THE RIGHT START, INC.
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SECURITIES PURCHASE AGREEMENT
Dated as of September 1, 2000
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$3,000,000 aggregate principal amount of
Senior Subordinated Convertible Pay-in-Kind Notes due September 1, 2005
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 1
Section 1.3. Representations of the Purchasers 2
Section 2. REPRESENTATIONS OF THE COMPANY 4
Section 2.1. Organization and Authority of the Company 5
Section 2.2. Business, Properties and Other
Information Regarding the Company 5
Section 2.3. Capital Stock 6
Section 2.4. Litigation; Observance of Statutes,
Regulations and Orders 6
Section 2.5. Title to Property 7
Section 2.6. Taxes 7
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 8
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 9
Section 2.16. Disclosure 9
Section 3. CONDITIONS OF CLOSING 10
Section 3.1. Proceedings Satisfactory 10
Section 3.2. Representations True; Officer's Certificate 10
Section 3.3. Purchase Permitted by Applicable Laws 10
Section 3.4. Securities 10
Section 3.5. Registration Rights Agreement 10
Section 3.6. Third-Party Consents 11
Section 4. CONVERSION OF THE NOTES 11
Section 4.1. Conversion 11
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Section 5. COVENANTS 11
Section 5.1. Payment of Notes 11
Section 5.2. Observance of Statutes, Regulations and Orders 11
Section 5.3. Corporate Existence 11
Section 5.4. Taxes 11
Section 5.5. Maintenance of Properties 11
Section 5.6. Books and Records 11
Section 5.7. Maintenance of Insurance 11
Section 5.8. Limitations on Transactions with Affiliates 12
Section 5.9. Investment Company Act 12
Section 5.10. Compliance with ERISA 12
Section 6. SEC REPORTS 12
Section 7. DEFINITIONS 12
Section 7.1. Definitions 12
Section 7.2. Accounting Terms 16
Section 8. EVENTS OF DEFAULT; REMEDIES 16
Section 8.1. Events of Default Defined; Acceleration of Maturity 16
Section 8.2. Annulment of Defaults 17
Section 8.3. Suits for Enforcement 18
Section 8.4. Remedies Cumulative 18
Section 8.5. Remedies Not Waived 18
Section 9. REGISTRATION, TRANSFER AND EXCHANGE OF SECURITIES;
LOST SECURITIES 19
Section 10. HOME OFFICE PAYMENT 19
Section 11. MISCELLANEOUS 19
Section 11.1. Indemnification 19
Section 11.2. Expenses 19
Section 11.3. Amendments, Waiver and Consents 20
Section 11.4. Reliance on and Survival of Representations 21
Section 11.5. Successors and Assigns 21
Section 11.6. Notices 21
Section 11.7. Counterparts 22
Section 11.8. Governing Law 22
Section 11.9. Waiver of Jury Trial 22
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Schedules
SCHEDULE I - Purchasers
SCHEDULE 2.13 - Insurance
Exhibits
EXHIBIT A - Form of Note
EXHIBIT B - Form of Registration Rights Agreement
EXHIBIT C - Form of Security Agreement
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THIS INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE
IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION AND
INTERCREDITOR AGREEMENT (AS SUCH SUBORDINATION AND INTERCREDITOR AGREEMENT
HEREAFTER MAY BE AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME,
THE "INTERCREDITOR AGREEMENT") DATED AS OF SEPTEMBER 1, 2000 AMONG ARBCO
ASSOCIATES, L.P., XXXXX XXXXXXXX NON-TRADITIONAL INVESTMENTS, L.P., XXXXX
XXXXXXXX DIVERSIFIED CAPITAL PARTNERS, L.P., XXXXX XXXXXXXX CAPITAL PARTNERS,
L.P., THE RIGHT START, INC. (THE "COMPANY") AND XXXXXX FINANCIAL, INC.
("AGENT"), TO THE INDEBTEDNESS (INCLUDING INTEREST) OWED BY THE COMPANY PURSUANT
TO THAT CERTAIN LOAN AND SECURITY AGREEMENT DATED AS OF NOVEMBER 14, 1996, AMONG
THE COMPANY, AGENT AND THE LENDERS FROM TIME TO TIME PARTY THERETO, AS SUCH LOAN
AND SECURITY AGREEMENT HAS BEEN AND HEREAFTER MAY BE AMENDED, SUPPLEMENTED OR
OTHERWISE MODIFIED FROM TIME TO TIME AND TO INDEBTEDNESS REFINANCING THE
INDEBTEDNESS UNDER THAT AGREEMENT AS CONTEMPLATED BY THE INTERCREDITOR
AGREEMENT; AND EACH HOLDER OF THIS INSTRUMENT, BY ITS ACCEPTANCE HEREOF,
IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE INTERCREDITOR AGREEMENT.
THE RIGHT START, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of September 1, 2000
To each of the Purchasers
Listed on Schedule I hereto
Ladies and Gentlemen:
The Right Start, Inc., a California corporation (the "Company"), 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 an issue of its Senior Subordinated
Convertible Pay-in-Kind Notes due September 1, 2005 (the "Notes") in the
aggregate principal amount of up to $3,000,000 plus the aggregate principal
amount of all Notes issued by the Company in lieu of the payment of interest in
cash. Each Note shall be in the form of Exhibit A and shall mature and be
payable and shall be otherwise as provided herein and therein.
As used herein, the term "Notes" shall include all notes originally issued
pursuant to this Securities Purchase Agreement (the "Agreement") and all notes
delivered in substitution or exchange for any of such notes or in lieu of the
payment of interest in cash and, where applicable, shall include the singular
number as well as the plural. The term "Note" shall mean one of the Notes. The
Notes 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."
Section 1.2. Purchase and Sale of Securities; the Closing. The Company
shall sell to the Purchasers and, subject to the terms and conditions hereof,
the Purchasers shall purchase from the Company Notes in an aggregate principal
amount of up to $3,000,000, at a purchase price equal to 100% of the aggregate
principal amount of the Notes.
The closing (the "Closing") of such purchase of the Securities shall be
held at 10:00 a.m., Los Angeles time, on September 1, 2000 (the "Closing Date"),
at the office of Milbank, Tweed, Xxxxxx & XxXxxx, LLP, Los Angeles, or at such
other time or place as the parties hereto may mutually agree.
On the Closing Date, the Company shall deliver to each Purchaser one or
more certificates representing the Notes, 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, 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 Subsequent Sale of Notes. If less than $3,000,000 in aggregate
principal amount of the notes are sold at the Closing, then, subject to the
terms and conditions of this Agreement, the Company may sell the unsold
remainder to an aggregate principal amount of $3,000,000 of Notes (as such
"Remainder Notes") to such Persons as the Board of Directors may determine, on
the same terms and conditions as those contained in this Agreement. The
purchasers of any Remainder Notes shall become, by their purchase thereof,
parties to this Agreement, the Registration Rights Agreement and the Security
Agreement and shall acknowledge their obligations under this Agreement, the
Registration Rights Agreement and the Security Agreement in a writing delivered
to the Company. Each Remainder Note shall be an additional obligation of the
Company and shall rank pari passu with and be subject to the same terms
(including the interest rate payable thereon) as any other Note except, as the
case may be, with respect to the issuance date and aggregate principal amount
thereof. Purchasers hereby agree to execute amendments to all UCC financing
statements perfecting the security interests granted to secure the Notes and any
Remainder Notes such that any subsequent Purchaser will also be named as a
secured party on all such financing statements.
Section 1.4. Representations of the Purchasers. Each Purchaser represents
and warrants to the Company that:
(a) Authorization.
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Such Purchaser has full power and authority to enter into this Agreement,
and that this Agreement, when executed and delivered, will constitute a valid
and legally binding obligation of the Purchaser.
(b) Purchase Entirely for Own Account.
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This Agreement is made with such Purchaser in reliance upon the Purchaser's
representation to the Company, which by its execution of this Agreement such
Purchaser hereby confirms, that the Securities to be purchased by such Purchaser
will be acquired for investment for such Purchaser's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and that such Purchaser has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, such Purchaser further represents that such Purchaser does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
(c) Reliance Upon Purchasers' Representations.
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Such Purchaser understands that the Securities are not registered under the
Securities Act on grounds that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, and that the Company's reliance
on such exemption is predicated on such Purchasers' representations set forth
herein. Such Purchaser realizes that the basis for the exemption may not be
present if, notwithstanding such representations, such Purchaser has in mind
merely acquiring the Securities for a fixed or determinable period in the
future, or for a market rise, or for sale if the market does not rise. Such
Purchaser has no such intention.
(d) Investment Experience.
---------------------
Such Purchaser represents that it is experienced in evaluating and
investing in private placement transactions and acknowledges that it is able to
fend for itself, can bear the economic risk of such Purchaser's investment, and
has such knowledge and experience in financial and business matters that such
Purchaser is capable of evaluating the merits and risks of the investment in the
Securities. Such Purchaser also represents that it has not been organized for
the purpose of acquiring the Securities.
