in any such case which would be materially adverse to the Company. For
purposes of this Section 2.10, a "Related Person" shall mean any trade or busi-
7
ness, whether or not incorporated, which, together with the Company, would be
treated as a single employer under Section 414 of the Code.
(b) Neither any employee pension benefit plan (as defined in Section
3(2) of ERISA) which is or has been estab lished or maintained, or to which
contributions are or have been made, by the Company or any Related Person or
with respect to which the Company or any Related Person is or has been obligated
to contribute (a "Plan") nor any trust created under any Plan has been
terminated within the meaning of Title IV of ERISA since September 2, 1974 under
circumstances that could result in liability which could be materially adverse
to the Company. Other than premiums due and owing in the normal course, no
liability to the Pension Benefit Guaranty Corporation (the "PBGC") has been
incurred and remains unsatisfied or is expected by the Company to be incurred
with respect to any Plan by the Company or any Related Person which is or would
be materially adverse to the Company. There has been no reportable event
(within the meaning of Section 4043(b) of ERISA) or any other event or condition
with respect to any Plan which presents a risk of termination of any such Plan
by the PBGC under circumstances which in any case could result in liability
which would be materially adverse to the Company.
(c) Neither the Company nor any Related Person has within the past six
years contributed, or had any obligation to contribute, to a single employer
plan that has at least two contributing sponsors not under common control or has
ceased operations at a facility under circumstances which could result in
liability under Section 4068(f) of ERISA.
(d) There is no multiemployer plan (within the meaning of Section
4001(a)(3) of ERISA) to which the Company or any Related Person is or has ever
been obligated to contribute under Title IV of ERISA.
(e) No accumulated funding deficiency (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, exists with respect
to any Plan. Full payment has been made within the time required under Section
412 of the Code of all amounts that the Company or any of its Related Persons is
required under the terms of each Plan and applicable law to have paid as
contributions to such Plan as of the date hereof. Each Plan satisfies the
minimum funding standard of Section 412 of the Code.
(f) The present value of the benefit liabilities (within the meaning
of Title IV of ERISA) under all Plans deter mined as of May 31, 1996 and on the
basis of PBGC assumptions
8
required under Title IV of ERISA did not exceed the current value of the assets
of all such Plans determined as of such date.
(g) Neither the Company nor any Related Person has engaged in any
transaction that could result in the incur rence of any liabilities under
Section 4069 or Section 4212 of ERISA.
(h) The Company is not a party in interest with respect to any
employee benefit plan, except for The Right Start, Inc. Employee Stock Ownership
Plan and securities of the Company are not employer securities with respect to
any employee benefit plan other than the above listed plan. For such purpose,
the term "employee benefit plan" shall have the meaning assigned to such term in
Section 3 of ERISA and the term "employer security" shall have the meaning
assigned to such term in Section 407(d)(1) of ERISA. The execution and delivery
of this Agreement, the Securities and any other agreements or instruments
executed in connection herewith and therewith will not involve any transac tion
which is subject to the prohibitions of Section 406 of ERISA or in connection
with which a tax could be imposed pursuant to Section 4975 of the Code.
Section 2.11. Investment Company Act. The Company is not an
----------------------
investment company or a person directly or indirectly controlled by or acting on
behalf of an investment company within the meaning of the Investment Company Act
of 1940, as amended.
Section 2.12. Environmental Compliance. The Company has obtained and
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is in compliance with all permits, licenses, and other authorizations that are
required under all Environmental Laws (as hereinafter defined), including laws
relating to emissions, discharges, releases or threatened releases of
contaminants into the environment (including, without limitation, ambient air,
surface water, ground water or land) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of contaminants, except to the extent that failure to have any such
permit, license or other authorization does not have a material adverse effect
on the business, condition (financial or other), assets, properties, operations
or prospects of the Company.
Section 2.13. Maintenance of Insurance. The Company carries
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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 in Schedule 2.13 hereto.
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Section 2.14. Labor Relations. To the best knowledge of the Company,
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no material unfair labor practice complaint or
9
sex, age, race or other discrimination claim has been brought during the last
five years against the Company before the National Labor Relations Board, the
Equal Employment Opportunity Commission or any other Governmental Body. During
that period, the Company has complied in all material respects with all
applicable laws relating to the employment of labor, including, without
limitation, those relating to immigration, wages, hours and collective
bargaining.
Section 2.15. Assumptions or Guaranties of Indebtedness of Other
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Persons. The Company has not assumed, guaranteed, endorsed or otherwise become
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directly or contingently liable (including, without limitation, liability by way
of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor or otherwise to
assure the creditor against loss) on any Indebtedness of any other Person.
Section 2.16. Disclosure. The Company has provided to Purchaser
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copies of its Annual Report on Form 10-K for the transition period ended
February 1, 1997, which includes the Financial Statements (the "Form 10-K
Documents"). Such documents are true, accurate and complete in all material
respects. Neither this Agreement, the Financial Statements, the Form 10-K
Documents nor any other agreement, document, certificate or written statement
furnished to Purchaser by or on behalf of the Company in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact within the
knowledge of the Company or any of its executive officers which has not been
disclosed herein or in the Form 10-K Documents or in writing by them to
Purchaser and which materially adversely affects, or in the future in their
opinion may, insofar as they can now reasonably foresee, materially adversely
affect, the business, properties, assets, operations, prospects or condition,
financial or otherwise, of the Company.
Section 3. CONDITIONS OF CLOSING. Each Purchaser's obligation to
purchase and pay for the Securities to be purchased by such Purchaser on the
Closing Date shall be subject to the satisfaction on or before the Closing Date
of the conditions hereinafter set forth.
Section 3.1. Proceedings Satisfactory. All proceedings taken on or
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prior to the Closing Date in connection with the issuance of the Securities and
the consummation of the transactions contemplated hereby and all documents and
papers relating thereto shall be reasonably satisfactory in form and substance
to the Purchasers and their special counsel, and they
10
shall have received copies of such documents, papers, and certificates of
officers of the Company, all in form and substance reasonably satisfactory to
the Purchasers and their special counsel, as they may reasonably request in
connection therewith.
Section 3.2. Representations True; Officer's Certificate. All
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representations and warranties of the Company contained in Section 2 shall be
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true, in each case on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of the Closing Date;
the Company shall have performed all agreements on its part required to be
performed under this Agreement on or prior to the Closing Date; no Default or
Event of Default shall have occurred and be continuing; the Company shall not
have consolidated with, merged into, or sold, leased or otherwise disposed of
its properties as an entirety or substantially as an entirety to any person; all
conditions specified in Section 3 shall have been satisfied; and the Purchasers
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shall have received a certificate signed by the Chairman of the Board of
Directors, the President or the principal financial officer of the Company,
dated the Closing Date, certifying to the effect specified in this Section.
Section 3.3. Purchase Permitted by Applicable Laws. The sale by the
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Company and the payment for the Securities to be purchased by the Purchasers (i)
shall not be prohibited by any applicable law or governmental regulation,
release, interpretation or opinion, (ii) shall not subject any Purchaser to any
penalty under or pursuant to any applicable law or governmental regulation, and
(iii) shall be permitted by the laws and regulations of the jurisdictions to
which any Purchaser is subject.
Section 3.4. Securities. The Securities shall have been duly
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executed and delivered by the parties thereto in the respective forms attached
as Exhibits hereto, with only such changes or additions as the Purchasers or
their special counsel shall, in their sole judgment, require and all
governmental charges payable in connection therewith shall have been paid (or
payment shall have been provided for) in full, and shall be in full force and
effect and no term or condition thereof shall have been amended, modified or
waived without each Purchaser's prior written consent.
Section 3.5. Registration Rights Agreement. The Company and the
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Purchasers shall have entered into the Registration Rights Agreement
substantially in the form set forth as Exhibit 3.5 hereto.
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Section 4. PREPAYMENT OF THE NOTES.
Section 4.1. Optional Prepayment of the Notes. The Notes shall be
--------------------------------
subject to prepayment at the option of the Company only as set forth in this
Section 4.1. Upon notice given as provided below, the Company, at its option,
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may prepay the Notes in whole or in part at any time at par plus accrued
interest thereon to the date of such prepayment, without premium. The Company
shall give written notice of prepayment of the Notes pursuant to this Section
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4.1 to each holder of any outstanding Notes not less than ten (10) Business Days
---
prior to the date fixed for such prepayment in such notice, which notice shall
specify the amount so to be prepaid and the date fixed for such prepayment.
Upon the giving of notice of any prepayment as provided in this Section, the
Company shall prepay on the date therein fixed for prepayment the principal
amount of the Notes so to be prepaid as specified in such notice, together with
interest accrued thereon to such date fixed for prepayment.
Section 4.2. Mandatory Prepayment. The Notes shall be subject to
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mandatory prepayment by the Company only as set forth in Section 5.8 below.
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Section 4.3. Allocation of Prepayments. In the event of any
-------------------------
prepayment pursuant to this Section 4 of less than all of the outstanding Notes,
---------
the Company shall allocate the principal amount so to be prepaid pro rata among
all outstanding Notes.
Section 4.4. Surrender of Notes; Notation Thereon. Upon any
------------------------------------
prepayment of a portion of the principal amount of any Note pursuant to Section
-------
4.1 above, the Holder of such Note at its option may require the Company to make
---
and deliver, at the expense of the Company (other than for transfer taxes, if
any), upon surrender of such Note, a new Note payable to such person or persons
as may be designated by such Holder in the principal amount then remaining
unpaid of the surrendered Note, dated as of the date to which interest has been
paid on the unpaid principal amount of the surrendered Note (or, if no such
interest has been paid, dated as of the date of the surrendered Note), or may
present such Note to the Company for notation thereon of the payment of the
portion of the principal amount of such Note so prepaid.
Section 4.5. Purchase of Notes. The Company shall not, and shall not
-----------------
permit any Affiliate of the Company to, acquire directly or indirectly by
purchase or prepayment or otherwise any of the outstanding Notes except by way
of payment or prepayment in accordance with the provisions of the Notes and of
this Agreement. Any Notes so acquired shall not be deemed to be outstanding.
12
Section 5. COVENANTS. The Company covenants and agrees that on and
after the date hereof, so long as any Note shall be outstanding, that it will
perform and observe the following covenants and provisions and will cause each
Subsidiary to perform and observe such of the following covenants and provisions
as are applicable to such Subsidiary:
Section 5.1. Payment of Notes; Issuance of Additional Warrants. The
-------------------------------------------------
Company shall pay the principal of and interest on the Notes on the dates and in
the manner provided in the Notes and this Agreement.
Section 5.2. Observance of Statutes, Regulations and Orders. The
----------------------------------------------
Company shall remain at all times in compliance with all statutes or other rules
or regulations of any Governmental Body, including any Environmental Law, the
violation of which might have a Material Adverse Effect on the Company or
materially adversely affect the ability of the Company to perform its
obligations under this Agreement and the Securities.
Section 5.3. Corporate Existence. The Company shall do or cause to
-------------------
be done all things necessary to preserve and keep in full force and effect, and
shall cause each Subsidiary to preserve and keep in full force and effect, its
corporate existence in accordance with the rights (charter and statutory),
licenses and franchises of the Company; provided, however, that the Company
-------- -------
shall not be required to preserve any such right, license or franchise if the
Board of Directors shall determine in good faith in accordance with the
Company's charter that the preservation thereof is no longer desirable in the
conduct of the business of the Company, taken as a whole, and that the loss
thereof is not adverse in any material respect to the Holders.
Section 5.4. Taxes. The Company shall pay, and shall cause each
-----
Subsidiary to pay, prior to delinquency, all material taxes, assessments and
governmental levies that may be imposed upon the Company, except as contested in
good faith and by appropriate proceedings.
Section 5.5. Maintenance of Properties. The Company shall, and shall
-------------------------
cause each of its Subsidiaries to, maintain, preserve, protect and keep its
properties in good repair, working order and condition (ordinary wear and tear
excepted), and make necessary and proper repairs, renewals and replacements so
that its business carried on in connection therewith may be properly conducted
at all times consistent with past practices of the Company.
13
Section 5.6. Books and Records. The Company shall keep books and
-----------------
records which accurately reflect all of its material business affairs and
transactions.
Section 5.7. Maintenance of Insurance. The Company shall maintain,
------------------------
and cause each Subsidiary to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks as
is usually carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which the Company operates.
Section 5.8. Change of Control. If at any time there is a Change of
-----------------
Control of the Company then the Company shall, immediately following the
occurrence of any such event, send a notice to each Holder offering to
repurchase the Notes (or at each Holder's option, any portion thereof) at the
par amount thereof, plus interest accrued and unpaid on the Notes to the date of
such repurchase. If any Holder desires to accept such offer in whole or in
part, such Holder must advise the Company of such acceptance within 30 days of
the date of receiving such notice. The Company shall then repurchase the Notes
or portion thereof so tendered for repurchase by such Holder by paying the
purchase price to the Holder (or any person or persons designated by such Holder
in such acceptance notice), in immediately available funds, within five days of
the Company's receipt of such Holder's acceptance notice. If Holder tenders
only a portion of such Holder's Note, the Holder shall deliver such Note to the
Company and the Company then shall issue to the Holder a new subordinated note
with the same interest rate, maturity date and other terms as Holder's Note,
representing the portion of the Note not repurchased by the Company.
Section 5.9. Limitations on Transactions with Affiliates. The
-------------------------------------------
Company shall not make, and shall cause its Subsidiaries not to make, any
payment to or investment in, or enter into any transaction with, any Affiliate,
including without limitation the purchase, sale or exchange of property or the
rendering of any service, except pursuant to the reasonable requirements of the
Company's existing or proposed business; provided that such transaction is on
--------
terms comparable to those generally available on an arm's-length basis.
Section 5.10. Investment Company Act. The Company shall not become
----------------------
an investment company subject to registration under the Investment Company Act
of 1940, as amended.
Section 5.11. Compliance with ERISA. The Company shall comply, and
---------------------
cause each Subsidiary to comply, with the provisions of ERISA and the Code, and
the rules and regulations
14
thereunder, which are applicable to any Plan. The Company shall permit any
event or condition to exist which could permit any such plan to be terminated
under circumstances which would cause the lien provided for in Section 4068 of
ERISA to attach to the assets of the Company.
Section 5.12. Access to Information. At the request of any Purchaser
---------------------
(a "Requesting Purchaser"), the Company shall provide such Requesting Purchaser
--------------------
with the monthly unaudited balance sheet of the Company as of the last day of
the month then ended and the related unaudited statements of operations,
stockholders' equity and cash flows of the Company for the month then ended. A
Requesting Purchaser under this Section 5.12 hereby acknowledges that it is
------------
aware of the restrictions imposed by federal and state securities laws on a
person possessing material nonpublic information about a company. In this
regard, a Requesting Purchaser hereby agrees that while it is in possession of
material nonpublic information with respect to the Company and its subsidiaries,
such Requesting Purchaser will not purchase or sell any securities of the
Company, or communicate such information to any third party, in violation of any
such laws. Such Requesting Purchaser also agrees that, if requested by the
Company, such Requesting Purchaser will cause any of its representatives,
consultants or advisors who have been or may become apprised of any material
nonpublic information about the Company to give a written undertaking to the
same effect to the Company.
