Exhibit 2
SHAREHOLDERS AGREEMENT
This SHAREHOLDERS AGREEMENT, dated as of December 28, 1998, is by and
among The Right Start, Inc., a California corporation (the "Company"), and ARBCO
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Associates, L.P., Xxxxx Xxxxxxxx Non-Traditional Investments, L.P., Xxxxx
Xxxxxxxx Offshore Limited, Offense Group Associates, L.P., Opportunity
Associates, L.P., Strategic Associates, L.P., Xxxxxx Xxxxxxx Strategic Partners
Fund, L.P., Xxxx Xxxxx, an individual, Xxxxxx X. Xxxx & Company Money Purchase
Plan, Xxxxxxx Xxxxxxx, an individual, and The Travelers Indemnity Company
(collectively, the "Series B Preferred Investors"), and ARBCO Associates, L.P.,
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Xxxxx Xxxxxxxx Non-Traditional Investments, L.P., Xxxxx Xxxxxxxx Offshore
Limited, Offense Group Associates, L.P. Opportunity Associates, L.P., Xxxx
Xxxxx, an individual, and Xxxxxx X. Xxxx & Company Money Purchase Plan,
(collectively, the "Series C Preferred Investors" and, together with the Company
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and the Series B Preferred Investors, the "Letter Agreement Parties"). The
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Series B Preferred Investors and the Series C Preferred Investors are
collectively referred to herein as the "Investors."
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W I T N E S S E T H
WHEREAS, each of the Letter Agreement Parties have entered into a
Letter Agreement dated as of April 6, 1998 (as amended through the date hereof,
the "Letter Agreement").
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WHEREAS, pursuant to the Letter Agreement, the Series B Preferred
Investors have agreed to exchange certain of their existing securities of the
Company for 30,000 shares of the Company's Series B Convertible Preferred Stock,
no par value per share (the "Series B Preferred Stock") and the Series C
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Preferred Investors have agreed to exchange certain of their existing securities
of the Company for 38,500 shares of the Company's Series C Convertible Preferred
Stock, no par value per share (the "Series C Preferred Stock") (such exchange
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transactions are referred to collectively herein as the "Exchange
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Transactions");
WHEREAS, in connection with the Exchange Transactions and in accordance
with the provisions of the Letter Agreement, the Company and the Investors
desire to set forth certain additional rights of the Investors with respect to
the Series B Preferred Stock and the Series C Preferred Stock;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. DEFINITIONS. Unless otherwise defined herein, terms defined
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in the Letter Agreement are used herein as therein defined, and the following
shall have (unless otherwise provided elsewhere in this Shareholders Agreement)
the following respective meanings (such meanings being equally applicable to
both the singular and plural form of the terms defined).
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"Agreement" means this Shareholders Agreement, including all
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amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to the Agreement as the same may be in effect
at the time such reference becomes operative.
"Common Stock" means the common stock of the Company, no par value per
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share.
"Company" has the meaning given to it in the caption of this
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Agreement.
"Conversion Stock" has the meaning given to it in Section 2(a) of this
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Agreement.
"Eligible Holder" has the meaning given to it in Section 2(a) of this
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Agreement.
"Initial Holders" means all holders of Preferred Stock on the
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Preferred Stock Issuance Date.
"Investors" has the meaning given to it in the caption of this
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Agreement.
"Letter Agreement" has the meaning given to it in the recitals of this
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Agreement.
"Preferred Stock" means collectively the Series B Preferred Stock and
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the Series C Preferred Stock.
"Preferred Stock Issuance Date" means the date on which the Company
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first issues any shares of Preferred Stock.
"Series B Preferred Stock" has the mean given to it in the caption of
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this Agreement.
"Series C Preferred Stock" has the mean given to it in the caption of
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this Agreement.
Section 2. PREEMPTIVE RIGHTS.
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(a) Subject to the limitations of (b) below, if the Company
proposes to offer additional securities (other than employee incentive stock
options or other stock options, securities issued in a public offering of the
Company's securities, securities of the Company issued in the acquisition of
another entity, or securities issued upon conversion or exercise of securities
outstanding on the date of issuance of such additional securities), then the
Company shall first offer (the "Offer") all such additional securities to the
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Initial Holders of the Preferred Stock (so long as such Initial Holder (an
"Eligible Holder"), on the date of such Offer (the "Offer Date"), continues to
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hold any shares of Preferred Stock or shares issued upon conversion of the
Preferred Stock ("Conversion Stock")) on terms no less favorable than the
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Company's proposed offering of additional shares. Such Offer shall be made on a
pro rata basis to all Eligible Holders, such calculation to be determined at any
given time for an Eligible Holder by dividing an amount equal to such Eligible
Holder's Percentage Share by an amount equal to the aggregate of all such
amounts for all Eligible Holders. An Eligible Holder's "Percentage Share" shall
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be calculated for
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each Eligible Holder by computing the amount equal to the lesser of (i) the
number of shares of Preferred Stock held by such holder on the Preferred Stock
Issuance Date or (ii) the number of shares of Preferred Stock held by such
Eligible Holder on the Offer Date (plus, if such holder then holds any
Conversion Stock, the number of shares of Preferred Stock which related to such
Conversion Stock prior to conversion of such Preferred Stock into such
Conversion Stock).
