<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1995
REGISTRATION NO. 33-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE FIRST YEARS INC.
(Formerly Kiddie Products, Inc.)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 5098 04-2149581
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
ONE KIDDIE DRIVE, AVON, MASSACHUSETTS 02322 (508) 588-1220
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)
------------------------
RONALD J. SIDMAN
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
THE FIRST YEARS INC.
ONE KIDDIE DRIVE
AVON, MASSACHUSETTS 02322
(508) 588-1220
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C> <C>
KEITH F. HIGGINS, ESQ. GITTA M. KURLAT, ESQ. PETER B. TARR, ESQ.
ROPES & GRAY KURLAT ASSOCIATES HALE AND DORR
ONE INTERNATIONAL PLACE ONE BOSTON PLACE 60 STATE STREET
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02108 BOSTON, MASSACHUSETTS 02109
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
<TABLE>
CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock -- $0.10 Par Value......... 1,380,000 shs. $20.125 $27,772,500 $9,576.72
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
<FN>
(1) Includes 180,000 shares which the Underwriters have the option to purchase to cover over-allotments,
if any. See "Underwriting".
(2) Estimated solely for purposes of determining the registration fee in accordance with Rule 457(c) under
the Securities Act of 1933, as amended, and based on the average of the bid and ask prices on
September 13, 1995, as reported on the Nasdaq National Market.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
THE FIRST YEARS INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-1
<CAPTION>
REGISTRATION STATEMENT
LOCATION IN PROSPECTUS ITEM AND CAPTION
---------------------- ----------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page and Outside Back
Cover Page of Prospectus; Additional
Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Risk Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Not Applicable
6. Dilution.................................. Not Applicable
7. Selling Security Holders.................. Principal and Selling Stockholders
8. Plan of Distribution...................... Outside Front Cover Page of Prospectus;
Inside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered................................ Outside Front Cover Page of Prospectus;
Description of Capital Stock; Underwriting
10. Interests of Named Experts and Counsel.... Legal Matters; Experts
11. Information With Respect to the
Registrant................................ Prospectus Summary; Risk Factors; Use of
Proceeds; Dividend Policy; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Principal and
Selling Stockholders; Description of
Capital Stock; Underwriting; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 1995
1,200,000 SHARES
[COMPANY LOGO]
COMMON STOCK
------------------------
Of the 1,200,000 shares of Common Stock offered hereby, 600,000 shares are
being sold by The First Years Inc. (the "Company" or "The First Years") and
600,000 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholders.
The Common Stock trades on the Nasdaq National Market under the symbol
"KIDD". On September 14, 1995, the last reported sale price of the Common Stock
was $20.25 per share. See "Price Range of Common Stock."
THERE ARE CERTAIN RISKS ASSOCIATED WITH THIS OFFERING. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
======================================================================================================
------------------------------------------------------------------------------------------------------
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
------------------------------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
<FN>
(1) The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company and the Selling Stockholders estimated at $187,800
and $172,200, respectively.
(3) The Company has granted the Underwriters a 30-day option to purchase up to 180,000 additional shares
of Common Stock solely to cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
</TABLE>
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, subject to the
right of the Underwriters to reject any order in whole or in part. It is
expected that the delivery of the shares of Common Stock will be made on or
about , 1995.
A.G. EDWARDS & SONS, INC. ADAMS, HARKNESS & HILL, INC.
THE DATE OF THIS PROSPECTUS IS , 1995
<PAGE> 4
THE FIRST YEARS(R), Ideas Inspired by Parents(R), TumbleMates(R),
Firstronics(R) and Washables(R) are registered trademarks of The First Years
Inc. Simplicity(TM), Sure(TM), Choice(TM), Clip'n Go(TM), Neats(TM),
PackMates(TM), Nurserytronics(TM), Step-by-Step(TM) and First Gifts(TM) are
trademarks of The First Years Inc. 3M(R) and SCOTCHGARD(R) are registered
trademarks of Minnesota Mining and Manufacturing Company. WINNIE THE POOH(R) and
POOH(R) are registered trademarks of The Walt Disney Company.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS AND THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. Except as otherwise indicated, the information in this
Prospectus assumes the Underwriters' over allotment option is not exercised. All
information reflects the two-for-one and three-for-one stock splits effected on
June 14, 1991 and December 15, 1992, respectively.
The First Years Inc. is a leading developer and worldwide marketer of a
broad line of innovative, high-quality, value-priced, developmentally-sound
products for infants and toddlers. Since 1973, the Company has sold its products
under its well-known brand name and principal trademark, THE FIRST YEARS. In
1994 and 1995, the Company entered into licensing agreements with The Walt
Disney Company to feature Winnie the Pooh characters on a variety of its
products in various countries. The Company's product line now contains
approximately 300 items and is divided into five categories -- Feeding &
Soothing, Care & Safety, Play & Discover, First Gifts and Winnie the Pooh.
Retail prices for the Company's products range from approximately $0.99 to
$39.99. Major channels through which the Company sells its products include mass
merchants, supermarkets, drug stores, department stores, wholesale clubs,
convenience stores, specialty stores, mail-order catalogs and catalog showrooms.
The Company currently has over 1,000 customers in over 40 countries. Major
customers include Wal*Mart, Toys "R" Us, Target, Kmart, Sears, Kroger and Baby
Superstore.
The Company believes that a number of recent demographic trends in the
United States have had a favorable impact on the market for juvenile products in
general and the appeal of the Company's product line in particular. In the U.S.
and many other developed countries, children are being born to dual-income
parents and parents are having children at later ages. In addition, the Company
believes that parents in general, and especially older parents, are now more
aware of the developmental importance of a child's early years and more
concerned about safety, quality and value in juvenile products and that they are
also more willing and able to pay for products that embody these qualities.
Capitalizing on its reputation for parenting expertise and product quality, its
development of products that are based on Ideas Inspired by Parents and its
longstanding relationship with Dr. T. Berry Brazelton and the Child Development
Unit at Boston Children's Hospital, the Company believes it is well positioned
to produce new and innovative products that meet the requirements of today's
parents.
The Company believes that its growth will result in large part from the
continued expansion of its existing product line for infants and toddlers up to
three years of age as well as the development of products for children up to six
years of age. The Company introduced 45 new products for sale in 1994 and 90 new
products for sale in 1995. Among the 1995 items are initial entries into product
segments that are new to the Company. Those entries include several
higher-priced furnishings, such as bath seats, booster seats and step stools;
higher-priced boxed toys; electronic products for the nursery, including a
nursery monitor and crib tape player/night light; travel-related products such
as diaper bags and child carriers; and 25 products featuring Winnie the Pooh
characters. During this period of rapid product development, net sales have
increased from approximately $46.1 million in 1993 to $53.2 million in 1994 and
from $27.1 million in the first six months of 1994 to $35.9 million for the
comparable period in 1995.
The Company believes that its future growth will also come from the
expansion of its distribution in both domestic and international markets. The
Company's strategy in the United States is to increase its penetration in all of
its major channels of distribution. Internationally, the Company has expanded
its sales in Europe with the opening of a sales office in the United Kingdom in
1992 and has increased distribution of its products in the past few years in
Canada, Central and South America, the Middle East and, more recently, the
Pacific Rim. The Company believes that its products have been well received by
international consumers and that the number of births and rising income levels
in international markets present significant opportunities for growth.
The Company was incorporated in 1952 in Massachusetts under the name Kiddie
Products, Inc. The Company changed its name to The First Years Inc. in May 1995.
The Company's headquarters are located at One Kiddie Drive, Avon, Massachusetts
02322, and its telephone number is (508) 588-1220.
3
<PAGE> 6
<TABLE>
THE OFFERING
<S> <C>
Common Stock offered by:
The Company............................................. 600,000 shares
The Selling Stockholders................................ 600,000 shares
Total.............................................. 1,200,000 shares
Common Stock to be outstanding after completion of this
Offering(1)................................................ 2,856,405 shares
Use of proceeds.............................................. Product development, purchase
of capital equipment (molds
and dies), debt repayment,
working capital and other
general corporate purposes,
including possible
acquisitions of product lines.
See "Use of Proceeds."
Nasdaq National Market symbol................................ KIDD
<FN>
---------------
(1) Based on shares outstanding at September 1, 1995. Does not include 207,414 shares issuable upon
the exercise of outstanding options under the Company's stock plans.
</TABLE>
<TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................ $35,423 $37,993 $45,267 $46,124 $53,233 $27,069 $35,879
Cost of products sold............ 18,831 20,199 23,645 26,654 29,498 15,208 20,973
Selling, general, and
administrative expenses........ 13,999 14,776 18,430 17,857 18,916 9,245 11,336
Income before income taxes....... 2,860 3,306 3,315 1,278 4,861 2,620 3,533
Net income....................... 1,694 1,916 1,930 796 2,989 1,625 2,120
Earnings per share............... $ 0.75 $ 0.85 $ 0.86 $ 0.35 $ 1.33 $ 0.72 $ 0.91
Dividends paid per share(1)...... -- $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17
Weighted average number of shares
outstanding.................... 2,248 2,248 2,248 2,248 2,249 2,248 2,331
</TABLE>
<TABLE>
SUMMARY BALANCE SHEET AT JUNE 30, 1995:
<CAPTION>
AS
ACTUAL ADJUSTED(2)
------- -----------
<S> <C> <C>
Current assets........ $29,470 $37,403
Property, plant, and
equipment - net..... 5,916 5,916
------- -------
$35,386 $43,319
</TABLE>
<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTED(2)
------- -----------
<S> <C> <C>
Current liabilities... $10,529 $ 7,229
Long term
liabilities......... 752 752
Stockholders'
equity.............. 24,105 35,338
------- -------
$35,386 $43,319
======= =======
<FN>
---------------
(1) A cash dividend of $0.17 per share of Common Stock has been paid in June of
each year commencing in 1991.
(2) Adjusted to reflect the sale of the 600,000 shares of Common Stock offered
by the Company hereby at an assumed public offering price of $20.25 per
share (the last reported sale price on September 14, 1995) and after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by the Company related to the Offering, and the application
of the net proceeds therefrom. See "Use of Proceeds."
</TABLE>
RISK FACTORS
There are certain risks associated with this Offering. See "Risk Factors."
4
<PAGE> 7
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the following risk factors in addition to the other information
contained elsewhere in this Prospectus before purchasing shares of Common Stock
offered hereby.
NEW PRODUCT INTRODUCTIONS
The growth of the Company has been, and will continue to be, dependent upon
its ability to continue to introduce new products. There can be no assurance
that the Company will continue to maintain its present rate of growth, that it
will continue to generate new product ideas, or that new products will be
successfully introduced. See "Business -- Product Design, Development and
Marketing."
RELIANCE ON LICENSED PRODUCTS
A substantial factor contributing to the growth in the Company's net sales
in 1995 has been its licensing agreements with The Walt Disney Company to
feature Winnie the Pooh characters on a variety of its products in various
countries. For the first six months of 1995, net sales of these licensed
products were approximately 14% of the Company's net sales. These licensing
agreements expire at the end of 1996 and there can be no assurance that they
will be renewed or that, if renewed, they will result in sales increases in
future periods. See "Business -- Agreements with The Walt Disney Company."
DEPENDENCE UPON MAJOR CUSTOMERS
The two largest customers of the Company, Wal*Mart and Toys "R" Us,
accounted for approximately 26% and 22%, respectively, of net sales during 1994,
and approximately 25% and 23%, respectively, of net sales during the first six
months of 1995. A significant reduction of purchases by either of these
customers could have a material adverse effect on its business. See
"Business -- Sales."
COMPETITION
The juvenile products industry is highly competitive and includes numerous
domestic and foreign competitors, some of which are substantially larger and
have greater financial and other resources than the Company. There can be no
assurance that the Company will be able to continue to compete effectively in
the juvenile products market. See "Business -- Competition."
RELIANCE ON FOREIGN MANUFACTURERS
The Company does not own or operate its own manufacturing facilities. In
each of 1994 and the first six months of 1995, the Company derived approximately
53% and 51%, respectively, of its net sales from products manufactured by others
in the Far East, mainly in the Peoples' Republic of China ("China"). The Company
has no long-term contracts with these manufacturing sources. Foreign
manufacturing is subject to a number of risks including transportation delays
and interruptions, quotas and other import or export controls, the imposition of
tariffs, currency fluctuations, misappropriation of intellectual property,
political and economic disruptions, and changes in governmental policies. From
time to time, the United States Congress has attempted to impose additional
restrictions on trade with China. Enactment of legislation or the imposition of
restrictive regulations conditioning or revoking China's "most favored nation"
("MFN") trading status could have a material adverse effect upon the Company's
business because products originating from China could be subjected to
substantially higher rates of duty. China's MFN trading status has been extended
until July 3, 1996. The European Economic Community (the "EEC") has recently
enacted a quota and tariff system with respect to the importation into the EEC
of certain toy products originating in China. Although the Company continues to
evaluate alternative sources of supply outside of China, there can be no
assurance that the Company will be able to develop alternative sources of supply
in a timely and cost-effective manner. Also, the Company, because of its
substantial reliance on suppliers in foreign countries, is required to order
products further in advance of customer orders than would generally be the case
if such products were produced in the United States. The risk of ordering
products in this manner is greater during the initial introduction of new
5
<PAGE> 8
products since it is difficult to determine the demand for such products. See
"Business -- Manufacturing and Sources of Supply."
COST AND AVAILABILITY OF CERTAIN MATERIALS
Plastic and paperboard are significant cost components of the Company's
products and packaging. Because the primary resource used in manufacturing
plastic is petroleum, the cost and availability of plastic for use in the
Company's products varies to a great extent with the price of petroleum. The
inability of the Company's suppliers to acquire sufficient plastic or paperboard
at reasonable prices would adversely affect the Company's ability to maintain
its profit margins in the short term. See "Business -- Manufacturing and Sources
of Supply."
PRODUCT LIABILITY RISKS
The Company's juvenile products are used for and by small children and
infants. The Company carries product liability insurance in amounts which
management deems adequate to cover risks associated with such use; however,
there can be no assurance that existing or future insurance coverage will be
sufficient to cover all product liability risks. See "Business -- Legal
Proceedings."
GOVERNMENT REGULATION
The Company's products are subject to the provisions of the Federal
Consumer Product Safety Act and the Federal Hazardous Substances Act (the
"Acts") and the regulations promulgated thereunder. The Acts authorize the
Consumer Product Safety Commission (the "CPSC") to protect the public from
products which present a substantial risk of injury. The CPSC can require the
repurchase or recall by the manufacturer of articles which are found to be
defective and impose fines or penalties on the manufacturer. Similar laws exist
in some states and cities and in other countries in which the Company markets
its products. Any recall of its products could have a material adverse effect on
the Company, depending on the particular product. See "Business -- Government
Regulation."
6
<PAGE> 9
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the 600,000
shares of Common Stock offered by the Company hereby (at an assumed public
offering price of $20.25 per share and after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company) are
estimated to be approximately $11,233,200 ($14,659,500 if the Underwriters'
over-allotment option is exercised in full).
The Company intends to use the net proceeds to expand its product
development efforts, increase product distribution, purchase capital equipment
for tooling (predominantly molds and dies), repay outstanding bank debt
($2,300,000 outstanding as of September 1, 1995 bearing interest at 8.2%), and
for general corporate purposes, including working capital to support increased
inventory and receivables levels, and possible acquisitions of product lines.
The Company has not entered into any agreements with respect to any such
acquisitions.
Pending the application of the net proceeds as described above, the net
proceeds to the Company from this offering will be placed in interest-bearing
bank accounts, or invested in United States government securities, certificates
of deposit of major banks, money market mutual funds or investment-grade
commercial paper. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The Company will not receive any proceeds from the sale of the 600,000
shares of Common Stock being offered hereby by the Selling Stockholders.