Section 6. SEC REPORTS. The Company shall file all reports and other
information and documents which it is required to file with the Securities and
Exchange Commission ("SEC") pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"). The Company will
cause any quarterly and annual reports, proxy statements and any other documents
which it mails to its stockholders to be mailed each Holder.
If the Company is not subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, the Company will prepare, for the first three
quarters of each fiscal year, quarterly financial statements substantially
equivalent to the financial statements required to be included in a report on
Form 10-Q under the Exchange Act. The Company will also prepare, on an annual
basis, complete audited consolidated financial statements, including, but not
limited to, a balance sheet, a statement of income and retained earnings, a
statement of changes in financial position and all appropriate notes. All such
financial statements will be prepared in accordance with generally accepted
accounting principles consistently applied, except for changes with which the
Company's independent accoun-
15
tants concur, and except that quarterly statements may be subject to year-end
adjustments. The Company will cause a copy of such financial statements to be
mailed to each Holder of a Note as soon as available within forty-five (45)
days after the close of each of the first three quarters of each fiscal year and
within ninety (90) days after the close of each fiscal year.
Each Holder of a Note and prospective purchasers designated by such
holder will have the right to obtain from the Company upon request by such
holder or prospective purchasers, during any period in which the Company is not
subject to Sec tion 13 or 15(d) of the Exchange Act, the information required by
paragraph d(4)(i) of Rule 144A under the Securities Act.
Section 7. DEFINITIONS.
Section 7.1. Definitions. Except as otherwise specified or as the
-----------
context may otherwise require, the following terms shall have the respective
meanings set forth below whenever used in this Agreement:
"Affiliate" means a Person (i) that directly or indirectly controls,
---------
or is controlled by, or is under common control with, the Company, (ii) that
beneficially owns ten percent (10%) or more of the Voting Stock of the Company,
or (iii) 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 the Company. 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. Notwithstanding the
foregoing, the holders of the Securities shall be deemed not to be Affiliates of
the Company for purposes of this Agreement.
"Agreement" has the meaning ascribed thereto in Section 1.1.
--------- -----------
"Board of Directors" means either the board of directors of the
------------------
Company or any duly authorized committee of that board.
"Business Day" means any day other than a Saturday, Sunday or a day on
------------
which banks in the State of California are required or permitted to close.
"Capital Lease" means any lease of property which, in accordance with
-------------
GAAP, should be capitalized on the lessee's balance sheet or for which the
amount of the asset and liability thereunder as if so capitalized should be
disclosed in a note to
16
such balance sheet; and "Capital Lease Obligation" means the amount of the
------------------------
liability with respect to a Capital Lease which should be so capitalized or
disclosed.
"Change of Control" means an event or series of events by which (1)
-----------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ceases to beneficially own (as beneficial ownership is defined in
Rule 13d-3 of the Exchange Act) and control, directly or indirectly, at least
twenty-five percent (25%) 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; (2) any person or group (as defined in Rule 13d-1
of the Exchange Act), other than a group which includes ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, who
obtains beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) or
control of a majority of the securities of the Company ordinarily having the
right to vote in the election of directors; (3) during any two year period
commencing on the Closing Date, individuals who at the beginning of such period
constituted the Board of Directors cease for any reason to constitute a majority
of the Board of Directors; (4) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all, or substantially
all, the assets of the Company; (5) the merger or consolidation of the Company
with another company with the effect that immediately after such transaction any
beneficial owner of the Company shall have become the beneficial owner of
securities of the company surviving such merger or consolidation representing a
majority of the combined voting power of the outstanding securities of the
surviving company ordinarily having the right to vote in the election of
directors; or (6) the adoption of a plan leading to the liquidation or
dissolution of the Company.
"Closing" has the meaning ascribed thereto in Section 1.2.
------- -----------
"Closing Date" has the meaning ascribed thereto in Section 1.2.
------------ -----------
"Code" has the meaning ascribed thereto in Section 2.11.
---- ------------
"Commission" means the Securities and Exchange Commission and any
----------
other similar or successor agency of the federal government administering the
Securities Act and the Exchange Act.
"Common Stock" has the meaning ascribed thereto in Section 2.3.
------------ -----------
17
"Company" means The Right Start, Inc., a California corporation.
-------
"Convertible Debenture" means the ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Convertible
---------------------
Debentures issued by the Company on October 11, 1996.
"Default" means any default or other event which, with notice or the
-------
lapse of time or both, would constitute an Event of Default.
"Environmental Law" or "Environmental Laws" mean any law or Order
----------------- ------------------
relating to the regulation or protection of human health, safety or the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including, without limitation, ambient air,
soil, surface water, ground water, wetlands, land or subsurface strata), or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes.
"ERISA" has the meaning ascribed thereto in Section 2.11.
----- ------------
"ERISA Affiliate" means any corporation that is a member of the same
---------------
controlled group of corporations (within the meaning of Section 414(b) of the
Code) as the Company or any corporation or trade or business that is under
common control (within the meaning of Section 414(c) of the Code) with the
Company.
"Events of Default" has the meaning ascribed thereto in Section 9.1.
------------------ -----------
"Exchange Act" means the Securities and Exchange Act of 1934, as
------------
amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
any applicable time.
"Financial Statements" has the meaning ascribed thereto in Section
-------------------- -------
2.2.
----
"GAAP" means generally accepted accounting principles as in effect at
----
the time of application to the provisions hereof.
"Governmental Body" means any federal, state, municipal or other
-----------------
governmental department, commission, board, bureau, agency or instrumentality,
foreign or domestic, or any financial or other rating agency.
18
"Guarantee" means any guarantee or other contingent liability, direct
---------
or indirect, with respect to any Indebtedness of another person, through an
agreement or otherwise, including, without limitation, (i) any endorsement
(otherwise than for collection or deposit in the ordinary course of business) or
discount with recourse or undertaking substantially equivalent to or having
similar economic effect of a guarantee with respect to any such Indebtedness,
and (ii) any agreement (A) to purchase, or to advance or supply funds for the
payment or purchase of, any such Indebtedness of another, (B) to purchase, sell
or lease property, products, materials or supplies, or transportation or
services, primarily for the purpose of enabling such other person to pay such
Indebtedness or to assure the owner thereof against loss regardless of the
delivery or non-delivery of the property, products, materials or supplies or
transportation or services, or (C) to make any loan, advance, capital
contribution or other investment in such other person to assure a minimum
equity, working capital or other balance sheet condition for any date, or to
provide funds for the payment of any liability, dividend or stock liquidation
payment, or otherwise to supply funds to or in any manner invest in such other
person. The amount of any Guarantee shall be equal to the outstanding principal
amount of the Indebtedness guaranteed, unless some lessor limitation is
specifically stated in such guarantee.
"Holder" means each of the Purchasers and any other Person that
------
becomes a registered holder of any of the Notes (or any note or notes issued by
the Company in exchange therefor in accordance with this Agreement) as
registered on the books of the Company.
"Indebtedness" means any obligation for borrowed money or for which
------------
interest is customarily paid, but in any event shall include without limitation
(i) any obligation owed for all or any part of the purchase price of property,
services or other assets or for the cost of property or other assets constructed
or of improvements thereto, other than accounts payable included in current
liabilities and incurred in respect of property purchased or services rendered
in the ordinary course of business, (ii) any obligations secured by any Lien in
respect of property even though the person owning the property has not assumed
or become liable for the payment of such obligation, (iii) any Capital Lease
Obligation, (iv) any Guarantee with respect to Indebtedness (of the kind
otherwise described in this definition) of another person, and (v) obligations
in respect of letters of credit, surety bonds and completion bonds.
"▇▇▇▇▇ ▇▇▇▇▇▇▇▇" means ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Investment Management, Inc.,
--------------
KAIM Non-Traditional, L.P., ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Non-Traditional Investments, L.P.,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Offshore Limited,
19
ARBCO Associates, L.P., Offense Group Associates, L.P., and Opportunity
Associates, L.P. and each of their affiliates.
"Leases" has the meaning ascribed thereto in Section 2.5.
------ -----------
"Lien" means, as to any person, any mortgage, lien, pledge, charge,
----
security interest or other encumbrance in or on, or any interest or title of any
vendor, lessor, lender or other secured party to or of the person under any
Indebtedness, conditional sale or other title retention agreement or Capital
Lease with respect to, any property or asset of the person, or the signing or
filing of a financing statement which names the person as debtor, or the signing
of any security agreement authorizing any other party as the secured party
thereunder to file any financing statement.
"Material Adverse Effect" means, with respect to any Person, a
-----------------------
material adverse effect on the business, prospects, properties, condition
(financial or otherwise) or operations of such Person.
"Notes" has the meaning ascribed thereto in Section 1.1.
----- -----------
"Order" means any order, writ, injunction, decree, judgment, award,
-----
determination, direction or demand.
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Permitted Liens" means:
---------------
(a) Liens for taxes, assessments, or governmental charges or
claims the payment of which is not yet past due or that are being contested
in good faith by appropriate proceedings and for which adequate reserves
have been established;
(b) statutory Liens of landlords, carriers, warehousemen,
mechanics, or materialmen, and other Liens imposed by law and incurred in
the ordinary course of business, that are for sums not yet delinquent for a
period of more than thirty (30) days or are being contested in good faith,
if reserves or other appropriate provisions, if any, as shall be required
by GAAP, shall have been made therefor;
(c) Liens incurred or deposits or pledges made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance, and other types of social security laws;
20
(d) any attachment or judgment Lien; provided that (i) the time
--------
for the appeal or petition for rehearing of such judgment lien shall not
have expired; (ii) the Company in good faith shall be prosecuting an appeal
or proceeding for review with respect to which execution has been stayed
pending such appeal or which is vacated or discharged within thirty (30)
days of the termination of such stay; or (iii) with respect to which
payment in full above any applicable deductible is covered by insurance (so
long as no reservation of rights has been made by the insurer in connection
with such coverage), and Liens incurred to secure any surety bonds, appeal
bonds, supersedeas bonds, or other instruments serving a similar purpose in
connection with the appeal of any such judgment or any proceeding to which
the Company is a party;
(e) minor survey exceptions, easements and licenses, reservations
of, or rights of others for, rights-of-way, highway and railroad crossings,
sewers, electric lines, telegraph and telephone lines, and other similar
purposes, or zoning or other restrictions or similar charges with respect
to the use of real properties not incurred in connection with Indebtedness
of the Company or materially detracting from the value of such properties;
and
(f) any Lien on the Company's assets or properties to secure
payment to a lender that is senior in right of payment to a Holder of the
Notes.
"Person" shall include an individual, a corporation, an association, a
------
partnership, a trust or estate, a government, foreign or domestic, and any
agency or political subdivision thereof, or any other entity.
"Purchasers" means the Purchasers listed on Schedule I hereto and
----------
their successors and assigns.
"Securities" has the meaning ascribed thereto in Section 1.1.
---------- -----------
"Securities Act" means the Securities Act of 1933, as amended, and any
--------------
similar or successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at any applicable
time.
"Stock Unit" shall constitute one share of Common Stock, as such
----------
Common Stock was constituted on the Closing Date and thereafter shall constitute
such number of shares (including any fractional shares) of Common Stock as shall
result from the adjustments specified in Section 4 of the Warrants.
21
"Subsidiary" means any corporation or other entity of which the
----------
Company and/or one or more of its Subsidiaries own more than 50% of the
outstanding stock or other interest having by its terms ordinary voting power to
elect a majority of the board of directors of such corporation, entity or
otherwise control such corporation or entity, and, except as otherwise expressly
indicated herein, references to Subsidiaries shall refer to Subsidiaries of the
Company.
"Voting Stock" means 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.
"Warrants" has the meaning ascribed thereto in Section 1.1.
-------- -----------
Section 7.2. Accounting Terms. All accounting terms used herein
----------------
which are not expressly defined in this Agreement have the meanings respectively
given to them in accordance with GAAP, all computations made pursuant to this
Agreement shall be made in accordance with GAAP, and all balance sheets and
other financial statements shall be prepared in accordance with GAAP, except in
the case of unaudited financial statements which are subject to year-end audit
adjustments and the absence of footnotes.
Section 8. EVENTS OF DEFAULT; REMEDIES.
Section 8.1. Events of Default Defined; Acceleration of Maturity. If
---------------------------------------------------
any of the following events ("Events of Default") shall occur and be continuing
-----------------
(for any reason whatsoever and whether it shall be voluntary or involuntary or
by operation of law or otherwise):
(a) The Company shall fail to pay any installment of principal of or
interest on the Notes when due and any such failure shall not be cured by
full performance thereof within ten (10) days after written notice thereof
shall have been given to the Company by any registered Holder; or
(b) The Company shall default in the performance of any covenant
contained in Article 5 and any such failure shall not be cured by full
performance thereof within ten (10) days after written notice thereof shall
have been given to the Company by any Holder; or
(c) Any representation or warranty made by the Company in this
Agreement or by the Company (or any officers of the
22
Company) in any certificate, instrument or written statement contemplated
by or made or delivered pursuant to or in connection with this Agreement,
shall prove to have been incorrect when made in any material respect; or
(d) The Company shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement, or a Note on its part to
be performed or observed and any such failure shall not be cured by full
performance thereof within ten (20) days after written notice thereof shall
have been given to the Company by any Holder; or
(e) The Company shall (i) admit in writing its inability to pay its
debts generally as they become due; (ii) commence a voluntary case under
Title 11 of the United States Code as from time to time in effect, or
authorize, by appropriate proceedings of its Board of Directors or other
governing body, the commencement of such a voluntary case; (iii) file an
answer or other pleading omitting or failing to deny the material
allegations of a petition filed against it commencing an involuntary case
under such Title 11, or seek, consent to or acquiesce in the relief therein
provided, or fail to controvert timely the material allegations of any such
petition; (iv) suffer the entry an order for relief in any involuntary case
commenced under said Title 11; (v) seek relief as a debtor under any
applicable law, other than said Title 11, of any jurisdiction relating to
the liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors, or consent to or acquiesce in such
relief; (vi) suffer the entry of an order by a court of competent
jurisdiction (A) finding it to be bankrupt or insolvent, (B) ordering or
approving its liquidation, reorganization or any modification or alteration
of the rights of its creditors, or (C) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its property;
or (D) make an assignment for the benefit of, or enter into a composition
with, its creditors, or appoint or consent to the appointment of a receiver
or other custodian or all or a substantial part of its property; or
(f) Any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against the property of the Company in an
aggregate amount which exceeds $2,500,000 and such judgment, writ, or
similar process shall not be released, vacated or fully bonded or stayed
pending appeal within sixty (60) days after its issue or levy.
23
Upon the occurrence of any Event of Default, and in any such event, Purchaser or
any other Holder of any Note may, by notice to the Company, declare the entire
unpaid principal amount of such Note, all interest accrued and unpaid thereon
and all other amounts payable to such holder under such Note or this Agreement
to be forthwith due and payable, whereupon such Note, all such accrued interest
and all such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Company with respect to itself and its
Subsidiaries.
