0000950172-01-500797.txt : 20011008 0000950172-01-500797.hdr.sgml : 20011008 ACCESSION NUMBER: 0000950172-01-500797 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20010918 GROUP MEMBERS: KENNETH ABDALLA GROUP MEMBERS: VINCENT SMITH SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: RIGHT START INC /CA CENTRAL INDEX KEY: 0000878720 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 953971414 STATE OF INCORPORATION: CA FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-42042 FILM NUMBER: 1739460 BUSINESS ADDRESS: STREET 1: 5388 STERLING CENTER DR CITY: WESTLAKE VILLAGE STATE: CA ZIP: 91361 BUSINESS PHONE: 8187077100 MAIL ADDRESS: STREET 1: 5388 STERLING CENTER DRIVE CITY: WESTLAKE VILLAGE STATE: CA ZIP: 91361 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ATHANOR HOLDINGS LLC CENTRAL INDEX KEY: 0001159200 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 9130 SUNSET BLVD CITY: LOS ANGELES STATE: CA ZIP: 90069 BUSINESS PHONE: 3107897215 MAIL ADDRESS: STREET 1: 9130 SUNSET BLVD CITY: LOS ANGELES STATE: CA ZIP: 90069 SC 13D 1 s367450.txt SCHEDULE 13D ------------------------------- OMB APPROVAL ------------------------------- UNITED STATES OMB Number: 3235-0145 SECURITIES AND EXCHANGE COMMISSION Expires: October 31, 2002 Washington, D.C. 20549 Estimated average burden Hours per response . . .14.90 ------------------------------- SCHEDULE 13D Under the Securities Exchange Act of 1934 THE RIGHT START, INC. ------------------------------------------------------------------------------- (Name of Issuer) Common Stock, no par value ------------------------------------------------------------------------------- (Title of Class of Securities) 766574206 ------------------------------------------------------------------------------- (CUSIP Number) Kenneth Abdalla c/o Athanor Holdings LLC 9130 Sunset Boulevard Los Angeles, CA 90069 Phone: (310) 789-7215 with a copy to: Frank Golay, Esq. Sullivan & Cromwell 1888 Century Park East Los Angeles, CA 90067 (310) 712-6600 ------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) September 5, 2001 ------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of ss.240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. [ ] Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See ss.240.13d-7 for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. ------------------------------------------------------------------------------- CUSIP No. 766574206 Page 2 of 10 Pages ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS. I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON (ENTITIES ONLY) Athanor Holdings, LLC ------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] ------------------------------------------------------------------------------- 3 SEC USE ONLY ------------------------------------------------------------------------------- 4 SOURCE OF FUNDS WC ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware limited liability company ------------------------------------------------------------------------------- 7 SOLE VOTING POWER 11,761,409 (1)(2) NUMBER OF ------------------------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY -0- EACH ------------------------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 11,761,409 (1)(2) ------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER -0- ------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11,761,409 (1) ------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [X] (3) ------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 63.6% ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON 00 ------------------------------------------------------------------------------- (1) Reporting person beneficially owns (i) 11,918.815 shares of Series E Convertible Preferred Stock convertible into 8,334,836 shares of Common Stock and (ii) a note convertible into 3,426,573 shares of Common Stock, in each case, subject to shareholder approval of the conversion feature and authorization of sufficient shares of Common Stock for issuance upon conversion and, in the case of the note, prior to September 5, 2002, subject to the occurrence of certain material corporate transactions. (2) Power is exercised through the managing members of Athanor Holdings, LLC. The managing members are Kenneth Abdalla and Vincent Smith. (3) Excludes certain shares of Common Stock and securities convertible into Common Stock held by or under the control of Kayne Anderson Capital Advisors, L.P. and its affiliates and Fred Kayne. See Item 5(a)(ii). ------------------------------------------------------------------------------- CUSIP No. 766574206 Page 3 of 10 Pages ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS. I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON (ENTITIES ONLY) Kenneth Abdalla ------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] ------------------------------------------------------------------------------- 3 SEC USE ONLY ------------------------------------------------------------------------------- 4 SOURCE OF FUNDS PF ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION U.S. citizen. ------------------------------------------------------------------------------- 7 SOLE VOTING POWER -0- NUMBER OF ------------------------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY 11,761,409(1) EACH ------------------------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH -0- ------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 11,761,409(1) ------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11,761,409(1) ------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [X](2) ------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 63.6% ------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IN ------------------------------------------------------------------------------- (1) Solely in his capacity as managing member of Athanor Holdings, LLC which beneficially owns securities convertible into 11,761,409 shares of Common Stock. See footnote (1) on page 2. (2) Excludes certain shares of Common Stock and securities convertible into Common Stock held by or under the control of Kayne Anderson Capital Advisors, L.P. and its affiliates and Fred Kayne. See Item 5(a)(ii). ------------------------------------------------------------------------------- CUSIP No. 766574206 Page 4 of 10 Pages ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS. I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON (ENTITIES ONLY) Vincent Smith ------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] ------------------------------------------------------------------------------- 3 SEC USE ONLY ------------------------------------------------------------------------------- 4 SOURCE OF FUNDS PF ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION U.S. citizen. ------------------------------------------------------------------------------- 7 SOLE VOTING POWER -0- NUMBER OF SHARES ------------------------------------------------------------ BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 11,761,409(1) REPORTING ------------------------------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH -0- ------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 11,761,409(1) ------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11,761,409(1) ------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [X](2) ------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 63.6% ------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IN ------------------------------------------------------------------------------- (1) Solely in his capacity as managing member of Athanor Holdings, LLC which beneficially owns securities convertible into 11,761,409 shares of Common Stock. See footnote (1) on page 2. (2) Excludes certain shares of Common Stock and securities convertible into Common Stock held by or under the control of Kayne Anderson Capital Advisors, L.P. and its affiliates and Fred Kayne. See Item 5(a)(ii). ITEM 1. SECURITY AND ISSUER This statement relates to the Common Stock, no par value, (the "Common Stock") of The Right Start, Inc. (the "Issuer"). The address of the Issuer's principal executive offices is 26610 Agoura Road, Suite 250, Calabasas, CA, 91302. ITEM 2. IDENTITY AND BACKGROUND (a) - (c) The persons filing this statement (the "Reporting Persons") are: Athanor Holdings, LLC Athanor Holdings, LLC, a Delaware limited liability company ("Athanor") established in June of 2001, holds the investments of Kenneth Abdalla and Vincent Smith in the Issuer. Messrs. Abdalla and Smith both serve as managing members of and each has a 50% equity interest in Athanor. The principal business address of Athanor is 9130 Sunset Boulevard, Los Angeles, CA, 90069. Kenneth Abdalla Mr. Abdalla is a managing member of Waterton Management LLC, a Los Angeles-based private investment firm. The principal business address of Mr. Abdalla and Waterton Management is 9130 Sunset Boulevard, Los Angeles, CA, 90069. Vincent Smith Mr. Smith is the chief executive officer of Quest Software, Inc. The principal business address of Mr. Smith and Quest Software is 8001 Irvine Center Drive, Suite 200, Irvine, CA, 92618. (d) During the last five years, none of the Reporting Persons has been convicted in a criminal proceeding (excluding traffic violations and similar misdemeanors). (e) During the last five years, none of the Reporting Persons has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) Mr. Abdalla and Mr. Smith are each a citizen of the United States of America. In addition, by reason of the stockholders agreement described in Item 6, the Reporting Persons together with Fred Kayne and Kayne Anderson Capital Advisors, L.P. and its affiliates (collectively, "Kayne Anderson") may be deemed to constitute a "group" ("Group") as such term is used in Section 13(d)(3) of the rules and regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Except for the stockholders agreement described in Item 6, none of the Reporting Persons has any affiliation or agreement or other arrangement relating to the Issuer or securities of the Issuer with any Kayne Anderson party. Neither the fact of this filing nor anything contained herein constitutes an admission by the Reporting Persons that a Group exists, and the existence of any such Group is hereby expressly disclaimed. The Reporting Persons also expressly disclaim any beneficial ownership in any Common Stock beneficially owned by Kayne Anderson, who separately file statements on Schedule 13D with respect to their beneficial ownership of the Issuer's securities. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION Athanor Holdings, LLC The source and amount of funds used in making the purchases of the securities convertible into shares of Common Stock reported herein were available working capital of Athanor in the amount of $11,918,815 for the Series E Convertible Preferred Stock (the "Preferred Stock") and $4,900,000 for the $4,900,000 aggregate principal amount subordinate convertible pay-in-kind note due September 4, 2002 (the "Convertible Note"). The available working capital of Athanor was derived from the capital contributions of Kenneth Abdalla and Vincent Smith, the managing members of Athanor Holdings. Kenneth Abdalla Mr. Abdalla's capital contributions to Athanor Holdings were derived from personal funds. Vincent Smith Mr. Smith's capital contributions to Athanor Holdings were derived from personal funds. ITEM 4. PURPOSE OF TRANSACTION The Preferred Stock and the Convertible Note of the Issuer were purchased for investment purposes (including to provide the Issuer with a portion of the funds for it to acquire the assets of Zany Brainy, Inc. on September 5, 2001), in order to appoint directors of the Issuer and to influence, but not control, the direction and management of the Issuer. Each Reporting Person evaluates on an ongoing basis the Issuer's financial condition, business operations and prospects, market price of the Issuer's Common Stock, conditions in securities markets generally, general economic and industry conditions and other factors. Accordingly, each Reporting Person reserves the right to change its plan and intentions at any time, as it deems appropriate. In particular, each Reporting Person may consider the disposition of or purchase of additional shares of Common Stock or other securities of the Issuer convertible into Common Stock, which may be effected at any time and from time to time through market transactions, registered offerings, block trades, privately negotiated transactions or otherwise. Following the transaction reported hereunder, Athanor will have the right to appoint 3 members of the board of directors of the Issuer. See Item 6 for a description of certain agreements relating to the election of directors. ITEM 5. INTEREST IN SECURITIES OF ISSUER (a) (i) For each Reporting Person, the aggregate number of shares of Common Stock owned and corresponding percentage of the total outstanding Common Stock of the Issuer is, as of September 5, 2001, as follows: Athanor Athanor beneficially owns 11,918.815 shares of Preferred Stock convertible into 8,334,836 shares of Common Stock and the Convertible Note convertible into 3,426,573 shares of Common Stock which together equal 63.6% of the Issuer's outstanding Common Stock (based on 6,717,275 shares of Common Stock outstanding plus 11,761,409 shares issuable upon conversion of the Preferred Stock and Convertible Note owned by the Reporting Persons) and 43.6% on a fully diluted basis (based on an additional 8,472,718 shares issuable upon conversion of convertible securities owned or controlled by Kayne Anderson). The convertibility of the Preferred Stock and the Convertible Note is subject to approval by the shareholders of the Issuer and authorization of sufficient shares of Common Stock for issuance upon conversion and, in the case of the Convertible Note, prior to September 5, 2002, subject to the occurrence of certain material corporate transactions. The Issuer has the option to pay interest due on the Convertible Note in the form of additional convertible notes convertible into Common Stock. Athanor expressly disclaims any beneficial ownership in any Common Stock held or controlled by Kayne Anderson notwithstanding the stockholders agreement with Athanor with respect to such Common Stock as described in Item 6. Kenneth Abdalla Mr. Abdalla owns, solely in his capacity as a managing member of Athanor, 11,918.815 shares of Preferred Stock convertible into 8,334,836 shares of Common Stock and the Convertible Note convertible into 3,426,573 shares of Common Stock which together equal 63.6% of the Issuer's outstanding Common Stock (based on 6,717,275 shares of Common Stock outstanding plus 11,761,409 shares issuable upon conversion of the Preferred Stock and Convertible Note owned by the Reporting Persons). The convertibility of the Preferred Stock and the Convertible Note is subject to approval by the shareholders of the Issuer and authorization of sufficient shares of Common Stock for issuance upon conversion and, in the case of the Convertible Note, prior to September 5, 2002, subject to the occurrence of certain material corporate transactions. The Issuer has the option to pay interest due on the Convertible Note in the form of additional convertible notes convertible into Common Stock. Mr. Abdalla expressly disclaims any beneficial ownership in any Common Stock held or controlled by Kayne Anderson notwithstanding the voting rights of Athanor with respect to such Common Stock pursuant to the stockholders agreement as described in Item 6. Vincent Smith Mr. Smith owns, solely in his capacity as a managing member of Athanor, 11,918.815 shares of Preferred Stock convertible into 8,334,836 shares of Common Stock and the Convertible Note convertible into 3,426,573 shares of Common Stock which together equal 63.6% of the Issuer's outstanding Common Stock (based on 6,717,275 shares of Common Stock outstanding plus 11,761,409 shares issuable upon conversion of the Preferred Stock and Convertible Note owned by the Reporting Persons). The convertibility of the Preferred Stock and the Convertible Note is subject to approval by the shareholders of the Issuer and authorization of sufficient shares of Common Stock for issuance upon conversion and, in the case of the Convertible Note, prior to September 5, 2002, subject to the occurrence of certain material corporate transactions. The Issuer has the option to pay interest due on the Convertible Note in the form of additional convertible notes convertible into Common Stock. Mr. Smith expressly disclaims any beneficial ownership in any Common Stock held or controlled by Kayne Anderson notwithstanding the voting rights of Athanor with respect to such Common Stock pursuant to the stockholders agreement as described in Item 6. (ii) By reason of the stockholders agreement and operation of Section 13(d) of the Exchange Act as described in Item 2, the Reporting Persons may be deemed to beneficially own an additional (i) 2,151,102 shares owned by Fred Kayne and (ii) 8,071,372 shares owned or controlled by Kayne Anderson Capital Advisors and its affiliates, which together equal approximately 67.3% of the Issuer's outstanding Common Stock (based on 6,717,275 shares of Common Stock outstanding plus 8,472,718 shares issuable upon conversion of convertible securities owned or controlled by Kayne Anderson) and 37.9% on a fully diluted basis (based on an additional 11,761,409 shares issuable upon conversion of the Preferred Stock and Convertible Note). The information with respect to the beneficial ownership by Kayne Anderson is based on information supplied by, or on behalf of, Kayne Anderson and no Reporting Person makes any representation or guarantee as to the completeness or accuracy of this information. As indicated above, the Reporting Persons also expressly disclaim any beneficial ownership in any Common Stock beneficially owned by Kayne Anderson. (b) Subject to the stockholders agreement described in Item 6, the voting and investment power with respect to the shares of Common Stock for which the Reporting Persons claim beneficial ownership is as follows: Athanor Athanor has sole voting and investment power with respect to the 11,918.815 shares of Preferred Stock convertible into 8,334,836 shares of Common Stock and the Convertible Note convertible into 3,426,573 shares of Common Stock. Kenneth Abdalla Mr. Abdalla shares, solely in his capacity as a managing member of Athanor, voting and investment power with respect to 11,918.815 shares of Preferred Stock convertible into 8,334,836 shares of Common Stock and the Convertible Note convertible into 3,426,573 shares of Common Stock with Mr. Smith, solely in his capacity as a managing member of Athanor. Vincent Smith Mr. Smith shares, solely in his capacity as a managing member of Athanor, voting and investment power with respect to 11,918.815 shares of Preferred Stock convertible into 8,334,836 shares of Common Stock and the Convertible Note convertible into 3,426,573 shares of Common Stock with Mr. Abdalla, solely in his capacity as a managing member of Athanor. (c) Except for the purchase on September 5, 2001, of (i) 11,918.815 shares of Preferred Stock at $1,000 per share and an aggregate purchase price of $11,918,815 and (i) the Convertible Note for $4,900,000, no transactions in the shares of Common Stock or securities convertible into Common Stock were effected by the Reporting Persons during the past 60 days. To the best knowledge of the Reporting Persons, transactions in Common Stock by Kayne Anderson during the past 60 days were as follows:

