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July 30, 1997
Safety 1st, Inc.
000 Xxxxxxxx Xx.
Xxxxxxxx Xxxx, XX 00000
Ladies and Gentlemen:
Reference is made to that certain Stock and Warrant Purchase
Agreement (the "Purchase Agreement"), dated as of the date hereof, among Safety
lst, Inc. (the "Company"), BT Capital Partners, Inc. ("Investor"), and the other
parties identified therein, pursuant to which Investor is purchasing shares of
the Company's Series A Preferred Stock and Warrants to purchase shares of the
Company's Common Stock (collectively referred to herein as the "Shares").
Investor is a Small Business Investment Company ("SBIC")
licensed by the United States Small Business Administration ("SBA"). In order
for Investor to acquire and hold the Shares, it must obtain from the Company
certain representations and rights as set forth below. As a material inducement
to Investor to enter into the Purchase Agreement and to purchase the Shares, the
Company hereby makes the following representations and warranties and agrees to
comply with the following covenants:
1. SMALL BUSINESS MATTERS.
(a) The Company, together with its "affiliates" (as that term
is defined in Title 13, Code of Federal Regulations, Section 121.103), is a
"small business concern" within the meaning of the Small Business Investment Act
of 1958, as amended ("SBIA"), and the regulations thereunder, including Title
13, Code of Federal Regulations, Section 121.301(c). The information set forth
in the Small Business Administration Forms 480, 652 and Parts A and B of Form
1031 regarding the Company and its affiliates, when delivered to Investor, will
be accurate and complete and will be in form and substance acceptable to
Investor. Copies of such forms shall be completed and executed by the Company
and delivered to Investor at the closing of the sale of the Shares under the
Purchase Agreement (the "Closing").
(b) The proceeds from the sale of the Shares will be used by
the Company to (1) repay in part indebtedness due and payable under the Existing
Credit Agreement (as defined in the Purchase Agreement), (2) pay expenses
related to the
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transactions contemplated by the Purchase Agreement and (3) for ongoing working
capital requirements. No portion of such proceeds (i) will be used to provide
capital to a corporation licensed under the Small Business Investment Act of
1958, as amended ("SBIA"), (ii) will be used to acquire farm land, (iii) will be
used to fund production of a single item or defined limited number of items,
generally over a defined production period, and such production will constitute
the majority of the activities of the Company and its Subsidiaries (examples
include motion pictures and electric generating plants), or (iv) will be used
for any purpose contrary to the public interest (including, but not limited to,
activities which are in violation of law) or inconsistent with free competitive
enterprise, in each case, within the meaning of 13 C.F.R. Section 107.720.
(c) Neither the Company's nor any of its Subsidiaries' primary
business activity involves, directly or indirectly, providing funds to others,
the purchase or discounting of debt obligations, factoring or long-term leasing
of equipment with no provision for maintenance or repair, and neither the
Company nor any of its Subsidiaries is classified under Major Group 65 (Real
Estate) of the SIC Manual. The assets of the business of the Company and its
Subsidiaries (the "Business") will not be reduced or consumed, generally without
replacement, as the life of the Business progresses, and the nature of the
Business does not require that a stream of cash payments be made to the
Business's financing sources, on a basis associated with the continuing sale of
assets (examples of such businesses would include real estate development
projects and oil and gas xxxxx). (See 13 CFR Section 107.720)
(d) The proceeds from the sale of the Shares will not be used
substantially for a foreign operation; and at Closing or within one year
thereafter, no more than 49 percent of the employees or tangible assets of the
Company and its Subsidiaries will be located outside the United States (unless
the Company can show, to SBA's satisfaction, that the proceeds from the sale of
the Shares will be used for a specific domestic purpose). This subsection (d)
does not prohibit such proceeds from being used to acquire foreign materials and
equipment or foreign property rights for use or sale in the United States.
(e) To the best knowledge of the Company, each SBIC that owns
any Securities issued by the Company, together with a description of the kinds
and amounts of Securities held, are listed on Schedule I hereto. Without the
Investor's consent, the Company will not issue Securities to any SBIC in the
future if such issuance would cause Investor to be deemed to be a member of an
"Investor Group" in "Control" of the Company (as such terms are defined in 13
CFR Section 107.865).
2. SMALL BUSINESS MATTERS.
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(a) Regulatory Compliance Cooperation.