Section 8.2. Annulment of Defaults. If at any time after the
---------------------
principal of any Note shall have become due and payable, and before any judgment
or decree for the payment of the moneys so due shall have been entered, all
arrears of interest upon such Note and all other sums payable to the Holder of
such Note under this Agreement (except the principal amount which by such
declaration shall have become payable) shall have been duly paid, and every
other default and Event of Default shall have been made good or cured, then and
in every such case the Holder of such Note, by written instrument filed with the
Company, may rescind and annul such declaration and its consequences; but no
such rescission or annulment shall extend to or affect any other or subsequent
default or Event of Default or impair any right of the Holders of any other Note
consequent thereon.
Section 8.3. Suits for Enforcement. If any Event of Default shall
---------------------
have occurred and be continuing, any Holder may proceed to protect and enforce
its rights, either by suit in equity or by action at law, or both, whether for
the specific performance of any covenant or agreement contained in this
Agreement or in aid of the exercise of any power granted in this Agreement, or
such Holder may proceed to enforce the payment of all sums due upon such Note or
to enforce any other legal or equitable right of such Holder.
The Company covenants that, if it shall default in the making of any
payment due under any Note or in the performance or observance of any agreement
contained in this Agreement, it shall pay to any Holder such further amounts, to
the extent lawful, as shall be sufficient to pay the costs and expenses of
collection or of otherwise enforcing such Holder's rights, including reasonable
counsel fees and costs and expenses incurred in connection with any
restructuring, refinancing, workout, bankruptcy or other similar transaction or
proceeding. The obligations set forth in this paragraph shall survive the
payment in full of the Notes.
24
Section 8.4. Remedies Cumulative. No remedy herein conferred upon
-------------------
any Holder is intended to be exclusive of any other remedy and each and every
such remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise.
Section 8.5. Remedies Not Waived. No course of dealing between the
-------------------
Company and the Holders and no delay or failure in exercising any rights
hereunder or under any Note in respect thereof shall operate as a waiver of any
rights of any Holder.
Section 9. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES.
The Company shall keep at its principal executive office a register in which,
subject to such reasonable regulations as it may prescribe, but at its expense
(other than transfer taxes, if any), it shall provide for the registration and
transfer of the Notes.
The Notes may not be sold, transferred, pledged or hypothecated unless
the proposed transaction does not require registration or qualification under
federal or state securities laws or unless the proposed transaction is
registered or qualified as required.
The holder of any of the Notes may, at such holder's option, surrender
the same for transfer or exchange either at the principal executive office of
the Company or at the place of payment named in such Note, accompanied in the
case of a transfer or assignment by a written instrument of transfer or
assignment in form satisfactory to the Company duly executed by the registered
holder thereof or by such holder's attorney duly authorized in writing. In case
any holder shall so request the transfer, assignment or exchange of any Note,
the Company at its expense shall execute and deliver in exchange therefor one or
more new Notes, as may be requested by such holder, in the same denomination or
denominations as the Notes or Notes so surrendered. Any Note issued in exchange
for any other Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, and neither gain nor loss of interest shall result from any such
transfer or exchange.
The Company and any agent of the Company may treat the Person in whose
name any Note is registered as the owner of such Note for the purpose of
receiving payment of the principal of and premium (if any) and interest on such
Note and for all other purposes whatsoever, whether or not such Note be overdue.
25
Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of any Note, and (in case of loss, theft
or destruction) of indemnity reasonably satisfactory to it, upon surrender and
cancellation of such Note or receipt of such indemnity, the Company shall make
and deliver in lieu of such Note a new Note in the same denomination and, in the
case of a Note, dated as of the date to which interest has been paid thereon.
Notwithstanding the foregoing provisions of this Section, if any Note
of which any Purchaser or any other institutional Holder is the owner is lost,
stolen or destroyed, then the affidavit of such Purchaser or such Holder's
Treasurer or Assistant Treasurer (or other responsible official), setting forth
the name of the owner of such Note and the circumstances with respect to such
loss, theft or destruction, shall be accepted as satisfactory evidence thereof,
and no indemnity shall be required as a condition to the execution and delivery
by the Company of a new Note in lieu of such Note (or as a condition to the
payment thereof, if due and payable) other than a Purchaser's or such Holder's
written agreement to indemnify the Company.
Section 10. HOME OFFICE PAYMENT. Notwithstanding anything to the
contrary in this Agreement or the Notes, so long as any Purchaser or any nominee
designated by such Purchaser shall be a Holder of any Notes, the Company shall
punctually pay all amounts which become due and payable on such Note to such
Purchaser at such Purchaser's address set forth on its signature page hereto,
and in the manner set forth in the Notes, or at such other place and in such
other manner as such Purchaser may designate by notice to the Company, without
presentation or surrender of such Note. Each Purchaser agrees that prior to the
sale, assignment, transfer or other disposition of any such Note, such Purchaser
shall make notation thereon of the portion of the principal amount paid or
prepaid and the date to which interest has been paid thereon, or surrender the
same in exchange for a Note or Notes aggregating the same principal amount as
the unpaid principal amount of the Note so surrendered. The Company agrees to
enter into an agreement similar to that contained in this Section with any other
institutional investor (or nominee thereof) who shall hold any of the Notes.
Section 11. TAXES. The Company shall pay all taxes (including
interest and penalties), other than taxes imposed on the income of the Holders,
which may be payable in respect of the execution and delivery of this Agreement
or of the execution and delivery of any of the Notes or of any amendment of, or
waiver or consent under or with respect to, this Agreement or any of the Notes
and shall save each Purchaser and all subsequent Holders of the Notes harmless
against any loss or liability resulting from
26
nonpayment or delay in payment of any such tax. The obligations of the Company
under this Section shall survive the payment of the Notes and the exercise of
the Warrants.
Section 12. MISCELLANEOUS.
Section 12.1. Indemnification. The Company hereby agrees to
---------------
indemnify, exonerate and hold Purchaser and each of its partners and affiliates,
and their stockholders, officers, directors, employees and agents free and
harmless from and against any and all actions, causes of action, suits,
litigation, losses, liabilities and damages, investigations or proceedings
instituted by any governmental agency or any other Person, and expenses in
connection therewith, including without limitation reasonable attorneys' fees
and disbursements, incurred by the indemnitee or any of them as a result of, or
arising out of, or relating to (a) any transaction financed or to be financed in
whole or in part directly or indirectly with proceeds from the sale by the
Company of any securities hereunder, or (b) the execution, delivery, performance
or enforcement of this Agreement or any instrument contemplated hereby by any of
the indemnitees, except in each such case to the extent any such indemnified
liabilities arise on account of such indemnitee's gross negligence, willful
misconduct or bad faith.
Section 12.2. Expenses. The Company and Purchaser each agree to pay
--------
all their own costs and expenses in connection with the preparation, execution
and delivery of this Agreement, the Note and other instruments and documents to
be delivered hereunder.
Section 12.3. Amendments, Waiver and Consents. No amendment,
-------------------------------
modification or addition to this Agreement, and no waiver of or consent to
noncompliance with any covenant or other provision of this Agreement, or the
Note shall be effective unless in writing and duly executed by the party against
whom enforcement of such amendment, modification, addition, waiver or consent is
sought. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
Section 12.4. Reliance on and Survival of Representations. All
-------------------------------------------
agreements, representations and warranties of the Company contained in this
Agreement and in any certificates or other instruments delivered pursuant to
this Agreement shall (i) be deemed to be material and to have been relied upon
by the Purchasers, notwithstanding any investigation heretofore or hereafter
made by any Purchaser or on such Purchaser's behalf, and (ii) survive the
execution and delivery
27
of this Agreement and the Notes, and shall continue in effect so long as any
Note is outstanding and thereafter as provided in Sections 8.3, 11 and 12.2.
-------------------------
Section 12.5. Successors and Assigns. This Agreement shall bind and
----------------------
inure to the benefit of and be enforceable by the Company, each of the
Purchasers, and the Purchasers' respective successors and assigns, and, in
addition, shall inure to the benefit of and be enforceable by each Person who
shall from time to time be a Holder of any of the Notes. The Company may not
assign its rights under this Agreement.
Section 12.6. Notices. All notices and other communications provided
-------
for in this Agreement shall be in writing and delivered, telecopied or mailed,
first class postage prepaid, addressed:
(a) If to the Company:
The Right Start, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Milbank, Tweed, ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to the Holders, at the addresses set forth on the signature
page (in the case of the original Holder) and as may be designated by
notice to the Company.
Any such notice or communication shall be deemed to have been duly
given when delivered, telecopied or mailed as aforesaid.
Section 12.7. 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.
Section 12.8. Governing Law. This Agreement and the Notes and
-------------
(unless otherwise provided) all amendments, supplements, waivers and consents
relating hereto or thereto
28
shall be governed by and construed in accordance with the laws of the State of
Delaware.
29
Section 12.9. Waiver of Jury Trial. EACH PURCHASER, EACH HOLDER, BY
--------------------
ITS ACCEPTANCE OF ANY OF THE NOTES, AND THE COMPANY, EACH HEREBY AGREE TO WAIVE
ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT, THE NOTES, OR ANY OTHER AGREEMENTS RELATING TO
THE NOTES OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The
scope of this waiver is intended to be all-encompassing of any and all disputes
that may be filed in any court and that relate to the subject matter of this
transaction, including without limitation, contract claims, tort claims, breach
of duty claims and all other common law and statutory claims. The Purchasers
and the Company each acknowledge that this waiver is a material inducement to
enter into a business relationship, that each has already relied on the waiver
in entering into this Agreement, and that each shall continue to rely on the
waiver in their related future dealings. The Purchasers and the Company further
represent and warrant that each has reviewed this waiver with its legal counsel,
and that each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. NOTWITHSTANDING ANYTHING TO THE CONTRARY
HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE NOTES, OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE NOTES. In the event of
litigation, this Agreement may be filed as a written consent to a trial by the
Court.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 15.3 were determined by pro rata
------------ --- ----
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No persons guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
[Remainder of page intentionally left blank]
30
Each Purchaser is requested to sign the form of acceptance in the space
provided below whereupon this Agreement shall become a binding agreement between
such Purchaser and the Company.
Very truly yours,
THE RIGHT START, INC.
By: _______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Executive Officer
The foregoing Agreement is hereby accepted as of the date first above written:
▇▇▇▇▇▇ ▇. ▇▇▇▇, as Trustee for the ▇. ▇. ▇▇▇▇ &
Company Money Purchase Plan
By: _______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇
Address for Notices and Payments:
___________________________________
___________________________________
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Telephone: ( ) _________________
Telecopy: ( ) _________________
With a copy to:
___________________________________
___________________________________
Attention:
Telephone: ( ) _________________
Telecopy: ( ) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ STRATEGIC PARTNERS FUND, L.P.
By: _______________________________
Name:
Title:
Address for Notices and Payments:
▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
33
The foregoing Agreement is hereby accepted as of the date first above written:
ARBCO Associates, L.P.
By: _______________________________
Address for Notices and Payments:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (310) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
▇▇▇▇ ▇▇▇▇▇, an individual
___________________________________
Address for Notices and Payments:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
___________________________________
___________________________________
Attention:
Telephone: ( ) _________________
Telecopy: ( ) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ NON-TRADITIONAL INVESTMENTS, L.P.
By: _______________________________
Address for Notices and Payments:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (310) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ OFFSHORE LIMITED
By: _______________________________
Address for Notices and Payments:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (310) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
OFFENSE GROUP ASSOCIATES, L.P.
By: _______________________________
Address for Notices and Payments:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (310) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
OPPORTUNITY ASSOCIATES, L.P.
By: _______________________________
Address for Notices and Payments:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (310) _________________
39
The foregoing Agreement is hereby accepted as of the date first above written:
STRATEGIC ASSOCIATES, L.P.
By: _______________________________
Address for Notices and Payments:
▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
The foregoing Agreement is hereby accepted as of the date first above written:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
__________________________________
Address for Notices and Payments:
___________________________________
___________________________________
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (212) _________________
Telecopy: (212) _________________
With a copy to:
___________________________________
___________________________________
Attention:
Telephone: ( ) _________________
Telecopy: ( ) _________________
The foregoing Agreement is hereby accepted as of the date first above written:
THE TRAVELERS INDEMNITY COMPANY
By: _______________________________
Address for Notices and Payments:
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (212) _________________
Telecopy: (212) _________________
With a copy to:
___________________________________
___________________________________
Attention:
Telephone: ( ) _________________
Telecopy: ( ) _________________
SCHEDULE I
Amount of
Purchasers Notes Purchased
ARBCO Associates, L.P. $ 150,000.00
▇▇▇▇▇▇ ▇. ▇▇▇▇, as Trustee for the ▇.▇. ▇▇▇▇
& Company Money Purchase Plan 200,000.00
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Strategic Partners Fund, L.P. 948,000.00
▇▇▇▇ ▇▇▇▇▇ 250,000.00
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Non-Traditional Investments, L.P. 150,000.00
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Offshore Limited 225,000.00
Offense Group Associates, L.P. 400,000.00
Opportunity Associates, L.P. 275,000.00
Strategic Associates, L.P. 52,000.00
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 150,000.00
The Travelers Indemnity Company 200,000.00
-------------
TOTAL: $3,000,000.00
=============
SCHEDULE 2.13
Insurance Policies
44
EXHIBIT A
THE NOTES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE NOTES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS THE PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR
QUALIFICATION UNDER FEDERAL OR STATE SECURITIES LAWS, OR UNLESS THE PROPOSED
TRANSACTION IS REGISTERED OR QUALIFIED AS REQUIRED.
THE RIGHT START, INC.
11.5% SENIOR SUBORDINATED NOTE DUE MAY 6, 2000
$___________ Los Angeles, California
Subordinated Note No. _________ May 6, 1997
FOR VALUE RECEIVED, the undersigned, The Right Start, Inc., a
California corporation (the "Company"), hereby promises to pay to _____________
-------
or registered assigns, the principal sum of ______________ DOLLARS (or so much
thereof as shall not have been prepaid) on May 6, 2000, with interest (computed
on the basis of a 360-day year of twelve 30-day months) on the unpaid principal
hereof at the rate of eleven and one-half percent (11.5%) per annum from the
date hereof, under the terms of the Securities Purchase Agreement dated as of
May 6, 1997 (the "Agreement") between the Company and each of the purchasers
---------
named therein, payable quarterly in arrears on January 31, April 30, July 31 and
October 31 of each year, commencing on July 31, 1997, until such principal shall
have become due and payable Payments of principal and interest are to be made
at the office of _____________, located at ________________________________ in
lawful money of the United States of America.