PRICE RANGE OF COMMON STOCK
The Common Stock has been quoted on the Nasdaq National Market under the
symbol "KIDD" since March 1, 1995. Prior to that time, the Common Stock was
traded on the Nasdaq Small-Cap Market. The following table sets forth the high
and low sales prices for the Common Stock for the periods indicated as reported
by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C> <C>
1993
First Quarter.......................................... $13 1/2 $10 3/4
Second Quarter......................................... 12 3/4 10
Third Quarter.......................................... 12 10
Fourth Quarter......................................... 11 1/4 9 1/2
1994
First Quarter.......................................... 10 1/2 8 1/2
Second Quarter......................................... 15 8 1/2
Third Quarter.......................................... 16 1/8 13
Fourth Quarter......................................... 19 1/2 15
1995
First Quarter.......................................... 24 17 1/4
Second Quarter......................................... 20 1/4 16 3/4
Third Quarter (through September 14>, 1995)............ 21 3/4 18 3/4
</TABLE>
On September 14, 1995 the last reported sale price as reported on the
Nasdaq National Market was $20.25 per share. As of September 1, 1995, there were
approximately 120 record holders of the Common Stock.
7
<PAGE> 10
DIVIDEND POLICY
The Company has paid a cash dividend on its Common Stock of $0.17 per share
in June of each year commencing in 1991. The most recent annual cash dividend
was paid on June 1, 1995. The Company currently expects that comparable cash
dividends will continue to be paid in the future. However, the declaration and
payment of any such cash dividends in the future will depend upon the Company's
earnings, financial condition, capital needs, and other factors deemed relevant
by the Board of Directors. There can be no assurance that the Company will
continue to pay dividends in the future.
CAPITALIZATION
The following table sets forth the short-term borrowings and capitalization
of the Company as of June 30, 1995, and as adjusted to give effect to the sale
of the 600,000 shares of Common Stock offered by the Company (at an assumed
public offering price of $20.25 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company) and the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1995
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings (including current portion of long-term debt)...... $ 3,433 $ 133
======= =======
Long-term debt (less current portion).................................... $ 167 $ 167
------- -------
Stockholders' equity:
Common stock, $0.10 par value, 15,000,000 shares authorized, 2,252,286
shares issued and outstanding and 2,852,286 shares issued and
outstanding as adjusted(1)............................................. 225 285
-------
Paid-in capital.......................................................... 117 11,290
-------
Retained earnings........................................................ 23,763 23,763
------- -------
Total stockholders' equity............................................. 24,105 35,338
------- -------
Total capitalization..................................................... $24,272 $35,505
======= =======
<FN>
---------------
(1) Excludes options to purchase Common Stock under the Company's stock plans of which there were
options outstanding to purchase an aggregate of 211,533 shares at June 30, 1995.
</TABLE>
8
<PAGE> 11
<TABLE>
SELECTED FINANCIAL DATA
The selected financial data presented below as of and for each of the five years ended December 31, 1994 have been derived
from the Company's financial statements, which have been audited by Deloitte & Touche LLP, independent accountants. The selected
financial data as of and for the six-month periods ended June 30, 1994 and 1995 have been derived from the unaudited financial
statements of the Company. In the opinion of management, the unaudited financial statements have been prepared on the same basis as
the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and the results of operations for these periods. Operating results for the six months ended
June 30, 1995 are not necessarily indicative of the results that may be expected for any future period. This data should be read in
conjunction with the Financial Statements, related notes, and other financial information included elsewhere in this Prospectus.
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales....................... $35,423 $37,993 $45,267 $46,124 $53,233 $27,069 $35,879
Cost of products sold........... 18,831 20,199 23,645 26,654 29,498 15,208 20,973
Gross profit.................... 16,592 17,794 21,622 19,470 23,735 11,861 14,906
Selling, general, and
administrative expenses....... 13,999 14,776 18,430 17,857 18,916 9,245 11,336
Severance-related expenses...... -- -- -- 373 -- -- --
Interest income (expense),
net........................... 267 288 123 37 42 4 (37)
Income before income taxes...... 2,860 3,306 3,315 1,278 4,861 2,620 3,533
Income taxes.................... 1,166 1,390 1,385 482 1,872 995 1,413
Net income...................... 1,694 1,916 1,930 796 2,989 1,625 2,120
Earnings per share.............. $ 0.75 $ 0.85 $ 0.86 $ 0.35 $ 1.33 $ 0.72 $ 0.91
Dividends paid per share(1)..... -- $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.17
Weighted average number of
shares outstanding............ 2,248 2,248 2,248 2,248 2,249 2,248 2,331
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital................. $13,811 $15,081 $14,634 $15,126 $17,245 $16,096 $18,941
Total assets.................... 20,859 22,383 24,695 24,533 28,853 26,476 35,386
Short-term debt................. 133 133 133 133 133 133 3,433
Long-term debt.................. 767 633 500 367 233 300 167
Stockholders' equity............ 16,210 17,751 19,306 19,720 22,350 20,962 24,105
<FN>
---------------
(1) A cash dividend of $0.17 per share of Common Stock has been paid in June of each year commencing in 1991.
</TABLE>
9
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's recent growth has been to a large extent the result of a
substantial increase in sales of new products and the addition in 1995 of
products featuring Winnie the Pooh characters under a licensing agreement with
the Walt Disney Company. These licensed products accounted for approximately 14%
of net sales in the first six months of 1995. The Company plans to introduce the
Winnie the Pooh characters on additional products and in additional geographic
areas in the latter part of 1995 and in 1996. The Company expects to continue
its new product development program aggressively. However, it does not believe
that sales from new product introductions are necessarily related to the number
of new products introduced.
As part of its marketing strategy, the Company has recently entered new
product areas, such as furnishings and licensed character products, that it
believes have significant sales potential. These product areas offer lower gross
profit margins than the Company's historical product areas and have had the
effect of lowering the Company's overall gross margin percentage. However,
because of the resulting increases in sales, total profits have increased.
During the balance of 1995, the Company expects that these trends will continue
and that gross margins will decrease and total profits will increase versus the
comparable period in 1994.
International sales have had an increasingly larger impact on the Company's
financial results. In 1992, international sales represented approximately 5% of
net sales; for the first six months of 1995, international sales were
approximately 10% of net sales. Start-up costs associated with the establishment
of the Company's international distribution, particularly in Europe, have
negatively affected selling, general and administrative expenses in the periods
since 1992. The Company believes that international sales as a percentage of net
sales will continue to increase and that as these sales increase the expenses
associated with these sales will decrease as a percentage of international
sales.
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth, for the periods indicated, certain items in
the Company's statements of income as a percentage of net sales:
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1992 1993 1994 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold................................. 52.2 57.8 55.4 56.2 58.5
Gross profit.......................................... 47.8 42.2 44.6 43.8 41.5
Selling, general and administrative expenses.......... 40.7 38.7 35.5 34.2 31.6
Income before income taxes............................ 7.3 2.8 9.1 9.7 9.8
Net income............................................ 4.3 1.7 5.6 6.0 5.9
</TABLE>
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994
Net sales for the first six months of 1995 were $35.9 million, an increase
of $8.8 million, or 32.5%, as compared to net sales of $27.1 million for the
comparable period in 1994. The increase was due to new product introductions and
expanded retail distribution in domestic and foreign markets. Net sales
particularly benefited from the introduction of newly licensed Winnie the Pooh
products and the introduction of new products that have higher average selling
prices than products previously offered by the Company.
10
<PAGE> 13
Cost of products sold for the first six months of 1995 was $21.0 million,
an increase of $5.8 million, or 37.9%, as compared to $15.2 million for the same
period in 1994. As a percentage of net sales, the cost of products sold for the
first six months of 1995 increased to 58.5% from 56.2% in the comparable period
of 1994. The increase was due to increased sales of higher-priced, lower margin
items, licensing fees and air freight shipments from overseas production
facilities incurred primarily in the first three months of the period. In
addition, sales reflected an increased volume of licensed products sales that
carry a lower profit margin. The continued effect of these factors, along with
increased cost of products due to raw material price increases, is expected to
result in further declines in gross profit margins for the balance of 1995.
Selling, general and administrative expenses for the first six months of
1995 were $11.3 million, an increase of $2.1 million, or 22.6%, as compared to
$9.2 million for the same period in 1994. The increase resulted primarily from
costs related to increased sales volume. Selling, general and administrative
expenses for the first six months of 1995 as a percent of sales decreased to
31.6% from 34.2% for the similar period in 1994. This decrease reflects the
economies of scale resulting from a higher volume of business.
Income tax expense increased as a percentage of pretax income to 40.0% from
38.0% in the comparable period in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net sales in 1994 were $53.2 million, an increase of $7.1 million, or
15.4%, as compared to net sales of $46.1 million in 1993. The increase was due
primarily to new product introductions and expanded retail distribution in
domestic and foreign markets.
Cost of products sold in 1994 was $29.5 million, an increase of $2.8
million, or 10.7%, as compared to $26.7 million in 1993. As a percentage of net
sales, cost of products sold decreased to 55.4% in 1994 from 57.8% in 1993 due
to sales of higher margin products including new products introduced in 1994.
Selling, general and administrative expenses in 1994 were $18.9 million, an
increase of $1.0 million, or 5.9%, as compared to $17.9 million in 1993. The
increase is attributable to higher costs directly related to increased sales
volume. As a percentage of net sales, selling, general and administrative
expenses decreased in 1994 to 35.5% from 38.7%. The decrease reflects the
economies of scale resulting from a higher volume of business, including
increased sales in Europe, and the effects of a program instituted in 1993 to
reduce operating expenses.
Income tax expense as a percentage of pretax income increased slightly to
38.5% in 1994 from 37.7% in 1993.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992
Net sales in 1993 were $46.1 million, an increase of $857,000, or 1.9%, as
compared to net sales of $45.3 million in 1992. The increase was due to new
product introductions and expanded retail distribution in domestic and foreign
markets offset in part by price competition in some older products, declines in
sales to wholesale clubs and an unusually large shipment in 1992 for initial
stocking of an expanded program with one of the Company's largest accounts.
Cost of products sold in 1993 was $26.7 million, an increase of $3.0
million, or 12.7%, as compared to $23.7 million in 1992. As a percentage of net
sales, cost of products sold increased in 1993 to 57.8% from 52.2% in 1992
primarily because of price competition in some older lines and the inability to
effect price increases on other products.
Selling, general and administrative expenses in 1993 were $17.9 million, a
decrease of $573,000, or 3.1%, as compared to $18.4 million in 1992. As a
percentage of net sales, selling, general and administrative expenses decreased
to 38.7% from 40.7% in 1992. Reductions in bad debt expense, payroll and
payroll-related costs, and packaging costs offset increased distribution costs.
To improve operating productivity, the Company streamlined staff and
outsourced certain product assembly operations. As a result, 34 employees were
laid off during 1993. Severance-related expenses,
11
<PAGE> 14
primarily consisting of severance pay, benefit considerations and outplacement
services, amounted to a pretax charge of $373,000 ($231,000 net of tax).
Income tax expense as a percentage of pretax income decreased to 37.7% in
1993 from 41.8% in 1992 as a result of increased state tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital increased by $1.7 million from $17.2 million at
December 31, 1994 to $18.9 million at June 30, 1995 primarily due to profitable
operations. Accounts receivable increased by $4.4 million primarily as a result
of increased sales, and inventories increased by $3.4 million to meet continued
demand for the Company's products. Cash decreased by $1.2 million primarily
resulting from increases in accounts receivable and inventories which were
partially offset by increases in accounts payable, accrued expenses and
short-term borrowings.
Unsecured lines of credit of $15 million which are subject to annual
renewal, are available from banks. Amounts outstanding under these lines are
payable upon demand by the banks. During 1995, the Company borrowed various
amounts from time to time up to $3.3 million, of which $2.3 million at an
interest rate of 8.2% was outstanding as of September 1, 1995.
The Company has paid a cash dividend of $0.17 per share of Common Stock in
June of each year commencing in 1991.
The Company made capital expenditures of approximately $458,000 in the
first six months of 1995 and expects to spend approximately $1 million more on
capital expenditures in the second half of 1995. The Company expects cash flow
from operations, availability under the Company's lines of credit and the net
proceeds from this Offering to be sufficient to meet its cash needs for working
capital and capital expenditures for at least the next two years.
INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
Inflation has not had a material effect on the Company's operating results
over the past three years.
The Company enters into forward exchange contracts to minimize the impact
of fluctuations in currency exchange rates on future cash flows emanating from
sales denominated in foreign currencies. The Company does not purchase such
contracts for trading purposes. During 1994, the Company entered into forward
exchange contracts with a bank whereby the Company is committed to deliver
foreign currency at predetermined rates. The contracts expire within one year.
The Company's future commitment under these contracts approximated $1.6 million
as of June 30, 1995. At June 30, 1995, the exchange rates for such currencies
covered by the contracts approximated the predetermined rate included therein.
The Company routinely assesses the financial strength of the bank which is
counterparty to the forward exchange contracts. As of June 30, 1995, management
believes that the Company had no significant exposure to credit risk relative to
such contracts.
12
<PAGE> 15
BUSINESS
The First Years Inc. is a leading developer and worldwide marketer of a
broad line of innovative, high-quality, value-priced, developmentally-sound
products for infants and toddlers. Since 1973, the Company has sold its products
under its well-known brand name and principal trademark, THE FIRST YEARS. In
1994 and 1995, the Company entered into licensing agreements with The Walt
Disney Company to feature Winnie the Pooh characters on a variety of its
products in various countries. The Company's product line now contains
approximately 300 items and is divided into five categories -- Feeding &
Soothing, Care & Safety, Play & Discover, First Gifts and Winnie the Pooh.
Retail prices for the Company's products range from approximately $0.99 to
$39.99. Major channels through which the Company sells its products include mass
merchants, supermarkets, drug stores, department stores, wholesale clubs,
convenience stores, specialty stores, mail-order catalogs and catalog showrooms.
The Company currently has over 1,000 customers in over 40 countries. Major
customers include Wal*Mart, Toys "R" Us, Target, Kmart, Sears, Kroger and Baby
Superstore.
JUVENILE PRODUCTS MARKETS
According to the Juvenile Products Manufacturers Association ("JPMA"), the
United States market for juvenile products has shown continued growth for the
past 15 years. According to JPMA, factory shipments by juvenile products
manufacturers increased approximately 6.6% in 1994 and is projected to grow
approximately 14% in 1995. This growth has been supported by favorable
demographic trends. More than four million babies have been born in the United
States every year from 1989 to 1994, which rate has been relatively constant,
and the population of children under age five has increased from 19.6 million in
1980 to 23.6 million in 1994. More importantly, many of these children are being
born to dual-income couples and couples who are waiting longer to have children.
These trends, the Company believes, have contributed to increased awareness
by parents of the developmental importance of a child's early years, increased
concern about product quality, safety and value; and increased purchases of
juvenile products by both parents and grandparents. In turn, retailers have
become more aware of the growth potential in the market and have been more
willing to establish improved, updated, and enlarged juvenile product
departments in their stores. Additionally, the baby product "superstore"
concept, which gives exposure to a broader range of juvenile products, has been
successfully introduced and is likely to become more widespread.
The Company distributes its products on a worldwide basis but is not aware
of any available worldwide juvenile product market statistics. The JPMA
estimates that the U.S. market alone in 1994, for products produced by member
companies, was about $1.8 billion in factory shipments. This JPMA figure
includes products for children up to three years of age and includes strollers,
car seats, non-apparel soft goods, and feeding, nursing, health, care, safety,
and play accessory items, but does not include clothing, diapers, formula and
many toys. The JPMA also estimates that the U.S. market for these products is
approximately one-third of the total world market.