(i) In the event that Investor determines that it has a
Regulatory Problem, the Company agrees to take all such actions as are
reasonably requested by Investor in order (A) to effectuate and facilitate any
transfer by Investor of any Securities of the Company then held by Investor to
any Person designated by Investor, (B) to permit Investor (or any of its
Affiliates) to exchange all or any portion of the voting Securities then held by
such Person on a share-for-share basis for shares of a class of non-voting
Securities of the Company, which non-voting Securities shall be identical in all
respects to such voting Securities, except that such new Securities shall be
non-voting and shall be convertible into voting Securities on such terms as are
requested by Investor in light of regulatory considerations then prevailing, and
(C) to continue and preserve the respective allocation of the voting interests
with respect to the Company arising out of Investor's ownership of voting
Securities and/or provided for in the Voting Agreement before the transfers and
amendments referred to above (including entering into such additional agreements
as are requested by Investor to permit any Person(s) designated by Investor to
exercise any voting power which is relinquished by Investor upon any exchange of
voting Securities for nonvoting Securities of the Company); and the Company
shall enter into such additional agreements, adopt such amendments to this
Agreement, the Company's Articles of Organization and the Company's By-laws and
other relevant agreements and taking such additional actions, in each case as
are reasonably requested by Investor in order to effectuate the intent of the
foregoing. If Investor elects to transfer Securities of the Company to a
Regulated Holder in order to avoid a Regulatory Problem, the Company shall enter
into such agreements with such Regulated Holder as it may reasonably request in
order to assist such Regulated Holder in complying with applicable laws, and
regulations to which it is subject. Such agreements may include restrictions on
the redemption, repurchase or retirement of Securities of the Company that would
result or be reasonably expected to result in such Regulated Holder holding more
voting securities or total securities (equity and debt) than it is permitted to
hold under such laws and regulations.
(ii) In the event Investor has the right to acquire any of the
Company's Securities from the Company or any other Person (as the result of a
preemptive offer, pro rata offer or otherwise), at Investor's request the
Company will offer to sell to Investor non-voting Securities (or, if the Company
is not the proposed seller, will arrange for the exchange of any voting
securities for non-voting securities immediately prior to or simultaneous with
such sale) on the same terms as would have existed had Investor acquired the
Securities so offered and immediately requested their exchange for non-voting
Securities pursuant to subsection (i) above.
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(iii) In the event that any Affiliate of the Company ever
offers to issue any of its Securities to Investor, then the Company will cause
such Affiliate to enter into agreements with Investor substantially similar to
this Section 2(a) and Section 2(b) below.
(iv) In the event that the Company is required to authorize a
class of non-voting Securities in order to comply with the foregoing provisions
if the Investor has a Regulatory Problem, Investor agrees to take all such
actions as are reasonably requested by the Company in order (A) to provide the
Company with a sufficient period of time as is reasonably necessary to create
such class of non-voting Securities and (B) to reimburse the Company all its
reasonable expenses in order to create a class of non-voting Securities.
(b) INFORMATION RIGHTS AND RELATED COVENANTS.
(i) Promptly after the end of each fiscal year (but in any
event prior to February 28 of each year), the Company shall provide to Investor
a written assessment, in form and substance reasonably satisfactory to Investor,
of the economic impact of Investor's financing hereunder, specifying the
full-time equivalent jobs created or retained, the impact of the financing on
the consolidated revenues and profits of the Business and on taxes paid by the
Business and its employees (See 13 CFR Section 107.630(e)).
(ii) Upon the request of Investor or any of their Affiliates,
the Company will (A) provide to such Person such financial statements and other
information as such Person may from time to time reasonably request for the
purpose of assessing the Company's financial condition and (B) furnish to such
Person all information reasonably requested by it in order for it to prepare and
file SBA Form 468 and any other information reasonably requested or required by
any governmental agency asserting jurisdiction over such Person.
(iii) For a period of one year following the date hereof,
neither the Company nor any of its Subsidiaries will change its business
activity if such change would render the Company ineligible to receive financial
assistance from an SBIC under the SBIA and the regulations thereunder (within
the meanings of 13 CFR Sections 107.720 and 107.760(b)).
(iv) The Company will at all times comply with the
non-discrimination requirements of 13 C.F.R., Parts 112, 113 and 117.