This Subordinated Note is one of the Subordinated Notes issued
pursuant to the Agreement and is also entitled to the benefits thereof. If an
Event of Default (as defined in the Agreement) shall occur and be continuing,
the principal of this Subordinated Note may, under certain circumstances, become
or be declared due and payable in the manner and with the effect provided in
such Agreement. Subject to the terms of the Agreement, upon the occurrence or
existence of an Event of Default the holder of this Subordinated Note (the
"Holder") may, by notice to the Company, declare the entire unpaid principal
amount of this Subordinated Note, all interest accrued and unpaid hereon, and
all other amounts payable to the
Holder hereunder or under the Agreement to be forthwith due and payable,
whereupon this Subordinated Note, all such accrued interest and all such amounts
shall become and be forthwith due and payable, and in addition thereto, and not
in substitution for, the Holder shall be entitled to exercise any one or more of
the rights and remedies provided by applicable law. Failure to exercise any
right or remedy under this Subordinated Note or available under applicable law
shall not constitute a waiver of such option or such other remedies or of the
right to exercise any of the same in the event of any subsequent Event of
Default. The Company and all maker, sureties, guarantors, endorsers and other
persons assuming obligations pursuant to this Subordinated Note hereby waive
presentment, protest, demand, notice of dishonor and all other notices and all
defenses and pleas on the grounds of any extension or extension of the time of
payments or the due dates hereof, in whole or in part, before or after maturity,
with or without notice. No renewal or extension of this Subordinated Note, no
release of any obligor and no delay in enforcement of this Subordinated Note or
in exercising any right or power hereunder shall affect the liability of any
obligor hereunder.
1. Prepayment. As provided in the Agreement, this Subordinated Note
----------
is subject to optional prepayments in whole or in part, without any prepayment
charge, all as specified in the Agreement. If at any time there is a Change of
Control of the Company (as defined in the Agreement) then the Company shall,
immediately following the occurrence of any such event, send a notice to each
Holder offering to repurchase this Subordinated Note (or at each Holder's
option, any portion thereof) at the par amount thereof, plus interest accrued
and unpaid on this Subordinated Note to the date of such repurchase. If any
Holder desires to accept such offer in whole or in part, such Holder must advise
the Company of such acceptance within 30 days of the date of receiving such
notice. The Company shall then repurchase this Subordinated Note or portion
thereof so tendered for repurchase by such Holder by paying the purchase price
to the Holder (or any person or persons designated by such Holder in such
acceptance notice), in immediately available funds, within five days of the
Company's receipt of such Holder's acceptance notice. If Holder tenders only a
portion of this Subordinated Note, the Holder shall deliver this Subordinated
Note to the Company and the Company then shall issue to the Holder a new
subordinated note with the same interest rate, maturity date and other terms as
this Subordinated Note, representing the portion of the Subordinated Note not
repurchased by the Company.
2
2. Subordination.
-------------
2.1 Agreement to Subordinate. The Company, for its successors, and
------------------------
each Holder, by his acceptance of this Subordinated Note, agree that the payment
of the principal of or interest on or any other amounts due on this Subordinated
Note is subordinated in right of payment, to the extent and in the manner stated
in this Section 2, to the prior payment in full of all Senior Debt. For
purposes hereof, "Senior Debt" means the principal of, interest on (including
-----------
any interest accruing after the commencement of any bankruptcy proceeding or
which would have accrued but for such proceeding whether or not allowed) and
other amounts due on or with respect to (i) indebtedness of the Company, whether
outstanding on the date hereof or incurred, assumed or guaranteed by the
Company, for money borrowed from banks or other financial institutions and any
refinancings or refundings thereof; (ii) indebtedness of the company, whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed by the Company, which is not subordinated in right of payment or in
rights upon liquidation to any Senior Debt; and (iii) indebtedness of the
Company under interest rate swaps, caps or similar hedging agreements and
foreign exchange contracts, currency swaps or similar agreements.
2.2 Ranking with respect to Other Subordinated Indebtedness of the
--------------------------------------------------------------
Company. This Subordinated Note shall rank pari passu with all other
-------
Subordinated Debt of the Company. For purposes hereof, "Subordinated Debt"
-----------------
means any indebtedness of the Company, whether outstanding on the date hereof or
incurred, assumed or guaranteed by the Company, which is subordinated in right
of payment or in rights of upon liquidation to any Senior Debt.
2.3 No Payment on this Subordinated Note if Senior Debt in Default.
--------------------------------------------------------------
Anything in this Subordinated Note to the contrary notwithstanding, no payment
or other distribution on account of principal of or redemption of, interest on
or other amounts due on this Subordinated Note, and no redemption, purchase, or
other acquisition of this Subordinated Note, shall be made by or on behalf of
the Company (i) unless full payment of amounts then due for principal and
interest and of all other amounts then due on all Senior Debt has been made or
duly provided for in cash pursuant to the terms of the instrument governing such
Senior Debt, (ii) if, at the time of such payment, redemption, purchase or other
acquisition, or immediately after giving effect thereto, there shall exist under
any Senior Debt, or any agreement pursuant to which any Senior Debt is issued,
any default, which default shall not have been cured or waived and which default
shall have resulted in the full amount of such Senior Debt being due and payable
or (iii) if, at the time of
3
such payment, redemption, purchase or other acquisition, the Holder shall have
received written notice from the Holder or holders of any Senior Debt or their
representative or representatives (a "Payment Blockage Notice") that there
exists under such Senior Debt, or any agreement pursuant to which such Senior
Debt is issued, any default, which default shall not have been cured or waived,
permitting the holders there to declare the full amount of such Senior Debt due
and payable, but only for the period (the "Payment Blockage Period") commencing
on the date of receipt of the Payment Blockage Notice and ending (unless earlier
terminated by notice given to the Holder by the holders of such Senior Debt) on
the earlier of (a) the date on which such event of default shall have been cured
or waived or (b) 180 days from the receipt of the Payment Blockage Notice unless
payment or distribution with respect to this Subordinated Note are otherwise not
then permitted. Upon termination of Payment Blockage Period, payments on
account of principal of or interest on this Subordinated Note (other than
amounts due and payable by reason of the acceleration of the maturity of this
Subordinated Note) and redemptions, purchases or other acquisitions may be made
by or on behalf of the Company, if otherwise permitted hereunder.
Notwithstanding anything herein to the contrary, (A) only one Payment Blockage
Notice may be given during any period of 360 consecutive days with respect to
the same event of default and any other events of default on the same issue of
Senior Debt existing and known to the person giving such notice at the time of
such notice and (B) no new Payment Blockage Period may be commenced by the
Holder or holders of the same issue of Senior Debt or their representative or
representatives during any period of 360 consecutive days unless all events of
default which were the object of the immediately preceding Payment Blockage
Notice, and any other event of default on the same issue of Senior Debt existing
and known to the person giving such notice at the time of such notice, have been
cured or waived.
In the event that, notwithstanding the provisions of this Section 2.3,
payments are made by or on behalf of the Company in contravention of the
provisions of this Section 2.3, such payments shall be held by the Holders in
trust for the benefit of, and shall be paid over to and delivered to, the
holders of Senior Debt or their representative for application to the payment of
all Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt
in full accordance with the terms of such Senior Debt, after giving effect to
any concurrent payment or distribution to or for the holders of Senior Debt.
The company shall give prompt written notice to the Holder of any
event of default under any Senior Debt or under any agreement pursuant to which
any Senior Debt may have been issued.
4
So long as any Senior Debt remains unpaid, the Holders of these
Subordinated Notes will not accelerate, or cause to be accelerated, the
Subordinated Notes, or exercise any remedies with respect to any event of
default occurring with respect to the Subordinated Notes for a period of no less
than 180 days after the holders have delivered to the holders of the Senior Debt
notice of the occurrence of any event of default. If the event of default is
cured or waived or shall have ceased to exist within such 180 day period (and
payment of all amounts then due on the Subordinated Notes without acceleration
shall constitute a cure of any event of default resulting from the failure to
make such payment when due), then the holders shall not be entitled to declare
these Subordinated Notes due prior to their stated maturity because of such
event of default.
2.4 Distribution on Acceleration of this Subordinated Note;
-------------------------------------------------------
Dissolution and Reorganization; Subrogation of this Subordinated Note.
---------------------------------------------------------------------
(a) Upon (i) any acceleration of the principal amount due on this
Subordinated Note because of an Event of Default or (ii) any distribution of
assets of the Company upon any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or any other
dissolution, winding up, liquidation or reorganization of the Company):
(i) the holders of the Senior Debt shall first be entitled to
receive payment in full of the principal thereof, the interest thereon and any
other amounts due thereon before the Holder is entitled to receive payment on
account of the principal of or interest on or any other amounts due on the
Subordinated Note.
(ii) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (other than
securities of the Company as reorganized or readjusted or securities of the
Company or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Section 2 with respect to this Subordinated Note, to the
payment in full without diminution or modification by such plan of all Senior
Debt), to which the Holder would be entitled except for the provisions of this
Section 2, shall be paid by the liquidating trustee or agent or other person
making such a payment or distribution, directly to the holders of Senior Debt
(or their representative(s) or trustee(s) acting on their behalf), ratably
according to the aggregate amounts remaining unpaid on account of the principal
of
5
or interest on and other amounts due on the Senior Debt held or represented by
each, to the extent necessary to make payment in full of all Senior Debt
remaining unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Debt; and
(iii) in the event that, notwithstanding the foregoing,
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities shall be received by the Holder before
all Senior Debt is paid in full in cash, such payment or distribution shall be
held in trust for the benefit of, and be paid over to upon request by a holder
of the Senior Debt, the holders of the Senior Debt remaining unpaid (or their
representatives) or trustee(a) acting on their behalf, ratably as aforesaid, for
application to the payment of such Senior Debt until all such Senior Debt shall
have been paid in full, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
Subject to the payment in full of all Senior Debt, the Holder shall be
subrogated to the rights of the holders of Senior Debt to receive payments or
distributions of cash, property or securities of the Company applicable to the
Senior Debt until the principal of and interest on this Subordinated Note shall
be paid in full and, for purposes of such subrogation, no such payments or
distributions to the holders of Senior Debt of cash, property or securities
which otherwise would have been payable or distributable to the Holder shall, as
between the Company, its creditors other than the holders of Senior Debt, and
the Holder, be deemed to be a payment by the Company to or on account of the
Senior Debt, it being understood that the provisions of this Section 2 are and
are intended solely for the purpose of defining the relative rights of the
Holder, on the one hand, and the holders of Senior Debt, on the other hand.
Nothing contained in this Section 2 or elsewhere in this Subordinated
Note is intended to or shall impair, as between the Company and its creditors
other than the holders of Senior Debt, the obligation of the Company, which is
absolute and unconditional, to pay to the Holder the principal of and interest
on this Subordinated Note as and when the same shall become due and payable in
accordance with the terms of this Subordinated Note as and when the same shall
become due and payable in accordance with the terms of this Subordinated Note or
is intended to or shall affect the relative rights of the Holder and creditors
of the Company other than holders of Senior Debt, nor shall anything herein or
therein prevent the Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Subordinated Note, subject to the rights,
if any, under this Section 3 of the holders of Senior Debt in
6
respect of cash, property and securities of the Company received upon the
exercise of any such remedy. Upon distribution of assets of the Company
referred to in this Section 2 the Holder shall be entitled to rely upon a
certificate of the liquidating trustee or agent or other person making any
distribution to the Holder for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Company, the amount hereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Section 2.
2.5 Reliance by Senior Debt on Subordination Provisions. The Holder
---------------------------------------------------
of this Subordinated Note by his acceptance thereof acknowledges and agrees that
the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration for each holder of any Senior Debt, whether such
Senior Debt was created or acquired before or after the issuance of this
Subordinated Note, to acquire and continue to hold, or to continue to hold, such
Senior Debt, and such holder of Senior Debt shall be deemed conclusively to have
relied on such subordination provisions in acquiring and continuing to hold, or
in continuing to hold, such Senior Debt. Notice of any default in the payment
of any Senior Debt, except as expressly stated in this Section 2, and notice of
acceptance of the provisions thereof are hereby expressly waived. Except as
otherwise expressly provided herein, no waiver, forbearance or release by any
holder of Senior Debt under such Senior Debt or under this Section 2 shall
constitute a release of any of the obligations or liabilities of the Holders
provided in this Section 2. Except as otherwise expressly provided herein, no
right of any present or future holder of Senior Debt to enforce the
subordination provisions hereof shall at any time or in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or any such
holder or by any noncompliance by the Company with the terms, provisions or
covenants of this Subordinated Note, regardless of any knowledge thereof which
such holder may have otherwise been charged with.
3. Transfer; Registration; Replacement. Upon surrender of this
-----------------------------------
Subordinated Note for registration of transfer or assignment, duly endorsed, or
accompanied by a written instrument of transfer or assignment duly executed, by
the registered Holder hereof or such Holder's attorney duly authorized in
writing, a new Subordinated Note for a like principal amount shall be issued to,
and, at the option of the Holder, registered in the name of, the transferee or
assignee. The Company may deem and treat the person in whose name this
Subordinated Note is registered as the Holder and owner hereof for the purpose
of receiving payments and for all other purposes
7
whatsoever, and the Company shall not be affected by any notice to the contrary.
IN WITNESS WHEREOF, the undersigned has caused this Subordinated Note
to be duly executed on its behalf as of the date first hereinabove set forth.
THE RIGHT START, INC.
By: ___________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Executive Officer
8
No. of Stock Units: ______ Warrant No. ______
WARRANT
to Purchase Common Stock of
THE RIGHT START, INC.
THIS IS TO CERTIFY THAT ___________________________________, or registered
assigns, is entitled to purchase from The Right Start, Inc., a California
corporation (hereinbelow called the "Company"), at any time on and after the
-------
Closing Date (as defined below), but not later than 5:00 p.m., Los Angeles time,
on the date that is five (5) years after the Closing Date (the "Expiration
----------
Date"), _______ Stock Units, in whole or in part, at a purchase price per Stock
----
Unit of $3.00, adjusted as provided below, all on the terms and conditions
hereinbelow provided.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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.
Section 1. Certain Definitions. As used in this Warrant, unless the
-------------------
context otherwise requires:
"Affiliate" means a Person (1) that directly or indirectly controls,
---------
or is controlled by, or is under common control with, the Company, (2) that
beneficially owns ten percent (10%) or more of the Voting Stock of the Company,
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 the Company. 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.
"Appraised Value" shall mean the fair market value of all outstanding
---------------
shares of Common Stock (on a fully diluted basis including any fractional shares
and assuming the exercise in full
of all then-outstanding Warrants and all other options, warrants or other rights
to purchase shares of Common Stock that are then currently exercisable at
exercise prices less than the Current Market Price), as determined by a written
appraisal prepared by an appraiser acceptable to the Company and the holders of
Warrants evidencing a majority in number of the total number of Stock Units at
the time purchasable upon the exercise of all then outstanding Warrants. "Fair
market value" is defined for this purpose as the price in a single transaction
determined on a going-concern basis that would be agreed upon by the most likely
hypothetical buyer for a 100% controlling interest in the equity capital of the
Company (on a fully diluted basis including any fractional shares and assuming
the exercise in full of all then-outstanding Warrants and all other options,
warrants or other rights to purchase shares of Common Stock that are then
currently exercisable at exercise prices less than the Current Market Price),
with consideration given to the effect of a noncompete covenant signed by the
seller and employment agreements signed by key management personnel of the
Company (and of its subsidiaries), each extending for a period of time
considered sufficient by all parties to effect the transfer of goodwill from the
seller to the buyer and disregarding any discounts for nonmarketability of
Common Stock of the Company. In the event that the Company and said holders
cannot, in good faith, agree upon an appraiser, then the Company, on the one
hand, and said holders, on the other hand, shall each select an appraiser, the
two appraisers so selected shall select a third appraiser who shall be directed
to prepare such a written appraisal (the "Appraisal") and the term Appraised
---------
Value shall mean the appraised value set forth in the Appraisal prepared in
accordance with this definition. Except as otherwise set forth herein, the
entire cost of the appraisal process shall be borne by the Company, but the cost
thereof shall be deemed an account payable of the Company and shall be
considered in the determination of the Appraised Value.