Common Stock Stock Date Type # of shares Price Where/how transaction ---- ---- ----------- ------ ---------------------- 08/21/01 Buy 12,000 $3.00 Nasdaq 09/05/01 Buy 1,429,153(1) $2.31 Directly with Issuer 09/05/01 Buy 2,200,000(2) $2.50 Directly with Issuer

(1) Issuable upon conversion of the Series F Convertible Preferred Stock. The Reporting Persons expressly disclaim any beneficial ownership of any of the Series F Convertible Preferred Stock (or the Common Stock into which such stock is convertible) owned by Kayne Anderson. (2) Issuable upon conversion of the Series G Convertible Preferred Stock. The Reporting Persons expressly disclaim any beneficial ownership of any of the Series G Convertible Preferred Stock (or the Common Stock into which such stock is convertible) owned by Kayne Anderson. The information with respect to the transactions by Kayne Anderson set forth above is based on information supplied by, or on behalf of, Kayne Anderson and no Reporting Person makes any representation or guarantee as to the completeness or accuracy of this information. (d) Not applicable. (e) Not applicable. ITEM 6. CONTRACTS, AGREEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER Fred Kayne and Kayne Anderson Investment Management, Inc., the general partner of Kayne Anderson Capital Advisors, L.P. ("KAIM"), have agreed in a stockholders agreement with Athanor in connection with the Investment Agreement, as amended, between Athanor and the Issuer that it or he, as applicable, will (i) convert all convertible securities held by them (other than employee or director options) no later than such time as Athanor converts its Preferred Stock, and (ii) vote all securities of the Issuer that are entitled to vote thereon in favor of (A) all matters necessary to approve the conversion of the Convertible Note and the Preferred Stock (including a vote to approve making convertible preferred stock issued prior to the Preferred Stock pari passu with the Preferred Stock) and (B) the election of 3 directors designated by Athanor until Athanor holds less than 20% of the outstanding Common Stock, 2 directors until Athanor holds less than 15% and 1 director until Athanor holds less than 10% (in each case, calculated on the basis as if all the convertible securities held by Kayne Anderson and Athanor have been converted). Athanor has agreed that it will vote all shares held by it in favor of (i) the election of 3 directors designated jointly by KAIM and Fred Kayne until such parties hold less than 20% of the outstanding Common Stock, 2 directors until such parties hold less than 15% and 1 director until such parties hold less than 10% and (ii) the election of the CEO of the Issuer as a member of the Issuer's board of directors. In connection with the purchase of the Preferred Stock and the Convertible Note by Athanor, the Issuer has granted Athanor certain registration rights with respect to the Common Stock underlying those securities. Athanor may exercise these rights and, following the filing of an effective registration statement with the SEC, Athanor may sell Common Stock under such registration statement. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS 99.1 Stockholders Agreement, dated as of August 15, 2001, among Athanor, Kayne Anderson Investment Management and Fred Kayne. 99.2 Form of Amendment No. 1 to the Stockholders Agreement, dated as of September 5, 2001, among Athanor, Kayne Anderson Investment Management and Fred Kayne. 99.3 Investment Agreement, dated as of August 15, 2001, between the Issuer and Athanor. 99.4 Form of Amendment No. 1 to the Investment Agreement, dated as of September 5, 2001, between the Issuer and Athanor. SIGNATURES After reasonable inquiry and to the best of the undersigned's knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. Dated: September 17, 2001 By: Athanor Holdings, LLC By: /s/ Kenneth Abdalla ---------------------------------------------- Kenneth Abdalla Managing Member By: Kenneth Abdalla /s/ Kenneth Abdalla ---------------------------------------------- Kenneth Abdalla By: Vincent Smith /s/ Vincent Smith ---------------------------------------------- Vincent Smith EX-99 3 stockagmt.txt EXHIBIT 99.1 Exhibit 99.1 STOCKHOLDERS AGREEMENT August 15, 2001 In connection with Investment Agreement dated as of even date herewith (the "Investment Agreement"), between Athanor Holdings, LLC ("Athanor") and The Right Start, Inc. ("Right Start"), and as an inducement to Athanor to enter into the Investment Agreement Fred Kayne and Kayne Anderson Investment Management, Inc. each severally agree with Athanor that he/it will (i) convert the convertible securities of Right Start (other than employee or director options) held by them not later than the date that the Convertible Preferred Stock is converted and (ii) vote all securities of Right Start held by them which are entitled to vote thereon (A) in favor of all matters necessary to approve the conversion of the Convertible Preferred Stock (including a vote to approve making the Convertible Preferred Stock pari passu with the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock and the Series C Convertible Preferred Stock) and, (B) in favor of the election of 3 directors designated by Athanor at each election of directors hereafter until such time as Athanor holds less than 20% of the outstanding Common Stock, 2 directors until such time as Athanor holds less than 15% and 1 director until such time as Athanor holds less than 10% (calculated in each case on the basis that the Convertible Preferred Stock has been converted). Athanor agrees that it will vote the shares held by it in favor of (i) the election of 3 directors designated jointly by Kayne Anderson Investment Management and Fred Kayne until such time as such parties hold less than 20% of the outstanding Common Stock, 2 directors until such time as such parties hold less than 15% and 1 director until such time as such parties hold less than 10% and (ii) the election of the Chief Executive Officer as a director. Fred Kayne and Kayne Anderson Investment Management represent and warrant to Athanor that they jointly own sufficient shares of Right Start to cause, and will cause, on the terms and conditions set forth in the Investment Agreement, the shareholders of Right Start to approve the conversion feature of the Convertible Preferred Stock and the authorization of a sufficient number of shares of Common Stock into which all of the Convertible Preferred Stock is convertible and all of the Warrants are exercisable. [Remainder of Page Intentionally Left Blank] Fred Kayne and Kayne Anderson Investment Management will be obligated to perform their obligations under this agreement (other than ii(B) above) only if Athanor has performed or simultaneously will perform its obligations under the Investment Agreement. The provisions with respect to voting for directors will become effective only after Athanor has purchased and The Right Start, Inc. has sold the securities referenced in the Investment Agreement. /s/ Fred Kayne -------------- Fred Kayne Kayne Anderson Investment Management, Inc. By: /s/ David Shladovsky --------------------- Name: David Shladovsky Its: General Counsel and Secretary ATHANOR HOLDINGS, LLC By: /s/ Kenneth Abdalla --------------------- Name: Kenneth Abdalla Title: Managing Member By: /s/ Vincent Smith ------------------- Name: Vincent Smith Title: Managing Member EX-99 4 exstock.txt EXHIBIT 99.2 Exhibit 99.2 [FORM OF AMENDMENT NO. 1 TO THE STOCKHOLDERS AGREEMENT] This AMENDMENT NO. 1 TO THE STOCKHOLDERS AGREEMENT (this "Amendment") is dated as of September 5, 2001, and entered into by and among FRED KAYNE, Kayne AndersOn Investment Management, Inc. and ATHANOR HOLDINGS, LLC ("Athanor"). RECITALS WHEREAS, Fred Kayne, Kayne Anderson Investment Management, and Athanor have entered into that certain Stockholders Agreement dated as of August 15, 2001 (the "Stockholders Agreement"), pursuant to which they entered into a voting agreement with respect to certain matters related to The Right Start, Inc. ("Right Start") and covenanted to perform or to cause to be performed certain actions for the benefit of the other; WHEREAS, Right Start and Athanor have amended the Investment Agreement (as defined in the Stockholders Agreement) to provide for certain changes to the securities issued thereunder; WHEREAS, Fred Kayne and Kayne Anderson Investment Management, as an inducement to Athanor in respect of the foregoing, and Athanor have decided to amend the Stockholders Agreement to reflect the changes in their obligations as a result of such amendment to the Investment Agreement; NOW, THEREFORE, in consideration of these premises, the agreements, provisions and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: AGREEMENT 1. Defined Terms. Capitalized terms used but not otherwise defined herein shall have the meanings given in the Stockholders Agreement or the Investment Agreement, as amended. 