SHAREHOLDERS AGREEMENT
TAG-ALONG RIGHTS AND VOTING RIGHTS
SHAREHOLDERS AGREEMENT, dated November 19, 2001 (this "Agreement"), among
F.A.O. XXXXXXX and QUALITY FULFILLMENT SERVICES, INC. (collectively, "Sellers"),
XXXX XXXXX, an individual ("Xxxx Xxxxx"), ARBCO Associates, L.P., Xxxxx Xxxxxxxx
Diversified Capital Partners, L.P., Xxxxx Xxxxxxxx Non-Traditional Investments,
L.P., Xxxxx Xxxxxxxx Offshore Limited and Xxxxx Xxxxxxxx Capital Partners, L.P.
(collectively, "Kayne Affiliates" and, together with Xxxx Xxxxx, "Holders") and,
with respect to certain provisions hereof, The Right Start, Inc. ("TRS").
R E C I T A L S:
Royal Vendex KBB N.V., Sellers, Toy Soldier, Inc. and TRS have entered into
an Asset Purchase Agreement, dated November 19, 2001 (the "APA"), pursuant to
which, among other things, Buyer shall purchase the Assets (as such term, and
each other capitalized term used herein without definition, is defined in the
APA) from Sellers upon the terms and subject to the conditions set forth in the
APA.
As partial payment of the Initial Purchase Price under the APA, Sellers
will receive Series H Contingent Convertible Preferred Stock (the "Convertible
Preferred Stock") initially convertible, upon approval of shareholders of TRS,
into an aggregate of 5,000,000 shares of common stock, no par value, of TRS (the
"Common Stock").
The Kayne Affiliates and Xxxx Xxxxx hold similar contingently convertible
preferred stock, or other securities convertible into, or exchangeable or
exercisable for, Common Stock ("Common Equivalents") and shares of Common Stock
(together with the shares issuable upon conversion, exercise or exchange of
Common Equivalents, the "Common Equivalent Shares") representing approximately
10.5 million Common Equivalent Shares.
The execution and delivery of this Agreement is a condition to the Closing
under the APA.
In consideration of the foregoing and the mutual agreements and covenants
hereinafter set forth, the parties hereto hereby agree as follows:
1. Tag-Along Rights. If any Holder proposes to sell or transfer
("Transfer") more than 1,000,000 Common Equivalent Shares held by such Holder to
a Person or group (as such term is used in Rule 13(d)(3) and 14(d)(2) of the
Exchange Act) who is not a Related Party of such Holder ("Third-Party"), in a
single transaction or a series of related transactions, then, at least fifteen
(15) days and no more than forty-five (45) days prior to any such Transfer, such
Holder shall provide to Sellers a notice (a "Tag-Along Notice") delivered to
Sellers at their address set forth herein, explaining the terms and conditions
of such Transfer (including the consideration payable) and identifying the name
and address of the Third-Party. Upon the written request of any Seller
("Tag-Along Request") made within ten (10) days after the day the Tag-Along
Notice is received by Sellers, the Holder proposing to make the Transfer shall
cause the Third-Party to purchase from Sellers on the same date (i) in the case
of a Transfer of Common Stock by such Holder at a time when Sellers hold a
sufficient number of shares of Common Stock to participate as set forth in the
following formula, a number of shares of Common Stock equal to (A) the quotient
of (1) the total number of Common Equivalent Shares to be Transferred divided by
(2) the total number of outstanding Common Equivalent Shares held by all
Holders, multiplied by (B) the total number of Common Equivalent Shares held by
Sellers, at the same price and on terms and conditions at least as favorable to
Sellers as the more favorable of the terms and conditions contained in the
Tag-Along Notice delivered in connection with such proposed transaction or the
terms actually received by such Holder or (ii) in the event that such Holder
does not Transfer Common Stock or Sellers do not then hold a sufficient number
of shares of Common Stock to participate as set forth in the above formula, a
number of Common Equivalent Shares computed as set forth above at the price per
Common Equivalent Share that would most nearly result in the same economic
benefits and cost per Common Equivalent Share to the Third-Party, as determined
by an independent third party valuation firm chosen by such Holder and
reasonably acceptable to Sellers and the Third-Party. To the extent that (i) a
Holder seeks to Transfer Common Stock at a time when Sellers do not own a
sufficient number of shares of Common Stock to participate in accordance with
the above formula and the Third-Party is unwilling to purchase Common
Equivalents from Sellers, (ii) the Third-Party is unwilling to purchase Common
Equivalents from Sellers that differ in type from the Common Equivalents offered
to the Third-Party by such Holder or (iii) the Third-Party is unwilling to
accept a valuation prepared by an independent third party valuation firm, such
Holder shall not make the proposed Transfer. To the extent a Holder does not
receive a Tag-Along Request with respect to Common Equivalent Shares for which
such Holder has provided a Tag-Along Notice within the time period noted above,
the Holder providing the Tag-Along Notice may sell the shares proposed to be
Transferred as set forth in the Transfer Notice. At any time prior to the
consummation of the Transfer, a Seller may withdraw any Tag-Along Request made
pursuant to this Agreement. If the Third-Party is unwilling to purchase all of
the additional securities that would be sold as a result of the rights set forth
herein, then the number of securities sold by each party shall be cut back
pro-rata so that the number of securities sold by each party bear the same
relation to each other as the number of securities that could have been sold if
the Third-Party had been willing to purchase the full amount.