"Board of Directors" shall mean either the board of directors of the
------------------
Company or any duly authorized committee of that board.
"Business Day" shall mean any day other than a Saturday, Sunday or a
------------
day on which banks in the State of California are required or permitted to
close.
"Certificate of Incorporation" shall mean the certificate or articles
----------------------------
of incorporation of the Company, as in effect on the Closing Date and as at any
time amended or otherwise modified.
-2-
"Closing Date" shall mean have the meaning set forth in the Securities
------------
Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission and any
----------
other similar or successor agency of the federal government administering the
Securities Act and the Exchange Act.
"Common Stock" shall mean the Company's authorized Common Stock, no
------------
par value per share, irrespective of class unless otherwise specified, as
constituted on the date of original issuance of this Warrant, and any stock into
which such Common Stock may thereafter be changed, and shall also include stock
of the Company of any other class, which is not preferred as to dividends or
assets over any other class of stock of the Company issued to the holders of
shares of Common Stock upon any reclassification thereof.
"Company" shall mean The Right Start, Inc., a California corporation.
-------
"Current Market Price" per share of Common Stock for the purposes of
--------------------
any provision of this Warrant at the date herein specified, shall be deemed to
be the price determined pursuant to the first applicable of the following
methods:
(i) If the Common Stock is traded on a national securities
exchange or is traded in the over-the-counter market, the Current Market
Price per share of Common Stock shall be deemed to be the average of the
daily market prices for 20 consecutive Business Days commencing 20 Business
Days before such date. The market price for each such Business Day shall
be, (a) if the Common Stock is traded on a national securities exchange or
in the over-the-counter market, its last sale price on the preceding
Business Day on such national securities exchange or over-the-counter
market or, if there was no sale on that day, the last sale price on the
next preceding Business Day on which there was a sale, all as made
available over the Consolidated Last Sale Reporting System of the CTA Plan
(the "CLSRS") or, if the Common Stock is not then eligible for reporting
-----
over the CLSRS, its last reported sale price on the preceding Business Day
on such national securities exchange or, if there was no sale on that day,
on the next preceding Business Day on which there was a sale reported on
such exchange or (b) if the principal market for the Common Stock is the
over-the-counter market, but the Common Stock is not then eligible for
reporting over the CLSRS, but the Common Stock is quoted on the Nasdaq
National Market ("Nasdaq"), the last sale price reported on Nasdaq on the
------
preceding
-3-
Business Day or, if the Common Stock is an issue for which last sale prices
are not reported on Nasdaq, the closing bid quotation on such day, but, in
each of the next preceding two cases, if the relevant Nasdaq price or
quotation did not exist on such day, then the price or quotation on the
next preceding Business Day in which there was such a price or quotation.
(ii) If the Current Market Price per share of Common Stock cannot
be ascertained by any of the methods set forth in paragraph (i) immediately
above, the Current Market Price per share of Common Stock shall be deemed
to be the price equal to the quotient determined by dividing the Appraised
Value by the number of outstanding shares of Common Stock (on a fully
diluted basis including any fractional shares and assuming the exercise in
full of all then-outstanding Warrants and all other options, warrants or
other rights to purchase shares of Common Stock that are then currently
exercisable at exercise prices equal to or less than the Current Market
Price).
"Current Warrant Price" per share of Common Stock, for the purpose of
---------------------
any provision of this Warrant at the date herein specified, shall mean the
amount equal to the quotient resulting from dividing the Exercise Price in
effect on such date by the number of shares (including any fractional share) of
Common Stock comprising a Stock Unit on such date.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
------------
amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
any applicable time.
"Exercise Price" shall mean the purchase price per Stock Unit as set
--------------
forth on the first page of this Warrant on the Closing Date and thereafter shall
mean such dollar amount as shall result from the adjustments specified in
Section 4.
"Holder" means, initially, each of the Purchasers listed on Schedule I
------
to the Securities Purchase Agreement and thereafter any Person that is or
Persons that are the registered holder(s) of the Warrants or Warrant Stock as
registered on the books of the Company.
"Nonpreferred Stock" shall mean the Common Stock and shall also
------------------
include stock of the Company of any other class which is not preferred as to
dividends or assets over any other class of stock of the Company and which is
not subject to redemption.
-4-
"Person" shall include an individual, a corporation, an association, a
------
partnership, a trust or estate, a government, foreign or domestic, and any
agency or political subdivision thereof, or any other entity.
"Restricted Certificate" shall mean a certificate for Common Stock or
----------------------
a Warrant bearing the restrictive legend set forth in Section 10.1.
"Restricted Securities" shall mean Restricted Stock and Restricted
---------------------
Warrants.
"Restricted Stock" shall mean Common Stock evidenced by a Restricted
----------------
Certificate.
"Restricted Warrant" shall mean a Warrant evidenced by a Restricted
------------------
Certificate.
"Securities" shall mean the Warrant issued to the Holder pursuant to
----------
the Securities Purchase Agreement, and the certificates and other instruments
from time to time evidencing the same.
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and any similar or successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at any applicable
time.
"Securities Purchase Agreement" shall mean the Securities Purchase
-----------------------------
Agreement between the Company and the Purchasers, dated as of May 6, 1997.
"Seller" shall mean a holder of Restricted Securities of the Company
------
for which the Company shall be required to file a registration statement or
which shall be registered under the Securities Act at the request of such holder
pursuant to any of the provisions of Section 10. Neither the Company nor any of
its Affiliates shall be deemed a "Seller" for any purposes of this Agreement.
"Stock Unit" shall constitute one share of Common Stock, as such
----------
Common Stock was constituted on the Closing Date and thereafter shall constitute
such number of shares (including any fractional shares) of Common Stock as shall
result from the adjustments specified in Section 4.
"Subordinated Note" shall mean that certain 11.5% Senior Subordinated
-----------------
Note Due May 6, 2000, issued to the Holder of this Warrant on the date hereof
(or any permitted assignee).
-5-
"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.
"Warrants" shall mean the Warrants issued pursuant to the Securities
--------
Purchase Agreement, of which this Warrant is one, evidencing rights to purchase
up to an aggregate of 475,000 Stock Units, and all Warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of Stock Units for which they may be exercised.
"Warrant Stock" shall mean the shares of Common Stock purchasable by
-------------
the holder of a Warrant upon the exercise of such Warrant.
Section 2. Exercise of Warrant. The holder of this Warrant may, at
-------------------
any time on and after Closing Date, but not later than the Expiration Date,
exercise this Warrant in whole at any time or in part from time to time for the
number of Stock Units which such holder is then entitled to purchase hereunder.
The Holder may exercise this Warrant, in whole or in part, by either of the
following methods:
(a) The Holder may deliver to the Company at its office
maintained pursuant to Section 15 for such purpose (i) a written notice of
such Holder's election to exercise this Warrant, which notice shall specify
the number of Stock Units to be purchased, (ii) this Warrant and, if the
Holder desires to tender all or a portion of the Subordinated Note in
consideration of the Exercise Price, the Subordinated Note, and (iii) a sum
equal to the aggregate Exercise Price therefor in immediately available
funds or, in lieu therof, all or a portion of the Subordinated Note. For
purposes of this subparagraph (a), the Subordinated Note will be attributed
a value equal to the principal amount of such Subordinated Note, together
with any accrued but unpaid interest through date of exercise of this
Warrant. Additionally, if, upon exercise of the Warrant, the value of the
surrendered Subordinated Note of the Holder is greater than the aggregate
Exercise Price for which the Subordinated Note is being tendered for
payment, then the Company shall issue to the Holder a new subordinated
note, with the same maturity date, interest rate and other terms as the
Holder's Subordinated Note, which represents the remaining balance of the
Subordinated Note; or
-6-
(b) The Holder may also exercise this Warrant, in whole or in
part, in a "cashless" or "net-issue" exercise by delivering to the Company
at its office maintained pursuant to Section 15 for such purpose (i) a
written notice of such Holder's election to exercise this Warrant, which
notice shall specify the number of Stock Units to be delivered to such
Holder and the number of Stock Units with respect to which this Warrant is
being surrendered in payment of the aggregate Exercise Price for the Stock
Units to be delivered to the Holder, and (ii) this Warrant. For purposes
of this subparagraph (b), each Stock Unit as to which this Warrant is
surrendered will be attributed a value equal to the product of (x) the
Current Market Price per share of Common Stock minus the Current Warrant
Price per share of Common Stock, multiplied by (y) the number of shares of
Common Stock then comprising a Stock Unit.
Any notice required under this Section 2 may be in the form of
Subscription set out at the end of this Warrant. Upon delivery thereof, the
Company shall as promptly as practicable and in any event within ten Business
Days thereafter, cause to be executed and delivered to such holder a certificate
or certificates representing the aggregate number of fully-paid and
nonassessable shares of Common Stock issuable upon such exercise.
The stock certificate or certificates for Warrant Stock so delivered
shall be in such denominations as may be specified in said notice and shall be
registered in the name of such holder or, subject to Section 10, such other name
or names as shall be designated in said notice. Such certificate or
certificates shall be deemed to have been issued and such holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares, including to the extent permitted by law the right to
vote such shares or to consent or to receive notice as a stockholder, as of the
time said notice is delivered to the Company as aforesaid. If this Warrant
shall have been exercised only in part, the Company shall, at the time of
delivery of said certificate or certificates, deliver to such holder a new
Warrant dated the date it is issued, evidencing the rights of such holder to
purchase the remaining Stock Units called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant, or, at the request
of such holder, appropriate notation may be made on this Warrant and the Warrant
shall be returned to such holder.
The Company shall pay all expenses, taxes and other charges payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 2.
-7-
All shares of Common Stock issuable upon the exercise of this Warrant
shall be validly issued, fully paid and nonassessable, and free from all liens
and other encumbrances thereon.
Except as may otherwise be required by law, the Company will not close
its books against the transfer of this Warrant or of any share of Warrant Stock
in any manner which interferes with the timely exercise of this Warrant.
The Company shall issue certificates for fractional shares of stock
upon any exercise of this Warrant whenever, in order to implement the provisions
of this Warrant, the issuance of such fractional shares is required.
Section 3. Transfer, Division and Combination. Subject to Section
----------------------------------
10, this Warrant and all rights hereunder are transferable, in whole or in part,
on the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the office of the Company maintained for such purpose pursuant
to Section 15, together with a written assignment in the form set out at the end
of this Warrant duly executed by the holder hereof or its agent or attorney and
payment of funds sufficient to pay any stock transfer taxes payable upon the
making of such transfer. Upon such surrender and payment the Company shall,
subject to Section 10, execute and deliver a new Warrant or Warrants in the name
of the assignee or assignees and in the denominations specified in such
instrument of assignment, and this Warrant shall promptly be canceled. If and
when this Warrant is assigned in blank (in case the restrictions on
transferability in Section 10 shall have been terminated), the Company may (but
shall not be obliged to) treat the bearer hereof as the absolute owner of this
Warrant for all purposes and the Company shall not be affected by any notice to
the contrary. This Warrant, if properly assigned in compliance with this
Section 3 and Section 10, may be exercised by an assignee for the purchase of
shares of Common Stock without having a new Warrant issued.
This Warrant may, subject to Section 10, be divided or combined with
other Warrants upon presentation at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the holder hereof or its agent or
attorney. Subject to compliance with the preceding paragraph and with Section
10, as to any transfer which may be involved in such division or combination,
the Company shall execute and deliver a new Warrant or Warrants in exchange for
the Warrant or Warrants to be divided or combined in accordance with such
notice.
-8-
The Company shall pay all expenses, taxes and other charges incurred
by the Company in the performance of its obligations in connection with the
preparation, issue and delivery of Warrants under this Section 3.
The Company agrees to maintain at its aforesaid office books for the
registration and transfer of the Warrants.
Section 4. Adjustment of Stock Unit or Exercise Price. The number of
------------------------------------------
shares of Common Stock comprising a Stock Unit shall be subject to adjustment
from time to time as set forth in this Section 4 and in Section 5. The Company
will not take any action with respect to its Nonpreferred Stock of any class
requiring an adjustment pursuant to any of the following Subsections 4.1, or 4.3
without at the same time taking like action with respect to its Nonpreferred
Stock of each other class; and the Company will not create any class of
Nonpreferred Stock which carries any rights to dividends or assets differing in
any respect from the rights of the Common Stock on the Closing Date.
4.1. Stock Dividends, Subdivisions and Combinations. In case at any
----------------------------------------------
time or from time to time the Company shall
(a) take a record of the holders of its Nonpreferred Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Nonpreferred Stock, or
(b) subdivide its outstanding shares of Nonpreferred Stock into a
larger number of shares of Nonpreferred Stock, or
(c) combine its outstanding shares of Nonpreferred Stock into a
smaller number of shares of Nonpreferred Stock,
then the number of shares of Common Stock comprising a Stock Unit immediately
after the happening of any such event shall be adjusted so as to consist of the
number of shares of Common Stock which a record holder of the number of shares
of Common Stock comprising a Stock Unit immediately prior to the happening of
such event would own or be entitled to receive after the happening of such
event; provided, however, that no such event may take place with respect to any
shares of Nonpreferred Stock unless it shall also take place for all shares of
Nonpreferred Stock.
4.2. Other Provisions Applicable to Adjustments. The following
------------------------------------------
provisions shall be applicable to the making of adjustments of the number of
shares of Common Stock comprising a Stock Unit hereinbefore provided for in this
Section 4:
-9-
(a) When Adjustments to Be Made. The adjustments required by the
---------------------------
preceding Section 4.1 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence.
(b) Fractional Interests. In computing adjustments under this
--------------------
Section 4, fractional interests in Nonpreferred Stock shall be taken into
account to the nearest one-thousandth of a share.
(c) When Adjustment Not Required. If the Company shall take a record
----------------------------
of the holders of its Nonpreferred Stock for the purpose of entitling them to
receive a dividend or distribution pursuant to this Section 4 and shall,
thereafter and before the distribution thereof to shareholders, legally abandon
its plan to pay or deliver such dividend or distribution rights, then thereafter
no adjustment shall be required by reason of the taking of such record and any
such adjustment previously made in respect thereof shall be rescinded and
annulled.