(e) Accredited Investor.
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(1) The term "Accredited Investor" as used herein refers to:
(i) A person or entity who is a director or executive officer of
the Company;
(ii) Any bank as defined in Section 3(a)(2) of the Securities
Act, or any savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act whether acting in
its individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934 as
amended; any insurance company as defined in Section 2(13) of the
Securities Act; any investment company registered under the Investment
Company Act of 1940 as amended or a business development company as
defined in Section 2(a)(48) of that act; any Small Business Investment
Company licensed by the United States Small Business Administration
under Section 301(c) or (d) of the Small Business Investment Act of
1958 as amended; any plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its employees, if such
plan has total assets in excess of $5,000,000; any employee benefit
plan within the meaning of Title I of the Employee Retirement Income
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Security Act of 1974 as amended, if the investment decision is made by
a plan fiduciary, as defined in Section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are Accredited
Investors;
(iii) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940 as amended;
(iv) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000;
(v) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of the purchase exceeds
$1,000,000;
(vi) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with
that person's spouse in excess of $300,000 in each of those years and
has a reasonable expectation or reaching the same income level in the
current year;
(vii) Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities offered,
whose purchase is directed by a person who has such knowledge and
experience in financial and business matters that he or she is capable
of evaluating the merits and risks of the prospective investment; or
(viii) Any entity in which all of the equity owners are
Accredited Investors.
As used in this Paragraph 3.6(a), the term "net worth" means the excess of
total assets over total liabilities. For the purpose of determining a person's
net worth, the principal residence owned by an individual should be valued at
fair market value, including the cost of improvements, net of current
encumbrances. As used in this Section 1.4 (e)(1), "income" means actual economic
income, which may differ from adjusted gross income for income tax purposes.
Accordingly, the Purchaser should consider whether it should add any or all of
the following items to the Purchaser's gross income for income tax purposes in
order to reflect more accurately the Purchaser's actual economic income: any
amounts attributable to tax-exempt income received, losses claimed as a limited
partner in any limited partnership, deductions claimed for depletion,
contributions to an XXX or Xxxxx retirement plan, and alimony payments.
(2) Such Purchaser further represents to the Company that, except as
otherwise disclosed to the Company in writing prior to such Purchaser's
execution hereof, it is an Accredited Investor.
(f) Restricted Securities.
---------------------
The Purchaser understands that the Securities may not be sold, transferred,
or otherwise disposed of without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Securities or an available exemption from registration
under the Securities Act, the Securities must be held indefinitely.
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(g) Legends.
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To the extent applicable, each certificate or other document evidencing any
of the Securities shall be endorsed with the legends substantially in the form
set forth below:
(1) The following legend under the Securities Act:
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.
(2) Any legend imposed or required by the Company's Bylaws or
applicable state securities laws.
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 and 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.
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Section 2.2. Business, Properties and Other Information Regarding the Company.
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(a) The Company has delivered to each of the Purchasers copies of the (i)
audited report of the Company's independent accountants for the fiscal year
ended January 29, 2000 containing balance sheets of the Company as of the last
day of the fiscal year ended January 29, 2000, and the related statements of
operations, shareholders' equity and cash flows of the Company for the fiscal
year ended January 29, 2000 and (ii) the unaudited balance sheets and the
related statements of operations, shareholders' equity and cash flows of the
Company for the period ended April 29, 2000 (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,
shareholders' 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 April
29, 2000, 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, including the closures of two stores, or as are otherwise disclosed in
the reports filed by the Company pursuant to the Exchange Act.
(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 April 29, 2000, 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 that has not been disclosed in the Company's Exchange Act
reports or otherwise in writing to the Purchasers 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 will 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.
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") and 250,000
shares of preferred stock ("Preferred Stock"). On the date hereof and on the
Closing Date, 5,614,175 shares of Common Stock and 83,833 shares of Preferred
Stock are and will be issued and outstanding, all of which shares have been duly
and validly issued and are fully paid and nonassessable.
(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
6
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, and (ii) Warrants dated January 18, 2000 and August 8, 2000, to purchase
an aggregate of 30,000 shares of Common Stock issued to Xxxxxx Financial, Inc.
(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 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 Xxxxx Xxxxxxxx
to register shares of common stock owned by Xxxxx Xxxxxxxx, and (ii)
registration rights set forth in the Securities Purchase Agreements dated
January 18, 2000 and August 8, 2000, between the Company and Xxxxxx Financial,
Inc.
Section 2.4. Litigation; Observance of Statutes, Regulations and 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 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 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.
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Section 2.6. Taxes. The Company has filed all tax returns which are
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) 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 Company. The
consummation of the transactions contemplated by this Agreement 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 other than filings of Securities Act Form D, California Form
25102(f) and similar filings.
Section 2.9. Licenses and Permits. The Company possesses all 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.
---------------------
(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
business, 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 established or maintained, or to which
contributions are or have been made, by the Company or any Related Person or
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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 determined as of May 31, 1996 and on the
basis of PBGC assumptions 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 incurrence 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
The Right Start, Inc. 401(k) Plan and securities of the Company are not employer
securities with respect to any employee benefit plan other than the above listed
plans. 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 transaction 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.
9
Section 2.12. Environmental Compliance. The Company has obtained and 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 Company.
Section 2.13. Maintenance of Insurance. The Company carries 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.
Section 2.14. Labor Relations. To the best knowledge of the Company, no
material unfair labor practice complaint or 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 Persons.
The Company has not assumed, guaranteed, endorsed or otherwise become 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 copies of
its Annual Report on Form 10-K for the fiscal year ended January 29, 2000, and
its quarterly report on Form 10-Q for the period ended April 29, 2000, which
include the Financial Statements (the "Exchange Act Documents"). Such documents
are true, accurate and complete in all material respects. Neither this
Agreement, the Financial Statements, the Exchange Act 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. 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 Exchange Act Documents or in writing by them to
Purchaser and that now, or in the future in their opinion may, insofar as they
can now reasonably foresee, have a Materially Adverse Effect on 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 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 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.
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Section 3.2. Representations True; Officer's Certificate. All
representations and warranties of the Company contained in Section 2 shall be
true in all material respects, 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 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 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 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 and Security Agreement. The
Company shall have entered into the Registration Rights Agreement substantially
in the form set forth as Exhibit B hereto and the Security Agreement
substantially in the form set forth as Exhibit C hereto. The Company shall have
executed UCC-1 Financing Statements for filing in each jurisdiction in which the
Company has assets that provide security in accordance with the Security
Agreement.
Section 3.6. Third-Party Consents. The Company shall have received all
third party and governmental consents and waivers (including, but not limited
to, the consent of any holder of Senior Debt (as defined in the Notes))
necessary to permit consummation of the transactions contemplated hereunder.
Section 4. CONVERSION OF THE NOTES.
Section 4.1. Conversion. The Notes shall be subject to mandatory prepayment
by the Company as set forth in the Notes.
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. The Company shall pay the principal of and
interest on the Notes on the date and in the manner provided in the Notes and
this Agreement.
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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.
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. Limitations on Transactions with Affiliates. Except as
contemplated in connection with issuance of its Series D Convertible Preferred
Stock, 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, unless, in the opinion of the
Company's Board of Directors, such transaction is on terms comparable to those
generally available on an arm's-length basis.
Section 5.9. Investment Company Act. The Company shall not become an
investment company subject to registration under the Investment Company Act of
1940, as amended.
Section 5.10. 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 thereunder, which are applicable to any Plan. The Company
shall not 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.
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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 Exchange Act.
The Company will cause any quarterly and annual reports, proxy statements and
any other documents which it mails to its shareholders to be mailed to 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 accountants 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
Section 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.
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"Capital Lease" means any lease of property that, in accordance with GAAP,
should be capitalized on the lessee's balance sheet or for which the amount of
the asset and liability thereunder, if so capitalized, should be disclosed in a
note to such balance sheet; and "Capital Lease Obligation" means the amount of
the liability with respect to a Capital Lease that should be so capitalized or
disclosed.
"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 2.10.
"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.
"Company" means The Right Start, Inc., a California corporation.
"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 2.10.
"Events of Default" has the meaning ascribed thereto in Section 8.1.
"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.
"Exchange Act Documents" has the meaning ascribed thereto in Section 2.16.
"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.
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"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 lesser 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.
"Xxxxx Xxxxxxxx" means Xxxxx Xxxxxxxx Investment Management, Inc., Xxxxx
Xxxxxxxx Capital Advisors , L.P., Xxxxx Xxxxxxxx Non-Traditional Investments,
L.P., Xxxxx Xxxxxxxx Offshore Limited, ARBCO Associates, L.P., Xxxxx Xxxxxxxx
Diversified Capital Partners, L.P., and Xxxxx Xxxxxxxx Capital Partners, 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.
15
"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;
(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 limited liability company, a limited liability 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.
"Remainder Notes" has the meaning ascribed thereto in Section 1.1.
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"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.
"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.