BUSINESS STRATEGY
The Company's mission is to develop and market products that help make the
process of parenting a happier, healthier and easier experience for both parents
and their young children worldwide. Major elements of the strategy to achieve
this mission are as follows:
- CREATING PARENT-INSPIRED PRODUCTS. The Company uses its knowledge of
parenting and child development to develop and sell high-quality, innovative and
value-priced products. In keeping with its corporate motto and trademark, Ideas
Inspired by Parents, the Company designs its product line with the advice of
small focus groups of expectant and new parents from its 600-member Parents
Council who meet frequently to review the Company's new products and product
ideas. The Company also develops its products in consultation with the Child
Development Unit ("CDU") at Children's Hospital in Boston, Massachusetts and its
founder and Director Emeritus, Dr. T. Berry Brazelton, considered by many
parents to be the nation's foremost authority on parenting.
13
<PAGE> 16
The Company has always placed great emphasis on innovative product
development. Several years ago, however, the Company recognized that consumers
were becoming more receptive to new concepts that offer greater quality, safety
and value and that retailers were vigorously seeking new and innovative juvenile
products. In response to this emerging trend, the Company decided to enhance its
product development process in order to increase both the number of new products
and the amount of innovation which it was bringing to the market. The Company
believes that this initiative has resulted in a substantial increase in the
number of, and degree of innovation in, the products it has brought to the
market in recent years. The Company intends to continue emphasizing product
innovation and development and to devote substantial resources to its product
development process. See "Use of Proceeds."
- EXPANDING AND ENHANCING ITS PRODUCT LINE. The Company believes that its
understanding of the needs of parents and children, its reputation for
high-quality and value-priced products with consumers and retailers and its
product development process, position it well to expand its current categories.
In 1995, the Company introduced products in a number of new categories including
licensed character products, electronic products for the nursery, booster seats
and child carriers. The Company has also recently introduced products for
children in the three to six age range and is currently developing additional
products for this age range. In 1994 and 1995, the Company entered into
licensing agreements with The Walt Disney Company to feature Winnie the Pooh
characters on a variety of its products in various countries. The Company
intends, where appropriate, to pursue additional licensing arrangements for
established characters with images that are consistent with the Company's
product line.
- INCREASING PENETRATION IN DOMESTIC DISTRIBUTION CHANNELS. Although the
Company has been successful in selling to virtually all major domestic
distribution channels, it is aggressively seeking to increase its penetration of
these channels. This strategy includes both adding customers in existing
channels as well as increasing its shelf space with existing customers. As part
of this strategy, the Company began in 1992 to introduce sub-categories of
products with common themes, marketed under distinct trademarks. The first such
introduction was the TumbleMates line of interchangeable cups and lids in 1992,
followed by the Firstronics electronic toys, the Washables line of watertight,
dishwasher-safe toys and the Step-by-Step line of multi-function furnishings,
among others. The Company believes that marketing a collection of products with
a common theme is a more efficient and effective means of selling its products
to both retailers and consumers.
- EXPANDING ITS INTERNATIONAL CUSTOMER BASE. The Company intends to
continue expanding its business internationally. The Company believes that the
markets in certain developing countries are growing substantially faster than
the United States market as a result of favorable demographic trends and
increases in per capita income. The Company has established a sales office in
the United Kingdom for sales in the European market. The Company has also set up
distribution centers in Belgium and Canada for distribution of its products in
Europe and Canada. Additionally, the Company has also expanded its sales efforts
in Canada, the Middle East, Central and South America, and is just beginning its
expansion in the Pacific Rim. To support these efforts, the Company has
developed multi-lingual packaging.
- CAPITALIZING ON BRAND NAME RECOGNITION. By producing since its inception
high quality products that meet parenting needs, THE FIRST YEARS brand name has
become widely recognized and valued by a loyal consumer base. Because of the
importance of word-of-mouth as an influence in the purchase of juvenile
products, the Company considers this to be a significant asset. A
consumer-oriented catalog, in-pack product guides, package copy and
point-of-purchase materials are also used to communicate the Ideas Inspired by
Parents message.
PRODUCTS
In recent years, the Company has accelerated the general pace of product
innovation. In addition, especially in 1995, the Company has broadened its
product line to include more higher-priced products such as electronic products
for the nursery, furnishings such as odor-proof diaper pails, booster seats,
bath seats, diaper bags and child carriers. Additional higher-priced products
are currently in development. The
14
<PAGE> 17
Company's product line, which contains approximately 300 items that range in
retail price from approximately $0.99 to $39.99, is categorized and color-coded
into five distinct product groups as follows:
FEEDING & SOOTHING. The Feeding & Soothing category is comprised of
bottles and accessories, nipples, pacifiers, teethers, bowls, drinking cups,
dishes and flatware. Since 1992, this category has included the TumbleMates line
of training cups, bowls, plates and utensils, designed for serving, storing and
transporting drinks and snacks, and which features a system of interchangeable
cups and lids. In 1995, the Company introduced several new products into its
TumbleMates line including the Stack & Pack Lunch Kit, the Flatware Travel Set
and the Snap-Apart Dish.
In 1995, the Company also added to this category the Neats line of
stain-resistant bibs specially made with a 3M Scotchgard stain-release system
and the following items: the Choice bottle system that allows interchangeability
between disposable and reusable bottles; a unibody pacifier, marketed under the
Sure trademark; and the Simplicity Manual Breast Pump. In 1996, the Company
plans to introduce spill-proof cups and insulated cups into its TumbleMates
line, new products that relieve teething discomfort and an innovative, electric
breast pump.
PLAY & DISCOVER. The Play & Discover category consists of an extensive
line of entertaining, skill-developing toys for infants and toddlers including
crib toys, floor toys and hand-held toys. Since 1994 the Play & Discover
category has included the Company's Washables line of 100% watertight and
dishwasher-safe toys. In 1995, the Company introduced the High Chair Gym,
Floorgym and Playmat, and the Snap & Play People Bus to its Washables line.
In 1994, the Company also added to this category its Firstronics line of
hand-held electronic toys for children under three years of age, which features
a child-proof battery compartment. In 1995, the Company introduced its Counting
Calculator and Sing-a-long Microphone into the Firstronics line. In 1996, the
Company plans to introduce numerous new Play & Discover toys including
motion-activated electronic toys, a color-change bath toy and a musical crib
mirror.
CARE & SAFETY. The Care & Safety category consists of a broad line of
fashion and grooming items; home safety products such as door and cabinet
latches; and products appropriate for the health and hygiene needs of infants,
such as digital thermometers. In 1995, the Company added to this category its
Nurserytronics line of electronic products designed especially for use in the
nursery, such as a tape player and crib light and a rechargeable infant monitor.
In 1996, the Company plans to launch several safety-related products in the
Nurserytronics line.
In 1995, the Company also added to this category a new line of rugged,
machine-washable travel tote bags, child carriers and harnesses, marketed under
the PackMates name. This line includes the Clip'n Go 2-Way Front Carrier, a
detachable infant carrier; the Clip'n Go Warm & Cozy Carrier, an insulated
detachable infant carrier; and the Day Trip Diaper Bag, a nylon diaper bag with
built-in labeled organizers and adjustable shoulder strap.
In 1994 and 1995, additions to this category included the Step-by-Step line
of furnishings comprised of a bath seat, booster seat, baby bather, step stool
and toilet trainer that are adjustable as a child grows. In 1996, the Company
plans to introduce a new innovative concept in booties and several new
higher-priced furnishings.
FIRST GIFTS. The Company markets a variety of specially-designed gift bags
and gift sets, which combine the Company's most popular items as
attractively-packaged, ready-to-give gifts, or theme-related starter sets. Gift
sets include the Washables gift pack, the TumbleMates gift pack, newborn gift
bags and bathtub gift sets. In 1996 the Company intends to introduce additional
gift sets targeted to both retailers and wholesale clubs.
WINNIE THE POOH. The Winnie the Pooh category consists of over 25 staple
child care products including teethers, rattles, bibs and bottles, featuring
Winnie the Pooh characters. In 1995, the Company also launched its Pooh Goody
Bags which contain an assortment of the Company's products featuring Winnie the
Pooh characters and a new line of appliqued bibs featuring various Winnie the
Pooh designs. In 1996, the Company
15
<PAGE> 18
plans to introduce the Winnie the Pooh characters on numerous additional items
throughout its product line including cups, electronic musical toys, hooded
towels, bath puppets and furnishings.
The Company believes that its knowledge of parents and parenting and its
reputation for developing "parent-friendly" products creates an opportunity to
enter additional product segments for young children (birth to six) in future
years.
PRODUCT DESIGN, DEVELOPMENT AND MARKETING
The Company has always placed great importance on and devotes substantial
resources to product development. Product development teams are established for
each of the Company's product categories. The goal of the product development
teams is to develop new or improved, high-quality and practical products
designed to meet the needs of parents and children. In keeping with its
corporate philosophy and trademark, Ideas Inspired by Parents, the Company has
designed its products since 1973 in consultation with small groups of parents
chosen from its 600-member Parents Council. The Company conducts frequent focus
groups of these new parents to discuss parenting and child-care issues,
brainstorm new products and ideas, and review and test the Company's new
products and ideas. The Company also utilizes feedback and ideas from its
consumer 1-800 phone number.
The Company employs a staff of professionals engaged in the creation of new
products and also uses, from time to time, a diverse group of outside designers
and developers. For the past 14 years the Company's product line also has been
designed in consultation with Dr. T. Berry Brazelton, the well-known
pediatrician and authority on child development, and staff members of the Child
Development Unit at Children's Hospital in Boston, Massachusetts (the "CDU"), of
which Dr. Brazelton is founder and Director Emeritus. In reviewing the Company's
new products and product ideas, Dr. Brazelton and the CDU focus on child health
and development. Dr. Brazelton and the CDU also assist the Company in developing
support information distributed with the products that instructs or educates new
parents on the proper use of the products.
The Company spent $807,000 on new product development during the first six
months of 1995, and $1,466,000 and $1,493,000 in 1994 and 1993, respectively.
The Company expects to continue its new product development program
aggressively, although the number of new products introduced may vary from year
to year.
In developing new products, the Company looks to generate ideas and
features that are not offered by existing products and which the Company can
produce at a reasonable cost and sell at a price that reflects the product's
greater quality and value. Most of the Company's new products are shown at the
Juvenile Products Manufacturers Association Trade Show, which is held in Dallas,
Texas in the fall of each year. Certain of the Company's products are shown each
year at the following trade shows: the International Housewares Exhibition; the
Harrogate Nursery Faire in Harrogate, England; the International Mass Retail
Association; and the National Association of Chain Drug Stores.
The Company also seeks to educate parents on child development issues. For
over 10 years, the Company has been the exclusive national sponsor of Dr. T.
Berry Brazelton's National Seminars, a series of seminars held in communities
throughout the country to inform parents and child care professionals about
child development and parenting issues. The Company believes that these efforts
have and will continue to promote the Company's commitment to child development
and child care.
An additional factor in the success of the Company's THE FIRST YEARS brand
of products in recent years has been the Company's new, contemporary, high
visual impact packaging design which was introduced in 1993. The new packaging
was thoroughly researched and tested to maximize impulse-buying appeal and is
designed to increase brand awareness. In addition, the Company's packaging is
designed to educate the consumer as to the benefits and features of the
Company's products and serve as a point-of-purchase sales tool. The Company has
also introduced multi-lingual packaging as it has expanded its sales in
international markets.
SALES
The Company's products are sold nationally and internationally to a broad
spectrum of customers including mass merchants, national variety and drug
stores, supermarkets, wholesale clubs, convenience stores,
16
<PAGE> 19
toy specialty stores, wholesale distributors, department stores, mail order
catalogs and catalog stores. The Company currently has over 1,000 customers in
over 40 countries. Major customers include Wal*Mart, Toys "R" Us, Target, Kmart,
Sears, Kroger and Baby Superstore.
The Company's products are sold in the United States, Canada, Central and
South America and the Pacific Rim, primarily through the Company's ten-person
internal sales staff and also in the U.S. and Canada through a network of 49
independent sales representatives. The Company's sales staff is responsible for
supervising and training the sales representatives. Such training is conducted
at the Company's headquarters and throughout the United States. Senior
management is heavily involved in every phase of the selling process with the
Company's largest customers.
In Europe and the Middle East, the Company's products are sold by the
Company's internal staff at its sales office in Cirencester, England, which is
headed by the Director of European Sales. This staff manages a network of
foreign distributors and independent sales representatives who generally receive
exclusive rights to a defined geographical territory or market segment.
The Company's international sales in the first six months of 1995 were
$3,554,000. The Company's international sales in 1993 and 1994 were $3,770,000
and $5,272,000, respectively.
During 1994, Wal*Mart and Toys "R" Us accounted for approximately 26% and
22% of the Company's net sales, respectively. During the first six months of
1995, Wal*Mart and Toys "R" Us accounted for approximately 25% and 23% of the
Company's net sales, respectively. A significant reduction in purchases by
either of these customers could have a material adverse effect on the Company's
business.
Backlog is not a significant and material aspect of the Company's business.
Customers place orders on an as needed basis. As the Company's sales have
increased, the amount of unfilled orders at any time has not been indicative of
future results.
MERCHANDISING
To help retailers use their shelf space efficiently in marketing the
Company's products, the Company utilizes its proprietary Modular Automated
Merchandising Assistance ("MAMA") planogram program, a computerized program
which divides the space a retailer has allocated for the Company's products to
create a mix of the five color-coded product categories that is designed to
maximize the retailer's profitability. This system is used for both large and
small shelf spaces and enables the Company's customers to present a
visually-appealing display of the Company's color-coded line of products.
In recent years the Company expanded its promotional programs and created a
cross-merchandising program for its customers, by which ready-to-use display
panels and floor stand display units containing THE FIRST YEARS products are
placed next to related items in a customer's store (i.e., the Company's feeding
products are placed in a customer's baby food aisle) to encourage synergistic
and impulse buying by consumers. These display units are pre-pegged,
pre-stocked, easily re-stockable, and can be customized to the customer's needs.
The Company believes that its MAMA planogram and cross-merchandising
programs have increased the shelf space allocated to the Company's products in
major retailers and enhanced its reputation of being committed to customer
service.
AGREEMENTS WITH THE WALT DISNEY COMPANY
The Company has recently entered into licensing agreements with The Walt
Disney Company to feature Winnie the Pooh characters on a variety of its
products in the United States, Canada and in Europe through an agreement with
The Walt Disney Company (France) S.A. The Walt Disney license agreements expire
December 31, 1996 and are cancellable upon a change in control of the Company.
The Company makes royalty payments on its net sales of licensed products and is
subject to a guaranteed minimum royalty payment of approximately $712,000 in the
aggregate.
17
<PAGE> 20
MANUFACTURING AND SOURCES OF SUPPLY
The Company does not own or operate its own manufacturing facilities. In
1994 all of the Company's products were manufactured either using the Company's
custom tools (molds and dies) or to the Company's specifications by
approximately 25 manufacturers located in the United States, Canada, China,
Taiwan, and Thailand. Approximately 53% and 51% respectively of all of its
products sold in 1994 and in the first six months of 1995 were manufactured in
Asia, primarily in China. A large percentage of the Company's furnishings and
other large products were manufactured in 1994 and in the first six months of
1995 by suppliers in the United States and Canada because of the significantly
higher shipping costs from the Far East.