2. Covenant to vote to approve the convertibility feature of the Convertible Note and of sufficient shares of Common Stock: Fred Kayne and Kayne Anderson Investment Management each severally agree with Athanor that he/it will vote all securities of Right Start held by them which are entitled to vote thereon in favor of all matters necessary to approve the conversion feature of the Convertible Note and any PIK Notes issued pursuant thereto. 3. Representation and Warranty regarding share ownership and covenant to cause approval of the issuance of shares and of the conversion feature of the Convertible Note: Fred Kayne and Kayne Anderson Investment Management represent and warrant to Athanor that they jointly own sufficient shares of Right Start to cause, and will cause, on the terms and conditions set forth in the Investment Agreement, the shareholders of Right Start to approve the conversion feature of the Convertible Note (and any PIK Notes issued pursuant thereto) and the authorization by Right Start's shareholders of sufficient additional Common Stock to permit the conversion of the Convertible Note and of the maximum number of PIK Notes issuable pursuant to the Convertible Note. 4. Calculation of Ownership Percentage. Notwithstanding anything to the contrary in this Agreement, determination of Athanor's percentage ownership of the outstanding Common Stock shall, for all purposes under the Stockholders Agreement, be calculated on the basis that all securities convertible into Common Stock (including any PIK Notes) of Fred Kayne, Kayne Anderson Investment Management and Athanor have been converted in full. 5. Effect of Amendment; Ratification. From and after the date of this Amendment, all references in the Stockholders Agreement to the Stockholders Agreement shall mean the Stockholders Agreement as amended hereby. The terms and provisions set forth in this Amendment are in addition to and supplemental to the terms and provisions set forth in the Stockholders Agreement and the terms and provisions of the Stockholders Agreement are hereby ratified and confirmed, together with the terms and provisions set forth in this Amendment, and are and shall continue in full force and effect. 6. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Delivery via facsimile of an executed counterpart of a signature page of this Amendment shall be effective as delivery of a manually-executed counterpart of this Amendment. 7. Governing Law. This Amendment shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the State of California, without regard to conflicts of laws principles. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the Stockholders Agreement to be duly executed by a duly authorized officer as of the date first above written. ------------------------------------ Fred Kayne Kayne Anderson Investment Management, Inc. By: _______________________________ Name: Its: ATHANOR HOLDINGS, LLC By: ____________________________ Name: Kenneth Abdalla Title: Manager By: ____________________________ Name: Vincent Smith Title: Manager EX-99 5 s134307.txt EXHIBIT 99.3 Exhibit 99.3 INVESTMENT AGREEMENT This Investment Agreement (this "Agreement") is dated and effective as of August 15, 2001, by and between The Right Start, Inc. ("Right Start") and Athanor Holdings, LLC ("Athanor"). Right Start and Athanor hereby agree as follows: A. Athanor or its designee shall purchase for $20 million dollars payable as set forth below and Right Start shall sell 20,000 shares of convertible preferred stock of Right Start to be designated the "Series E Convertible Preferred Stock" (the "Convertible Preferred Stock") and warrants ("Warrants") to purchase common stock, no par value of Right Start ("Common Stock") on the terms set forth in this Agreement. In exchange for Athanor's investment, Right Start shall issue its shares of Convertible Preferred Stock which, when the conditions to conversion set forth below are met, shall automatically convert into 13,482,409 shares of Common Stock, such number of shares derived from the sum of: 1) The number of outstanding shares of Common Stock on the date hereof (5,617,275 shares); 2) The number of shares of Common Stock issuable upon conversion of Right Start's outstanding Senior Subordinated Convertible Pay-In-Kind Notes due 2005 (1,313,684 shares); 3) The number of shares of Common Stock issuable upon conversion of Right Start's outstanding Series B Convertible Preferred Stock (550,000 shares), Series C Convertible Preferred Stock (1,866,650 shares) and Series D Convertible Pay-In-Kind Preferred Stock (2,334,800 shares) on the date hereof; and 4) 1,800,000 Shares of Common Stock (the "Online Shares"), issued to owners of the online and internet business (the "Online Business") conducted through the license of Right Start's intellectual property. In addition, Right Start shall issue Warrants exercisable, in whole or in part, for an aggregate of 479,000 shares of Common Stock upon the same terms and the same conditions as warrants to purchase shares of Common Stock currently outstanding (meaning, among other things, that the Warrants will have multiple exercise prices for the purchase of tranches of Common Stock that will to match the various exercise prices and amounts of shares purchasable under the outstanding warrants to purchase Common Stock). Holders of the Convertible Preferred Stock shall have no rights or privileges in preference over the holders of any other equity of Right Start (including the Common Stock) other than an aggregate liquidation preference equal to $20 million payable after payment of any liquidation preference existing under any senior outstanding preferred stock of Right Start. Right Start shall use reasonable efforts (which specifically shall not include the payment of money) to obtain the approval from the holders of its Series A Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, respectively, to permit the Convertible Preferred Stock to be issued pari passu in right of payment upon liquidation and payment of dividends to the Convertible Preferred Stock. Holders of the Convertible Preferred Stock shall have the right to vote as a separate class until such time as the outstanding Convertible Preferred Stock has an aggregate liquidation preference less than $4 million and with the holders of the Common Stock thereafter (with the number of votes of the Convertible Preferred Stock being calculated on an as-converted basis) with respect to any merger, acquisition or sale of all or substantially all assets to which Right Start is a party and any equity issuance by RightStart (other than an issuance of the Online Shares or 1,100,000 shares in connection with the bankruptcy of Zany Brainy, Inc. ("Zany") or pursuant to the exercise of outstanding convertible equity of Right Start). Subject to the immediately following sentence, the Convertible Preferred Stock shall automatically convert into Common Stock (without a liquidation preference) immediately upon (and not before) (i) approval of the conversion feature in the Convertible Preferred Stock by Right Start's shareholders and (ii) authorization by Right Start's shareholders of sufficient additional Common Stock to permit such conversion and exercise of the Warrants; and Right Start shall use reasonable efforts (which specifically shall not include the payment of money) to obtain the approval set forth in items (i) and (ii) above from the holders of its Common Stock as soon as practicable but in no event later than six months from the date of this Agreement. To the extent that any convertible securities of Right Start (other than employee or director options, outstanding warrants to purchase Common Stock or the Convertible Preferred Stock) remain outstanding (the "Remaining Convertible Securities") at the time the Convertible Preferred Stock would otherwise automatically convert under the immediately preceding sentence, that portion of the Convertible Preferred Stock convertible into the number of shares of Common Stock issuable upon conversion of the Remaining Convertible Securities, shall not be converted except to the extent the Remaining Convertible Securities are later converted. Notwithstanding the foregoing, the parties agree that Athanor, at its option and from time to time, may convert any or all of its Convertible Preferred Stock into Common Stock once the conditions in (i) and (ii) above have been met regardless of whether any Remaining Convertible Securities remain outstanding, but that Convertible Preferred Stock outstanding because of the