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 of the principal 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 Section 5 and any such failure shall not be cured by full
performance thereof within thirty (30) days after written notice thereof
shall have been given to the Company by Holders of not less than 25% in
aggregate principal amount of the Notes; or
(c) Any material representation or warranty made by the Company in
this Agreement or by the Company (or any officers of the 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 sixty (60) days after written notice thereof
shall have been given to the Company by Holders of not less than 25% in
aggregate principal amount of the Notes; or
17
(e) The Company shall (i) 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; (ii) 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; (iii)
suffer the entry of an order for relief in any involuntary case commenced
under said Title 11; (iv) 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; (v) 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, (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 of 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.
Upon the occurrence of any Event of Default, and in any such event, Holders of
not less than 25% in aggregate principal amount of the Notes may, by notice to
the Company, declare the entire unpaid principal amount of the Notes and all
other amounts payable to such Holders under such Notes or this Agreement to be
immediately due and payable, whereupon such Notes and all such amounts shall
become and be immediately 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 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, Holders of not less than 25% in aggregate principal
amount of the Notes may proceed to protect and enforce the rights of Holders,
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 Holders may
proceed to enforce the payment of all sums due upon the Notes or to enforce any
other legal or equitable right of Holders.
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
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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.
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 SECURITIES; LOST
SECURITIES. 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 Securities.
The Securities 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 Securities 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 the Notes, 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
Security, the Company at its expense shall execute and deliver in exchange
therefor one or more new Securities, as may be requested by such Holder, in the
same denomination or denominations as the Securities or Securities so
surrendered.
The Company and any agent of the Company may treat the Person in whose name
any Security is registered as the owner of such Security for the purpose of
receiving payment of the principal on any Note and for all other purposes
whatsoever.
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of any Security, and (in case of loss, theft or
destruction) of indemnity reasonably satisfactory to it, upon surrender and
cancellation of such Security or receipt of such indemnity, the Company shall
make and deliver in lieu of such Security a new Security in the same
denomination and, in the case of a Note, dated as of the date of surrender and
cancellation of such Note or receipt of such indemnity.
Notwithstanding the foregoing provisions of this Section, if any Security
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 Security 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 Security in lieu of such Security (or as a
19
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, 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. MISCELLANEOUS.
Section 11.1. Indemnification. The Company hereby agrees to indemnify,
exonerate and hold each Purchaser and each of their respective partners and
affiliates, and their shareholders, 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 11.2. Expenses. The Company and Purchasers each agree to pay all
their own costs and expenses in connection with the preparation, execution and
delivery of this Agreement, the Securities and other instruments and documents
to be delivered hereunder.
Section 11.3. Amendments, Waiver and Consents.
(a) Without Consent of Holders. The Company may amend this Agreement
or the Securities without consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency; or
(2) to make any change that does not adversely affect the rights
hereunder of any Holder.
(b) With Consent of Holders. The Company may amend this Agreement or
the Securities with the written consent of the Holders of at least a
majority in aggregate principal amount of the then outstanding Securities.
The Holders of a majority in aggregate principal amount of the Securities
then outstanding may also waive compliance in a particular instance by the
Company with any provision of this Agreement or the Securities.
20
However, without the consent of each Holder affected, an amendment or
waiver under this Section may not:
(1) reduce the amount of Securities whose Holders must consent to
an amendment or waiver;
(2) reduce the rate of or change the time for payment of interest
on any Security;
(3) reduce the principal of or change the fixed maturity of any
Security or alter the redemption provisions with respect thereto;
(4) make any Security payable in money other than that stated in
the Security;
(5) make any change in this sentence of this Section 11.3; or
(6) waive a default in the payment of the principal of, or
interest on, any Security.
To secure a consent of the Holders under this Section it shall not be
necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to Holders a notice briefly describing the amendment or
waiver.
(c) Revocation and Effect of Consents. Until an amendment or waiver
becomes effective, a consent to it by a Holder of a Security is a
continuing consent by the Holder and every subsequent Holder of a Security
or portion of a Security that evidences the same Indebtedness as the
consenting Holder's Security, even if notation of the consent is not made
on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to such Holder's Security or portion of a Security if the
Company receives notice of revocation before the date on which the Company
receives an officer's certificate certifying that the Holders of the
requisite principal amount of Securities have consented to the amendment or
waiver (or before such later date as may be required by law or stock
exchange rule.)
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then notwithstanding the provisions of the
immediately preceding paragraph, those persons who were Holders on such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No consent shall be valid or effective for more than 90 days after
such record date unless consents from Holders of the principal amount of
Securities required hereunder for such amendment or waiver to be effective shall
have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every Holder,
21
unless it is of the type described in any of clauses (1) through (6) of Section
11.3(b). In such case, the amendment or waiver shall bind each Holder of a
Security who has consented to it and every subsequent Holder of a Security that
evidences the same Indebtedness as the consenting Holder's Security.
Section 11.4. 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 of
this Agreement and the Notes, and shall continue in effect so long as any
Security is outstanding. Notwithstanding the foregoing, the agreements set forth
in Sections 8.3, 6 and 11.2 shall continue and survive regardless of whether any
Securities are sold hereunder or remain outstanding.
Section 11.5. 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 Securities. The Company may not assign its rights
under this Agreement.
Section 11.6. 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.
0000 Xxxxxxxx Xxxxxx Xxxxx Xxxx X
Xxxxxxxx Xxxxxxx, XX 00000
Attention: President
Facsimile: (000) 000-0000
with a copy to:
Milbank, Tweed, Xxxxxx & XxXxxx, LLP
000 X. Xxxxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
(b) If to the Holders, at the addresses set forth on the
signature page (in the case of the Purchaser) 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. 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)
22
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation.
Section 11.7. 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 11.8. Governing Law. This Agreement and the Securities and (unless
otherwise provided) all amendments, supplements, waivers and consents relating
hereto or thereto shall be governed by and construed in accordance with the laws
of the State of New York.
Section 11.9. 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 SECURITIES, OR ANY OTHER AGREEMENTS RELATING
TO THE SECURITIES 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.
[Remainder of page intentionally left blank]
23
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: /s/Xxxxx X. Xxxxx
-------------------------------
Xxxxx X. Xxxxx
Chief Executive Officer
The foregoing Agreement is hereby accepted as of the date first above written:
ARBCO Associates, L.P.
By: XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.,
its general partner
By: XXXXX XXXXXXXX CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By: /s/Xxxxxx X. Xxxxxx
---------------------------
Xxxxxx X. Xxxxxx
Address for Notices and Payments:
0000 Xxxxxx xx xxx Xxxxx, 0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
The foregoing Agreement is hereby accepted as of the date first above written:
XXXXX XXXXXXXX NON-TRADITIONAL INVESTMENTS, L.P.
By: XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.,
its general partner
By: XXXXX XXXXXXXX CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By: /s/Xxxxxx X. Xxxxxx
---------------------------
Xxxxxx X. Xxxxxx
Address for Notices and Payments:
0000 Xxxxxx xx xxx Xxxxx, 0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
The foregoing Agreement is hereby accepted as of the date first above written:
Xxxxx Xxxxxxxx Diversified Capital Partners, L.P.
By: XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.,
its general partner
By: XXXXX XXXXXXXX CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By: /s/Xxxxxx X. Xxxxxx
---------------------------
Xxxxxx X. Xxxxxx
Address for Notices and Payments:
0000 Xxxxxx xx xxx Xxxxx, 0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
The foregoing Agreement is hereby accepted as of the date first above written:
Xxxxx Xxxxxxxx Capital Partners, L.P
By: XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.,
its general partner
By: XXXXX XXXXXXXX CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By: /s/Xxxxxx X. Xxxxxx
---------------------------
Xxxxxx X. Xxxxxx
Address for Notices and Payments:
0000 Xxxxxx xx xxx Xxxxx, 0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
SCHEDULE I
AMOUNT OF
PURCHASERS NOTES PURCHASED
---------- ---------------
ARBCO Associates, L.P $1,000,000
Xxxxx Xxxxxxxx Non-Traditional Investments, L.P. 500,000
Xxxxx Xxxxxxxx Diversified Capital Partners, L.P. 300,000
Xxxxx Xxxxxxxx Capital Partners, L.P 200,000
-------------
TOTAL (Initial Closing): $2,000,000.00
=============
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.
This instrument and the rights and obligations evidenced hereby are
subordinate in the manner and to the extent set forth in that certain
Subordination and Intercreditor Agreement (as such subordination and
intercreditor agreement hereafter may be amended, supplemented or otherwise
modified from time to time, the "intercreditor Agreement") dated as of september
1, 2000 among ARBCO Associates, L.P., Xxxxx Xxxxxxxx Non-Traditional
Investments, L.P., Xxxxx Xxxxxxxx Diversified Capital Partners, L.P., Xxxxx
Xxxxxxxx Capital Partners, L.P., The Right Start, Inc. (the "Company") and
Xxxxxx Financial, Inc. ("Agent"), to the indebtedness (including interest) owed
by the Company pursuant to that certain Loan and Security Agreement dated as of
november 14, 1996, among the Company, Agent and the lenders from time to time
party thereto, as such Loan and Security Agreement has been and hereafter may be
amended, supplemented or otherwise modified from time to time and to
indebtedness refinancing the indebtedness under that agreement as contemplated
by the intercreditor Agreement; and each holder of this instrument, by its
acceptance hereof, irrevocably agrees to be bound by the provisions of the
intercreditor Agreement.