3. STOCKHOLDER COOPERATION. The Company shall use its best
efforts to cause the provisions attached hereto as Exhibit A to be included in
the Voting Agreement.
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4. DEFINITIONS.
"Affiliate" means, with respect to any Person, (i) a director,
officer or stockholder of such Person, (ii) a spouse, parent, sibling or
descendant of such Person (or spouse, parent, sibling or descendant of any
director or executive officer of such Person), and (iii) any other Person that,
directly or indirectly through one or more intermediaries, Controls, or is
Controlled by, or is under common Control with, such Person.
"Control" means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Person" shall be construed broadly and shall include an
individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity (or any department, agency or political
subdivision thereof).
"Regulated Holder" means any holder of the Company's
Securities that is (or that is a subsidiary of a bank holding company that is)
subject to the various provisions of Regulation Y of the Board of Governors of
the Federal Reserve Systems, 12 C.F.R., Part 225 (or any successor to Regulation
Y).
"Regulatory Problem" means (i) any set of facts or
circumstances wherein it has been asserted by any governmental regulatory agency
(or Investor believes that there is a significant risk of such assertion) that
such Person (or any bank holding company that controls such Person) is not
entitled to hold, or exercise any material right with respect to, all or any
portion of the Securities of the Company which such Person holds or (ii) when
such Person and its Affiliates would own, control or have power (including
voting rights) over a greater quantity of Securities of the Company than is
permitted under any law or regulation or any requirement of any governmental
authority applicable to such Person or to which such Person is subject.
"Securities" means, with respect to any Person, such Person's
capital stock or any options, warrants or other Securities which are directly or
indirectly convertible into, or exercisable or exchangeable for, such Person's
capital stock (whether or not such derivative Securities are issued by the
Company). Whenever a reference herein to Securities refers to any derivative
Securities, the rights of Investor shall apply to such derivative Securities and
all underlying Securities directly or indirectly issuable upon conversion,
exchange or exercise of such derivative Securities.
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"Subsidiary" means, with respect to any Person, any other
Person of which the securities having a majority of the ordinary voting power in
electing the board of directors (or other governing body), at the time as of
which any determination is being made, are owned by such first Person either
directly or through one or more of its Subsidiaries.
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"Voting Agreement" means the Voting Agreement to be entered
into on the date of the Closing among the Company and certain shareholders of
the Company.
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Please indicate your acceptance of the terms of this letter
agreement by returning a signed copy to the undersigned.
BT CAPITAL PARTNERS, INC.
By: /s/ Xxxxx X. Xxxxxxx
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Name: Xxxxx X. Xxxxxxx
Title: Vice President
Agreed as of the date
first set forth above:
SAFETY 1ST, INC.
By: /s/ Xxxxxxx X. Xxxx
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Name: Xxxxxxx X. Xxxx
Title: President
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Schedule I
SBIC Securities
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BT Capital Partners, Inc. The Shares
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EXHIBIT A
INSERT INTO VOTING AGREEMENT
SECTION __. REGULATORY MATTERS.
(a) COOPERATION OF OTHER STOCKHOLDERS. Each Stockholder agrees
to cooperate with the Company in all reasonable respects in complying with the
terms and provisions of the letter agreement between the Company and Investor, a
copy of which is attached hereto as EXHIBIT __, regarding small business matters
(the "Small Business Sideletter"), including without limitation, voting to
approve amending the Company's Certificate of Incorporation, the Company's
by-laws or this Agreement in a manner reasonably requested by Investor or any
Regulated Holder (as defined in the Small Business Sideletter) entitled to make
such request pursuant to the Small Business Sideletter. Anything contained in
this Section __ to the contrary notwithstanding, no Stockholder shall be
required under this Section __ to take any action that would adversely affect in
any material respect such Stockholder's rights under this Agreement or as a
stockholder of the Company.
(b) COVENANT NOT TO AMEND. The Company and each Stockholder
agree not to amend or waive the voting or other provisions of the Company's
Articles of Organization, the Company's by-laws or this Agreement if such
amendment or waiver would cause any Regulated Holder to have a Regulatory
Problem (as defined in the Small Business Sideletter), provided that any such
Stockholder notifies the Company that it would have a Regulatory Problem
promptly after it has notice of such amendment or waiver.
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