foregoing shall be automatically converted into Common Stock as, and to the extent, the Remaining Convertible Securities are converted into Common Stock. B. Right Start represents and warrants to Athanor that Right Start's outstanding convertible securities (other than employee or director options) on the date hereof are as follows: 1) 46,696 shares of Series D Convertible Pay-In-Kind Preferred Stock; 2) warrants to purchase 449,000 shares of Common Stock (at a strike price of $2.00 per share subject to adjustment for stock dividends, subdivisions and combinations and extraordinary events); 3) warrants to purchase 30,000 shares of Common Stock (at a strike price of $5.00 per share for 20,000 of such shares, $4.00 per share for 5,000 of such shares and $19.50 per share for the remaining 5,000 of such shares, in each case, subject to adjustment for stock dividends, subdivisions and combinations and extraordinary events); 4) 16,500 shares of Series B Convertible Preferred Stock; 5) 37,333 shares of Series C Convertible Preferred Stock; and 6) $3,120,000 in aggregate principal amount of Senior Subordinated Convertible Pay-In-Kind Notes. Right Start agrees that it will not issue additional shares of its equity or securities convertible into or exercisable for its equity (other than 1,100,000 shares issuable in connection with the bankruptcy of Zany, shares issuable upon conversion of its currently outstanding convertible equity and options, and shares issuable under such options, issued to directors or employees) prior to the issuance of the Convertible Preferred Stock and the Warrants without the consent of Athanor. Right Start agrees that it will cause the reservation of sufficient shares of its Common Stock to permit the Warrants issued to Athanor under this Agreement to be exercisable on their terms at the time of issuance and cause the authorization of the issuance of the Warrants to Athanor. C. In addition, Right Start agrees to take all reasonable steps necessary to obtain the resignations of three of its current directors (other than Jerry Welch) and shall vote to approve and to appoint three new directors designated by Athanor effective upon designation but no earlier than the Escrow Closing (as defined below); provided that at least one of such directors shall be independent for purposes of the audit committee rules published by the Securities and Exchange Commission. In addition to such three directors, to the extent that Right Start fails to obtain all such resignations, Right Start shall amend its bylaws if necessary to approve the appointment of additional directors sufficient to ensure that Athanor may appoint one director for each director whose resignation Right Start failed to obtain and shall appoint such additional directors designated by Athanor to serve in such position unless and until Right Start obtains the required resignations. D. Right Start shall acquire the Online Business in exchange for 1,800,000 shares of its Common Stock (valued at the closing bid of $2.22 per share on August 15, 2001) within a reasonable time after the date of this Agreement but in any event not later than October 15, 2001. E. Athanor shall make, or cause to be made, payments totaling $20 million as set forth below to be held in escrow (the "Escrow"), with respect to its investment in the following amounts and on the following dates and times: 1) $13.0 million in cash on or before 3:00 P.M. Pacific Standard Time Monday, August 27, 2001; and 2) The Shortfall Amount (as defined below) on or before 3:00 P.M. Pacific Standard Time on Thursday, August 30, 2001. The "Shortfall Amount" shall be the amount, if any, in cash equal to $7.0 million minus the amount (set forth in written evidence satisfactory to Right Start and delivered by Athanor on or before 3:00 P.M. on Monday, August 27, 2001), that the cash payment obligation of Right Start or its subsidiary ZB Company, Inc. (the acquisition vehicle for the purchase of the assets of Zany) ("ZB Company") under the Asset Purchase Agreement between ZB Company, Zany and certain of its affiliates (the "Asset Purchase Agreement"), has been reduced (but not less than zero), as a result of application of the $3,539,190 due to Athanor for break-up fees and the $3,539,190 plus interest deposited by Athanor into escrow in connection with the bankruptcy of Zany (the "Identified Sources"). The amount of such reduction shall also include, without duplication, any amounts made payable to Right Start or its designee from the Identified Sources within the timeframe stated above. Right Start shall provide written notice to Athanor within 24 hours of receipt of the proferred evidence whether Right Start considers the evidence satisfactory. Athanor acknowledges that Right Start is obligated pursuant to the Asset Purchase Agreement and an order of the court in the Zany bankruptcy to complete the Closing (as such term is defined in the Asset Purchase Agreement) not later than September 5, 2001. Therefore, Athanor agrees that time is of the essence with respect to making the foregoing payments into Escrow. Athanor agrees that if any payment into Escrow required above is not made by the exact date and time it is due, then this Agreement shall terminate (except for the provisions regarding liquidated damages, release of claims, governing law, attorney's fees and expenses) immediately upon written notice ("Termination Notice") being sent from Right Start to Athanor; provided that if Athanor has funded the required amounts into Escrow before such notice this Agreement shall not terminate. Upon Right Start sending such written notice, the following shall automatically and immediately occur: (a) other than the provisions regarding liquidated damages, release of claims, governing law, attorney's fees and expenses, this Agreement shall immediately become null and void and not enforceable by either party and (b) Right Start shall have the right to complete the Closing using funding from other sources with no further obligation to Athanor. The parties agree that it would be extremely difficult or impossible to determine the damages suffered by Right Start as a result of being required to find other sources of funds to complete the Closing if Athanor fails to make the required payments into Escrow and agree further that $2 million would be reasonable liquidated damages. As a result, if Athanor fails to make any required payment into Escrow by the date and time required and Athanor has not made such payments prior to Right Start sending the Termination Notice, Athanor shall promptly pay $2 million to Right Start as liquidated damages for such failure. The notice to Athanor described above shall be provided by first class or certified mail, postage prepaid and by facsimile to Athanor Holdings, LLC, 9130 Sunset Boulevard, Los Angeles, California 90069 or 310.789.7218. Right Start agrees that if the Closing is not consummated within 24 hours after release of the amounts in Escrow (and in no event later than September 19, 2001), that Right Start shall promptly return or cause the return of such released amounts and all amounts received by Right Start (including amounts received by Zany for the benefit of Right Start) from the Identified Sources to Athanor; provided that, if the Closing does not occur after such release as result of events beyond Right Start's control, Right Start shall return such amounts to Escrow and not to Athanor unless the date for such return is on or after September 19, 2001. Athanor and Right Start shall execute an escrow agreement (the "Escrow Agreement") having terms consistent with this Agreement and reasonably acceptable to both parties. The Escrow Agreement shall provide that the Escrow Agent shall release the amounts in the Escrow to ZB Company or such other entity as the parties mutually agree in writing, at such time as Right Start provides to the Escrow Agent (i) a copy of the final court order approving the sale under Section 363 and 365 of Chapter 11 of the United States Code to Right Start of the assets of Zany in substantially the form jointly delivered by Right Start and Athanor on or before August 24, 2001, (ii) a certificate from an officer of Right Start certifying that other than the payment of money as required by the Asset Purchase Agreement all conditions have been met for the Closing to occur and (iii) a copy of an executed stock certificate evidencing the issuance of the Convertible Preferred Stock to Athanor and a copy of the Warrants evidencing issuance of the Warrants to Athanor (the "Escrow Closing"); provided that if such Closing and issuance have not occurred on or before 3:00 P.M. Pacific Standard Time on September 19, 2001 or such earlier time as Athanor pays liquidated damages to Right Start as set forth above, then the Escrow Agent shall release the monies in Escrow to Athanor. Right Start agrees promptly upon receipt of such funds from Escrow to apply such funds to cause the Closing to occur. Right Start agrees to send the certificate for the Convertible Preferred Stock and the Warrants to Athanor at the same time it sends copies thereof to the Escrow Agent. F. Athanor acknowledges that it has reviewed the publicly filed information about Right Start, that it has received such other information (from