THE RIGHT START, INC.
SENIOR SUBORDINATED CONVERTIBLE PAY-IN-KIND NOTE DUE SEPTEMBER 1, 2005
$___________ Los Angeles, California
Note No. _________ _____ __, 200__
FOR VALUE RECEIVED, the undersigned, The Right Start, Inc., a California
corporation (the "Company"), promises to pay to ___________________ or
registered assigns, the principal sum of ______________ DOLLARS (or so much
thereof as shall not have been prepaid) on September 1, 2005, under the terms of
the Securities Purchase Agreement dated as of September 1, 2000 (the
"Agreement": capitalized terms used in this Note without definition shall have
the meanings ascribed to such terms in the Agreement) between the Company and
each of the purchasers named therein. Payments are to be made at the office of
the Company located at 0000 Xxxxxxxx Xxxxxx Xxxxx, Xxxxxxxx Xxxxxxx, Xxxxxxxxxx
in lawful money of the United States of America. The Company promises to pay
interest on the principal amount of this Note semi-annually on each December 1
and June 1 (each such date an "Interest Payment Date") at a rate of 8% per annum
commencing December 1, 2000. Interest on the Note will accrue from the most
recent date to which interest has been paid or, if no interest has been paid on
the Note, from the date of issuance. On each Interest Payment Date the Company
may, at its option and in its sole discretion, in lieu of the payment of
interest in cash on the Notes, pay interest on all outstanding Notes in whole,
or in part, through the issuance of additional notes ("PIK Notes") in
denominations (rounded if necessary to the nearest dollar) of one dollar and
integral multiples thereof, in an aggregate principal amount equal to the amount
of interest that would be payable on such Notes, if such interest were paid in
cash. On each such Interest Payment Date that the Company elects to deliver PIK
Notes, the Company shall issue and deliver PIK Notes to the Holder entitled to
such interest payment. The Company agrees (to the extent it may lawfully do so)
that it will not at any time insist upon, plead or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive the Company from paying
all or a portion of the principal of or interest on this Note as contemplated in
this Note, wherever enacted, now or at any time later in force, or that may
materially affect the covenants or the performance of this Note in any manner
inconsistent with its provisions. The Company expressly waives all benefit or
advantage of any such law, and will not hinder, delay or impede the execution of
any power granted to the Holders, but will suffer and permit the execution of
every such power as though no such law had been enacted. If a court of competent
jurisdiction prescribes that the Company may not waive its rights to take the
benefit or advantage of any stay or extension law or any usury law or other law
in accordance with the prior sentence, then the obligation to pay interest on
the Note shall be reduced to the maximum legal limit under applicable law
governing the interest payable in connection with the Note, and any amount of
interest paid by the Company that is deemed illegal shall be deemed to have been
a prepayment of principal (without penalty or premium) on the Note.
Each PIK Note is an additional obligation of the Company and shall be
governed by and entitled to the benefits of, and shall be subject to the terms
of the Agreement and shall rank pari passu with and be subject to the same terms
(including the interest rate from time to time payable thereon) as any other
Note (except, as the case may be, with respect to the issuance date and
aggregate principal amount). Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of issuance of the Notes. Interest will be computed on the basis
of a 360-day year consisting of twelve 30-day months and compounded
semi-annually. Interest shall be paid to the holder of record of this Note on
the Company's records (the "Holder") at the close of business on the date that
is 10 business days prior to the Interest Payment Date immediately preceding
such Interest Payment Date. The Company shall pay principal of and interest on
this Note in such coin or currency of the United States of America as at the
time of payment shall be legal tender. The Company may, however, pay principal
of this Note by wire transfer of federal funds, or interest on this Note by its
check payable in such legal tender or, to the extent provided above, in PIK
Notes.
This Note is one of the Notes (which includes PIK Notes and Remainder
Notes)_ issued pursuant to the Agreement and is also entitled to the benefits
thereof. If an Event of Default shall occur and be continuing, the principal of
this 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 and this Note, upon the occurrence or existence of an
Event of Default the Holder may, by notice to the Company, declare the entire
unpaid principal amount of this Note and all other amounts payable to the Holder
hereunder or under the Agreement to be forthwith due and payable, whereupon this
Note and all such amounts shall become and be immediately 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 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 makers, sureties, guarantors,
endorsers and other persons assuming obligations pursuant to this 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 Note, no
release of any obligor and no delay in enforcement of this Note or in exercising
any right or power hereunder shall affect the liability of any obligor
hereunder.
1. Subordination.
-------------
1.1 Agreement to Subordinate. The Company, for its successors, and each
Holder, by his acceptance of this Note, agree that the payment of the principal
of or any other amounts due on this Note is subordinated in right of payment, to
the extent and in the manner stated in this Section 1 and any separate agreement
between the Holder and any other creditor of the Company (including, without
limition pursuant to the Intercreditor Agreement), 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.
1.2 Ranking with Respect to Other Subordinated Indebtedness of the Company.
This 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 liquidation to any Senior
Debt.
1.3 No Payment on this Note if Senior Debt in Default. Anything in this
Note to the contrary notwithstanding, no payment or other distribution on
account of principal of or redemption of, or other amounts due on this Note, and
no redemption, purchase, or other acquisition of this 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 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 thereof 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 Note are otherwise not then permitted. Upon
termination of a Payment Blockage Period, payments on account of principal of
this Note (other than amounts due and payable by reason of the acceleration of
the maturity of this 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 1.3,
payments are made by or on behalf of the Company in contravention of the
provisions of this Section 1.3, 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 Holders of any event of
default under any Senior Debt or under any agreement pursuant to which any
Senior Debt may have been issued.
So long as any Senior Debt remains unpaid, the Holder shall not accelerate,
or cause to be accelerated, the Notes, or exercise any remedies with respect to
any Event of Default occurring with respect to the 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 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
Notes due prior to their stated maturity because of such Event of Default.
1.4 Distribution on Acceleration of this Note; Dissolution and
Reorganization; Subrogation of this Note. Upon (a) any acceleration of the
principal amount due on this Note because of an Event of Default or (b) 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 any other amounts due on this 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 1 with
respect to this 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 1, 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 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(s) 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 this Note shall be paid in full. For purposes
of such subrogation, no such payments or distributions to the holders of Senior
Debt of cash, property or securities that 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 1 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 1, or elsewhere in this 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 this Note as and when the
same shall become due and payable in accordance with the terms of this 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 Note, subject to the rights, if any,
under this Section 1 of the holders of Senior Debt in 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 1, 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
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Section 1.
1.5 Reliance by Senior Debt on Subordination Provisions. The Holder of this
Note by acceptance hereof 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 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 1, 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 1 shall constitute a release of any of
the obligations or liabilities of the Holders provided in this Section 1. 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 Note, regardless of any knowledge
hereof with which such holder may have otherwise been charged.
2. Conversion.
----------
2.1 Right to Convert. Any time, and from time to time, each Holder shall
have the option to convert all or any of the principal of this Note into that
number of fully paid and non-assessable shares of Common Stock (calculated as to
each conversion to the nearest 1/100th of a share) obtained by dividing the
principal amount of this Note and all accrued and unpaid interest by (i) at any
time prior to the issuance of not less than $2,000,000 in equity securities by
the Company (an "Equity Issuance"),$5.20 per share and (ii) at any time after an
Equity Issuance, the product of (A) the most recent sale price of the Company's
common stock, no par value per share, as quoted on the Nasdaq National Market or
in the over-the-counter market, if then so traded, on date of the agreement
pursuant to which the Equity Issuance is made multiplied by (B) 130%, in each
case, as adjusted from time to time as provided herein (the "Conversion Price")
and by surrender of such Note so to be converted in the manner provided in
Section 2.2 below. The Conversion Price shall be subject to adjustment and
readjustment from time to time as set forth in Section 3.3 below.
2.2 Mechanics of Conversion. In order to exercise the conversion privilege,
the Holder of this Note shall surrender this Note to the Secretary of the
Company at the Company's principal offices, and shall give written notice (the
"Conversion Notice") to the Company that such Holder elects to convert all or a
specified principal amount of this Note and stating in such Conversion Notice,
such Holder's name or the name or names of such Holder's nominees in which such
Holder wishes the certificate or certificates for Common Stock to be issued,
duly endorsed by such Holder. As promptly as practicable after the surrender of
this Note and the receipt of the Conversion Notice as aforesaid, the Company
shall issue and deliver at such office to such Holder, or to such Holder's
nominee or nominees, a certificate or certificates representing the number of
shares of Common Stock and a check or cash with respect to any fractional
interest in a share of Common Stock to which such Holder shall be entitled as
aforesaid in accordance with the following paragraph and, if less than the
entire principal amount of Notes surrendered are being converted, a Note, with
the same terms as this Note, in a principal amount equal to the portion of the
principal amount of this Note that is not being converted. Any conversion made
at the election of a Holder shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of this Note, and the
Person or Persons entitled to receive the Common Stock issuable upon conversion
shall be treated for all purposes as the record holder or holders of such Common
Stock on such date.