4.3. Merger, Consolidation or Disposition of Assets. In case the
----------------------------------------------
Company shall merge or consolidate into another corporation, or shall sell,
transfer or otherwise dispose of all or substantially all of its property,
assets or business to another corporation and pursuant to the terms of such
merger, consolidation or disposition of assets, shares of common stock of the
successor or acquiring corporation are to be received by or distributed to the
holders of Nonpreferred Stock of the Company, then each holder of a Warrant
shall have the right to receive, upon exercise of such Warrant, Stock Units each
comprising the number of shares of common stock of the successor or acquiring
corporation receivable upon or as a result of such merger, consolidation or
disposition of assets by a holder of the number of shares of Nonpreferred Stock
comprising a Stock Unit immediately prior to such event.
Section 5. Notice to Warrant Holders.
-------------------------
5.1. Notice of Adjustment of Stock Unit or Exercise Price. Whenever
----------------------------------------------------
the number of shares of Common Stock comprising a Stock Unit, shall be adjusted
pursuant to Section 4, the Company shall forthwith obtain a certificate signed
by independent accountants, of recognized national standing, selected by the
Company and reasonably acceptable to the Holders of the Warrants, setting forth,
in reasonable detail, the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the number of shares of Common
Stock comprising a Stock Unit and (if such adjustment was made
-10-
pursuant to Section 4.3) describing the number and kind of any other shares of
stock comprising a Stock Unit, after giving effect to such adjustment or change.
The Company shall promptly, and in any case within three days after the making
of such adjustment, cause a signed copy of such certificate to be delivered to
each holder of a Warrant in accordance with Section 16. The Company shall keep
at its office or agency, maintained for the purpose pursuant to Section 15,
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by any holder of a
Warrant or any prospective purchaser of a Warrant designated by a holder
thereof.
5.2. Notice of Certain Corporate Action. In case the Company shall
----------------------------------
propose (a) to pay any dividend payable in stock of any class to the holders of
its Nonpreferred Stock or to make any other distribution to the holders of its
Nonpreferred Stock payable in stock, or (b) to effect any reorganization,
consolidation, merger or sale, organic change, transfer or other disposition of
all or substantially all of its property, assets or business, or (c) to effect
the liquidation, dissolution or winding up of the Company, then in each such
case, the Company shall deliver to each holder of a Warrant, in accordance with
Section 16, a notice of such proposed action, which shall specify the date on
which a record is to be taken for the purposes of such stock dividend or
distribution, or the date on which such reorganization, consolidation, merger,
sale, organic change, transfer, disposition, liquidation, dissolution, or
winding up is to take place and the date of participation therein by the holders
of Nonpreferred Stock, if any such date is to be fixed, and shall also set forth
such facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action on the Nonpreferred Stock and the number and kind of any
other shares of stock which will comprise a Stock Unit after giving effect to
any adjustment which will be required as a result of such action. Such notice
shall be so delivered thirty (30) days prior to (i) the record date for
determining holders of the Nonpreferred Stock for purposes of any action covered
by clause (a) or (b) above, and (ii) in the case of any other such action, the
date of the taking of such proposed action or the date of participation therein
by the holders of Nonpreferred Stock, whichever shall be the earlier.
Section 6. Reservation and Authorization of Nonpreferred Stock;
----------------------------------------------------
Registration with or Approval of any Governmental Authority. The Company shall
-----------------------------------------------------------
at all times reserve and keep available for issue upon the exercise of Warrants
such number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. The
Company will not amend its Certificate
-11-
of Incorporation in any respect relating to the Common Stock other than to
increase or decrease the number of shares of authorized capital stock (subject
to the provisions of the preceding sentence). All shares of Common Stock which
shall be so issuable, when issued upon exercise of any Warrant or upon such
conversion, as the case may be, shall be duly and validly issued and fully-paid
and nonassessable.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock comprising a Stock Unit, the Company shall
obtain all such authorizations or exemptions thereof, or consents thereto, as
may be necessary from any public regulatory body or bodies having jurisdiction
thereof.
If any shares of Common Stock required to be reserved for issue upon
exercise of Warrants require registration with any governmental authority under
any federal or state law (otherwise than as provided in Section 10) before such
shares may be so issued, the Company will in good faith and as expeditiously as
possible and at its expense endeavor to cause such shares to be duly registered.
Section 7. Taking of Record; Stock and Warrant Transfer Books. In
--------------------------------------------------
the case of all dividends or other distributions by the Company to the holders
of its Nonpreferred Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business on
a Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up or as otherwise may be required by law, close its
stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
Section 8. Taxes. The Company will pay all taxes (other than
-----
federal, state, local or foreign income taxes) which may be payable in
connection with the execution and delivery of this Warrant or the issuance and
sale of the Restricted Securities hereunder or in connection with any
modification of the Restricted Securities and will save the Holder harmless
without limitation as to time against any and all liabilities with respect to or
resulting from any delay in paying, or omission to pay, such taxes. The
obligations of the Company under this Section 8 shall survive any redemption,
repurchase or acquisition of Restricted Securities by the Company.
Section 9. Restrictions on Transferability. The Restricted
-------------------------------
Securities shall not be transferable except upon the conditions specified in
this Section 9 unless such Restricted Securities are properly registered under
the Securities Act of
-12-
1933, as amended. Each transferee shall be subject to the same transfer
restrictions imposed on the Holder by this Agreement.
9.1. Restrictive Legend. Unless and until otherwise permitted by
------------------
this Section 9, each certificate for Warrants issued under this Agreement, each
certificate for any Warrants issued to any transferee of any such certificate,
each certificate for any Warrant Stock issued upon exercise of any Warrant and
each certificate for any Warrant Stock issued to any transferee of any such
certificate, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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."
9.2. Notice of Proposed Transfers; Request for Registration.
------------------------------------------------------
(a) Prior to any transfer or attempted transfer of any Restricted
Securities not covered by the proviso contained in the introductory paragraph to
Section 9, the holder of such Restricted Certificate 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
sufficient detail.
(b) Upon receipt of such notice, the Company may request an opinion
of counsel of such 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 ten (10)
Business Days after receiving notice of the proposed transfer, the Company
shall, as promptly as practicable, so notify the holder of such Restricted
Certificate and such holder shall thereupon be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
such holder to the Company. Each certificate evidencing the Restricted
Securities thus to be transferred (and each certificate evidencing any
untransferred balance of the Restricted Securities evidenced by such Restricted
Certificate) shall bear the restrictive legend set forth in Section 9.1, unless
in the opinion of the Company or the opinion of such counsel, if
-13-
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.
(c) Subject to the limitations contained in Section 9.3 below, if in
the opinion of the Company or the opinion of such counsel, if requested, the
proposed transfer of the Restricted Securities evidenced by such Restricted
Certificate may not be effected without registration under the Securities Act,
the Company shall, as promptly as practicable, so notify the holder thereof. If
within 30 days after receipt of such notice to such effect such holder shall
request registration of such Restricted Securities (which request shall state
the intended method of disposition of such securities by the prospective Seller)
and the preconditions to the Company's obligation to effect such registration
specified in Section 9.3 are satisfied, the Company will immediately use its
best efforts to effect the registration of such Restricted Securities under the
Securities Act, all in accordance with the following provisions of this Section
9.
9.3. Required Registration. The Warrant Stock issuable upon exercise
---------------------
of the Warrants is subject to the terms and conditions of that certain
Registration Rights Agreement dated as of the date hereof among the Company and
the Purchasers named therein, attached as Exhibit C of the Securities Purchase
Agreement.
9.4. Termination of Restrictions. Notwithstanding the foregoing
---------------------------
provisions of this Section 9, the restrictions imposed by this Section 9 upon
the transferability of the Restricted Securities shall cease and terminate as to
any particular Restricted Security when such Restricted Security shall have been
effectively registered under the Securities Act and sold by the holder thereof
in accordance with such registration or sold under Rule 144 or Rule 144A
promulgated by the Commission. Whenever the restrictions imposed by this
Section 9 shall terminate as to any Restricted Certificate, as hereinabove
provided, the holder thereof shall be entitled to receive from the Company,
without expense, a new certificate not bearing the restrictive legend otherwise
required to be borne thereby.
Section 10. Limitation of Liability. No provision hereof, in the
-----------------------
absence of affirmative action by the holder hereof to purchase shares of Common
Stock, and no mere enumeration herein of the rights or privileges of the holder
hereof, shall give rise to any liability of such holder for the purchase price
of the Warrant Stock or as a stockholder of the Company, whether
-14-
such liability is asserted by the Company or by creditors of the Company.
Section 11. Loss or Destruction of Warrant Certificates. Upon
-------------------------------------------
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Company
(the original Warrant holder's or any other institutional Warrant holder's
indemnity being satisfactory indemnity in the event of loss, theft or
destruction of any Warrant owned by such institutional holder), or, in the case
of any such mutilation, upon surrender and cancellation of such Warrant, the
Company will make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Warrant, a new Warrant of like tenor and representing the right to
purchase the same aggregate number of shares of Common Stock.
Section 12. Furnish Information. The Company agrees that it shall
-------------------
deliver to the holder of record hereof promptly after their becoming available
copies of all financial statements, reports and proxy statements which the
Company shall have sent to its stockholders generally.
Section 13. Amendments. The terms of this Warrant and all other
----------
Warrants may be amended, and the observance of any term therein may be waived,
but only with the unanimous written consent of the holders of the then
outstanding Warrants evidencing a majority in number of the total number of
Stock Units at the time purchasable upon the exercise of all then outstanding
Warrants, provided that no such action may change the number of shares of stock
comprising a Stock Unit or the Exercise Price, without the written consent of
the holders of Warrants evidencing 100% in number of the total number of Stock
Units at the time purchasable upon the exercise of all then outstanding
Warrants. For the purposes of determining whether the holders of outstanding
Warrants entitled to purchase a requisite number of Stock Units at any time have
taken any action authorized by this Warrant, any Warrants owned by the Company
or any Affiliate of the Company (other than an institutional investor which may
be deemed an Affiliate solely by reason of the ownership of Warrants) shall be
deemed not to be outstanding.
Section 14. Office of the Company. So long as any of the Warrants
---------------------
remains outstanding, the Company shall maintain an office in Southern California
where the Warrants may be presented for exercise, transfer, division or
combination as in this Warrant provided. Such office shall be at ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ unless and until the Company
shall designate and maintain some other office for such
-15-
purposes and deliver written notice thereof to the holders of all outstanding
Warrants.
Section 15. Notices Generally.
-----------------
15.1. All communications (including all required or permitted
notices) pursuant to the provisions hereof shall be in writing and shall be
sent,
(a) if to any party to the Securities Purchase Agreement at its
address for notices specified beneath its name on the signature page of the
Securities Purchase Agreement, or at such other address as it may have
furnished in writing to each other party thereto and all other holders of
Warrants and Warrant Stock at the time outstanding, or
(b) if to any other Person who is the registered holder of any
Warrants or Warrant Stock, to the address of such holder as it appears in
the stock or warrant ledger of the Company.
15.2. Any notice shall be deemed to have been duly delivered when
delivered by hand, if personally delivered, and if sent by mail to a party whose
address is in the same country as the sender, two Business Days after being
deposited in the mail, postage prepaid, and if sent by recognized international
courier, freight prepaid, with a copy sent by telecopier, to a party whose
address is not in the same country as the sender, three Business Days after the
later of (a) being telecopied and (b) delivery to such courier.
SECTION 16. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
-16-
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its name by its President or a Vice President and its corporate seal to be
impressed hereon and attested by its Secretary or an Assistant Secretary.
Dated: May 6, 1997
THE RIGHT START, INC.:
By______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Executive Officer
ATTEST:
___________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Financial Officer
and Secretary
-17-
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for and purchases Stock Units of The Right Start, Inc., a
California corporation, purchasable with this Warrant, and herewith makes
payment therefor: (circle the following as applicable)
1. By check in the amount of $______.
2. By tender of a portion of the Subordinated Note having a value
(calculated pursuant to the Warrant) equal to $______.
3. By the surrender of _____ Stock Units.
all at the price and on the terms and conditions specified in this Warrant and
requests that certificates for the shares of Common Stock hereby purchased (and
any securities or other property issuable upon such exercise) be issued in the
name of and delivered to _____ whose address is _____ and, if such Stock Units
shall not include all of the Stock Units issuable as provided in this Warrant
that a new Warrant of like tenor and date for the balance of the Stock Units
issuable thereunder be delivered to the undersigned.
Dated:
_______________________________
(Signature of Registered Owner)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip Code)
-18-
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
Stock Units set forth below:
No of Stock
Name and Address of Assignee Units
---------------------------- -----------
and does hereby irrevocably constitute and appoint _____ Attorney to make sure
transfer on the books of The Right Start, Inc., a California corporation,
maintained for the purpose, with full power of substitution in the premises.
Dated:
___________________________
Signature
___________________________
Witness
NOTICE: The signature to the assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
The signature to this assignment must be guaranteed by a bank or trust
company having an office or correspondent in New York, New York or Los
Angeles, California or by a firm having membership on the New York
Stock Exchange.
-19-
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of May 6,
1997 between The Right Start, Inc., a California corporation (the "Company"),
and ARBCO Associates, L.P., a California limited partnership, ▇▇▇▇▇▇ ▇. ▇▇▇▇, as
Trustee for the ▇.▇. ▇▇▇▇ & Company Money Purchase Plan, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Strategic Partners Fund, L.P., a Delaware limited partnership, ▇▇▇▇ ▇▇▇▇▇, an
individual, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Non-Traditional Investments, L.P., a California
limited partnership, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Offshore Limited, a British Virgin Islands
corporation, Offense Group Associates, L.P., a California limited partnership,
Opportunity Associates, L.P., a California limited partnership, Strategic
Associates, L.P., a Delaware limited partnership, ▇▇▇▇▇▇▇ Tragoff, an
individual, and The Travelers Indemnity Company, a Connecticut corporation (each
individually a "Purchaser," and collectively the "Purchasers").
WHEREAS, the Company and Purchasers have entered into a Securities Purchase
Agreement dated as of May 6, 1997 (the "Purchase Agreement")
WHEREAS, pursuant to the Purchase Agreement, the Company and Purchasers
desire to enter into this Agreement to provide Purchasers with certain
registration rights and to address related matters;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties agree as follows:
1. Registration Rights.
-------------------
1.1 Demand Registration Rights.
--------------------------
(a) Subject to the provisions of this Section 1.1, at any time after the
date hereof, Purchasers may request registration for sale under the Act of all
or part of the Common Stock, no par value, of the Company ("Common Stock") then
held by Purchasers or issuable to Purchasers pursuant to exercise of the Warrant
of even date herewith, issued by the Company to Purchasers pursuant to the
Purchase Agreement (the "Warrant"). The Company shall thereafter, as
expeditiously as practicable, use its best efforts (i) to file with the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Act"), a registration statement on the appropriate form (using
Form S-3 or other "short form," if available) covering all the shares of Common
Stock specified in the demand
request and (ii) to cause such registration statement to be declared effective.
The Company shall use its best efforts to cause each offering pursuant to this
Section 1.1 to be managed, on a firm commitment basis, by a recognized regional
or national underwriter. The Company shall not be required to comply with more
than two (2) requests by Purchasers for demand registration pursuant to this
Section 1.1(a).