sources other than Right Start) as it has deemed necessary and appropriate to make its own investment analysis and decision to purchase securities of Right Start and that it has independently and without reliance on Right Start or any oral or written representation or warranty from Right Start, its officers, shareholders, directors or other representatives (other than representations or warranties made by Right Start in this Agreement), made its own decision to purchase such securities and enter into this Agreement. Athanor shall have no recourse against Right Start, its officers, shareholders, directors or other representatives, nor shall any such person incur any liability, for any misstatement (whether material or immaterial) or omission (whether negligent or otherwise) with respect to such purchase except as set forth in paragraph G below. G. Right Start represents and warrants to Athanor that its most recent Annual Report on Form 10-K and all subsequent documents filed by Right Start with the United States Securities and Exchange Commission (the "Commission") pursuant to Section 13(a), 13(c) or 15(d) of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act") on or prior to the date of this Agreement (the "Exchange Act Reports"), when they were filed with the Commission, did not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading. H. Athanor represents and warrants to Right Start that the securities of Right Start being purchased under this Agreement are being acquired for its own account without any view to the "distribution" thereof within the meaning of the Securities Exchange Act of 1933, as amended (the "Act") and Athanor has no intention of distributing or reselling such securities or any part thereof, except in accordance with the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. Athanor represents and warrants that it is an "accredited investor" within the meaning of paragraph (1), (2), (3), (7) or (8) of Rule 501(a) of the Act. I. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California without regard to rules or principles relating to conflicts of laws. To the extent that the parties to this Agreement litigate its terms with one another, the prevailing party, as determined by a final court order, shall be entitled to be reimbursed its reasonable fees for legal counsel by the other party. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be binding upon the respective parties hereto and their successors and permitted assigns. Each party to this Agreement shall bear all of its expenses (including attorney's fees) in connection with the execution, delivery and performance of this Agreement. This Agreement may only be amended by a writing signed by each party to this Agreement. J. Right Start agrees to indemnify and hold Athanor and its officers, directors, employees and other affiliates harmless from and against any losses, claims, damages or liabilities (the "Loss") only to the extent that they result from any liabilities of RightStart.com Inc. or Right Start arising out of the foreclosure of loans and debt obligations of RightStart.com and the transfer and/or sale of assets of RightStart.com as a consequence of such foreclosure, whether arising before or after the date of this Agreement; provided that such indemnification shall not apply to losses, claims, damages or liabilities resulting from actions taken by Athanor. Right Start shall have fulfilled its obligations under this indemnification provision if it pays to Athanor an amount equal to the Loss multiplied by a percentage equal to the number of shares of Common Stock held by Athanor on the Escrow Closing date divided by the number of shares of Common Stock outstanding on the Escrow Closing date assuming conversion of all convertible securities (excluding from such calculation all employee and director options). K. Right Start agrees to file as soon as practicable but in any case prior to the Escrow Closing date with the Secretary of State a Certificate of Determination of Rights, Preferences and Privileges setting forth the rights, preferences and privileges of the Convertible Preferred Stock which certificate shall be in form and substance reasonably satisfactory to Athanor based upon this Agreement and containing customary provisions for such a preferred stock of Right Start. L. Right Start agrees to enter into a registration rights agreement with Athanor in substantially the form of the registration rights agreement it has provided to other of its investors previously that provides Athanor with the right to have the sale or exchange of its securities registered on Form S-3 on a continuous basis with customary exceptions. M. The parties hereby agree that, upon their mutual agreement with respect to the terms thereof, Right Start may issue securities other than the Convertible Preferred Stock in exchange for the investment by Athanor; provided that both parties have agreed in writing to the terms of such issuance and such securities. N. Upon the signing of this Agreement, each of the parties (as such, a "Releasor") hereby releases the other party, its directors, officers, shareholders and affiliates (the "Released Parties"), and each of them, from any and all claims, demands, debts, losses, obligations, liabilities, costs, expenses, and rights of action and causes of action, of any kind or character whatsoever, whether known or unknown, suspected or unsuspected, that arise on or before the date of this Agreement, or hereafter are alleged to have arisen on or before such date, that relate in any manner to the acts or omissions of the Released Parties (hereinafter, the "Released Claims") in connection with the bankruptcy of Zany (other than obligations under this Agreement including the indemnity provisions hereof). In entering into this Release, Releasors, and each of them, expressly waive any and all rights that they have or may have under California Civil Code Section 1542 or under any other similar state or federal statute or under any common law principle of similar effect. California Civil Code Section 1542 provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. The consequences of the foregoing waiver have been explained by counsel to Releasors. This mutual release shall survive termination of this Agreement. O. This Agreement is the final agreement of the parties with respect to the matters it addresses and supercedes all prior written or unwritten agreements with respect to such matters. This Agreement shall be effective as of August 15, 2001. ATHANOR HOLDINGS, LLC By: /s/ Kenneth Abdalla ------------------------ Name: Kenneth Abdalla Title: Managing Member By: /s/ Vincent Smith ------------------------ Name: Vincent Smith Title: Managing Member THE RIGHT START, INC. By: /s/ Jerry R. Welch ------------------------- Jerry R. Welch Chairman and Chief Executive Officer EX-99 6 s134814.txt EXHIBIT 99.4 Exhibit 99.4 [FORM OF AMENDMENT NO. 1 TO THE INVESTMENT AGREEMENT] This AMENDMENT NO. 1 TO THE INVESTMENT AGREEMENT (this "Amendment") is dated September 5, 2001, and entered into by and between THE RIGHT START, INC., a California corporation ("Right Start"), and ATHANOR HOLDINGS, LLC ("Athanor"). RECITALS WHEREAS, Right Start and Athanor have entered into that certain Investment Agreement dated as of August 15, 2001 (the "Investment Agreement"), pursuant to which Athanor originally agreed to purchase 20,000 shares of Convertible Preferred Stock (as defined in the Investment Agreement) and Warrants (as defined in the Investment Agreement) in exchange for $20 million; WHEREAS, Right Start and Athanor have determined that Athanor will instead purchase (in lieu of the $20 million and corresponding equity set forth in the preceding paragraph) 11,918.815 shares of Series E Convertible Preferred Stock for $11,918,815 and a convertible subordinated pay-in-kind note due September 4, 2004, in the principal amount of $4,900,000 (the "Convertible Note") and to be purchased for such amount on the terms set forth herein; NOW, THEREFORE, in consideration of these premises, the agreements, provisions and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: AGREEMENT 1. Defined Terms. Capitalized terms used but not otherwise defined herein shall have the meanings given in the Investment Agreement. 