Upon conversion of this Note, the Company shall forever be released form all its
obligations and liabilities under this Note.
2.3 Adjustments to Conversion Price. In case at any time or form time to
time after the issuance date of this Note the Company shall, subject to the
restrictions set forth in Section 2.4 of this Note:
(a) pay a dividend or make a distribution on its Common Stock in
shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a greater
number of shares, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares,
then in each such case the Conversion Price in effect immediately prior to such
action shall be adjusted so that the Holder of this Note thereafter surrendered
for conversion shall be entitled to receive the number of shares of Common Stock
or other capital stock of the Company that such Holder would have owned or been
entitled to receive immediately following such action had such Note been
converted immediately prior to the occurrence of such event. An adjustment made
pursuant to this subsection shall become effective immediately after the record
date, in the case of a dividend or distribution, or immediately after the
effective date, in the case of a subdivision or combination.
2.4 No impairment. The Company will not through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the Holders against
impairment. Without limiting the generality of the foregoing, the Company (i)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid nonassessable shares of stock
on the conversion of the Notes, and (ii) will not take any action which results
in any adjustment of the Conversion Price if the total number of shares of
Common Stock issuable after the action upon the conversion of all of the Notes
will exceed the total number of shares of Common Stock then authorized by the
Restated Articles and available for the purpose of issue upon such conversion.
3. Transfer; Registration; Replacement. Upon surrender of this 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 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 Note is registered as the Holder
and owner hereof for the purpose of receiving payments and for all other
purposes whatsoever, and the Company shall not be affected by any notice to the
contrary.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed on its behalf as of the date first hereinabove set forth.
THE RIGHT START, INC.
By:________________________________
Xxxxx X. Xxxxx
Chief Executive Officer
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of
September 1, 2000 between The Right Start, Inc., a California corporation (the
"Company"), and ARBCO Associates, L.P., a California limited partnership, Xxxxx
Xxxxxxxx Non-Traditional Investments, L.P., a California limited partnership,
Xxxxx Xxxxxxxx Diversified Capital Partners, L.P., a California limited
partnership, Xxxxx Xxxxxxxx Capital Partners, L.P., a California limited
partnership and each assignee of a Note and each purchaser of a Remainder Note
as defined in the Purchase Agreement referenced below (each individually a
"Purchaser," and collectively the "Purchasers").
WHEREAS, the Company and Purchasers have entered into a Securities Purchase
Agreement dated as of September 1, 2000 (the "Purchase Agreement"; capitalized
terms used in this Agreement without definition shall have the meanings ascribed
to such terms in 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 holding, or entitled to hold
upon conversion, not less than 50% of the Company's Common Stock,
no par value ("Common Stock"), issued or issuable upon conversion
of the Senior Subordinated Convertible Pay-in-Kind Notes due
September 1, 2005 (including such notes issued as PIK Notes and
Remainder Notes, the "Notes"), issued by the Company to
Purchasers pursuant to the Purchase Agreement may request
registration for sale under the Securities Act of 1933 as amended
(the "Act") of all or part of such Common Stock. 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 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 not be required to
comply with more than two (2) requests by Purchasers for demand
registration pursuant to this Section 1.1(a). 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 180 days 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(a)(iii) for a period not exceeding
90 days (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(a),
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.
(b) 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. If the Company withdraws a registration statement
under this Section 1.1(b) in respect of a registration for which
the Company would otherwise be required to pay expenses under
Section 1.4 hereof, Purchasers shall be liable to the Company for
all expenses of such registration specified in Section 1.4 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.
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 X-0, Xxxx X-0, 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 shareholders, 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 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), until Purchasers have completed the
distribution described in such registration statement or 180 days
if such filing is required to be made on Form S-1, 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;
(f) use its best efforts to cause all such shares to be listed on
securities exchanges or interdealer quotation systems (including
the NASDAQ National Market), on which similar securities issued
by the Company are then listed if any,;
(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 information
and 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 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 (each such
Purchaser, its partners and their officers and directors, and any
such other persons individually an "Indemnified Person" and
collectively "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
(in this Section 1.5 in the singular a "claim" and in the plural
"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
results 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 (each of the
Company, its officers and directors, and any such other persons
individually as an "Indemnified Person" and collectively
"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 statements 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 results
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 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 (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.
1.6 Subsequent Registration Statements. The Company shall not cause or
permit any new registration statements (except registration statements on Form
X-0, X-0, 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 Notes or the shares of Common Stock issuable upon exercise
thereof.
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 it 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 the 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 relating thereto, shall be governed
by and construed in accordance with the laws of New York (without regard to
conflicts of laws principles).
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.
0000 Xxxxxxxx Xxxxxx Xxxxx Xxxx X
Xxxxxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
with a copy (which shall not constitute notice) to:
Milbank, Tweed, Xxxxxx & XxXxxx, LLP
000 X. Xxxxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
(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. 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 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.
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:
---------------------------
Xxxxx X. Xxxxx
Chief Executive Officer
THE PURCHASERS:
ARBCO ASSOCIATES, L.P.
By: XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.,
its general partner
By: XXXXX XXXXXXXX CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By:
---------------------------
Xxxxxx X. Xxxxxx
Vice President
XXXXX XXXXXXXX NON-TRADITIONAL
INVESTMENTS, L.P.
By: XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.,
its general partner
By: XXXXX XXXXXXXX CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By:
---------------------------
Xxxxxx X. Xxxxxx
Vice President
Xxxxx Xxxxxxxx Diversified Capital Partners, L.P.
By: XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.,
its general partner
By: XXXXX XXXXXXXX CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By:
---------------------------
Xxxxxx X. Xxxxxx
Vice President
Xxxxx Xxxxxxxx Capital Partners, L.P.
By: XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.,
its general partner
By: XXXXX XXXXXXXX CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By:
---------------------------
Xxxxxx X. Xxxxxx
Vice President
EXHIBIT C
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement") dated as of September 1, 2000 is
made among The Right Start, Inc. (the "Obligor") and the Lenders referred to
below.
The Securities Purchase Agreement dated as of September 1, 2000 (the
"Purchase Agreement") between the Obligor and the investors identified in the
Purchase Agreement (together with any assignees and any purchasers of Remainder
Notes, the "Lenders") provides, subject to its terms and conditions, for certain
loans to the Obligor. It is a condition to the obligations of the Lenders under
the Purchase Agreement that the Obligor executes and delivers, and grants the
Liens provided for in, this Agreement.
To induce the Lenders to enter into, and to extend credit under, the
Purchase Agreement and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Obligor agrees to pledge
and grant a security interest in the Collateral as security for the Secured
Obligations. Accordingly, the Obligor agrees with the Lenders as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms.Unless otherwise defined, all capitalized terms
used in this Agreement that are defined in the Purchase Agreement or the Notes
(including terms incorporated by reference) shall have the respective meanings
assigned to them in the Purchase Agreement or the Notes. In addition, the
following terms shall have the following meanings under this Agreement:
"Accounts" shall have the meaning assigned to that term in Section 2.01(a).
"Basic Documents" shall mean the Purchase Agreement, the Notes, the
Registration Rights Agreement and this Agreement, collectively.
"Casualty Event" shall mean, with respect to any property of any Person,
any loss of or damage to, or any condemnation or other taking of, such property
for which such Person receives insurance proceeds, or proceeds of a condemnation
award or other compensation.
"Collateral" shall have the meaning assigned to that term in Section 2.01.
"Copyright Collateral" shall mean all Copyrights, whether now owned or in
the future acquired by the Obligor.
"Copyrights" shall mean, collectively, (a) all copyrights, copyright
registrations and applications for copyright registrations, (b) all renewals and
extensions of all copyrights, copyright registrations and applications for
copyright registration and (c) all rights, now existing or in the future coming
into existence, (i) to all income, royalties, damages and other payments
(including in respect of all past, present or future infringements) now or in
the future due or payable under or with respect to any of the foregoing, (ii) to
xxx for all past, present and future infringements with respect to any of the
foregoing and (iii) otherwise accruing under or pertaining to any of the
foregoing throughout the world.
"Documents" shall have the meaning assigned to that term in Section
2.01(e).
"Equipment" shall have the meaning assigned to that term in Section
2.01(d).
"Governmental Approvals" shall mean any authorization, application,
consent, approval, order, consent decree, license, franchise, lease, ruling,
permit, tariff, rate, certification, exemption, filing or registration by or
with any Governmental Authority.