(b) The Company shall not be required to effect a demand registration under
the Act pursuant to Section 1.1(a) above if (i) the Company receives such
request for registration within 120 days preceding the anticipated effective
date of a proposed underwritten public offering of securities of the Company
approved by the Company's Board of Directors prior to the Company's receipt of
such request; (ii) within 6 months prior to any such request for registration ,
a registration of securities of the Company has been effected in which
Purchasers had the right to participate pursuant to Section 1.2 hereof; or (iii)
the Board of Directors of the Company reasonably determines in good faith that
effecting such a demand registration at such time would have a material adverse
effect upon a proposed sale of all (or substantially all) the assets of the
Company, or a merger, reorganization, recapitalization, or similar transaction
materially affecting the capital structure or equity ownership of the company;
provided, however, that the Company may only delay a demand registration
pursuant to this Section 1.1(b)(iii) for a period not exceeding 3 months (or
until such earlier time as such transaction is consummated or no longer
proposed). The Company shall promptly notify Purchasers in writing of any
decision not to effect any such request for registration pursuant to this
Section 1.1(b), which notice shall set forth in reasonable detail the reason for
such decision and shall include an undertaking by the Company promptly to notify
Purchasers as soon as a demand registration may be effected.
(c) Purchasers may withdraw a request for demand registration at any time
before a registration statement is declared effective, in which event the
Company shall withdraw such registration statement (and Purchasers shall not be
deemed to have requested a demand registration for purposes of Section 1.1(a)
hereof). If the Company withdraws a registration statement under this Section
1.1(c) in respect of a registration for which the Company would otherwise be
required to pay expenses under Section 1.4(b) hereof, Purchasers shall be liable
to the Company for all expenses of such registration specified in Section 1.4(b)
hereof in proportion to the number of shares each of the Purchasers shall have
requested to be registered, and Purchasers shall not be deemed to have requested
a demand registration for purposes of Section 1.1(a) hereof.
-2-
1.2 Piggyback Registration Rights.
-----------------------------
(a) If at any time or times after the date hereof, the Company
proposes to make a registered public offering of any of its securities under the
Act, whether to be sold by it or by one or more third parties (other than an
offering pursuant to a demand registration under Section 1.1(a) hereof or an
offering registered on Form ▇-▇, ▇▇▇▇ ▇-▇, or comparable forms), the Company
shall, not less than 45 days prior to the proposed filing date of the
registration form, give written notice of the proposed registration to
Purchasers, and at the written request of Purchasers delivered to the Company
within 20 days after the receipt of such notice, shall include in such
registration and offering, and in any underwriting of such offering, all shares
of Common Stock that may have been designated in Purchasers' request.
(b) If a registration in which Purchasers have the right to
participate pursuant to this Section 1.2 is an underwritten offering for the
account of the Company or for the account of a security holder (other than
Purchaser) pursuant to the exercise of a demand registration right, and the
managing underwriters advise the Company or such security holder, as the case
may be, in writing that in their opinion the number of securities requested to
be included in such registration, together with the securities being offered by
the Company or such security holder, as the case may be, exceeds the number
which can be effectively sold in such offering, the Company shall include in
such registration (i) first, the securities of the Company or such security
holder proposed to be sold, and (ii) second, to the extent possible, the Common
Stock proposed to be sold by each of the Purchasers and any other selling
stockholders, in proportion to the number of shares of Common Stock with respect
to which they have requested registration.
1.3 Registration Procedures. The Company shall have no obligation to file
-----------------------
a registration statement pursuant to Section 1.1 hereof, or to include shares of
Common Stock owned by or issuable to any Purchaser in a registration statement
pursuant to Section 1.2 hereof, unless and until such Purchaser shall have
furnished the Company with all information and statements about or pertaining to
such Purchaser in such reasonable detail and on such timely basis as is
reasonably required by the Company in connection with the preparation of the
registration statement. Whenever Purchasers have requested that any shares of
Common Stock be registered pursuant to Section 1.1 or 1.2 hereof, the Company
shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with
respect to such shares and use its
-3-
best efforts to cause such registration statement to become effective as soon as
reasonably practicable thereafter (provided that before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
shall furnish counsel for Purchasers with copies of all such documents proposed
to be filed);
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and prospectus used in connection therewith as may
be necessary to keep such registration statement effective for a period of not
less than nine months (or two years, if the provisions of Rule 415 under the Act
are available with respect thereto) or until Purchasers have completed the
distribution described in such registration statement, whichever occurs first;
(c) furnish to Purchasers such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus), and such
other document as Purchasers may reasonably request;
(d) use its best efforts to register or qualify such shares under such
other securities or blue sky laws of such jurisdictions as Purchasers request
(and to maintain such registrations and qualifications effective for a period of
nine months or until Purchasers have completed the distribution of such shares,
whichever occurs first), and to do any and all other acts and things which may
be necessary or advisable to enable Purchasers to consummate the disposition in
such jurisdictions of such shares (provided that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not be required but for this Section 1.3(d), (ii) subject itself to
taxation in any such jurisdiction, or (iii) file any general consent to service
of process in any such jurisdiction);
(e) notify Purchasers, at any time during which a prospectus relating
thereto is required to be delivered under the Act within the period that the
Company is required to keep a registration statement effective, of the happening
of any event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, and prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such shares, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
-4-
(f) use its best efforts to cause all such shares to be listed on
securities exchanges or interdealer quotation systems (including NASDAQ National
or Small-Cap Market), if any, on which similar securities issued by the Company
are then listed;
(g) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as Purchasers
reasonably request (and subject to Purchasers' reasonable approval) in order to
expedite or facilitate the disposition of such shares; and
(h) make reasonably available for inspection by Purchasers, by any
underwriter participating in any distribution pursuant to such registration
statement, and by any attorney, accountant or other agent retained by Purchasers
or by any such underwriter, all relevant financial and other records, pertinent
corporate documents, and properties (other than confidential intellectual
property) of the Company; provided, however, that any information that is
designated in writing by the Company, in good faith, as confidential at the time
of delivery of such information shall be kept confidential by Purchasers or any
such underwriter, attorney, accountant or agent, unless such disclosure is made
in connection with a court proceeding or required by law, or such information
becomes available to the public generally or through a third party without an
accompanying obligation of confidentiality.
1.4 Registration Expenses.
---------------------
The Company will pay all Registration Expenses of all registrations under
this Agreement, provided, however, that if a registration under Section 1.1 is
-------- -------
withdrawn at the request of Purchasers (other than as a result of information
concerning the business or financial condition of the Company that is made known
to the Purchasers after the date on which such registration was requested) and
if the requesting Purchasers elect not to have such registration counted as a
registration requested under Section 1.1, Purchasers shall pay the Registration
expenses of such registration. For purposes of this Section, the term
"Registration Expenses" means all expenses incurred by the Company in complying
with this Section, including, without limitation, all registration and filing
fees (other than National Association of Securities Dealers, Inc. filing fees
pursuant to an underwritten offering), exchange listing fees, printing expenses,
fees, and expenses of counsel for the Company and the reasonable fees and
expenses of one firm or counsel selected by Purchasers to represent it, state
Blue Sky fees and expenses, and the expense of any special audits incident to or
required by any
-5-
such registration, but excluding underwriting discounts and selling commissions.
1.5 Indemnity.
---------
(a) In the event that any shares of Common Stock owned by Purchasers
are sold by means of a registration statement pursuant to Section 1.1 or 1.2
hereof, the Company agrees to indemnify and hold harmless such Purchasers, each
of its partners and their officers and directors, and each person, if any, who
controls such Purchasers within the meaning of the Act (Purchaser, its partners
and their officers and directors, and any such other persons being hereinafter
referred to individually as an "Indemnified Person" and collectively as
"Indemnified Persons") from and against all demands, claims, actions or causes
of action, assessments, losses, damages, liabilities, costs, and expenses,
including, without limitation, interest, penalties, and reasonable attorneys'
fees and disbursements, asserted against, resulting to, imposed upon or incurred
by such Indemnified Person, directly or indirectly (hereinafter referred to in
this Section 1.5 in the singular as a "claim" and in the plural as "claims"),
based upon, arising out of or resulting from any untrue statement of a material
fact contained in the registration statement or any omission to state therein a
material fact necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading, except insofar as such
claim is based upon, arises out of or result from information furnished to the
Company in writing by such Purchaser for use in connection with the registration
statement.
(b) Each Purchaser agrees to indemnify and hold harmless the Company,
its officers and directors, and each person, if any, who controls the Company
within the meaning of the Act (the Company, its officers and directors, and any
such other persons also being hereinafter referred to individually as an
"Indemnified Person" and collectively as "Indemnified Persons") from and against
all claims based upon, arising out of or resulting from any untrue statement of
a material fact contained in the registration statement or any omission to state
therein a material fact necessary in order to make the statement made therein,
in the light of the circumstances under which they were made, not misleading, to
the extent that such claim is based upon, arises out of or result from
information furnished to the Company in writing by Purchaser for use in
connection with the registration statement.
(c) The indemnification set forth herein shall be in addition to any
liability the Company or a Purchaser may otherwise have to the Indemnified
Persons. Promptly after
-6-
actually receiving definitive notice of any claim in respect of which an
Indemnified Person may seek indemnification under this Section 1.5, such
Indemnified Person shall submit written notice thereof to either the Company or
Purchaser, as the case may be (sometimes being hereinafter referred to as an
"Indemnifying Person"). The failure of the Indemnified Person so to notify the
Indemnifying Person of any such claim shall not relieve the Indemnifying Person
from any liability it may have hereunder except to the extent that (a) such
liability was caused or materially increased by such failure, or (b) the ability
of the Indemnifying Person to reduce such liability was materially adversely
affected by such failure. In addition, the failure of the Indemnified Person so
to notify the Indemnifying Person of any such claim shall not relieve the
Indemnifying Person from any liability it may have otherwise than hereunder. The
Indemnifying Person shall have the right to undertake, by counsel or
representatives of its own choosing, the defense, compromise or settlement
(without admitting liability of the Indemnified Person) of any such claim
asserted, such defense, compromise or settlement to be undertaken at the expense
and risk of the Indemnifying Person, and the Indemnified Person shall have the
right to engage separate counsel, at such Indemnified Person's own expense, whom
counsel for the Indemnifying Person shall keep informed and consult with in a
reasonable manner. In the event the Indemnifying Person shall elect not to
undertake such defense by its own representatives, the Indemnifying Person shall
give prompt written notice of such election to the Indemnified Person, and the
Indemnified Person may undertake the defense, compromise or settlement without
admitting liability of the Indemnified Person) thereof on behalf of and for the
account and risk of the Indemnifying Person by counsel or other representatives
designated by the Indemnified Person. Notwithstanding the foregoing, no
Indemnifying Person shall be obligated hereunder with respect to amounts paid in
settlement of any claim if such settlement is effected without the consent of
such Indemnifying Person (which consent shall not be unreasonably withheld).
(d) If for any reason the foregoing indemnity is unavailable to, or is
insufficient to hold harmless, an Indemnified Person, then the Indemnifying
Person shall contribute to the amount paid or payable by the Indemnified Person
as a result of such claims, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Person and the Indemnified Person as well as
any other relevant equitable considerations. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
-7-
1.6 Subsequent Registration Statements. The Company shall not cause
----------------------------------
or permit any new registration statements (except registration statements on
Form ▇-▇, ▇-▇, or comparable forms) to become effective during the 90 days after
the effective date of a registration statement covering shares of Common Stock
owned by Purchasers.
2. Miscellaneous.
-------------
2.1 Additional Actions and Documents. Each of the parties hereto
--------------------------------
hereby agrees to use its good faith best efforts to take or cause to be taken
such further actions, to execute, deliver and file or cause to be executed,
delivered and filed such further documents and instruments, and to obtain such
consents, as may be necessary or as may be reasonably requested in order to
fully effectuate the purposes, terms and conditions of this Agreement.
2.2 Assignment. Any Purchaser may assign its rights under this
----------
Agreement to any assignee of the Warrant or the shares of Common Stock issuable
thereunder.
2.3 Entire Agreement; Amendment. This Agreement, including the other
---------------------------
writings referred to herein or delivered pursuant hereto, constitutes the entire
agreement among the parties hereto with respect to the transactions contemplated
herein, and its supersedes all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein. No amendment,
modification or discharge of this Agreement shall be valid or binding unless set
forth in writing and duly executed by a party against whom enforcement of the
amendment, modification, or discharge is sought.
2.4 Limitation on Benefits. It is the explicit intention of the
----------------------
parties hereto that no person or entity other than the parties hereto (and their
respective successors and assigns) is or shall be entitled to bring any action
to enforce any provision of this Agreement against any of the parties hereto,
and the covenants, undertakings and agreements set forth in this Agreement shall
be solely for the benefit of, and shall be enforceable only by, the parties
hereto or their respective successors and assigns.
2.5 Binding Effect. This Agreement shall be binding upon and shall
--------------
inure to the benefit of the parties hereto and their respective successors and
assigns.
2.6 Governing Law. This Agreement, the rights and obligations of
-------------
the parties hereto, and any claims or disputes
-8-
relating thereto, shall be governed by and construed in accordance with the laws
of Delaware.
2.7 Notices. All notices, demands, requests, or other communications
-------
which may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be mailed
by first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery )including delivery by courier),
telegram, telex, or facsimile transmission, addressed as follows:
(a) If to the Company:
The Right Start, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
Milbank, Tweed, ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to Purchaser, to the address set
forth in the Securities Purchase
Agreement for such Purchaser.
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request, or communication which shall be mailed, delivered
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes 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 telex) 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.
2.8 Headings. Article and Section headings contained in this
--------
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
-9-
affect the meaning, construction or scope of any of the provisions hereof.
2.9 Execution in Counterparts. To facilitate execution, this
-------------------------
Agreement may be executed in as many counterparts as may be required; and it
shall not be necessary that the signatures of each party appear on each
counterpart; but it shall be sufficient that the signature of each party appear
on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of
this Agreement to produce or account for more than a number of counterparts
containing the respective signatures of all of the parties hereto.
-10-
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first above written.
THE RIGHT START, INC.
By:
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Executive Officer
The Purchasers:
ARBCO ASSOCIATES, L.P.
By:
---------------------------------
Name:
Title:
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ STRATEGIC PARTNERS
FUND, L.P.
By:
---------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇ & COMPANY
By:
---------------------------------
Name:
Title:
▇▇▇▇ ▇▇▇▇▇, an individual
------------------------------------
-11-
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ NON-TRADITIONAL
INVESTMENTS, L.P.
By:
---------------------------------
Name:
Title:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ OFFSHORE LIMITED
By:
---------------------------------
Name:
Title:
OFFENSE GROUP ASSOCIATES, L.P.
By:
---------------------------------
Name:
Title:
STRATEGIC ASSOCIATES, L.P.
By:
---------------------------------
Name:
Title:
OPPORTUNITY ASSOCIATES, L.P.