2. Amendment to Section A of the Investment Agreement. Section A of the Investment Agreement is hereby deleted in its entirety and the following substituted therefor: "Athanor or its designee shall purchase for $11,918,815 payable as set forth below and Right Start shall sell 11,918.815 shares of convertible preferred stock of Right Start to be designated the "Series E Convertible Preferred Stock" (the "Convertible Preferred Stock") on the terms set forth in this Agreement. In exchange for Athanor's investment, Right Start shall issue its Convertible Preferred Stock which, when the conditions to conversion set forth below are met, shall automatically convert into 8,334,836 shares of common stock, no par value, of Right Start ("Common Stock"). Additionally, Athanor or its designee shall purchase for $4,900,000 payable as set forth below and Right Start shall sell the Convertible Note for $4,900,000 on the terms set forth in this Agreement. In exchange for Athanor's investment, Right Start shall issue the Convertible Note which, if the conditions to conversion set forth below are met, shall be convertible into 3,426,573 shares of Common Stock (based on a price of $1.43 per share). Except as set forth in the Investment Agreement and not hereby amended (including, but not limited to, the allocation of board of directors seats), holders of the Convertible Preferred Stock shall have no rights or privileges in preference over the holders of any other equity of Right Start (including the Common Stock) other than an aggregate liquidation preference equal to $11,918,815 payable after payment of any liquidation preference existing under any senior outstanding preferred stock of Right Start. Right Start shall use reasonable efforts (which specifically shall not include the payment of money) to obtain the approval from the holders of its Series A Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, respectively, to permit the Convertible Preferred Stock to be issued pari passu in right of payment upon liquidation and payment of dividends to the Convertible Preferred Stock. Holders of the Convertible Preferred Stock shall have the right to vote as a separate class until such time as the outstanding Convertible Preferred Stock has an aggregate liquidation preference less than $4 million and with the holders of the Common Stock thereafter (with the number of votes of the Convertible Preferred Stock being calculated on an as-converted basis) with respect to any merger, acquisition or sale of all or substantially all assets to which Right Start is a party and any equity issuance by Right Start (other than the issuance of (i) 1,100,000 shares of its Common Stock issuable in connection with the bankruptcy of Zany Brainy, Inc. ("Zany"), (ii) 2,200 shares of its Series G Convertible Preferred Stock convertible into 2,200,000 shares of its Common Stock to affiliates of Kayne Anderson Investment Management and Fred Kayne at a purchase price of $2.50 per share, (iii) shares issuable upon conversion of its currently outstanding convertible equity and the 1,313,684 shares issuable upon conversion of Right Start's outstanding Senior Subordinated Pay-In-Kind Notes dues 2005, (iv) options, and shares issuable under such options, issued to directors or employees and (v) 1,800 shares of its Series F Convertible Preferred Stock convertible into 1,800,000 shares of Common Stock (the "Online Shares"), issued to owners of the online and internet business (the "Online Business") conducted through the license of Right Start's intellectual property (items i through v above, the "Approved Issuances"). Subject to the immediately following sentence, the Convertible Preferred Stock shall automatically convert into Common Stock (without a liquidation preference) immediately upon (and not before) (i) approval of the conversion feature in the Convertible Preferred Stock by Right Start's shareholders and (ii) authorization by Right Start's shareholders of sufficient additional Common Stock to permit such conversion; and Right Start shall use reasonable efforts (which specifically shall not include the payment of money) to obtain the approval set forth in items (i) and (ii) above from the holders of its Common Stock as soon as practicable but in no event later than six months from the date of this Agreement. To the extent that any convertible securities of Right Start (other than employee or director options, outstanding warrants to purchase Common Stock, the Convertible Preferred Stock or the Convertible Note) remain outstanding (the "Remaining Convertible Securities") at the time the Convertible Preferred Stock would otherwise automatically convert under the immediately preceding sentence, that portion of the Convertible Preferred Stock convertible into the number of shares of Common Stock issuable upon conversion of the Remaining Convertible Securities, shall not be converted except to the extent the Remaining Convertible Securities are later converted. Notwithstanding the foregoing, the parties agree that Athanor, at its option and from time to time, may convert any or all of its Convertible Preferred Stock into Common Stock once the conditions in (i) and (ii) above have been met regardless of whether any Remaining Convertible Securities remain outstanding, but that Convertible Preferred Stock outstanding because of the foregoing shall be automatically converted into Common Stock as, and to the extent, the Remaining Convertible Securities are converted into Common Stock. The Convertible Note issued in accordance with the provisions hereof shall be junior to all other indebtedness of Right Start, and shall be junior to all existing and future trade payables of Right Start. The Convertible Note shall accrue interest at an annual rate of 4% per year (the "Interest Rate") payable annually on September 4 of each year (each such date, an "Interest Payment Date"). Interest shall be paid in cash or, at the election of Right Start, through the issuance of additional notes (the "PIK Notes") in an aggregate principal amount equal to the amount of interest that would be payable if such interest were paid in cash. The PIK Notes shall be convertible into whole shares of Common Stock of Right Start, such conversion price for each PIK Note to be determined based on the average closing price of the Common Stock for the ten trading days prior to the Interest Payment Date for which such PIK Note is issued. In the event of conversion of any PIK Notes, the value of any fractional shares of Common Stock shall be paid in cash. On each such Interest Payment Date that the Company elects to deliver PIK Notes, the Company shall issue and deliver the PIK Notes to Athanor. Notwithstanding the subordination provisions of the Convertible Note, if on any Interest Payment Date Right Start is unable to pay interest in cash, the subordination provisions of the Convertible Note shall not prevent the payment of PIK Notes in lieu of such cash interest payment. All accrued but unpaid interest which should have been paid but for a default in payment shall, to the extent lawful, accrue interest at the Interest Rate. Each PIK Note shall be 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, aggregate principal amount and the conversion price with respect to such PIK Notes which shall be calculated in the manner set forth above). At any time, and from time to time, prior to September 4, 2004 (the "Maturity Date"), Athanor shall have the right to convert the aggregate outstanding balance of the Convertible Note, including any accrued but unpaid interest, into Common Stock at a price of $1.43 per share, and any PIK Notes at the conversion price stated therein, provided that except in the case of a Material Event (as defined below) or a Redemption Notice (as defined below), such conversion right may not be exercised prior to September 4, 2002. Prior to and up to the Maturity Date, Right Start may redeem the aggregate outstanding balance of the Convertible Note and any PIK Notes, including any accrued but unpaid interest thereon, in whole but not in part, at a price equal to 105% of such aggregate outstanding balance, provided that the Convertible Note and any PIK Notes (i) may not be redeemed prior to September 5, 2002 and (ii) Athanor shall have 45 days from Right Start's notice of its intention to redeem the Convertible Note and the PIK Notes (a "Redemption Notice") to determine if it would like to exercise its conversion privilege in lieu of any such redemption by Right Start. Athanor shall have the right to convert the Convertible Note and the PIK Notes, in the case of certain material events as specified in the Convertible Note, which include any proposed or actual (i) transfer, sale, or other change of control of, and shares convertible into, Common Stock representing at least 20% of all outstanding shares of, and shares convertible into, Common Stock (excluding shares of, and shares convertible into, Common Stock held by the Holder), provided that in the case of this item (a), the Holder may exercise its conversion privileges prior to such transfer, sale or other change of control so that it may participate therein,; (ii) liquidation, dissolution or winding up of Right Start; (iii) event of default under the Convertible Note, or an "Event of Default" (as defined in Right Start's Loan and Security Agreement with Wells Fargo Retail Finance, LLC, dated January 2001, as amended from time to time, which in each case is continuing and has not been waived, or under any refinancing, extension or renewal thereof; or (iv) merger, consolidation or sale of all or substantially all of Right Start's assets; (v) proposal to shareholders of Right Start requiring their approval (other than ordinary, uncontested directorship elections, ratification of accountants and other routine matters, approval of the acquisition of the assets of Zany Brainy, Inc., the amendment of the Company's articles of incorporation to authorize of additional shares of Common Stock for the specific issuances set forth in the Agreement related to the conversion feature of the Company's Series E Convertible Preferred Stock, this Note, the PIK Notes, the Series F Convertible Preferred Stock and the Series G Convertible Preferred Stock; or (vi) other material