"Governmental Authority" shall mean any government, governmental or
quasi-governmental department, ministry, commission, board, bureau, agency,
regulatory authority, instrumentality of any government (central or local),
judicial, legislative or administrative body, domestic or foreign, federal,
state or local, having jurisdiction over the Person or matter in question.
"Instruments" shall have the meaning assigned to that term in Section
2.01(b).
"Intellectual Property" shall mean all Copyright Collateral, all Patent
Collateral and all Trademark Collateral, together with (a) all inventions,
processes, production methods, proprietary information, know-how and trade
secrets; (b) all licenses or user or other agreements granted to the Obligor
with respect to any of the foregoing, in each case whether now or in the future
owned or used, including the licenses or other agreements with respect to the
Copyright Collateral, the Patent Collateral or the Trademark Collateral; (c) all
information, customer lists, identification of suppliers, data, plans,
blueprints, specifications, designs, drawings, recorded knowledge, surveys,
engineering reports, test reports, manuals, materials standards, processing
standards, performance standards, catalogs, computer and automatic machinery
software and programs; (d) all field repair data, sales data and other
information relating to sales or service of products now or in the future
manufactured; (e) all accounting information and all media in which or on which
any information or knowledge or data or records may be recorded or stored and
all computer programs used for the compilation or printout of that information,
knowledge, records or data; (f) all Governmental Approvals now held or in the
future obtained by the Obligor in respect of any of the foregoing; and (g) all
causes of action, claims and warranties now owned or in the future acquired by
the Obligor in respect of any of the foregoing. Intellectual Property shall
include all of the foregoing owned or acquired by the Obligor on a worldwide
basis.
"Inventory" shall have the meaning assigned to that term in Section
2.01(c).
"Lien" shall mean, with respect to any property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
property or any agreement to give, or notice of, any of the foregoing.
"Obligations" means all obligations of every nature of Obligor from time to
time owed to Lenders under the Basic Documents or for fees or expenses,
reimbursements and indemnifications and other amounts due or to become due
thereunder. Time is of the essence in the performance of all Obligations, except
as otherwise expressly provided in the Basic Documents.
"Patent Collateral" shall mean all Patents, whether now owned or in the
future acquired by the Obligor.
"Patents" shall mean, collectively, (a) all patents and patent
applications, (b) all reissues, divisions, continuations, renewals, extensions
and continuations-in-part of all patents or patent applications and (c) all
rights, now existing or in the future coming into existence, (i) to all income,
royalties, damages, and other payments (including in respect of all past,
present and future infringements) now or in the future due or payable under or
with respect to any of the foregoing, (ii) to xxx for all past, present and
future infringements with respect to any of the foregoing and (iii) otherwise
accruing under or pertaining to any of the foregoing throughout the world,
including all inventions and improvements described or discussed in all such
patents and patent applications.
"Registration Rights Agreement" means that certain Registration Rights
Agreement of even date with this Agreement entered into by and among the Obligor
and the Lenders.
"Secured Obligations" shall mean (a) any and all Obligations and (b) any
and all obligations of the Obligor for the performance of its agreements,
covenants and undertakings under or in respect of the Basic Documents.
"Trademark Collateral" shall mean all Trademarks, whether now owned or in
the future acquired by the Obligor. Notwithstanding the foregoing, the Trademark
Collateral shall not include any Trademark that would be rendered invalid,
abandoned, void or unenforceable by reason of its being included as part of the
Trademark Collateral.
"Trademarks" shall mean, collectively, (a) all trade names, trademarks and
service marks, logos, trademark and service xxxx registrations and applications
for trademark and service xxxx registrations, (b) all renewals and extensions of
any of the foregoing and (c) all rights, now existing or in the future coming
into existence, (i) to all income, royalties, damages and other payments
(including in respect of all past, present and future infringements) now or in
the future due or payable under or with respect to any of the foregoing, (ii) to
xxx for all past, present and future infringements with respect to any of the
foregoing and (iii) otherwise accruing under or pertaining to any of the
foregoing throughout the world, together, in each case, with the product lines
and goodwill of the business connected with the use of, or otherwise symbolized
by, each such trade name, trademark and service xxxx.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as
in effect in the State of California from time to time or, by reason of
mandatory application, any other applicable jurisdiction.
1.02 Xxxxxxxxxxxxxx.Xx this Agreement, unless otherwise indicated, the
singular shall include the plural and plural the singular; words importing any
gender shall include the other gender; references to statutes or regulations
shall be construed as including all statutory or regulatory provisions
consolidating, amending or replacing the statute or regulation referred to;
references to "writing" shall include printing, typing, lithography and other
means of reproducing words in a tangible visible form; the words "including"
"includes" and "include" shall be deemed to be followed by the words "without
limitation"; references to articles, sections (or subdivisions of sections),
exhibits, annexes or schedules are to this Agreement; references to agreements
and other contractual instruments shall be deemed to include all subsequent
amendments, extensions and other modifications to those instruments (without,
however, limiting any prohibition on any such amendments, extensions or
modifications by the terms of the Basic Documents); and references to Persons
shall include their respective successors and permitted assigns and, in the case
of Governmental Authorities, Persons succeeding to their respective functions
and capacities.
ARTICLE II
COLLATERAL
2.01 Xxxxx.Xx collateral security for the prompt payment in full when due
(whether at stated maturity, upon acceleration, on any optional or mandatory
prepayment date or otherwise) and performance of the Secured Obligations, the
Obligor hereby pledges and grants to the Lenders, a security interest in all of
the Obligor's right, title and interest in and to the following property,
whether now owned or in the future acquired by the Obligor and whether now
existing or in the future coming into existence (collectively, the
"Collateral"):
(a) all accounts and general intangibles (each as defined in the Uniform
Commercial Code) of the Obligor constituting a right to the payment of money,
whether or not earned by performance, including all moneys due and to become due
to the Obligor in repayment of any loans or advances, in payment for goods
(including Inventory and Equipment) sold or leased or for services rendered, in
payment of tax refunds and in payment of any guarantee of any of the foregoing
(collectively, the "Accounts");
(b) all instruments, chattel paper or letters of credit (each as defined in
the Uniform Commercial Code) of the Obligor evidencing, representing, arising
from or existing in respect of, relating to, securing or otherwise supporting
the payment of, any of the Accounts (collectively, the "Instruments");
(c) all inventory (as defined in the Uniform Commercial Code) and all other
goods of the Obligor that are held by the Obligor for sale, lease or furnishing
under a contract of service (including to its Affiliates), that are so leased or
furnished or that constitute raw materials, work in process or material used or
consumed in its business, including all spare parts and related supplies, all
goods obtained by the Obligor in exchange for any such goods, all products made
or processed from any such goods and all substances, if any, commingled with or
added to any such goods (collectively, the "Inventory");
(d) all equipment (as defined in the Uniform Commercial Code) and all other
goods of the Obligor that are used or acquired for use primarily in its
business, including all spare parts and related supplies, all goods obtained by
the Obligor in exchange for any such goods, all substances, if any, commingled
with or added to those goods and all upgrades and other improvements to those
goods, in each case to the extent not constituting Inventory (collectively, the
"Equipment");
(e) all documents of title (as defined in the Uniform Commercial Code) or
other receipts of the Obligor covering, evidencing or representing Inventory or
Equipment (collectively, the "Documents");
(f) all contracts and other agreements of the Obligor relating to the sale
or other disposition of all or any part of the Inventory, Equipment or Documents
and all rights, warranties, claims and benefits of the Obligor against any
Person arising out of, relating to or in connection with all or any part of the
Inventory, Equipment or Documents of the Obligor, including any such rights,
warranties, claims or benefits against any Person storing or transporting any
such Inventory or Equipment or issuing any such Documents;
(g) all other accounts or general intangibles of the Obligor not
constituting Accounts, including, to the extent related to all or any part of
the other Collateral, all books, correspondence, credit files, records,
invoices, tapes, cards, computer runs and other papers and documents in the
possession or under the control of the Obligor or any computer bureau or service
company from time to time acting for the Obligor;
(h) all other tangible and intangible property of the Obligor, including
all Intellectual Property (except to the extent such property has been licensed
to Obligor's subsidiary); and
(i) all proceeds and products in whatever form of all or any part of the
other Collateral, including all proceeds of insurance and all condemnation
awards and all other compensation for any Casualty Event with respect to all or
any part of the other Collateral (together with all rights to recover and
proceed with respect to the same), and all accessories to, substitutions for and
replacements of all or any part of the other Collateral.
2.02 Perfection.Concurrently with the execution and delivery of this
Agreement, or within 5 business days thereafter, the Obligor will (i) file such
financing statements and other documents in such offices as are necessary or as
the Lenders may reasonably request to perfect and establish the priority of the
Liens granted by this Agreement, (ii) deliver and pledge to the Lenders any and
all Instruments, endorsed or accompanied by such instruments of assignment and
transfer in such form and substance as the Lenders may request, and (iii) take
all such other actions as are necessary or as the Lenders may request to perfect
and establish the priority of the Liens granted by this Agreement.