By:
---------------------------------
Name:
Title:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, an individual
------------------------------------
THE TRAVELERS INDEMNITY COMPANY
By:
---------------------------------
Name:
Title:
-▇▇-
▇▇▇▇▇▇ ▇. ▇▇▇▇, as Trustee for the
▇. ▇. ▇▇▇▇ & Company Money Purchase Plan
By:
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇
-13-
EXHIBIT D
THE NOTES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE NOTES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS THE PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR
QUALIFICATION UNDER FEDERAL OR STATE SECURITIES LAWS, OR UNLESS THE PROPOSED
TRANSACTION IS REGISTERED OR QUALIFIED AS REQUIRED.
THE RIGHT START, INC.
11.5% SENIOR SUBORDINATED NOTE DUE MAY 6, 2000
$___________ Los Angeles, California
Subordinated Note No. _________ May 6, 1997
FOR VALUE RECEIVED, the undersigned, The Right Start, Inc., a
California corporation (the "Company"), hereby promises to pay to _____________
-------
or registered assigns, the principal sum of ______________ DOLLARS (or so much
thereof as shall not have been prepaid) on May 6, 2000, with interest (computed
on the basis of a 360-day year of twelve 30-day months) on the unpaid principal
hereof at the rate of eleven and one-half percent (11.5%) per annum from the
date hereof, under the terms of the Securities Purchase Agreement dated as of
May 6, 1997 (the "Agreement") between the Company and each of the purchasers
---------
named therein, payable quarterly in arrears on January 31, April 30, July 31 and
October 31 of each year, commencing on July 31, 1997, until such principal shall
have become due and payable Payments of principal and interest are to be made
at the office of _____________, located at ________________________________ in
lawful money of the United States of America.
This Subordinated Note is one of the Subordinated Notes issued
pursuant to the Agreement and is also entitled to the benefits thereof. If an
Event of Default (as defined in the Agreement) shall occur and be continuing,
the principal of this Subordinated Note may, under certain circumstances, become
or be declared due and payable in the manner and with the effect provided in
such Agreement. Subject to the terms of the Agreement, upon the occurrence or
existence of an Event of Default the holder of this Subordinated Note (the
"Holder") may, by notice to the Company, declare the entire unpaid principal
amount of this Subordinated Note, all interest accrued and unpaid hereon, and
all other amounts payable to the
Holder hereunder or under the Agreement to be forthwith due and payable,
whereupon this Subordinated Note, all such accrued interest and all such amounts
shall become and be forthwith due and payable, and in addition thereto, and not
in substitution for, the Holder shall be entitled to exercise any one or more of
the rights and remedies provided by applicable law. Failure to exercise any
right or remedy under this Subordinated Note or available under applicable law
shall not constitute a waiver of such option or such other remedies or of the
right to exercise any of the same in the event of any subsequent Event of
Default. The Company and all maker, sureties, guarantors, endorsers and other
persons assuming obligations pursuant to this Subordinated Note hereby waive
presentment, protest, demand, notice of dishonor and all other notices and all
defenses and pleas on the grounds of any extension or extension of the time of
payments or the due dates hereof, in whole or in part, before or after maturity,
with or without notice. No renewal or extension of this Subordinated Note, no
release of any obligor and no delay in enforcement of this Subordinated Note or
in exercising any right or power hereunder shall affect the liability of any
obligor hereunder.
1. Prepayment. As provided in the Agreement, this Subordinated Note
----------
is subject to optional prepayments in whole or in part, without any prepayment
charge, all as specified in the Agreement. If at any time there is a Change of
Control of the Company (as defined in the Agreement) then the Company shall,
immediately following the occurrence of any such event, send a notice to each
Holder offering to repurchase this Subordinated Note (or at each Holder's
option, any portion thereof) at the par amount thereof, plus interest accrued
and unpaid on this Subordinated Note to the date of such repurchase. If any
Holder desires to accept such offer in whole or in part, such Holder must advise
the Company of such acceptance within 30 days of the date of receiving such
notice. The Company shall then repurchase this Subordinated Note or portion
thereof so tendered for repurchase by such Holder by paying the purchase price
to the Holder (or any person or persons designated by such Holder in such
acceptance notice), in immediately available funds, within five days of the
Company's receipt of such Holder's acceptance notice. If Holder tenders only a
portion of this Subordinated Note, the Holder shall deliver this Subordinated
Note to the Company and the Company then shall issue to the Holder a new
subordinated note with the same interest rate, maturity date and other terms as
this Subordinated Note, representing the portion of the Subordinated Note not
repurchased by the Company.
-2-
2. Subordination.
-------------
2.1 Agreement to Subordinate. The Company, for its successors, and
------------------------
each Holder, by his acceptance of this Subordinated Note, agree that the payment
of the principal of or interest on or any other amounts due on this Subordinated
Note is subordinated in right of payment, to the extent and in the manner stated
in this Section 2, to the prior payment in full of all Senior Debt. For
purposes hereof, "Senior Debt" means the principal of, interest on (including
-----------
any interest accruing after the commencement of any bankruptcy proceeding or
which would have accrued but for such proceeding whether or not allowed) and
other amounts due on or with respect to (i) indebtedness of the Company, whether
outstanding on the date hereof or incurred, assumed or guaranteed by the
Company, for money borrowed from banks or other financial institutions and any
refinancings or refundings thereof; (ii) indebtedness of the company, whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed by the Company, which is not subordinated in right of payment or in
rights upon liquidation to any Senior Debt; and (iii) indebtedness of the
Company under interest rate swaps, caps or similar hedging agreements and
foreign exchange contracts, currency swaps or similar agreements.
2.2 Ranking with respect to Other Subordinated Indebtedness of the
--------------------------------------------------------------
Company. This Subordinated Note shall rank pari passu with all other
-------
Subordinated Debt of the Company. For purposes hereof, "Subordinated Debt"
-----------------
means any indebtedness of the Company, whether outstanding on the date hereof or
incurred, assumed or guaranteed by the Company, which is subordinated in right
of payment or in rights of upon liquidation to any Senior Debt.
2.3 No Payment on this Subordinated Note if Senior Debt in Default.
--------------------------------------------------------------
Anything in this Subordinated Note to the contrary notwithstanding, no payment
or other distribution on account of principal of or redemption of, interest on
or other amounts due on this Subordinated Note, and no redemption, purchase, or
other acquisition of this Subordinated Note, shall be made by or on behalf of
the Company (i) unless full payment of amounts then due for principal and
interest and of all other amounts then due on all Senior Debt has been made or
duly provided for in cash pursuant to the terms of the instrument governing such
Senior Debt, (ii) if, at the time of such payment, redemption, purchase or other
acquisition, or immediately after giving effect thereto, there shall exist under
any Senior Debt, or any agreement pursuant to which any Senior Debt is issued,
any default, which default shall not have been cured or waived and which default
shall have resulted in the full amount of such Senior Debt being due and payable
or (iii) if, at the time of
-3-
such payment, redemption, purchase or other acquisition, the Holder shall have
received written notice from the Holder or holders of any Senior Debt or their
representative or representatives (a "Payment Blockage Notice") that there
exists under such Senior Debt, or any agreement pursuant to which such Senior
Debt is issued, any default, which default shall not have been cured or waived,
permitting the holders there to declare the full amount of such Senior Debt due
and payable, but only for the period (the "Payment Blockage Period") commencing
on the date of receipt of the Payment Blockage Notice and ending (unless earlier
terminated by notice given to the Holder by the holders of such Senior Debt) on
the earlier of (a) the date on which such event of default shall have been cured
or waived or (b) 180 days from the receipt of the Payment Blockage Notice unless
payment or distribution with respect to this Subordinated Note are otherwise not
then permitted. Upon termination of Payment Blockage Period, payments on account
of principal of or interest on this Subordinated Note (other than amounts due
and payable by reason of the acceleration of the maturity of this Subordinated
Note) and redemptions, purchases or other acquisitions may be made by or on
behalf of the Company, if otherwise permitted hereunder. Notwithstanding
anything herein to the contrary, (A) only one Payment Blockage Notice may be
given during any period of 360 consecutive days with respect to the same event
of default and any other events of default on the same issue of Senior Debt
existing and known to the person giving such notice at the time of such notice
and (B) no new Payment Blockage Period may be commenced by the Holder or holders
of the same issue of Senior Debt or their representative or representatives
during any period of 360 consecutive days unless all events of default which
were the object of the immediately preceding Payment Blockage Notice, and any
other event of default on the same issue of Senior Debt existing and known to
the person giving such notice at the time of such notice, have been cured or
waived.
In the event that, notwithstanding the provisions of this Section 2.3,
payments are made by or on behalf of the Company in contravention of the
provisions of this Section 2.3, such payments shall be held by the Holders in
trust for the benefit of, and shall be paid over to and delivered to, the
holders of Senior Debt or their representative for application to the payment of
all Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt
in full accordance with the terms of such Senior Debt, after giving effect to
any concurrent payment or distribution to or for the holders of Senior Debt.
The company shall give prompt written notice to the Holder of any
event of default under any Senior Debt or under any agreement pursuant to which
any Senior Debt may have been issued.
-4-
So long as any Senior Debt remains unpaid, the Holders of these
Subordinated Notes will not accelerate, or cause to be accelerated, the
Subordinated Notes, or exercise any remedies with respect to any event of
default occurring with respect to the Subordinated Notes for a period of no less
than 180 days after the holders have delivered to the holders of the Senior Debt
notice of the occurrence of any event of default. If the event of default is
cured or waived or shall have ceased to exist within such 180 day period (and
payment of all amounts then due on the Subordinated Notes without acceleration
shall constitute a cure of any event of default resulting from the failure to
make such payment when due), then the holders shall not be entitled to declare
these Subordinated Notes due prior to their stated maturity because of such
event of default.
2.4 Distribution on Acceleration of this Subordinated Note;
-------------------------------------------------------
Dissolution and Reorganization; Subrogation of this Subordinated Note.
---------------------------------------------------------------------
(1) Upon (i) any acceleration of the principal amount due on this
Subordinated Note because of an Event of Default or (ii) any distribution of
assets of the Company upon any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or any other
dissolution, winding up, liquidation or reorganization of the Company):
(a) the holders of the Senior Debt shall first be entitled to
receive payment in full of the principal thereof, the interest thereon and any
other amounts due thereon before the Holder is entitled to receive payment on
account of the principal of or interest on or any other amounts due on the
Subordinated Note.
(b) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities (other than
securities of the Company as reorganized or readjusted or securities of the
Company or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Section 2 with respect to this Subordinated Note, to the
payment in full without diminution or modification by such plan of all Senior
Debt), to which the Holder would be entitled except for the provisions of this
Section 2, shall be paid by the liquidating trustee or agent or other person
making such a payment or distribution, directly to the holders of Senior Debt
(or their representative(s) or trustee(s) acting on their behalf), ratably
according to the aggregate amounts remaining unpaid on account of the principal
of
-5-
or interest on and other amounts due on the Senior Debt held or represented by
each, to the extent necessary to make payment in full of all Senior Debt
remaining unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Debt; and
(c) in the event that, notwithstanding the foregoing, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities shall be received by the Holder before all Senior
Debt is paid in full in cash, such payment or distribution shall be held in
trust for the benefit of, and be paid over to upon request by a holder of the
Senior Debt, the holders of the Senior Debt remaining unpaid (or their
representatives) or trustee(a) acting on their behalf, ratably as aforesaid, for
application to the payment of such Senior Debt until all such Senior Debt shall
have been paid in full, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
Subject to the payment in full of all Senior Debt, the Holder shall be
subrogated to the rights of the holders of Senior Debt to receive payments or
distributions of cash, property or securities of the Company applicable to the
Senior Debt until the principal of and interest on this Subordinated Note shall
be paid in full and, for purposes of such subrogation, no such payments or
distributions to the holders of Senior Debt of cash, property or securities
which otherwise would have been payable or distributable to the Holder shall, as
between the Company, its creditors other than the holders of Senior Debt, and
the Holder, be deemed to be a payment by the Company to or on account of the
Senior Debt, it being understood that the provisions of this Section 2 are and
are intended solely for the purpose of defining the relative rights of the
Holder, on the one hand, and the holders of Senior Debt, on the other hand.
Nothing contained in this Section 2 or elsewhere in this Subordinated
Note is intended to or shall impair, as between the Company and its creditors
other than the holders of Senior Debt, the obligation of the Company, which is
absolute and unconditional, to pay to the Holder the principal of and interest
on this Subordinated Note as and when the same shall become due and payable in
accordance with the terms of this Subordinated Note as and when the same shall
become due and payable in accordance with the terms of this Subordinated Note or
is intended to or shall affect the relative rights of the Holder and creditors
of the Company other than holders of Senior Debt, nor shall anything herein or
therein prevent the Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Subordinated Note, subject to the rights,
if any, under this Section 3 of the holders of Senior Debt in
-6-
respect of cash, property and securities of the Company received upon the
exercise of any such remedy. Upon distribution of assets of the Company referred
to in this Section 2 the Holder shall be entitled to rely upon a certificate of
the liquidating trustee or agent or other person making any distribution to the
Holder for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Debt and other indebtedness of the
Company, the amount hereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Section 2.
2.5 Reliance by Senior Debt on Subordination Provisions. The Holder
---------------------------------------------------
of this Subordinated Note by his acceptance thereof acknowledges and agrees that
the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration for each holder of any Senior Debt, whether such
Senior Debt was created or acquired before or after the issuance of this
Subordinated Note, to acquire and continue to hold, or to continue to hold, such
Senior Debt, and such holder of Senior Debt shall be deemed conclusively to have
relied on such subordination provisions in acquiring and continuing to hold, or
in continuing to hold, such Senior Debt. Notice of any default in the payment of
any Senior Debt, except as expressly stated in this Section 2, and notice of
acceptance of the provisions thereof are hereby expressly waived. Except as
otherwise expressly provided herein, no waiver, forbearance or release by any
holder of Senior Debt under such Senior Debt or under this Section 2 shall
constitute a release of any of the obligations or liabilities of the Holders
provided in this Section 2. Except as otherwise expressly provided herein, no
right of any present or future holder of Senior Debt to enforce the
subordination provisions hereof shall at any time or in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or any such
holder or by any noncompliance by the Company with the terms, provisions or
covenants of this Subordinated Note, regardless of any knowledge thereof which
such holder may have otherwise been charged with.
3. Transfer; Registration; Replacement. Upon surrender of this
-----------------------------------
Subordinated Note for registration of transfer or assignment, duly endorsed, or
accompanied by a written instrument of transfer or assignment duly executed, by
the registered Holder hereof or such Holder's attorney duly authorized in
writing, a new Subordinated Note for a like principal amount shall be issued to,
and, at the option of the Holder, registered in the name of, the transferee or
assignee. The Company may deem and treat the person in whose name this
Subordinated Note is registered as the Holder and owner hereof for the purpose
of receiving payments and for all other purposes
-7-
whatsoever, and the Company shall not be affected by any notice to the contrary.
IN WITNESS WHEREOF, the undersigned has caused this Subordinated Note
to be duly executed on its behalf as of the date first hereinabove set forth.
THE RIGHT START, INC.
By:
------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Executive Officer
-8-