Generally the Company uses one manufacturer to make each product from its
supplier base in Asia, Canada, and the United States. Due to the high cost of
developing duplicate tooling (predominantly molds and dies), most of the
Company's products are made using one set of tools; however, the Company has
developed duplicate tools for several of its key and high-volume products. The
Company believes it has alternative manufacturing sources available for all of
its products. Because it owns its single and duplicate tools, it could shift its
sources of manufacturing for any product to an alternative supplier.
Currently the Company is not dependent on any one supplier, although its
largest supplier, which is based in the United States, accounted for products
that represented approximately 22% of the Company's net sales in 1994, and 20%
of its net sales in the first six months of 1995. In 1994 approximately 13% and
6% of the Company's products sold were manufactured by two suppliers located in
China, and approximately 11% and 5% of its products sold were manufactured by
these same suppliers in the first six months of 1995. The Company has not
entered into long-term contractual arrangements with any of its suppliers.
The principal raw materials used in the production and sale of the
Company's products are plastic, paperboard and cloth. Raw materials are
purchased by the manufacturers who deliver completed products to the Company.
Because the primary source used in manufactured plastic is petroleum, the cost
and availability of plastic for use in the Company's products varies to a great
extent with the price of petroleum. The inability of the Company's suppliers to
acquire sufficient plastic and paperboard at a reasonable price would have a
material adverse effect on the Company's profitability.
The Company purchases its products from its suppliers primarily in the U.S.
dollar and the Hong Kong dollar which is currently pegged to the U.S. dollar.
Generally, the Company's suppliers ship the products on the basis of open credit
terms or upon the acceptance of products by the Company. In addition, some
suppliers require shipment against letters of credit.
Foreign manufacturing is subject to a number of risks including
transportation delays and interruptions, the imposition of tariffs, quotas, and
other import or export controls, currency fluctuations, misappropriation of
intellectual property, political and economic disruptions, and changes in
governmental policies. From time to time, the United States Congress has
attempted to impose additional restrictions on trade with China. Enactment of
legislation or the imposition of restrictive regulations conditioning or
revoking China's "most favored nation" ("MFN") trading status could have a
material adverse effect upon the Company's business because products originating
from China could be subjected to substantially higher rates of duty. In May
1995, China's MFN trading status was extended through July 3, 1996. Unless
Congress takes action to override this decision, which the Company believes is
unlikely, China will continue to enjoy MFN treatment during this period. The
European Economic Community (the "EEC") has recently enacted a quota and tariff
system with respect to the importation into the EEC of certain toy products
originating in China. The Company, therefore, continues to evaluate alternative
sources of supply outside of China.
The Company, because of its substantial reliance on suppliers in foreign
countries, is required to order products further in advance of customer orders
than would generally be the case if such products were produced in the United
States. As a result, the Company is required to carry significant amounts of
inventory to meet rapid delivery requirements of customers and to assure itself
of continuous allotment of goods from suppliers.
18
<PAGE> 21
COMPETITION
The juvenile products industry is highly competitive and includes numerous
domestic and foreign competitors, some of which are substantially larger and
have greater financial and other resources than the Company. The Company
competes with a number of different competitors, depending on the product
category, and it competes against no single company across all product
categories. Its competitors include large, diversified health care products
companies, specialty infant products makers, toy makers and specialty health
care products companies. The Company competes principally on the basis of brand
name recognition and price/value relationship. In addition, the Company believes
that it competes favorably with respect to product quality, customer service and
breadth of product line.
DISTRIBUTION
Product distribution in the United States is centralized at the Company's
103,500 square foot warehouse facility in Avon, Massachusetts. The Company ships
certain of its products, primarily some of those made in Asia, to a public
warehouse in Fontana, California, thereby enabling it to reduce shipping time
and cost to its customers primarily in Western parts of the United States. The
Company distributes its products in Canada from a public warehouse in Toronto,
Ontario. In Europe, the Company distributes its products from a public warehouse
in Gent, Belgium.
The Company uses independent shippers to deliver orders to its customers.
Warehouse services at the various public warehouses are performed by warehouse
operators unaffiliated with the Company.
The Company also uses a computerized management information and control
system which allows the Company to determine the status of orders from customers
and enables the Company to process orders quickly, respond to customer inquiries
and adjust shipping schedules to meet customer requirements. Within this system,
the Company uses an electronic data interchange system which enables customers,
through computerized telephone communications, to place orders directly with the
Company. The Company believes that these systems have improved order processing,
expedited shipments and improved customer service.
The Company also provides to its customers the service of pre-ticketing and
bar-coding its products in accordance with customer specifications.
TRADEMARKS, PATENTS AND COPYRIGHTS
The Company's principal trademark, THE FIRST YEARS and design, is
registered in the United States and in a number of foreign countries. The
Company also uses other trademarks for certain of its products and product
categories, some of which are registered in the United States and in various
foreign countries. Applications are pending in the U.S. and various foreign
countries for registration of some of the Company's trademarks.
The Company also owns patents, design patents and design registrations, as
well as pending applications in the United States and certain foreign countries.
Although the Company believes such are important to its business, it does not
believe that any single patent, design patent, or design registration, including
any which may be issued on a pending application, is material to its business.
There can be no assurance that the Company's patents, design patents or design
registrations, including those that may be issued on pending applications, will
offer any significant competitive advantage for the Company's products.
The Company also owns copyrights, some of which are registered in the
United States. The Company does not believe that any single copyright is
material to its business. There can be no assurance that the Company's
copyrights will offer any significant competitive advantage for the Company's
products.
The Company requires all of its employees (other than hourly warehouse
employees), including its executive officers, to enter into standard employee
agreements pursuant to which the employee agrees to keep confidential any
proprietary information of the Company and to assign to the Company all rights
which the employee may possess in any proprietary information or technology made
or contributed to by the employee during his or her employment or made
thereafter as a result of any inventions conceived or work done during
19
<PAGE> 22
such employment. Despite these precautions, it may be possible for a third party
to obtain and use the Company's designs without authorization. In addition,
effective patent and trade secret protection may be unavailable or limited with
respect to various of the Company's products.
EMPLOYEES
As of June 30, 1995, the Company employed 91 full-time and 5 part-time
employees, of whom 10 are executive officers, 38 are in sales, marketing and
product development, 31 are in materials, purchasing, quality control, data
processing, finance, administration and clerical and 17 are in warehousing
positions. None of the Company's employees is represented by a union, and the
Company has not experienced any work stoppages. The Company believes that
relations with employees are good.
GOVERNMENT REGULATION
The Company's products are subject to the provisions of the Federal
Consumer Product Safety Act, the Federal Hazardous Substances Act, as amended,
and the Federal Flammable Fabrics Act, and the regulations promulgated
thereunder (the "Acts"). The Company's nursery monitors are subject to
regulations of the Federal Communications Commission. The Acts enable the
Consumer Product Safety Commission (the "CPSC") to protect children from
hazardous toys and other articles. The CPSC has the authority to exclude from
the market certain consumer products which are found to be hazardous. The CPSC's
determination is subject to court review. The CPSC can require the repurchase by
the manufacturer of articles which are banned. The Federal Flammable Fabrics Act
enables the CPSC to regulate and enforce flammability standards for fabrics used
in consumer products. Similar laws exist in some states and cities and in
various international markets. The Company designs and tests its products to
ensure compliance with the various federal, state and international
requirements. Any recall of a product could have a material adverse effect on
the Company, depending on the particular product.
PROPERTIES
The Company owns its executive and administrative offices and principal
warehouse which are located in a building at One Kiddie Drive, Avon,
Massachusetts. The building contains approximately 124,000 square feet of space,
of which approximately 20,500 square feet are used for executive and
administrative offices; and the balance, approximately 103,500 square feet, is
utilized for warehousing. The Company also has sales offices in leased premises
in Mission Viejo, California; Cirencester, Gloucestershire, England; and in
Paris, France.
The Company also uses public warehouses located in Fontana, California;
Toronto, Canada; and in Gent, Belgium.
The Company believes that its properties (owned and leased) are in good
condition and adequate for its current needs. The Company believes that
additional warehouse space, if needed, is readily available in close proximity
to its Avon facility.
LEGAL PROCEEDINGS
The Company encounters personal injury litigation related to its products
in the ordinary course of business. The Company maintains product liability
insurance in amounts deemed adequate by management. The Company believes that
there are no claims or litigation pending, the outcome of which would have a
material adverse effect on the Company's business, financial condition or
operating results.
20
<PAGE> 23
<TABLE>
MANAGEMENT
OFFICERS AND DIRECTORS
The Company's officers and directors are as follows:
<CAPTION>
OFFICER OR
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------
<S> <C> <C> <C>
Ronald J. Sidman................... 48 Chairman of the Board of Directors, 1975
Chief Executive Officer and
President
Jerome M. Karp..................... 67 Vice Chairman of the Board of 1969
Directors
Benjamin Peltz..................... 56 Treasurer, Senior Vice President and 1975
Director
Evelyn Sidman...................... 81 Clerk and Director 1979
Fred T. Page(1)(2)................. 48 Director 1988
Merton N. Alperin(1)(2)............ 73 Director 1988
Joseph M. Connolly................. 54 Vice President of Operations 1979
John N. Colantuone................. 57 Vice President of Materials and 1982
Engineering
Mark H. Dall....................... 51 Vice President of Information 1985
Services
Adrian E. Roche.................... 39 Vice President of Worldwide 1992
Marketing
Wayne Shea......................... 41 Vice President of Worldwide Sales & 1991
Merchandising
John R. Beals...................... 40 Controller and Assistant Treasurer 1990
<FN>
---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
</TABLE>
Mr. Sidman has served as President of the Company for over five years and
was elected to the offices of Chairman of the Board and Chief Executive Officer
on March 28, 1995.
Mr. Karp first became a Director of the Company in 1969 and has been the
Vice Chairman of the Board of Directors of the Company for over five years.
Mr. Peltz has been Senior Vice President and Treasurer of the Company for
over five years.
Mrs. Sidman first became a Director of the Company in 1979 and has been the
Clerk of the Company for over five years.
Mr. Page was appointed President -- Network Services of Southern New
England Telecommunications Corporation ("SNET") in January 1994, and has been
with SNET for over five years.
Mr. Alperin, a Certified Public Accountant, has been a financial consultant
for over five years. He was the Chairman of the Board of Public Accountancy of
Massachusetts for the years 1979, 1982 and 1984.
Mr. Connolly has been Vice President of Operations of the Company for over
five years.
Mr. Colantuone has been Vice President of Materials and Engineering of the
Company since March 1989. From January 1982 to February 1989, Mr. Colantuone was
Vice President of Materials of the Company.
Mr. Dall has been Vice President of Information Services of the Company for
over five years.
Mr. Roche has been Vice President of Worldwide Marketing of the Company
since January 1995. From January 1992 to December 1994, Mr. Roche was Vice
President of European Sales of the Company. From
21
<PAGE> 24
1989 to 1991, Mr. Roche held several managerial positions for Fisher-Price
Kiddicraft in the United Kingdom, the last of which was Managing Director.
Mr. Shea has been Vice President of Worldwide Sales & Merchandising of the
Company since January 1995. From July 1991 to December 1994, Mr. Shea was Vice
President of Service and Merchandising of the Company, and from January 1985 to
June 1991, Mr. Shea was Director of Merchandising of the Company.
Mr. Beals has been the Assistant Treasurer of the Company since January
1990 and has been the Controller of the Company since July 1985.
Evelyn Sidman is the mother of Ronald J. Sidman and the mother-in-law of
Benjamin Peltz.
ELECTION AND COMPENSATION OF DIRECTORS
The Company's Board of Directors is divided into three classes, with
members of each class holding office for staggered three-year terms. There are
currently two Class I directors (Jerome M. Karp and Fred T. Page), two Class II
directors (Evelyn Sidman and Merton N. Alperin) and two Class III directors
(Ronald J. Sidman and Benjamin Peltz) whose terms expire, respectively, at the
1996, 1997 and 1998 Annual Meeting of Stockholders. At each Annual Meeting of
Stockholders, directors in a class are elected for a term of three years and
until their successors are elected and qualified.
The Company pays each director who is not an employee of the Company an
annual retainer of $12,500 for Board service, plus attendance fees of $750 per
meeting for each Board or committee meeting attended. The Company also
reimburses expenses incurred in connection with service on the Board.
Non-employee directors are also eligible to receive an option each year to
purchase 1,500 shares of the Company's Common Stock under the Company's 1993
Stock Option Plan for Non-Employee Directors (the "Directors Plan"), which
becomes exercisable on the first anniversary of the date of grant. In addition,
each director who has served for at least three years receives a one-time award
of an option for 5,000 shares that is exercisable six months after the date of
grant. The exercise price of options is equal to the fair market value per share
of the Company's Common Stock on the date of grant. Pursuant to the Directors
Plan, on May 18, 1995, each of Messrs. Alperin and Page was granted an option to
purchase 1,500 shares of Common Stock and an option to purchase 5,000 shares of
Common Stock at an exercise price of $18.50 per share.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information with respect to the annual and long-term compensation for the years
ended December 31, 1992, 1993 and 1994 paid or accrued by the Company to each of
the following: (i) the Company's Chief Executive Officer and (ii) the Company's
four most highly paid executive officers who earned more than $100,000 in 1994
(collectively the "named officers").
22
<PAGE> 25
<TABLE>
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
NAME AND --------------------- SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION(3)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Marshall B. Sidman(4)............. 1994 $ 172,562 $ 57,323 0 $51,096
Chairman of the Board,............ 1993 197,830 0 0 61,500
Chief Executive Officer and
Director........................ 1992 190,520 74,782 0 56,000
Jerome M. Karp.................... 1994 144,628 34,394 0 45,829
Vice Chairman of the.............. 1993 197,830 0 0 60,000
Board and Director................ 1992 190,520 74,782 0 61,000
Ronald J. Sidman(5)............... 1994 193,539 159,291 5,000 29,319
President and..................... 1993 220,954 0 26,500 43,770
Director.......................... 1992 213,708 83,882 0 42,770
Benjamin Peltz.................... 1994 159,645 88,646 4,000 34,523
Sr. Vice President,............... 1993 182,803 0 19,500 47,945
Treasurer and Director............ 1992 176,393 69,242 0 47,945
John N. Colantuone................ 1994 105,974 34,929 2,500 11,952
Vice President of................. 1993 101,342 0 5,000 17,544
Materials and Engineering......... 1992 97,831 19,207 0 18,201
<FN>
---------------
(1) The bonus amounts were earned by these individuals in 1994 and 1992 under the Company's Annual Incentive Plan. The Company
did not make any bonus payments to the named officers for services rendered during 1993.
(2) These numbers represent options to purchase shares of the Company's Common Stock granted pursuant to the Company's 1993
Equity Incentive Plan. See "Options/SAR Grants in Last Fiscal Year" for more information on the options granted in 1994.
(3) The amounts shown in this column reflect (i) insurance premium payments made on behalf of the following named officers by
the Company during 1994 for life insurance policies: Marshall B. Sidman -- $35,500; Jerome M. Karp -- $30,000; Ronald J. Sidman
-- $12,770; and Benjamin Peltz -- $17,945; and (ii) contributions made by the Company to the Company's defined contribution
pension and 401(k) plans on behalf of the following named officers: Marshall B. Sidman -- $15,596; Jerome M. Karp -- $15,829;
Ronald J. Sidman -- $16,549; Benjamin Peltz -- $16,578; and John N. Colantuone -- $11,952.
(4) Marshall B. Sidman died on March 24, 1995.
(5) Ronald J. Sidman became Chairman and Chief Executive Officer on March 28, 1995.