2.03 Preservation and Protection of Security Interests.The Obligor will
give, execute, deliver, file or record any and all financing statements,
notices, contracts, agreements or other instruments, obtain any and all
Governmental Approvals and take any and all steps that may be necessary or as
the Lenders reasonably may request to create, perfect, establish the priority
of, or to preserve the validity, perfection or priority of, the Liens granted by
this Agreement or to enable the Lenders to exercise and enforce their rights,
remedies, powers and privileges under this Agreement with respect to those
Liens.
2.04 Use of Intellectual Xxxxxxxx.Xx long as no Event of Default has
occurred and is continuing, the Obligor shall be permitted to exploit, use,
enjoy, protect, license, sublicense, assign, sell, dispose of or take other
actions with respect to the Intellectual Property in the ordinary course of the
business of the Obligor. In furtherance of the foregoing, so long as no Event of
Default has occurred and is continuing, the Lenders will from time to time, upon
the request of the Obligor, execute and deliver any instruments, certificates or
other documents, in the form so requested, which such Obligor certifies are
appropriate (in its judgment) to allow them to take any action permitted above.
The exercise of rights, remedies, powers and privileges under Section 5.01 by
the Lenders shall not terminate the rights of the holders of any licenses or
sublicenses previously granted by the Obligor in accordance with the first
sentence of this Section 2.05.
2.05 Xxxxxxxxxxx.Xx long as no Event of Default has occurred and is
continuing, the Obligor may retain for collection in the ordinary course of
business any Instruments obtained by it in the ordinary course of business, and
the Lenders will, promptly upon the request, and at the expense of, the Obligor,
make appropriate arrangements for making any Instruments pledged by the Obligor
available to the Obligor for purposes of presentation, collection or renewal.
Any such arrangement shall be effected, to the extent deemed appropriate by the
Lenders, against a trust receipt or like document.
2.06 Use of Xxxxxxxxxx.Xx long as no Event of Default has occurred and is
continuing, the Obligor shall, in addition to its rights under Sections 2.05 and
2.06, in respect of the Collateral contemplated in those sections, be entitled
to use and possess the other Collateral and to exercise its rights, title and
interest in all contracts, agreements, licenses and Governmental Approvals,
subject to the rights, remedies, powers and privileges of the Lenders under
Article V and to that use, possession or exercise not otherwise constituting an
Event of Default.
2.07 Rights and Obligations..
(a) The Obligor shall remain liable to perform its duties and obligations
under the contracts and agreements included in the Collateral in accordance with
their respective terms to the same extent as if this Agreement had not been
executed and delivered. The exercise by the Lenders of any right, remedy, power
or privilege in respect of this Agreement shall not release the Obligor from any
of its duties and obligations under those contracts and agreements. No Lender
shall have any duty, obligation or liability under those contracts and
agreements or in respect to any Governmental Approval included in the Collateral
by reason of this Agreement or any other Basic Document, nor shall any Lender be
obligated to perform any of the duties or obligations of the Obligor under any
such contract or agreement or any such Governmental Approval or to take any
action to collect or enforce any claim (for payment) under any such contract or
agreement or Governmental Approval.
(b) No Lien granted by this Agreement in the Obligor's right, title and
interest in any contract, agreement or Governmental Approval shall be deemed to
be a consent by any Lender to any such contract, agreement or Governmental
Approval.
(c) No reference in this Agreement to proceeds or to the sale or other
disposition of Collateral shall authorize the Obligor to sell or otherwise
dispose of any Collateral.
(d) No Lender shall be required to take steps necessary to preserve any
rights against prior parties to any part of the Collateral.
2.08 Termination.When all Secured Obligations have been paid in full, this
Agreement shall automatically terminate, and the Lenders will forthwith cause to
be assigned, transferred and delivered, against receipt but without any
recourse, warranty or representation whatsoever, any remaining Collateral and
money received in respect of the Collateral, to or on the order of the Obligor.
The Lenders will also execute and deliver to the Obligor upon that termination
such Uniform Commercial Code termination statements and such other documentation
as is reasonably requested by the Obligor to effect the termination and release
of the Liens granted by this Agreement on the Collateral.
ARTICLE III
REPRESENTATIONS
As of the date hereof and as of the date of each extension of credit by the
Lenders, the Obligor represents and warrants to each Lender as follows: 3.01
Title.The Obligor is the sole beneficial owner of the Collateral in which it
purports to xxxxx x Xxxx pursuant to this Agreement, and the Collateral is free
and clear of all Liens, except for the Liens granted by this Agreement, and
Liens granted to Xxxxxx Financial, Inc. in accordance with its loan documents
(the "Existing Security Agreement"), and any Lien permitted to be prior to such
granted Liens in the following sentence. The Liens granted by this Agreement in
favor of the Lenders have attached and constitute, or upon making of the filings
required under Section 2.02 will have, a perfected security interest in all of
that collateral (other than Intellectual Property registered or otherwise
located outside of the United States of America) prior to all other Liens (other
than the Liens pursuant to the Existing Security Agreement and Liens imposed for
taxes, assessments or charges not yet due or which are being contested in good
faith; carriers', mechanics', warehouseman's, artisans', service suppliers',
depositaries' or other like Liens; pledges or deposits in respect of workers'
compensation, unemployment insurance and other social security legislation;
Liens to secure performance contracts, leases, statutory obligations, surety and
appeal bonds and other like obligations; easements, rights or way, restrictions
and other similar encumbrances; Liens to secure purchase money indebtedness; and
any extension renewal or replacement of any such Liens).
ARTICLE IV
COVENANTS
4.01 Books and Records.The Obligor will:
(a) keep full and accurate books and records relating to the Collateral and
stamp or otherwise xxxx those books and records in such manner as the Lenders
reasonably may require in order to reflect the Liens granted by this Agreement;
(b) prior to filing, either directly or through an administrative agent,
licensee or other designee, any application for any Copyright, Patent or
Trademark, furnish to the Lenders prompt notice of that proposed filing; and
(c) permit representatives of the Lenders, upon reasonable notice, at any
time during normal business hours to inspect and make abstracts from its books
and records pertaining to the Collateral, permit representatives of the Lenders
to be present at the Obligor's place of business to receive copies of all
communications and remittances relating to the Collateral and forward copies of
any notices or communications received by the Obligor with respect to the
Collateral, all in such manner as the Lenders may request.
4.02 Removals, Etc.Without at least 30 days' prior written notice to the
Lenders, the Obligor will not (i) maintain any of its books and records with
respect to the Collateral at any office or maintain its principal place of
business at any place, or permit any Inventory or Equipment to be located
anywhere, other than at the address initially indicated for notices to it under
Section 6.02, at its store locations or at the warehouse in Pennsylvania at
which it currently keeps Inventory and Equipment or in transit from one of those
locations to another or (ii) change its corporate name, or the name under which
it does business, from the name shown on the signature pages to this Agreement.
4.03 Sales and Other Liens.Except with the authorization of the Lenders as
specified in Section 6.01, the Obligor will not dispose of any Collateral,
create, incur, assume or suffer to exist any Lien upon any Collateral or file or
suffer to be on file or authorize to be filed, in any jurisdiction, any
financing statement or like instrument with respect to all or any part of the
Collateral in which the Lenders are not named as the sole secured parties unless
such Lien is otherwise permitted under this Agreement or such financing
statement is filed with respect to such a permitted Lien.
4.04 Further Assurances.The Obligor will, from time to time upon the
written request of the Lenders, execute and deliver such further documents and
do such other acts and things as the Lenders may reasonably request in order
fully to effect the purposes of this Agreement.
ARTICLE V
REMEDIES
5.01 Events of Default, Etc.If any Event of Default has occurred and is
continuing:
(a) The Lenders in their discretion may require the Obligor to, and the
Obligor will, assemble the Collateral owned by it at such place or places,
reasonably convenient to both the Lenders and the Obligor, designated in the
Lenders request;
(b) the Lenders in their discretion may make any reasonable compromise or
settlement it deems desirable with respect to any of the Collateral and may
extend the time of payment, arrange for payment in installments, or otherwise
modify the terms of, all or any part of the Collateral;
(c) the Lenders in their discretion may, in its name or in the name of the
Obligor or otherwise, demand, xxx for, collect or receive any money or property
at any time payable or receivable on account of or in exchange for all or any
part of the Collateral, but shall be under no obligation to do so;
(d) the Lenders in their discretion may, upon 5 business days' prior
written notice to the Obligor of the time and place, sell, lease or otherwise
dispose of all or any part of the Collateral that is then in or subsequently
comes into the possession, custody or control of any other Lender or any of
their respective agents, at such place or places as the Lenders deem best, for
cash, for credit or for future delivery (without thereby assuming any credit
risk) and at public or private sale, without demand of performance or notice of
intention to effect any such disposition or of the time or place of any such
sale (except such notice as is required above or by applicable statute and
cannot be waived), and any Lender or any other Person may be the purchaser,
lessee or recipient of all or any part of the Collateral so disposed of at any
public sale (or, to the extent permitted by law, at any private sale) and
thereafter hold the same absolutely, free from any claim or right of whatsoever
kind, including any right or equity of redemption (statutory or otherwise), of
the Obligor, and the Obligor hereby waives and releases any such demand, notice
and right or equity. In the event of any sale, license or other disposition of
any of the Trademark Collateral, the goodwill connected with and symbolized by
the Trademark Collateral subject to that disposition shall be included, and the
Obligor will supply to the Lenders or their designee, for inclusion in that
sale, assignment or other disposition, all Intellectual Property relating to
that Trademark Collateral. The Lenders may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and that sale
may be made at any time or place to which the sale may be so adjourned; and
(e) the Lenders shall have, and in their discretion may exercise, all of
the rights, remedies, powers and privileges with respect to the Collateral of a
secured party under the Uniform Commercial Code (whether or not the Uniform
Commercial Code is in effect in the jurisdiction where those rights, remedies,
powers and privileges are asserted) and such additional rights, remedies, powers
and privileges to which a secured party is entitled under the laws in effect in
any jurisdiction where any rights, remedies, powers and privileges in respect of
this Agreement or the Collateral may be asserted, including the right, to the
maximum extent permitted by law, to exercise all voting, consensual and other
powers of ownership pertaining to the Collateral as if the Lenders were the sole
and absolute owners of the Collateral (and the Obligor will take all such action
as may be appropriate to give effect to that right).