corporate transaction (any of the foregoing, a "Material Event"). The parties hereto covenant and agree to promptly execute, and Right Start covenants to promptly deliver to Athanor, the Convertible Note containing the provisions set forth above and other customary conditions for an instrument such as the Convertible Note. Right Start also covenants to obtain (i) the prompt consent of any creditors of Right Start and of the holders of any series of Preferred Stock of Right Start, in each case as required, to the issuance of the Convertible Note on the terms set forth herein; (ii) approval of the conversion feature in the Convertible Note (including in the PIK Notes) by Right Start's shareholders, and each of the classes of Right Start securities, as required; and (iii) authorization by Right Start's shareholders of sufficient additional Common Stock to permit the conversion of the Convertible Note and of the maximum number of PIK Notes issuable pursuant to the Convertible Note. Right Start covenants and agrees that it shall use reasonable efforts (which specifically shall not include the payment of money) to obtain the approval set forth in items (ii) and (iii) above from the holders of its Common Stock as soon as practicable but in no event later than six months from the date of this Agreement. Right Start represents and warrants that upon obtaining the approvals set forth in items (i), (ii) and (iii) of the preceding paragraph, there shall be no other consents required for the valid issuance of the Convertible Note and that the Convertible Note shall represent the valid and legally binding obligation of Right Start enforceable in accordance with its terms." 3. Amendment to Section B of the Investment Agreement. The last paragraph of Section B of the Investment Agreement is hereby deleted in its entirety and the following substituted therefore: "Right Start agrees that it will not issue additional shares of its equity or securities convertible into or exercisable for its equity (other than the Approved Issuances simultaneously with the issuance of the Convertible Preferred Stock and the Convertible Note) without the consent of Athanor." 4. Amendment to Section D of the Investment Agreement. Section D of the Investment Agreement is hereby deleted in its entirety and the following substituted therefor: "Right Start shall acquire the Online Business in exchange for 1,800 shares of its Series F Convertible Preferred Stock convertible into 1,800,000 shares of its Common Stock (valued at the closing bid of $2.22 per share on August 15, 2001), such Series F to be junior in all respects to every other series or class of Right Start equity other than the Common Stock, within a reasonable time after the date of this Agreement but in any event not later than October 15, 2001." 5. Amendment to Section E of the Investment Agreement. The last paragraph of Section E of the Investment Agreement is hereby deleted in its entirety and the following substituted therefor: "The parties agree that the Escrow Agreement executed between them and Union Bank of California, N.A. dated as of August 27, 2001 is consistent with this Agreement and reasonably acceptable to both parties. The parties have executed and delivered to the escrow agent the Joint Escrow Instruction Letter (the "Joint Instructions"), as amended and supplemented, in the form previously agreed to by the parties. Right Start covenants and agrees promptly upon receipt of funds from Escrow to apply such funds to cause the Closing to occur simultaneously with the release of such funds and covenants and agrees that no later than the transmission of the Joint Instructions, Right Start shall have received directly, or shall have caused to be released from an escrow account, $5.5 million pursuant to the issuance of the Series G Convertible Preferred Stock and that all such $5.5 million shall be applied to cause the Closing to occur; provided, however, that if the Closing and necessary issuances of Right Start equity and the Convertible Note (as set forth herein) have not occurred on or before 3:00 P.M. Pacific Standard Time on September 19, 2001, then the Escrow Agent shall release the monies in Escrow to Athanor." 6. Amendments to the Certificate of Determinations of the Series E Convertible Preferred Stock; Other Filings. Right Start covenants that it shall not issue additional shares of the Series E Convertible Preferred Stock, other than those shares issued pursuant to this Agreement, without the consent of the holders of the majority of shares of the Series E Convertible Preferred Stock then outstanding, in addition to any other consents required under Right Start's organizational documents. Right Start shall also cause to be filed, on a timely basis, any and all filings required to be filed by Right Start or Zany in connection with the transactions contemplated under this Amendment, the Investment Agreement, the Stockholders Agreement, as amended, or the acquisition by Right Start of the assets of Zany (i) by the State of California or any other State and (ii) under the federal securities laws. 7. Exhibit A. Exhibit A attached to this Amendment is hereby made Exhibit A to the Agreement. 8. Series G to be Junior to or Pari Passu with Series E; Consent to Certain Issuances. Notwithstanding the provisions of the Certificate of Determinations of the Series E Convertible Preferred Stock of Right Start (the "Series E"), Athanor hereby agrees that the Series G Convertible Preferred Stock of Right Start shall rank on a parity with the Series E upon a liquidation, dissolution or winding up of Right Start. Notwithstanding the provisions of the Certificate of Determinations of the Series E, Athanor hereby consents to the Approved Issuances. Right Start agrees that the Certificate of Determinations for the Series G Convertible Preferred Stock shall cause the Series G Convertible Preferred Stock to rank either junior to, or on a parity with, the Series E Convertible Preferred Stock in all respects and that the Certificate of Determinations for the Online Shares shall cause the Online Shares to rank junior in all respects to the Series E Convertible Preferred Stock. 9. Notices. Any communication, demand or notice to be given hereunder, or under any security delivered pursuant hereto, will be duly given when delivered in writing or by telecopy to a party at its address as indicated below or such other address as such party may specify in a notice to each other party hereto. Such notice must be followed by notice via telephone informing the receiving party of the telecopy and, thereafter written notice should be sent to be received by the non-noticing party within three business days via registered mail, or by the next business day via overnight mail. A communication, demand or notice given pursuant to this Agreement shall be addressed: If to Athanor to: ---------------- Athanor Holdings, LLC 9130 Sunset Blvd. Los Angeles, CA 90069 Attention: Ken Abdalla Tel: (310) 789-7215 Fax: (310) 789-7218 and to: ------ Mr. Vincent Smith 8001 Irvine Center Drive, Suite 200 Irvine, CA 92618 Tel: (949) 754-8478 Fax: (949) 753-5015 with required copies to (which, in and of itself, shall not constitute notice): Sullivan & Cromwell 1888 Century Park East, Suite 2100 Los Angeles, CA 90067 Attention: Alison R. Ressler, Esq. Tel: (310) 712-6600 Fax: (310) 712-8800 and to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue Los Angeles, CA 90071 Attention: Rod Guerra, Esq. Tel: (213) 687-5000 Fax: (213) 687-5600 If to Right Start to: -------------------- The Right Start, Inc. 26610 Agoura Road, Suite 250 Calabasas, CA 91302 Attention: General Counsel Tel: (818) 735-7252 Fax: (818) 735-7242 with required copy to (which, in and of itself, shall not constitute notice): Fulbright & Jaworski 865 South Figueroa Street, 25th Floor Los Angeles, CA 90017 Attention: Victor Hsu, Esq. Tel: (213) 892-9200 Fax: (213) 680-4518 10. Effect of Amendment; Ratification. From and after the date of this Amendment, all references in the Investment Agreement to the Investment Agreement shall mean the Investment Agreement as amended hereby. The terms and provisions set forth in this Amendment are in addition to and supplemental to the terms and provisions set forth in the Investment Agreement and the terms and provisions of the Investment Agreement are hereby ratified and confirmed, together with the terms and provisions set forth in this Amendment, and are and shall continue in full force and effect. 11. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Delivery via facsimile of an executed counterpart of a signature page of this Amendment shall be effective as delivery of a manually-executed counterpart of this Amendment. 12. Governing Law. This Amendment shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the State of California, without regard to conflicts of laws principles. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the Investment Agreement to be duly executed by a duly authorized officer as of the date first above written. THE RIGHT START, INC. By: __________________________ Jerry R. Welch Chairman and Chief Executive Officer ATHANOR HOLDINGS, LLC By: __________________________ Kenneth Abdalla Manager By: __________________________ Vincent Smith Manager