</TABLE>
<TABLE>
Option Grants. The following table sets forth grants of stock options pursuant to the Company's 1993 Equity Incentive Plan
during 1994 to the named officers reflected in the Summary Compensation Table above:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES
SECURITIES TOTAL OPTIONS/SARS OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS/SARS EMPLOYEES IN PRICE PER EXPIRATION OPTION TERM(2)
NAME GRANTED(1) FISCAL YEAR SHARE(1) DATE 5% 10%
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Marshall B. Sidman........ 0
Jerome M. Karp............ 0
Ronald J. Sidman.......... 5,000 10.0% $ 10.04 3/23/99 $ 8,043 $23,292
Benjamin Peltz............ 4,000 8.0% 9.13 3/23/99 10,084 22,284
John N. Colantuone........ 2,500 5.0% 9.13 3/23/99 6,303 13,927
<FN>
---------------
(1) Incentive stock options were granted in 1994 pursuant to the Company's 1993 Equity Incentive Plan. The
exercise price of the options granted to Messrs. Peltz and Colantuone was equal to the fair market value
</TABLE>
23
<PAGE> 26
(the mean between the final bid and ask price) of the Company's Common Stock
on the date of grant, March 23, 1994. The exercise price of the options
granted to Mr. Sidman was 110% of the fair market value of the Company's
Common Stock on such date. The options are exercisable in three equal annual
installments beginning on March 23, 1995.
(2) In accordance with the rules of the Securities and Exchange Commission, the
amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5% and
10% compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise price,
but do not include deductions for taxes or other expenses associated with
the exercise. Actual gains, if any, on stock option exercises will depend on
the future performance of the Company's Common Stock, the optionholder's
continued employment through the option period, and the date on which the
options are exercised.
Option Exercises and Fiscal Year-End Values. The following table sets
forth information with respect to options to purchase the Company's Common Stock
granted under the Company's 1993 Equity Incentive Plan including the number of
unexercised options outstanding on December 31, 1994 and the value of such
unexercised options on December 31, 1994. No options were exercised during 1994.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS/SAR VALUES
------------------------------------------------------------------------------------------------------------
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marshall B. Sidman............................. 0 0 0 0
Jerome M. Karp................................. 0 0 0 0
Ronald J. Sidman............................... 8,834 22,666 $66,800 $ 179,700
Benjamin Peltz................................. 6,500 17,000 56,100 152,600
John N. Colantuone............................. 1,668 5,832 14,400 54,000
<FN>
---------------
(1) Value is based on the difference between the option exercise price and the fair market value at
December 31, 1994 ($19.25 per share -- the closing sale price of the Company's Common Stock as
reported by Nasdaq) multiplied by the number of shares underlying the option.
</TABLE>
EMPLOYMENT AGREEMENTS
On March 23, 1995, the Company entered into employment agreements (the
"Agreements") with Ronald J. Sidman and Benjamin Peltz (the "Executives").
Unless otherwise indicated, the provisions of the Agreements are substantially
similar. The respective Agreements provide that, initially, Mr. Sidman will
serve as President and Mr. Peltz will serve as Senior Vice President and
Treasurer of the Company, in each case for a term of five years, provided,
however, that the Agreements are automatically renewed for additional three-year
periods unless either party gives the other party notice of termination at least
90 days prior to the expiration of the initial or any renewal term (the "Term").
Base salary under the Agreements is currently $214,000 for Mr. Sidman and
$177,000 for Mr. Peltz, which amounts may be increased or decreased during the
Term in the discretion of the Compensation Committee ("Salary"). The Executives
are also entitled to participate in the Company's Annual Incentive Plan ("Annual
Bonus"), the Company's 1993 Equity Incentive Plan, and the benefits and benefit
plans provided by the Company to its other executive officers during the Term
("Benefits").
If an Executive is terminated for cause, the Salary and Benefits of the
Executive cease immediately and the Executive will not be entitled to receive an
Annual Bonus for the year in which the termination for cause occurs. In the
event of an Executive's death, the Company will pay the Executive's legal
representative an amount equal to his Salary then in effect, in 12 equal monthly
installments. In the event an Executive becomes disabled, the Executive will
receive an amount equal to his Salary then in effect, in 12 equal monthly
24
<PAGE> 27
installments. Any Annual Bonus amounts due an Executive in the year of his death
or disability will be paid on a pro rata basis. In the event the Company or an
Executive terminates the Agreement for any reason (other than death, disability
or cause), any Annual Bonus to which an Executive is entitled will be paid on a
pro rata basis.
In consideration for their obligation not to disclose the Company's
confidential information and not to compete with the Company or solicit its
employees during the Term and for a two-year period following termination of
their employment by either party for any reason (other than death, disability or
cause), the Executives will receive their Salary and Benefits (then in effect)
for such two-year period less any amount earned by the Executives from other
employment during such period.
In August, 1994, the Company entered into an employment agreement with
Jerome M. Karp. The agreement provides that Mr. Karp will continue to be
employed by the Company on a reduced-time basis for a period of five years until
his retirement from the Company on August 8, 1999 (the "Term") and will continue
to serve as the Vice Chairman of the Board of Directors subject to election by
the Board of Directors. The agreement provides for an annual salary of $100,000
and participation by Mr. Karp in the benefits and benefit plans provided by the
Company to its executive officers during the Term, except the Company's Annual
Incentive Plan and 1993 Equity Incentive Plan.
If Mr. Karp terminates the agreement for any reason, or if Mr. Karp is
terminated for cause, his right to salary and the benefits terminates. In the
event of Mr. Karp's death, the Company will pay to Mr. Karp's legal
representative the lesser of $100,000 or the balance of salary due Mr. Karp in
the fifth year of the Term. In the event Mr. Karp becomes disabled, the Company
will pay Mr. Karp the sum of $100,000 in 12 equal monthly installments. In the
event of certain corporate transactions (merger, sale of all or substantially
all of the Company's assets, or sale of a majority of the Company's Common
Stock) the agreement terminates and the Company will pay Mr. Karp in a lump sum
payment, the lesser of $100,000 or the balance of the salary due Mr. Karp in the
fifth year of the Term.
As additional consideration for entering into the agreement, Mr. Karp has
agreed not to disclose the Company's confidential information and not to compete
with the Company or solicit its employees or customers during the Term and for a
five-year period following termination of his employment.
25
<PAGE> 28
<TABLE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, to the knowledge of the Company, the
beneficial ownership of the Common Stock of the Company as of September 1, 1995
(except as otherwise indicated) by (i) each director of the Company, (ii) each
of the named officers who was serving as executive officers at the end of 1994,
(iii) persons owning more than 5% of the Company's Common Stock, (iv) each
Selling Stockholder and (v) all directors and executive officers of the Company
as a group. Unless otherwise indicated, each stockholder referred to below has
sole voting and investment power with respect to shares listed.
<CAPTION>
SHARES SHARES TO BE
BENEFICIALLY BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
----------------- SHARES BEING -----------------
DIRECTORS AND NAMED EXECUTIVE OFFICERS NUMBER PERCENT OFFERED NUMBER PERCENT
-------------------------------------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Evelyn Sidman(1)............................. 581,700 25.8% 400,000 181,700 6.4%
Ronald J. Sidman(2).......................... 271,335 11.9 40,000 231,335 8.0
Benjamin Peltz(3)............................ 174,234 7.7 80,000 94,234 3.3
Jerome M. Karp(4)............................ 80,260 3.6 80,000 260 *
Fred T. Page(5).............................. 4,800 * 0 4,800 *
John N. Colantuone(6)........................ 4,168 * 0 4,168 *
Merton N. Alperin(7)......................... 3,000 * 0 3,000 *
5% STOCKHOLDERS
---------------
Estate of Marshall B. Sidman................. 405,540 18.0 400,000 5,540 *
One Kiddie Drive
Avon, MA 02322
Santa Monica Partners, L.P.(8)............... 173,000 7.7 0 173,000 6.1
Two Madison Avenue
Larchmont, NY
Quest Advisory Corp.(9)...................... 197,136 8.7 0 197,136 6.9
Quest Management Company
Charles M. Royce
1414 Avenue of the Americas
New York, NY
SELLING STOCKHOLDERS
--------------------
Eleanor J. Karp.............................. 57,000 2.5 57,000 0 *
All directors and executive officers as a
group(10) (12 persons)..................... 1,133,230 49.0 600,000 533,230 18.3
<FN>
---------------
* Less than 1% of outstanding shares of Common Stock.
(1) Includes 405,540 shares owned beneficially by Mrs. Sidman as the personal representative of the estate of
her late husband, Marshall B. Sidman, 400,000 of which are being sold in this Offering. Mrs. Sidman has
sole voting and investment power over such shares.
(2) Includes 19,335 shares issuable to Mr. Sidman pursuant to currently exercisable stock options. Mr. Sidman
is the son of Evelyn Sidman.
(3) Includes 14,334 shares issuable to Mr. Peltz pursuant to currently exercisable stock options. 2,400 shares are
owned jointly by Mr. and Mrs. Peltz.
</TABLE>
26
<PAGE> 29
(4) Includes 57,000 shares owned beneficially by Mr. Karp's wife, Eleanor J.
Karp, who has sole voting and investment power with respect to such shares,
which are being sold in this Offering. Mr. Karp disclaims any beneficial
interest in such shares.
(5) Includes 3,000 shares issuable to Mr. Page pursuant to currently
exercisable options.
(6) Includes 4,168 shares issuable to Mr. Colantuone pursuant to currently
exercisable options.
(7) Includes 3,000 shares issuable to Mr. Alperin pursuant to currently
exercisable options.
(8) As reported on Schedule 13D filed with the Securities and Exchange
Commission in August 1994, Lawrence J. Goldstein, general partner of Santa
Monica Partners, L.P., may be deemed to beneficially own 173,000 shares of
the Company's outstanding Common Stock and shares voting and dispositive
power with Santa Monica Partners, L.P. over such shares.
(9) As reported on Schedule 13G filed with the Securities and Exchange
Commission in February 1995, Quest Advisory Corp., Quest Management Company
and Charles M. Royce are members of a "group" within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934; Quest Advisory Corp. has sole
voting and dispositive power over 162,636 shares; Quest Management Company
has sole voting and dispositive power over 34,500 shares; and Mr. Royce may
be deemed to beneficially own the shares of Quest Advisory Corp. and Quest
Management Company but disclaims beneficial ownership of the shares held by
each.
(10) The total for all directors and executive officers as a group includes
57,170 shares issuable to the directors and officers pursuant to currently
exercisable stock options. The total also includes shares owned
beneficially by spouses which have been counted only once.
DESCRIPTION OF CAPITAL STOCK
The description of the capital stock below is qualified in its entirety by
reference to the Company's Articles of Organization (the "Articles") and By-Laws
(the "By-Laws"), copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The Company is authorized to issue up to 15,000,000 shares of Common Stock,
$0.10 par value. On September 1, 1995, there were 2,256,405 shares outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Holders of a majority of the voting power of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election.
Holders of Common Stock are entitled to receive ratably (based on the
number of shares of Common Stock that they hold) such dividends, if any, as may
be declared by the Board of Directors out of funds legally available therefor.
Upon the liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive ratably the net assets of the Company
available after the payment of all debts and other liabilities. Holders of
Common Stock have no preemptive, subscription or redemption rights. The
outstanding shares of Common Stock are, and the shares offered by the Company in
this offering will be, when issued and paid for, fully paid and nonassessable.
CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company's Articles and By-Laws contain certain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of the Company's Board of Directors and in the policies formulated
by the Board and to delay or prevent a change in control of the Company if the
Board determines that such a change in control is not in the best interest of
the Company and its stockholders. These provisions could have the effect of
discouraging certain attempts to acquire the Company or remove
27
<PAGE> 30
incumbent management even if some or a majority of the Company's stockholders
deem such an attempt to be in its best interest.
Pursuant to the By-Laws, the Board shall consist of not less than three
Directors. The Company is subject to the provisions of Chapter 156B, Section
50A, of the Massachusetts General Laws, which automatically divides the board of
directors into three classes. Pursuant to Section 50A, directors can be removed
only for cause by the affirmative vote of the holders of a majority of the
voting power of the then outstanding shares of capital stock of the Company
generally entitled to vote in the election of directors voting together as a
single class. Although Section 50A allows a corporation to elect not to have its
provisions apply, the Company has not so elected.
The By-Laws and Chapter 156B of the Massachusetts General Laws provide that
stockholders may take action without a meeting only if all shareholders entitled
to vote on the action consent to the action in writing. The written consents
must be filed with the records of the meeting of stockholders. This provision
may discourage any person or entity from making a tender offer for Common Stock,
because such person or entity, even if it acquired a majority of the outstanding
voting securities of the Company, would be able to take action as a stockholder
(such as electing new directors or approving a merger) only at a duly called
stockholders meeting and not by written consent.
The By-Laws also require that in order to call a special meeting of
stockholders, a single stockholder or a group of stockholders must hold more
than forty percent (40%) of the then outstanding shares of common stock of the
Company.
The By-Laws establish procedures, including advance notice procedures, with
regard to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors and with regard to certain
matters to be brought before meetings of stockholders of the Company. In
general, notice must be received by the Company not less than 60 days nor more
than 90 days prior to the meeting and must contain certain specified information
concerning the persons to be nominated or the matters to be brought before the
meeting and concerning the stockholder submitting the proposal.
The Board of Directors is permitted pursuant to Chapter 156B of the
Massachusetts General Laws to consider special factors, such as employee welfare
and the future prospects of the Company, in determining what the directors
reasonably believe to be in the best interests of the Company when evaluating
proposed tender or exchange offers or business combinations.
The Articles provide that no director of the Company shall be liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty, except to the extent such exculpation from liability is not permitted
under applicable law. This provision does not prevent stockholders from
obtaining injunctive or other equitable relief against directors nor does it
shield directors from liability under federal or state securities laws. The
By-Laws provide that the Company shall indemnify its directors and officers to
the full extent permitted by law.
MASSACHUSETTS ANTI-TAKEOVER LAWS
The Company is covered by the provisions of Chapter 110F of the
Massachusetts General Laws, the Business Combination Statute. Under Chapter
110F, a Massachusetts corporation with more than 200 stockholders of record may
not engage in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
becomes an interested stockholder, unless (i) the interested stockholder obtains
the approval of the Board of Directors prior to becoming an interested
stockholder, (ii) the interested stockholder acquires 90% of the outstanding
voting stock of the corporation (excluding shares held by certain affiliates of
the corporation) at the time it becomes an interested stockholder or (iii) the
business combination is approved by both the Board of Directors and the holders
of two-thirds of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder). An "interested stockholder" is a
person who, together with affiliates and associates, owns (or at any time within
the prior three years did own) 5% or more of the outstanding voting stock of the
corporation.
28
<PAGE> 31
A "business combination" includes a merger, a stock or asset sale, and other
transactions resulting in a financial benefit to the interested stockholder.
The By-Laws provide that the provisions of Chapter 110D of the
Massachusetts General Laws, the Control Share Statute, will not apply to the
Company. The Control Share Statute, however, provides that the Company may in
the future become prospectively subject to the statute by vote of its Board of
Directors. In general, if this statute were applicable, it would provide that
any person or entity that acquired 20% or more of the Company's outstanding
voting stock could not vote such stock unless the other stockholders of the
Company were to so authorize.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock of the Company is
State Street Bank and Trust Company.
29
<PAGE> 32
<TABLE>
UNDERWRITING
The Underwriters named below have severally agreed with the Company and the
Selling Stockholders, subject to the terms and conditions of the Underwriting
Agreement, to purchase the respective numbers of shares of Common Stock set
forth opposite their names below.
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
A.G. Edwards & Sons, Inc. ..............................................
Adams, Harkness & Hill, Inc. ...........................................
---------
Total................................................................. 1,200,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock, if any are purchased.