Notwithstanding the foregoing, (i) Sellers shall have no rights under this
Section 1 with respect to any Transfer by a Holder to the extent such Transfer
is in the form of a distribution to withdrawing partners from such Holder or
otherwise among Related Parties of such Holder (provided in the case of
Transfers among Related Parties of such Holder the Person who will hold the
Transferred securities after such Transfer becomes a party to this Agreement
prior to such Transfer); (ii) in connection with a call written against the
stock held by any Holder or a put right written with respect to stock held by a
Holder, the rights under this Section 1 shall not arise until exercise of such
put or call; and (iii) Sellers agree that Common Equivalents held in a separate
account for the benefit of others shall not be considered held by a Holder for
purposes of this Agreement.
2. Voting Agreement. Each of Xxxx Xxxxx and each of the Kayne Affiliates
severally agrees with Sellers that he/it will vote all securities of TRS held by
him/it which are entitled to vote thereon in favor of all matters necessary to
permit the conversion of the Convertible Preferred Stock. Each of Xxxx Xxxxx and
each of the Kayne Affiliates represents and warrants to Sellers that they
jointly own sufficient shares of Common Stock or securities convertible into
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Common Stock to cause TRS's shareholders to approve the conversion feature of
the Convertible Preferred Stock and an increase in the number of authorized
shares of Common Stock sufficient to permit the conversion of the Convertible
Preferred Stock.
3. Further Assurances. Sellers and Holders shall cooperate fully with each
other to enable the parties to fulfill their obligations and responsibilities
hereunder. Sellers and Holders shall use all reasonable efforts to take, or
cause to be taken, all appropriate action, do or cause to be done all things
necessary, proper or advisable under applicable laws, and execute and deliver
such documents and other papers as may be required or appropriate to carry out
the provisions of this Agreement and to consummate, perform and make effective
the transactions contemplated hereby.
4. Term. This Agreement shall be effective as of the Effective Time and
shall terminate on the date Sellers no longer hold any capital stock of TRS (he
"Term").
5. Amendments. This Agreement may not be amended except in a writing signed
by, or on behalf of, all parties hereto.
6. Notices. All notices, consents, instructions and other communications
required or permitted under this Agreement (collectively, "Notice") shall be
effective only if given in writing and shall be considered to have been duly
given when (i) delivered by hand, (ii) sent by telecopier (with receipt
confirmed), provided that a copy is mailed (on the same date) by certified or
registered mail, return receipt requested, postage prepaid, or (iii) received by
the addressee, if sent by Express Mail, Federal Express or other reputable
express delivery service (receipt requested), or by first class certified or
registered mail, return receipt requested, postage prepaid. Notice shall be sent
in each case to the appropriate addresses or telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may from time to
time designate as to itself by notice similarly given to the other parties in
accordance herewith, which shall not be deemed given until received by the
addressee). Notice shall be given:
to Sellers at:
Royal Vendex KBB X.X.
Xx Xxxxxxx 0, XX-0000 XX Amsterdam
Postbus 7997, 1008, AD Amsterdam
Attention: Xxxxxx Xxxxx/Xxxx ter Hark
The Netherlands
Tel: 00.00.0000.000
Fax: 00.00.0000.000
Email: xxxx.xxx.xxxx@xxxxxxxxx.xx
with a required copy to (which, in and of itself,
shall not constitute notice):
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Kronish Xxxx Xxxxxx & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
Email: xxxxxxxxxx@xxxxxxx.xxx
and to TRS at:
The Right Start, Inc.
00000 Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: General Counsel
Tel: (000) 000-0000
Fax: (000) 000-0000
Email: xxxxxxx@xxxxxxxxxx.xxx
with required copy to (which, in and of itself,
shall not constitute notice):
Fulbright & Xxxxxxxx L.L.P.
000 Xxxxx Xxxxxxxx Xxxxxx 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxx Xxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
Email: xxxx@xxxxxxxxx.xxx
and to the Kayne Affiliates at:
Xxxxx Xxxxxxxx Investment Management, Inc.