The proceeds of, and other realization upon, the Collateral by virtue of
the exercise of remedies under this Section 5.01 shall be applied in accordance
with Section 5.04.
5.02 Deficiency.If the proceeds of, or other realization upon, the
Collateral by virtue of the exercise of remedies under Section 5.01 are
insufficient to cover the costs and expenses of that exercise and the payment in
full of the other Secured Obligations, the Obligor shall remain liable for any
deficiency.
5.03 Private Xxxx.Xx Lender shall incur any liability as a result of the
sale, lease or other disposition of all or any part of the Collateral at any
private sale pursuant to Section 5.01 conducted in a commercially reasonable
manner. The Obligor hereby waives any claims against any Lender that may arise
by reason of the fact that the price at which the Collateral may have been sold
at such a private sale was less than the price that might have been obtained at
a public sale or was less than the aggregate amount of the Secured Obligations,
even if the Lenders accept the first offer received and do not offer the
Collateral to more than one offeree.
5.04 Application of Proceeds.Except as otherwise expressly provided in this
Agreement or pursuant to the terms of any subordination agreement affecting the
Notes, the proceeds of, or other realization upon, all or any part of the
Collateral by virtue of the exercise of remedies under Section 5.01 and any
other cash at the time held by the Lenders under Section 5.01 shall be applied
by the Lenders:
First, to the payment of the costs and expenses of that exercise of
remedies, including reasonable out-of-pocket costs and expenses of the Lenders,
the fees and expenses of its agents and counsel and all other expenses incurred
and advances made by the Lenders in that connection;
Next, to the payment in full of the remaining Secured Obligations equally
and ratably in accordance with their respective amounts then due and owing or as
the Lenders holding the same may otherwise agree; and
Finally, subject to the rights of any other holders of any Lien in the
relevant Collateral, to the payment to the Obligor or as a court of competent
jurisdiction may direct of any surplus then remaining.
As used in this Section 5, "proceeds" of Collateral shall mean cash,
securities and other property realized in respect of, and distributions in kind
of, Collateral, including any property received under any bankruptcy,
reorganization or other similar proceeding as to the Obligor or any issuer of,
or account debtor or other obligor on, any of the Collateral.
ARTICLE VI
MISCELLANEOUS
6.01 Administration.Action permitted to be taken by Lenders under this
Agreement shall be permitted to be taken only upon approval of Lenders holding
not less than a majority of the aggregate outstanding principal amount of the
Notes.
6.02 Notices.All notices, requests and other communications provided for in
this Agreement shall be given or made in writing and delivered by hand or
courier service, mailed by certified or registered mail or sent by telecopy to
the intended recipient as specified below or, as to any party, at such other
address as is designated by that party in a notice to each other party. Except
as otherwise provided in this Agreement, all such communications shall be deemed
to have been duly given or made upon receipt.
To the Obligor: The Right Start, Inc.
0000 Xxxxxxxx Xxxxxx Xxxxx, Xxxx X
Xxxxxxxx Xxxxxxx, XX 00000
Telephone: 000.000.0000
Telecopy: 818.707.7132
Attention: President and General Counsel
To the Lenders: At the address set forth in the Purchase Agreement.
6.03 Expenses, Etc.The Obligor will pay all out-of-pocket expenses
(including reasonable counsels' fees and expenses) of each Lender in connection
with any enforcement or collection proceeding (including any bankruptcy,
reorganization, restructuring, "work out" or other similar proceeding) as to any
of the obligations of the Obligor under this Agreement, the negotiation of any
restructuring or "work out"(whether or not consummated) or the enforcement of
this Section 6.03. All amounts due under this Agreement not paid when due shall
bear interest until paid at a rate per annum equal to the post-default rate
under the Notes.
6.04 Xxxxxx.Xx failure or delay by any Lender in exercising any remedy,
right, power or privilege under this Agreement or any other Basic Document shall
operate as a waiver of that remedy, right, power or privilege, nor shall any
single or partial exercise of that remedy, right, power or privilege preclude
any other or further exercise of that remedy, right, power or privilege or the
exercise of any other remedy, right, power or privilege. The remedies, rights,
powers and privileges provided by this Agreement are cumulative and not
exclusive of any remedies, rights, powers or privileges provided by the other
Basic Documents or by law.
6.05 Amendments, Xxx.Xx provision of this Agreement may be waived, modified
or supplemented except by an instrument in writing signed by the Obligor and the
Lenders (as specified in Section 6.01). Any modification, supplement or waiver
shall be for such period and subject to such conditions as shall be specified in
the written instrument effecting the same and shall be binding upon each Lender
and the Obligor, and any such waiver shall be effective only in the specific
instance and for the purpose for which given.
6.06 Successors and Assigns.This Agreement shall be binding upon and inure
to the benefit of its parties and their respective successors and assigns. The
Obligor may not assign or transfer its rights or obligations under this
Agreement without the prior written consent of the Lenders (as specified in
Section 6.01).
6.07 Survival.Each representation and warranty made, or deemed to be made
by a notice of any extension of credit, in or pursuant to this Agreement shall
survive the making or deemed making of that representation and warranty, and no
Lender shall be deemed to have waived, by reason of making any extension of
credit, any Event of Default that may arise by reason of that representation or
warranty proving to have been false or misleading, notwithstanding that such or
any other Lender may have had notice or knowledge or reason to believe that such
representation or warranty was false or misleading at the time that extension of
credit was made.
6.08 Agreements Superseded.This Agreement supersedes all prior agreements
and understandings, written or oral, among the parties with respect to the
subject matter of this Agreement.
6.09 Severability.Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of that prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable that provision in any other jurisdiction.
6.10 Captions.The table of contents, captions and section headings
appearing in this Agreement are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
6.11 Counterparts.This Agreement may be executed in any number of
counterparts, all of that taken together shall constitute one and the same
instrument, and any of the parties to the Agreement may execute this Agreement
by signing any such counterpart. Delivery of an executed counterpart of a
signature page to this Agreement by hand or by telecopy shall be effective as
the delivery of a fully executed counterpart of this Agreement.
6.12 Governing Law; Submission to Jurisdiction.THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF
CALIFORNIA. THE OBLIGOR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE
UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA AND OF ANY
CALIFORNIA STATE COURT SITTING IN LOS ANGELES, CALIFORNIA FOR THE PURPOSES OF
ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE OBLIGOR IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
IN THE FUTURE HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
6.13 Waiver of Jury Trial.THE OBLIGOR AND THE LENDERS HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
26
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
THE RIGHT START, INC.
By:
---------------------------
Xxxxx X. Xxxxx
President and Chief Executive Officer
XXXXX XXXXXXXX CAPITAL
PARTNERS, L.P.
By: XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.,
its general partner
By: XXXXX XXXXXXXX CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By:
---------------------------
Xxxxxx X. Xxxxxx
Vice President
ARBCO ASSOCIATES, L.P.
By: XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.,
its general partner
By: XXXXX XXXXXXXX CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By:
---------------------------
Xxxxxx X. Xxxxxx
Vice President
XXXXX XXXXXXXX DIVERSIFIED
CAPITAL PARTNERS, L.P.
By: XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.,
its general partner
By: XXXXX XXXXXXXX CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By:
---------------------------
Xxxxxx X. Xxxxxx
Vice President
XXXXX XXXXXXXX NON-TRADITIONAL
INVESTMENTS, L.P.
By: XXXXX XXXXXXXX CAPITAL ADVISORS, L.P.,
its general partner
By: XXXXX XXXXXXXX CAPITAL INVESTMENT
MANAGEMENT, INC., its general partner
By:
---------------------------
Xxxxxx X. Xxxxxx
Vice President