The Company has been advised by A.G. Edwards & Sons, Inc. and Adams,
Harkness & Hill, Inc., the Representatives of the Underwriters (the
"Representatives"), that the Underwriters propose to offer the Common Stock to
the public at the offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of
$ per share and that the Underwriters and such dealers may reallow a
discount of not in excess of $ per share to other dealers. The public
offering price and the concession and discount to dealers may be changed by the
Representatives after the public offering.
The Company has granted the Underwriters an option, expiring at the close
of business on the 30th day subsequent to the date of the Underwriting
Agreement, to purchase up to 180,000 additional shares of Common Stock at the
public offering price, less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriters may exercise such option solely to
cover over-allotments, if any, in the sale of the shares. To the extent the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage of the option shares as the number of shares set forth opposite each
Underwriter's name in the preceding table bears to 1,200,000 and the Company
will be obligated to sell such shares to the Underwriters.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Act").
The Company, the Selling Stockholders and all directors of the Company have
agreed that they will not, directly or indirectly, offer, sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for, or any rights to purchase or acquire, Common
Stock for a period of 180 days after the date of this Prospectus (the "Lockup
Period"), except pursuant to the Underwriting Agreement, without the prior
written consent of A.G. Edwards & Sons.
The Representatives have advised the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.
The rules of the Securities and Exchange Commission (the "Commission")
generally prohibit the Underwriters and other members of the selling group from
making a market in the Company's Common Stock during the "cooling-off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted an exemption from these rules that permits passive market
making under certain conditions. These rules permit an Underwriter or other
member of the selling group, if any, to continue to make a market in the
Company's Common Stock subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters and other members of the
selling group, if any, may engage in passive market making in the Company's
Common Stock during the cooling-off period.
30
<PAGE> 33
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Ropes & Gray, Boston, Massachusetts. Certain legal
matters in connection with the Offering will be passed upon for the Underwriters
by Hale and Dorr, Boston, Massachusetts.
EXPERTS
The financial statements as of December 31, 1994 and 1993 and for each of
the three years in the period ended December 31, 1994 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies
of such materials also may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Common Stock of the Company is traded on the Nasdaq National Market.
Reports and other information concerning the Company may be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933 with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
to which reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to above are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement reference is hereby
made to the exhibit for a more complete description of the matter involved, and
each statement shall be deemed qualified in its entirety by such reference. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's Regional Offices at Seven World Trade Center, Thirteenth Floor,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies may be obtained at the prescribed rates from the
Public Reference Section of the Commission at its principal office in
Washington, D.C.
31
<PAGE> 34
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheets as of December 31, 1993 and 1994 and June 30, 1995 (unaudited)......... F-3
Statements of Income for the years ended December 31, 1992, 1993 and 1994 and for the
six months ended June 30, 1994 and 1995 (unaudited)................................. F-4
Statements of Stockholders' Equity for the years ended December 31, 1992, 1993 and
1994 and for the six months ended June 30, 1995 (unaudited)......................... F-5
Statements of Cash Flows for the years ended December 31, 1992, 1993 and 1994 and for
the six months ended June 30, 1994 and 1995 (unaudited)............................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The First Years Inc. (formerly Kiddie Products, Inc.)
Avon, Massachusetts
We have audited the accompanying balance sheets of The First Years Inc.
(formerly Kiddie Products, Inc.) as of December 31, 1993 and 1994, and the
related statements of income, stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The First Years Inc. as of December 31, 1993
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
---------------------
March 8, 1995
(March 23, 1995 as to the
third paragraph of Note 4)
F-2
<PAGE> 36
<TABLE>
THE FIRST YEARS INC.
BALANCE SHEETS
<CAPTION>
JUNE 30
DECEMBER 31, -----------
------------------------- 1995
NOTES 1993 1994 -----------
----- ----------- ----------- (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... 1,8 $ 2,712,267 $ 2,329,041 $ 1,166,032
Accounts receivable (less allowance for doubtful
accounts, $185,000 in 1993 and 1994)......... 8 7,212,732 9,266,235 13,634,471
Inventories..................................... 1 8,229,450 10,413,835 13,810,500
Prepaid expenses and other assets............... 5 242,606 295,921 234,832
Deferred tax asset.............................. 1,3 661,000 624,500 624,500
----------- ----------- -----------
Total current assets......................... 19,058,055 22,929,532 29,470,335
----------- ----------- -----------
PROPERTY, PLANT, AND EQUIPMENT:................... 1
Land............................................ 167,266 167,266 167,266
Building........................................ 3,737,861 3,737,861 3,737,861
Machinery and molds............................. 4,424,509 5,413,075 5,778,628
Furniture and equipment......................... 2,859,023 2,986,905 3,079,047
----------- ----------- -----------
Total........................................ 11,188,659 12,305,107 12,762,802
Less accumulated depreciation................... 5,714,000 6,381,854 6,847,009
----------- ----------- -----------
Property, plant, and equipment -- net........ 5,474,659 5,923,253 5,915,793
----------- ----------- -----------
TOTAL ASSETS............................ $24,532,714 $28,852,785 $35,386,128
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt............... 2 $ 133,333 $ 133,333 $ 133,333
Short-term borrowings........................... 3,300,000
Accounts payable................................ 2,484,489 4,034,263 5,399,278
Accrued benefit plans expense................... 6 635,685 259,557 202,500
Accrued payroll expenses........................ 52,382 782,890 624,541
Accrued selling expenses........................ 1 398,638 256,161 155,539
Federal and state income taxes payable.......... 1,3 227,700 218,500 713,923
----------- ----------- -----------
Total current liabilities.................... 3,932,227 5,684,704 10,529,114
----------- ----------- -----------
LONG-TERM DEBT -- Less portion due currently...... 2 366,667 233,334 166,667
DEFERRED INCOME TAXES............................. 1,3 514,100 584,800 584,800
COMMITMENTS AND CONTINGENCIES..................... 4,5,8
STOCKHOLDERS' EQUITY:............................. 6
Authorized 7,500,000 shares as of December 31,
1993 and 1994 and 15,000,000 shares as of
June 30, 1995 of Common Stock, $.10 par
value........................................ 224,826 225,043 225,229
Paid-in capital................................. 75,354 98,194 116,951
Retained earnings............................... 19,419,540 22,026,710 23,763,367
----------- ----------- -----------
Total stockholders' equity................... 19,719,720 22,349,947 24,105,547
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $24,532,714 $28,852,785 $35,386,128
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 37
<TABLE>
THE FIRST YEARS INC.
STATEMENTS OF INCOME
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
NOTES 1992 1993 1994 1994 1995
----- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCOME:
Net sales............... 1,7 $45,267,323 $46,124,088 $53,233,109 $27,069,361 $35,878,526
Interest income......... 154,913 66,204 66,605 17,577 11,566
----------- ----------- ----------- ----------- -----------
Total income......... 45,422,236 46,190,292 53,299,714 27,086,938 35,890,092
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold... 1 23,645,594 26,653,704 29,498,457 15,208,444 20,973,464
Selling, general, and
administrative
expenses............. 1,6 18,429,803 17,857,049 18,915,908 9,244,519 11,335,877
Severance-related
expenses............. 9 -- 373,000 -- -- --
Interest expense........ 31,961 28,912 24,575 13,593 48,243
----------- ----------- ----------- ----------- -----------
Total costs and
expenses........... 42,107,358 44,912,665 48,438,940 24,466,556 32,357,584
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES................... 3,314,878 1,277,627 4,860,774 2,620,382 3,532,508
----------- ----------- ----------- ----------- -----------
PROVISION FOR INCOME
TAXES................... 1,3 1,385,100 481,500 1,871,400 995,800 1,413,000
----------- ----------- ----------- ----------- -----------
NET INCOME................ $ 1,929,778 $ 796,127 $ 2,989,374 $ 1,624,582 $ 2,119,508
=========== =========== =========== =========== ===========
EARNINGS PER SHARE........ 1 $0.86 $0.35 $1.33 $0.72 $0.91
=========== =========== =========== =========== ===========
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING...... 1 2,248,260 2,248,260 2,248,622 2,248,260 2,330,399
=========== =========== =========== =========== ===========
DIVIDENDS PAID PER
SHARE................... $0.17 $0.17 $0.17 $0.17 $0.17
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 38
<TABLE>
THE FIRST YEARS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1992, 1993, AND 1994 AND SIX MONTHS ENDED JUNE 30, 1995
<CAPTION>
COMMON STOCK
------------------------ PAID-IN RETAINED
NOTES SHARES PAR VALUE CAPITAL EARNINGS
----- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992.................... 749,420 $ 74,942 $ 225,238 $17,450,549
Stock split, three-for-one................ 1 1,498,840 149,884 (149,884)
Dividends paid............................ (374,710)
Net income................................ 1,929,778
---------- --------- --------- -----------
BALANCE, DECEMBER 31, 1992.................. 2,248,260 224,826 75,354 19,005,617
Dividends paid............................ (382,204)
Net income................................ 796,127
---------- --------- --------- -----------
BALANCE, DECEMBER 31, 1993.................. 2,248,260 224,826 75,354 19,419,540
Stock issued under stock option plans..... 6 2,170 217 22,840
Dividends paid............................ (382,204)
Net income................................ 2,989,374
---------- --------- --------- -----------
BALANCE, DECEMBER 31, 1994.................. 2,250,430 225,043 98,194 22,026,710
Stock issued under stock option plans
(unaudited)............................ 1,860 186 18,757
Dividends paid (unaudited)................ (382,851)
Net income (unaudited).................... 2,119,508
---------- --------- --------- -----------
BALANCE, JUNE 30, 1995 (unaudited).......... 2,252,290 $ 225,229 $ 116,951 $23,763,367
========== ========= ========= ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 39
<TABLE>
THE FIRST YEARS INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED JUNE 30,
YEARS ENDED DECEMBER 31,
------------------------------------------- ---------------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 1,929,778 $ 796,127 $ 2,989,374 $ 1,624,582 $ 2,119,508
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation.............................. 632,357 778,652 878,250 404,042 465,155
Provision for doubtful accounts........... 273,393 17,177 23,673 61,051 73,009
(Gain) loss on disposal of equipment...... 94,098 105,170 47,877 (9,926) (200)
Increase (decrease) arising from working
capital items:
Accounts receivable..................... (1,075,833) (994,400) (2,077,176) (2,895,096) (4,441,245)
Inventories............................. (445,553) (931,295) (2,184,385) (274,950) (3,396,665)
Prepaid expenses and other assets....... (27,703) (42,222) (53,315) (155,603) 61,089
Accounts payable........................ 769,740 20,979 1,549,774 771,441 1,365,015
Accrued benefit plans expense........... 17,471 (51,060) (376,128) (488,742) (57,057)
Accrued payroll expenses................ 150,282 (366,866) 730,508 487,357 (158,349)
Accrued selling expenses................ (45,939) (95,394) (142,477) (263,638) (100,622)
Federal and state income taxes
payable............................... 19,200 (72,100) (9,200) 261,600 495,423
Change in deferred income taxes........... (41,700) 51,800 107,200 -- --
Decrease in other long-term liabilities... (60,796) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
operating activities................ 2,188,795 (783,432) 1,483,975 (477,882) (3,574,939)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchase of property, plant, and
equipment................................. (2,574,445) (794,222) (1,374,721) (599,993) (457,495)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of industrial revenue bonds....... (133,334) (133,333) (133,333) (66,667) (66,667)
Dividends paid.............................. (374,710) (382,204) (382,204) (382,204) (382,851)
Common stock issued under stock option
plans..................................... -- -- 23,057 -- 18,943
Net proceeds from short-term borrowings..... -- -- -- -- 3,300,000
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
financing activities................ (508,044) (515,537) (492,480) (448,871) 2,869,425
----------- ----------- ----------- ----------- -----------
DECREASE IN CASH AND
CASH EQUIVALENTS............................ (893,694) (2,093,191) (383,226) (1,526,746) (1,163,009)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR........................................ 5,699,152 4,805,458 2,712,267 2,712,267 2,329,041
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR................................. $ 4,805,485 $ 2,712,267 $ 2,329,041 $ 1,185,521 $ 1,166,032
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION --
Cash paid during the year for:
Interest.................................. $ 31,961 $ 28,912 $ 24,575 $ 13,593 $ 48,243
=========== =========== =========== =========== ===========
Income taxes.............................. $ 1,407,600 $ 501,800 $ 1,773,400 $ 734,200 $ 917,577
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 40
THE FIRST YEARS INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- The First Years Inc. (formerly Kiddie Products, Inc.) (the
Company) is a developer, marketer, and distributor of certain basic accessory
and related products for infants and toddlers. The Company was founded and
incorporated in 1952. Since its inception, the Company has engaged in this
single line of business, with one class of similar products. The following is a
summary of significant accounting policies.
Interim Financial Information -- The Balance Sheet as of June 30, 1995, the
Statements of Income for the six months ended June 30, 1994 and 1995, the
Statement of Stockholders' Equity for the six months ended June 30, 1995 and the
Statements of Cash Flows for the six months ended June 30, 1994 and 1995 are
unaudited. All adjustments and accruals (consisting only of normal recurring
adjustments) have been made, which in the opinion of management are necessary
for a fair presentation. Results of operations for the six months ended June 30,
1995 are not necessarily indicative of the results that may be expected for any
future period.
Revenue Recognition -- Revenue is recognized when products are shipped.
Cash Equivalents -- Highly liquid investments with a maturity of three
months or less when purchased have been classified as cash equivalents in the
accompanying financial statements. Such investments are carried at cost which
approximates market value.
Inventories -- Inventories are stated at the lower of cost (first-in,
first-out) or market. Inventories consist principally of finished goods,
unpackaged components, and supplies.
Property, Plant, and Equipment -- Property, plant, and equipment is stated
at cost. Depreciation is provided based on the estimated useful lives of the
various classes of assets (building, 15 to 40 years; machinery and molds, 5 to
10 years; furniture and equipment, 5 to 10 years) using the straight-line
method.
Income Taxes -- Deferred tax assets and liabilities are determined based on
the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.
Earnings Per Share -- Earnings per share are based on the weighted average
number of shares outstanding during each year (retroactively adjusted to reflect
the three-for-one stock split effected on December 15, 1992) and common
equivalent shares, consisting of the effect of stock options outstanding, if
dilutive (see Note 6).
Research and Development Costs -- Research and development costs are
expensed as incurred. During 1992, 1993, and 1994, research and development
costs approximated $1,707,000, $1,493,000 and $1,466,000, respectively.
Foreign Currency Translation -- The Company's functional currency is the
U.S. dollar. Accordingly, monetary assets and liabilities of the Company's
foreign operations are translated from the respective local currency to the U.S.
dollar using year-end exchange rates while nonmonetary items are translated at
historical rates. Income and expense accounts are translated at the average
rates in effect during the year. Accordingly, translation adjustments and
transaction gains and losses are recognized in income in the year of occurrence
and are recorded as a component of cost of sales.
Foreign Exchange Contracts -- The Company enters into forward exchange
contracts to minimize the impact of fluctuations in currency exchange rates on
future cash flows emanating from sales denominated in foreign currencies. The
Company does not purchase such contracts for trading purposes. Gains and losses
related to foreign exchange contracts which qualify as accounting hedges of firm
commitments are deferred and recognized in income when the hedged transaction
occurs. Gains and losses related to foreign exchange contracts which do not
qualify for hedge accounting are marked to market currently and recognized as a
foreign currency transaction gain or loss.
F-7
<PAGE> 41
THE FIRST YEARS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. DEBT
Long-term debt consists of unsecured industrial revenue bonds (IRB), with
interest payable quarterly at 65% of the prime rate (3.9% and 5.5% at December
31, 1993 and 1994, respectively) and principal payable in equal quarterly
installments of $33,333 through September 30, 1997.