(b) Such preemptive rights shall not be transferable or
assignable in whole or in part and shall terminate with respect to any holder of
shares of Preferred Stock (or Conversion Stock, if any) upon the earlier of (1)
the transfer or assignment of such holder's shares of Preferred Stock (or
Conversion Stock) by such initial holder of the Preferred Shares or (2) the
fifth anniversary of the Preferred Stock Issuance Date.
(c) Each Eligible Holder shall have the right to purchase its
Percentage Share of such additional securities on the same terms as those of the
Company's proposed offer for a period of 30 days after the Company has given
written notice to such Eligible Holder of such proposed offer. Such right shall
expire at the end of such 30-day term.
Section 3. LEGEND.
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Each of the Holders agrees that substantially the following legend
shall be placed on the certificates representing any shares of Preferred Stock
owned by them:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RIGHTS AND
RESTRICTIONS CONTAINED IN A SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 28,
1998 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE ISSUER HEREOF)."
Section 4. MISCELLANEOUS.
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(a) Headings. The headings in this Agreement are for
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convenience of reference only and shall not control or affect the meaning or
construction of any provisions hereof.
(b) Notices. Any notice, request, consent, approval or other
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communication hereunder to be made pursuant to the provisions of this Agreement
shall be sufficiently given or made if in writing when delivered in person with
receipt acknowledged, two days after mailing or sending if sent by registered or
certified mail, return receipt requested, postage prepaid, the day after sending
if by overnight courier with guaranteed next day delivery or when sent by
facsimile to the party to whom directed if followed by telephone confirmation of
receipt, all at the following address:
(i) If to the Company to it at:
The Right Start, Inc.
0000 Xxxxxxxx Xxxxxx Xxxxx, Xxxx X
Xxxxxxxx Xxxxxxx, XX 00000
Attn: Corporate Secretary
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Telecopy: (000) 000-0000
Telephone: (000) 000-0000
(ii) If to the Investors, to each of them at:
their respective addresses set forth in the records of
the Company or at such other address as may be
substituted by notice given as herein provided.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Every notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, three (3) days after the same shall have been
deposited in the United States mail, one business day after sent by overnight
courier or on the day sent by facsimile.
(c) Applicable Law. This Agreement shall be governed by and
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construed in accordance with the internal laws of the State of California (i.e.,
without regard to its conflicts of law rules).
(d) Amendments; Waivers. This Agreement may not be amended,
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modified or supplemented, and no waivers of or consents to departures from the
provisions hereof may be given, unless consented to in writing by the Company
and each of the Eligible Holders in existence at the time of such amendment or
waiver.
(e) Counterparts. This Agreement may be executed in two or
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more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same Agreement.
[END OF TEXT]
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IN WITNESS WHEREOF, the parties hereto have executed this Shareholders
Agreement as of the day and year first above written.
THE RIGHT START, INC.
By: /s/ Xxxx X. Xxxxxx
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Xxxx Xxxxxx
Chief Financial Officer
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AGREED TO AND ACCEPTED AS OF THE DATE FIRST SET FORTH ABOVE
ARBCO Associates, L.P.
By: /s/ Xxxxx Xxxxxxxxxx
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Name: Xxxxx Xxxxxxxxxx
Title:
Xxxxx Xxxxxxxx Non-Traditional
Investments, L.P.
By: /s/ Xxxxx Xxxxxxxxxx
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Name: Xxxxx Xxxxxxxxxx
Title:
Xxxxx Xxxxxxxx Offshore Limited
By: /s/ Xxxxx Xxxxxxxxxx
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Name: Xxxxx Xxxxxxxxxx
Title:
Offense Group Associates, L.P.
By: /s/ Xxxxx Xxxxxxxxxx
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Name: Xxxxx Xxxxxxxxxx
Title:
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Opportunity Associates, L.P.
By: /s/ Xxxxx Xxxxxxxxxx
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Name: Xxxxx Xxxxxxxxxx
Title:
/s/ Xxxx Xxxxx
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Xxxx Xxxxx
Xxxxxx X. Xxxx & Company Money
Purchase Plan
By: /s/ Xxxxxx X. Xxxx
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Name: Xxxxxx X. Xxxx
Title: Trustee
Strategic Associates, L.P.
By: /s/ Xxxxx X. Xxxxxxx
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Name: Xxxxx X. Xxxxxxx
Title:
Xxxxxx Xxxxxxx Strategic Partners Fund, L.P.
By: /s/ Xxxxx X. Xxxxxxx
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Name: Xxxxx X. Xxxxxxx
Title:
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___________________________
Xxxxxxx Xxxxxxx
The Travelers Indemnity Company
By: /s/ Xxxxx Xxxxx
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Name: Xxxxx Xxxxx
Title: Senior Vice President
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