1800 Avenue of the Stars, Xxxxxx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Fax: 000-000-0000
and to Xxxx Xxxxx at:
Xxxx Xxxxx
Fortune Fashions
1800 Avenue of the Stars, Xxxxx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Fax: 000-000-0000
7. Governing Law. This Agreement will be governed by and construed under
the laws of the State of New York without regard to conflicts-of-laws principles
that would require the application of any other law.
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8. Specific Performance. Sellers and Holders agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that, in the event of a breach or threatened breach of this Agreement,
Sellers and Holders shall be entitled to specific performance, injunctive or
other equitable relief, in addition to any other remedy available at law or in
equity, without posting bond or other undertaking.
9. Non-Compliant Transfers. Sellers and Holders agree that Transfers
attempted to be made in violation of this Agreement shall be void. TRS agrees
that it shall not (i) register Transfers of Common Equivalents or Common Stock
by Xxxx Xxxxx or any Kayne Affiliate on its books nor issue new stock
certificates in connection with any such Transfer or (ii) remove or cause the
removal of any legend with respect to legended Common Stock proposed to be
Transferred by Xxxx Xxxxx or a Kayne Affiliate, in each case, until it shall
first have received a copy of a Tag-Along Notice with respect to the securities
proposed to be Transferred and then only in accordance with such Tag-Along
Notice and any related Tag-Along Request received after the Tag-Along Notice and
prior to such action by TRS; provided, however, that TRS shall have no
obligation under this Agreement with respect to freely tradeable Common Stock.
Holders agree to submit the certificates representing the Common Equivalent
Shares held by them to TRS for legending and TRS shall legend such certificates
with the following legend:
"Transfer of these securities is subject to the terms and
conditions of that certain Shareholders Agreement--Tag-Along
Rights and Voting Rights, dated November 19, 2001, and any
transfer in violation of that agreement is void."
10. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be adjusted
rather than voided, if possible, in order to achieve the intent of the parties
to this Agreement to the extent possible, without invalidating or adjusting the
remaining provisions hereof, and any such prohibition, unenforceability or
adjustment in any jurisdiction shall not invalidate, render unenforceable or
adjust such provision in any other jurisdiction.
11. Successors and Assigns; Assignment. All covenants and agreements in
this Agreement to be performed by or on behalf of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the
parties. Sellers shall not assign their rights under this Agreement without the
consent of Holders (which may be withheld in their sole and absolute
discretion). Notwithstanding the foregoing, either Seller may assign its rights
under this Agreement to any Related Party of such Seller without the consent of
Holders. Until such time as TRS is notified in writing of any such assignment,
TRS, in performing its obligations hereunder, shall be entitled to treat Sellers
as the parties entitled to all of Sellers' rights under this Agreement.
12. Descriptive Headings. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
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13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement. The exchange of copies of this Agreement and of
signature pages by facsimile transmission shall constitute effective execution
and delivery of this Agreement as to the parties and may be used in lieu of the
original Agreement for all purposes. Signatures of the parties transmitted by
facsimile shall be deemed to be their original signatures for all purposes.
14. Effectiveness and Termination. This Agreement is entered into in
anticipation of the Closing, and shall not be effective unless and until the
Closing shall occur. This Agreement shall terminate automatically to the extent
the APA shall be terminated prior to Closing.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed,
by their respective duly authorized officers, as of the date first above
written.
ARBCO ASSOCIATIONS, L.P.
By:/s/ Xxxxx Xxxxxxxxxx
Its: General Counsel
XXXXX XXXXXXXX DIVERSIFIED CAPITAL PARTNERS, L.P.
By:/s/ Xxxxx Xxxxxxxxxx
Its: General Counsel
XXXXX XXXXXXXX NON-TRADITIONAL
INVESTMENTS, L.P.
By:/s/ Xxxxx Xxxxxxxxxx
Its: General Counsel
XXXXX XXXXXXXX OFFSHORE LIMITED
By:/s/ Xxxxx Xxxxxxxxxx
Its: General Counsel
XXXXX XXXXXXXX CAPITAL PARTNERS, L.P.
By:/s/ Xxxxx Xxxxxxxxxx
Its: General Counsel
/s/ Xxxx Xxxxx
Xxxx Xxxxx
F.A.O. XXXXXXX
By: /s/ Xxx Xxxxxxx
Its:CEO
QUALITY FULFILLMENT SERVICES, INC.
By: /s/ Xxx Xxxxxxx
Its:CEO
With respect to Sections 6, 9, 10, 11 & 13
THE RIGHT START, INC.
By: /s/ Xxxxx X. Xxxxx
Its: President and CEO