Under the terms of the IRB agreement, the Company must comply with certain
covenants, none of which impose a significant limitation on the Company.
The Company has available unsecured lines of credit totaling $9,000,000
with two banks. Both lines are subject to annual renewal and require no
compensating balances. One line bears interest at the prime rate and the other
line bears interest at the prime interest rate less 0.25%. During first six
months of 1995, the Company borrowed various amounts up to $3,300,000
(unaudited). As of June 30, 1995 a balance of $3,300,000 (unaudited) remains
outstanding which bears interest at 8.8% (unaudited).
3. INCOME TAXES
<TABLE>
Components of the Company's net deferred tax asset at December 31 are as follows:
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible.......................... $166,900 $ 62,900
Capitalized packaging costs not currently deductible....... 239,700 360,200
Capitalized inventory costs not currently deductible....... 172,900 116,900
Other...................................................... 81,500 84,500
-------- --------
661,000 624,500
Valuation allowance.......................................... -- --
-------- --------
661,000 624,500
-------- --------
Deferred tax liabilities:
Excess tax depreciation over financial reporting
depreciation............................................ 509,000 580,300
Other...................................................... 5,100 4,500
-------- --------
514,100 584,800
-------- --------
Net deferred tax asset....................................... $146,900 $ 39,700
======== ========
</TABLE>
There was no change in the valuation allowance for the years ended December
31, 1993 and 1994.
<TABLE>
The provision for income taxes consists of the following:
<CAPTION>
1992 1993 1994
---------- --------- -----------
<S> <C> <C> <C>
Federal:
Current......................................... $1,096,600 $352,300 $1,432,700
Deferred........................................ (41,700) 51,800 107,200
---------- -------- ----------
Total............................................. 1,054,900 404,100 1,539,900
State............................................. 330,200 77,400 331,500
---------- -------- ----------
Total............................................. $1,385,100 $481,500 $1,871,400
========== ======== ==========
</TABLE>
F-8
<PAGE> 42
THE FIRST YEARS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES (CONTINUED)
<TABLE>
A reconciliation of the statutory federal income tax rate and the effective
tax rate as a percentage of pretax income is as follows:
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate........................................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit.... 6.5 4.0 4.5
Other.................................................... 1.3 (0.3)
---- ---- ----
- - -
Effective rate........................................... 41.8% 37.7% 38.5%
==== ==== ====
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
Foreign Exchange Contracts -- During 1994, the Company entered into forward
exchange contracts with a bank whereby the Company is committed to deliver
foreign currency at predetermined rates. The contracts expire within one year.
The Company's future commitment under these contracts approximated $3,100,000 as
of December 31, 1994. At December 31, 1994, the exchange rates for such
currencies covered by the contracts approximated the predetermined rates
included therein.
Other Commitments -- At December 31, 1993 and 1994, letters of credit
outstanding aggregated approximately $1,232,000 and $1,275,000, respectively.
During 1994, the Company entered into an employment agreement with an
executive officer which provides for an annual salary of $100,000 through August
1999. On March 23, 1995, the Company entered into employment agreements with two
key senior executive officers which provide for aggregate annual base salaries
through March 2000, of $391,000 subject to any increases or decreases
established from time to time in the discretion of the Compensation Committee of
the Board of Directors and, in the event of termination, provide for
noncompetition payments for two years equal to their annual base salaries.
Contingencies -- The Company is involved in legal proceedings which have
arisen in the ordinary course of business. Management believes the outcome of
these proceedings will not have a material adverse impact on the Company's
financial condition or operating results.
5. ROYALTIES
During 1994, the Company entered into an agreement which provides for the
payment of royalties on sales of certain licensed products. The agreement has a
term of two years ending on December 31, 1996 and requires a minimum royalty
payment of $625,000 during the term of the agreement.
6. BENEFIT PLANS
Defined Contribution Plan -- The Company has a defined contribution
trusteed benefit plan covering eligible employees, requiring annual
contributions based upon certain percentages of salaries of employees. The
Company's policy is to fund pension expense accrued. Pension expense aggregated
$695,000, $661,000, and $267,000 in 1992, 1993, and 1994, respectively.
Stock Option Plans -- In May 1993, the Company's stockholders approved the
adoption of the Kiddie Products, Inc. 1993 Equity Incentive Plan and the Kiddie
Products, Inc. 1993 Stock Option Plan for Non-employee Directors (the plans)
which cover key salaried employees and directors of the Company. The Board of
Directors has reserved 220,000 shares for issuance under the plans. The exercise
price for the options granted may not be less than the fair market value of the
optioned stock at the date of grant, 110% of fair market value in the case of
options granted to a 10% stockholder.
Options granted must be exercised within the period prescribed by the
Compensation Committee of the Board of Directors; the options vest in accordance
with the vesting provisions prescribed at the time of grant.
F-9
<PAGE> 43
THE FIRST YEARS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. BENEFIT PLANS (CONTINUED)
<TABLE>
A summary of activity of stock options granted under the plans is as follows:
<CAPTION>
NUMBER
OF
OPTIONS
NUMBER OF AVAILABLE
EXERCISE PRICE OPTIONS FOR
PER SHARE OUTSTANDING GRANT
----------------- ----------- --------
<S> <C> <C> <C>
January 1, 1993
Authorized................................ 220,000
Granted................................... $10.63 to $11.69 103,000 (103,000)
Canceled.................................. $10.63 (1,000) 1,000
-------- ---------
December 31, 1993........................... 102,000 118,000
Granted................................... $9.13 to $11.25 63,150 (63,150)
Canceled.................................. $9.13 to $10.63 (10,414) 10,414
Exercised................................. $10.63 (2,170)
-------- ---------
December 31, 1994........................... 152,566 65,264
======== =========
</TABLE>
At December 31, 1994, 33,192 options were exercisable at $10.63 to $11.69
per share.
7. MAJOR CUSTOMERS
The Company derived 10% or more of its sales from its largest customer.
Such amounts aggregated $11,526,000, $12,920,000, and $14,256,000 in 1992, 1993,
and 1994, respectively. The Company's second largest customer accounted for
sales of $9,031,000, $8,814,000, and $12,118,000 in 1992, 1993, and 1994,
respectively. No other customer accounted for 10% or more of the Company's
sales.
8. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents, trade
receivables and forward exchange contracts (see Note 4). The Company's cash
equivalents consist of money market funds placed with major banks and financial
institutions. The Company's trade receivables principally include amounts due
from retailers geographically dispersed. The Company's two largest customers
accounted for 54% and 61% of the trade receivables outstanding at December 31,
1993 and 1994, respectively. The Company routinely assesses the financial
strength of its customers and purchases credit insurance to limit its potential
exposure to trade receivable credit risks. The Company routinely assesses the
financial strength of the bank which is the counterparty to the forward exchange
contracts. As of December 31, 1994, management believes it had no significant
exposure to credit risks.
9. SEVERANCE-RELATED EXPENSES
In July 1993, to improve operating productivity, the Company streamlined
staff and outsourced certain packaging and product assembly operations. As a
result, 34 employees were laid off. Severance-related expenses relating to the
layoffs amounted to a pretax charge of $373,000 and primarily consisted of
severance pay, benefit considerations and outplacement services, which were paid
by December 31, 1994.
* * * * * *
F-10
<PAGE> 44
===============================================================================
NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR SINCE THE DATES AS OF WHICH
INFORMATION IS SET FORTH HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION.
------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 6
Price Range of Common Stock........... 7
Capitalization........................ 8
Selected Financial Data............... 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 10
Business.............................. 12
Management............................ 21
Principal and Selling Stockholders.... 25
Description of Capital Stock.......... 27
Underwriting.......................... 29
Legal Matters......................... 30
Experts............................... 30
Additional Information................ 30
Index to Financial Statements......... F-1
</TABLE>
================================================================================
================================================================================
1,200,000 SHARES
THE FIRST YEARS INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
A.G. EDWARDS & SONS, INC.
ADAMS, HARKNESS & HILL, INC.
, 1995
================================================================================
<PAGE> 45
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<TABLE>
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers, Inc. ("NASD") filing fee and the Nasdaq
National Market Listing fee.
<CAPTION>
PAYABLE BY
PAYABLE SELLING
ITEM AMOUNT BY COMPANY STOCKHOLDERS
---- -------- ---------- ------------
<S> <C> <C> <C>
SEC Registration Fee........................... $ 9,577 $ 4,789 $ 4,788
NASD Filing Fee................................ 3,191 1,595 1,596
Nasdaq National Market Listing Fee............. 15,600 15,600 --
Blue Sky Fees and Expenses..................... 12,000 6,000 6,000
Transfer Agent and Registrar Fees.............. 3,500 1,750 1,750
Accounting Fees and Expenses................... 50,000 25,000 25,000
Legal Fees and Expenses........................ 200,000 100,000 100,000
Printing Expenses.............................. 50,000 25,000 25,000
Miscellaneous.................................. 16,132 8,066 8,066
-------- -------- --------
Total................................ $360,000 $187,800 $172,200
======== ======== ========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Organization provide that the Company's
Directors shall not be liable to the Registrant or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
the exculpation from liabilities is not permitted under the Massachusetts
Business Corporation Law as in effect at the time such liability is determined.
The By-Laws provide that the Registrant shall indemnify its directors and
officers to the full extent permitted by the laws of The Commonwealth of
Massachusetts.
In addition, the Company holds a Directors and Officers Liability and
Corporate Indemnification Policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
The following is a list of exhibits filed as a part of this registration statement.
(a) Exhibits
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
1 Form of Underwriting Agreement.*
3.1 Restated Articles of Organization as currently in effect.**
3.2 By-Laws of the Company and any amendments thereto, as currently in effect (filed as
Exhibit (3)(ii) on Form 10-K for the year ended December 31, 1994 and incorporated
herein by reference).
4 Specimen Certificate for shares of Common Stock, $.10 par value of the Company.*
5 Opinion of Ropes & Gray.*
</TABLE>
II-1
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.1 Security and Trust Agreement among Town of Avon, acting by and through its
Industrial Development Financing Authority, The First Years Inc., and State Street
Bank and Trust Company relating to issuance of industrial revenue bonds, dated as of
October 1, 1982 (filed as Exhibit (10)(c) on Form 10-K for the year ended December
31, 1994 and incorporated herein by reference).
10.2 Bond Purchase Agreement among Town of Avon, acting by and through its Industrial
Development Financing Authority, The First Years Inc., and State Street Bank and
Trust Company, dated as of October 1, 1982 (filed as Exhibit (10)(d) on Form 10-K
for the year ended December 31, 1994 and incorporated herein by reference).
10.3 Loan Agreement between Town of Avon, acting by and through its Industrial
Development Financing Authority, and The First Years Inc., dated as of October 1,
1982 (filed as Exhibit (10)(e) on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference)
10.4 Put Agreement between State Street Bank and Trust Company and The First Years Inc.,
dated as of October 1, 1982 (filed as Exhibit (10)(f) on Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference).
10.5 The First Years Inc. 1993 Equity Incentive Plan, as amended through January 19, 1995
(filed as Exhibit (10)(g) on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference).
10.6 Agreement between The First Years Inc. and Jerome M. Karp dated August 8, 1994
(filed as Exhibit 10(c) to the Form 10-Q Report for the quarter ended June 30, 1994
and incorporated herein by reference).
10.7 Employment Agreement between The First Years Inc. and Benjamin Peltz, dated March
23, 1995 (filed as Exhibit (10)(j) on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference).
10.8 Employment Agreement between The First Years Inc. and Ronald J. Sidman, dated March
23, 1995 (filed as Exhibit (10)(k) on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference).
10.9 The First Years Inc. 1993 Stock Option Plan for Non-employee Directors, as amended
through January 19, 1995 (filed as Exhibit (10)(h) on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).
10.10 The First Years Inc. 1995 Restated Annual Incentive Plan, effective as of July 1,
1995.*
10.11 Agreement with The Walt Disney Company dated March 28, 1994.*
11 Statement re: Computation of Per Share Earnings.*
23.1 Consent of Ropes & Gray (contained in its opinion filed as Exhibit 5 hereto).
23.2 Deloitte & Touche LLP consent and report on Schedule.*
24 Power of Attorney (included in the signature page of this Registration Statement).
---------------
<FN>
* Filed herewith.
** To be filed by Amendment.
(b) Financial Statement Schedule -- Schedule II, Valuation and Qualifying Accounts
</TABLE>
Report of Independent Accountants on Financial Schedule (see Exhibit 23.2)
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item
14 -- Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised
II-2
<PAGE> 47
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 48
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Avon, Commonwealth of
Massachusetts, on this 14th day of September, 1995.
THE FIRST YEARS INC.
By: /s/ RONALD J. SIDMAN
------------------------------------
Ronald J. Sidman
Chairman of the Board of Directors,
Chief Executive Officer and
President
II-4
<PAGE> 49
<TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Ronald J. Sidman, Benjamin Peltz and Gitta M. Kurlat and each
of them, with full power of substitution, to execute in the name and on behalf
of such person any amendment (including any post-effective amendment) to this
Registration Statement (or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act) and to file the same, with exhibits thereto, and other documents
in connection therewith, making such changes in this Registration Statement as
the person(s) so acting deems appropriate, and appoints each of such persons,
each with full power of substitution, attorney-in-fact to sign any amendment
(including any post-effective amendment) to this Registration Statement (or any
other registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act) and to file the same,
with exhibits thereto, and other documents in connection therein.
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RONALD J. SIDMAN Chief Executive Officer, September 14, 1995
---------------------- Chairman of the Board of
Ronald Sidman Directors and President
(Chief Executive Officer)
/s/ JEROME M. KARP Vice Chairman of the Board September 14, 1995
---------------------- of Directors
Jerome M. Karp
/s/ BENJAMIN PELTZ Treasurer, Senior Vice September 14, 1995
---------------------- President and Director
Benjamin Peltz (Chief Financial and
Accounting Officer)
/s/ EVELYN SIDMAN Director September 14, 1995
----------------------
Evelyn Sidman
/s/ FRED T. PAGE Director September 14, 1995
----------------------
Fred T. Page
/s/ MERTON N. ALPERIN Director September 14, 1995
----------------------
Merton N. Alperin
</TABLE>
II-5
<PAGE> 50
<TABLE>
SCHEDULE II
THE FIRST YEARS INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1992, 1993, AND 1994
<CAPTION>
ADDITIONS
CHARGED
BALANCE, TO COSTS BALANCE,
BEGINNING AND END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(1) OF YEAR
----------- --------- -------- ------------- -------
<S> <C> <C> <C> <C>
VALUATION ACCOUNTS DEDUCTED FROM ASSETS TO WHICH
THEY APPLY:
Allowance for Doubtful Accounts:
Year ended December 31:
1992........................................ $ 270,000 $273,393 $273,393 $270,000
========= ======== ======== ========
1993........................................ $ 270,000 $ 17,177 $102,177 $185,000
========= ======== ======== ========
1994........................................ $ 185,000 $ 23,673 $ 23,673 $185,000
========= ======== ======== ========
<FN>
(1) Net accounts written off.
</TABLE>
S-1
<PAGE> 1
Draft of September 13, 1995
Subject to Change
THE FIRST YEARS INC.
1,200,000 Shares
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
, 1995
------------
A.G. EDWARDS & SONS, INC.
ADAMS, HARKNESS & HILL, INC.
As Representatives of the Several Underwriters
c/o A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
The undersigned, The First Years Inc., a Massachusetts corporation (the
"Company"), and the persons listed on Schedule I hereto (the "Selling
Shareholders"), hereby address you as the representatives (the
"Representatives") of each of the persons, firms and corporations listed on
Schedule II hereto (collectively, the "Underwriters") and hereby confirm their
agreement with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell to the
Underwriters 600,000 shares of its Common Stock, par value $.10 per share, and
the Selling Shareholders severally propose to sell to the Underwriters a total
of 600,000 shares of the Company's Common Stock, par value $.10 per share, as
set forth on Schedule I hereto (such 1,200,000 shares of Common Stock are herein
referred to as the "Firm Shares"). Solely for the purpose of covering
over-allotments in the sale of the Firm Shares, the Company further proposes to
grant the right to the Underwriters to purchase up to an additional 180,000
shares of Common Stock, par value $.10 per share (the "Option Shares"), as
provided in Section 3 of this Agreement. The Firm Shares and the Option Shares
are herein sometimes referred to as the "Shares" and are more fully described in
the Prospectus hereinafter defined.
2. Purchase, Sale and Delivery of Firm Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees and each Selling
Shareholder agrees, severally and not jointly, to sell to the Underwriters, and
each such Underwriter agrees, severally and not jointly, (a) to purchase from
the Company and from each of the Selling
<PAGE> 2
Shareholders, pro rata, at a purchase price of $_____ per share, the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule II
hereto and (b) to purchase from the Company any additional number of Option
Shares which such Underwriter may become obligated to purchase pursuant to
Section 3 hereof.
The Company and the Selling Shareholders will deliver definitive
certificates for the Firm Shares at the office of A.G. Edwards & Sons, Inc., 77
Water Street, New York, New York ("Edwards' Office"), or such other place as you
and the Company may mutually agree upon, for the accounts of the Underwriters
against payment to the Company and the Selling Shareholders of the purchase
price for the Firm Shares sold by them to the several Underwriters by wire
transfer or certified or bank cashier's check in clearing house (next day
available) funds payable to the order of the Company and the Selling
Shareholders, respectively, and delivered to the offices of Ropes & Gray, One
International Place, Boston, MA 02110, or at such other place as may be agreed
upon between you and the Company (the "Place of Closing"), at 10:00 a.m., Boston
time, on ____________, 1995, or at such other time and date not later than three
full business days thereafter as you and the Company may agree, such time and
date of payment and delivery being herein called the "Closing Date."
The certificates for the Firm Shares so to be delivered will be made
available to you for inspection at Edwards' Office (or such other place as you
and the Company may mutually agree upon) at least one full business day prior to
the Closing Date and will be in such names and denominations as you may request
at least three full business days prior to the Closing Date.
It is understood that an Underwriter, individually, may (but shall not be
obligated to) make payment on behalf of the other Underwriters whose checks
shall not have been received prior to the Closing Date for Shares to be
purchased by such Underwriter. Any such payment by an Underwriter shall not
relieve the other Underwriters of any of their obligations hereunder.
It is understood that the Underwriters propose to offer the Shares to the
public upon the terms and conditions set forth in the Registration Statement
hereinafter defined.
3. Purchase, Sale and Delivery of the Option Shares. The Company hereby
grants an option to the Underwriters to purchase from them on a pro rata basis
up to 180,000 Option Shares on the same terms and conditions as the Firm Shares;
provided, however, that such option may be exercised only for the purpose of
covering any over-allotments which may be made by them in the sale of the Firm
Shares. No Option Shares shall be sold or delivered unless
-2-
<PAGE> 3
the Firm Shares previously have been, or simultaneously are, sold and delivered.
The option is exercisable on behalf of the several Underwriters by you, as
Representatives, at any time, and on one occasion, before the expiration of 30
days from the date of this Agreement, for the purchase of all or part of the
Option Shares covered thereby, by notice given by you to the Company in the
manner provided in Section 13 hereof, setting forth the number of Option Shares
as to which the Underwriters are exercising the option, and the date of delivery
of said Option Shares, which date shall not be less than three business days
after such notice unless otherwise agreed to by the parties. You may terminate
the option at any time, as to any unexercised portion thereof, by giving written
notice to the Company to such effect.
You, as Representatives, shall make such allocation of the Option Shares
among the Underwriters as may be required to eliminate purchases of fractional
Shares.
Delivery of the Option Shares with respect to which the option shall have
been exercised shall be made to or upon your order at Edwards' Office (or at
such other place as you and the Company may mutually agree upon), against
payment by you of the per share purchase price to the Company by wire transfer
or certified or bank cashier's check or checks, payable in clearing house (next
day available) funds. Such payment and delivery shall be made at 10:00 a.m.,
St. Louis time, on the date designated in the notice given by you as above
provided for, unless some other date and time are agreed upon, which date and
time of payment and delivery are called the "Option Closing Date." The
certificates for the Option Shares so to be delivered will be made available to
you for inspection at Edwards' Office at least one full business day prior to
the Option Closing Date and will be in such names and denominations as you may
request at least two full business days prior to the Option Closing Date. On
the Option Closing Date, the Company shall provide the Underwriters such
representations, warranties, opinions and covenants with respect to the Option
Shares as are required to be delivered on the Closing Date with respect to the
Firm Shares.
4. Representations, Warranties and Agreements of the Company and the
Selling Shareholders. (a) The Company represents and warrants to and agrees
with each Underwriter that:
(i) A Registration statement (Registration No. 33-_______) on Form
S-1 with respect to the Shares, including a preliminary prospectus, and
such amendments to such Registration statement as may have been required to
the date of this Agreement, has been carefully prepared by the Company
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<PAGE> 4
pursuant to and in conformity with the requirements of the Securities Act
of 1933, as amended (the "Act"), and the Rules and Regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission under the
Act. Copies of such Registration Statement, including any amendments
thereto, each related preliminary prospectus (meeting the requirements of
Rule 430 or 430A of the Rules and Regulations) contained therein, the
exhibits, financial statements and schedules have heretofore been delivered
by the Company to you. If such Registration Statement has not become
effective under the Act, a further amendment to such Registration
Statement, including a form of final prospectus, necessary to permit such
Registration Statement to become effective will be filed promptly by the
Company with the Commission. If such Registration Statement has become
effective under the Act, a final prospectus containing information
permitted to be omitted at the time of effectiveness by Rule 430A of the
Rules and Regulations will be filed promptly by the Company with the
Commission in accordance with Rule 424(b) of the Rules and Regulations. The
term "Registration Statement" as used herein means the Registration
statement as amended at the time it becomes or became effective under the
Act (the "Effective Date"), including financial statements and all exhibits
and, if applicable, the information deemed to be included by Rule 430A of
the Rules and Regulations. The term "Prospectus" as used herein means the
prospectus as first filed with the Commission pursuant to Rule 424(b) of
the Rules and Regulations or, if no such filing is required, the form of
final prospectus included in the Registration Statement at the Effective
Date. The term "Preliminary Prospectus" as used herein shall mean a
preliminary prospectus as contemplated by Rule 430 or 430A of the Rules and
Regulations included at any time in the Registration Statement.
(ii) The Commission has not issued, and is not to the knowledge of
the Company threatening to issue, an order preventing or suspending the use
of any Preliminary Prospectus or the Prospectus nor instituted proceedings
for that purpose. Each Preliminary Prospectus at its date of issue, the
Registration Statement and the Prospectus and any amendments or supplements
thereto contains or will contain, as the case may be, all statements which
are required to be stated therein by, and in all material respects conform
or will conform, as the case may be, to the requirements of, the Act and
the Rules and Regulations. Neither the Registration Statement nor any
amendment thereto, as of the applicable effective date, and neither the
Prospectus nor any supplement thereto contains or will contain, as the case
may be, any
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<PAGE> 5
untrue statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
representation or warranty as to information contained in or omitted from
the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of the Underwriters specifically
for use in the preparation thereof.
(iii) The filing of the Registration Statement and the execution and
delivery of this Agreement have been duly authorized by the Board of
Directors of the Company; this Agreement constitutes a valid and legally
binding obligation of the Company enforceable in accordance with its terms
(except to the extent the enforceability of the indemnification and
contribution provisions of Section 7 hereof may be limited by public policy
considerations as expressed in the Act as construed by courts of competent
jurisdiction, and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditors'
rights generally and by general principles of equity); the issue and sale
of the Shares by the Company and the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
violation of the Company's articles of organization or bylaws or result in
a breach or violation of any of the terms and provisions of, or constitute
a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company under,
any statute, or under any indenture, mortgage, deed of trust, note, loan
agreement, sale and leaseback arrangement or other agreement or instrument
to which the Company is a party or by which they are bound or to which any
of the properties or assets of the Company is subject, or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or its properties, except to such extent as
does not materially adversely affect the business of the Company (a
"Material Adverse Effect"); no consent, approval, authorization, order,
registration or qualification of or with any court or governmental agency
or body is required for the consummation of the transactions herein
contemplated, except such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or any state securities laws.
(iv) Except as described in the Prospectus, the Company has not
sustained since the date of the latest audited
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<PAGE> 6
financial statements included in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree. Except as contemplated in
the Prospectus, subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company has
not incurred any material liabilities or material obligations, direct or
contingent, other than in the ordinary course of business, or entered into
any material transactions not in the ordinary course of business, and there
has not been any material change in the capital stock or long-term debt of
the Company or any material adverse change in the condition (financial or
other), net worth, business, affairs, management, prospects or results of
operations of the Company. The Company has filed all necessary federal,
state and foreign income and franchise tax returns and paid all taxes shown
as due thereon; all tax liabilities are adequately provided for on the
books of the Company except to the extent such business would not have a
Material Adverse Effect; the Company has made all necessary payroll tax
payments and is current and up-to-date as of the date of this Agreement;
and the Company has no knowledge of any tax proceeding or action pending or
threatened against the Company that would have a Material Adverse Effect.
(v) Except as described in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened or contemplated,
any action, suit or proceeding to which the Company is a party before or by
any court or public, regulatory or governmental agency or body which, if
determined adversely to the Company, might be expected to result
(individually or in the aggregate) in a Material Adverse Effect; and there
are no contracts or documents of the Company which would be required to be
filed as exhibits to the Registration Statement by the Act or by the Rules
and Regulations which have not been filed as exhibits to the Registration
Statement.
(vi) The Company has duly and validly authorized capital stock as
described in the Prospectus; all outstanding shares of Common Stock of the
Company and the Shares conform, or when issued will conform, to the
description thereof in the Registration Statement and the Prospectus and
have been, or, when issued and paid for will be, duly authorized, validly
issued, fully paid and nonassessable; and the issuance of the Shares to be
purchased from the Company hereunder is not subject to preemptive rights.
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<PAGE> 7
(vii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the Commonwealth of
Massachusetts, with full power and authority (corporate and other) to own,
lease and operate its properties and conduct its business as described in
the Registration Statement; the Company is duly qualified to do business as
a foreign corporation in good standing in each state or other jurisdiction
in which its ownership or leasing of property or conduct of business
legally requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect; the Company has no
subsidiaries, does not control, directly or indirectly, any corporation,
firm, partnership, association, or other business organization, and does
not own any shares of stock or any other securities of (other than bank
certificates of deposit, shares or units of interest in "money market"
funds, or as set forth in the Prospectus) or have any interest in, any
corporation, firm, partnership, association, or other business
organization.
(viii) Deloitte & Touche LLP, the accounting firm which has certified
or reviewed portions of the financial statements filed with the Commission
as a part of the Registration Statement, some of which are included in the
Prospectus, is an independent public accounting firm within the meaning of
the Act and the Rules and Regulations.
(ix) The financial statements and schedules of the Company,
including the notes thereto, filed with and as a part of the Registration
Statement, present fairly in all material respects the financial position
of the Company as of the respective dates thereof and the results of
operations and statements of cash flow for the respective periods covered
thereby, all in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved except as
otherwise disclosed in the Prospectus. The selected financial data
included in the Registration Statement and Prospectus present fairly the
information shown therein and have been compiled on a basis consistent with
that of the audited financial statements in the Registration Statement and
Prospectus.
(x) The Company is not in default with respect to any contract or
agreement to which it is a party, except such defaults which in the
aggregate would not have a Material Adverse Effect.
(xi) The Company is not in violation of any laws, ordinances or
governmental rules or regulations to which it is subject, and the Company
has not failed to obtain any
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<PAGE> 8
licenses, permits, franchises, easements, consents, or other governmental
authorizations necessary to the ownership, leasing and operation of its
properties or to the conduct of its business, except such violations or
failures as would not have a Material Adverse Effect. The Company has not
at any time during the past five years (A) made any unlawful contributions
to any candidate for any political office, or failed fully to disclose any
contribution in violation of law, or (B) made any payment to state, federal
or foreign government officer or officers, or other person charged with
similar public or quasi-public duty (other than payment required or
permitted by applicable law).
(xii) Except as described in the Prospectus, the Company owns or
possesses, adequate patents, patent licenses, trademarks, trademark
licenses, service marks and trade names necessary to conduct the business
now operated by it, and the Company has not received any notice of
infringement of or conflict with asserted rights of others with respect to
any patents, patent licenses, trademarks, trademark licenses, service marks
or trade names which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
(xiii) The Company has good and marketable title to all property
owned by it, free and clear of all liens, encumbrances, restrictions and
defects except such as are described in the Registration Statement or do
not interfere with the use made and proposed to be made of such property;
and any property held under lease or sublease by the Company is held under
valid, subsisting and enforceable leases or subleases with such exceptions
as are not material and do not interfere with the use made and proposed to
be made of such property by the Company, and the Company has no notice or
knowledge of any material claim of any sort which has been, or may be,
asserted by anyone adverse to the Company's rights as lessee or sublessee
under any lease or sublease described above, or affecting or questioning
the Company's rights to the continued possession of the leased or subleased
premises under any such lease or sublease in conflict with the terms
thereof.
(xiv) Except as described in the Prospectus, the Company is in
compliance in all material respects with the requirements of federal, state
or local regulation relating to air, water, solid waste management,
hazardous or toxic substances, or the protection of health or the
environment. Except as described in the Prospectus, there is not present on
property owned or leased by the Company any waste or hazardous substances
in violation of law and the Company will
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<PAGE> 9
not be deemed an "owner or operator" of a "facility" or "vessel" which
owns, possesses, transports, generates or disposes of a "hazardous
substance" in violation of applicable law as those terms are defined in
9601 of the Comprehensive, Response Compensation and Liability Act of 1980,
42 U.S.C. 9601 et seq.
(xv) No labor disturbance exists with the employees of the Company
or is imminent that would have a Material Adverse Effect.
(xvi) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of the
Company's Common Stock, and the Company is not aware of any such action
taken or to be taken by affiliates of the Company.
(b) Each Selling Shareholder severally represents and warrants to and
agrees with each Underwriter and the Company that:
(i) All authorizations and consents necessary for the execution
and delivery by him or it of this Agreement and the sale and delivery of
the Shares to be sold by such Selling Shareholder hereunder have been given
and are in full force and effect on the date hereof and will be in full
force and effect on the Closing Date.
(ii) Such Selling Shareholder has, and on the Closing Date will
have, good and valid title to the Shares to be sold by such Selling
Shareholder, free and clear of all liens, mortgages, pledges, encumbrances,
claims, equities and security interests whatsoever, and will have full
right, power and authority to enter into this Agreement and to sell,
assign, transfer and deliver the Shares to be sold by such Selling
Shareholder hereunder.
(iii) Upon delivery of and payment for such Shares hereunder, the
several Underwriters will acquire valid and unencumbered title to such
Shares to be sold by such Selling Shareholder hereunder, free and clear of
all liens, mortgages, pledges, encumbrances, claims, equities and security
interests whatsoever.
(iv) The consummation by such Selling Shareholder of the
transactions contemplated herein and the fulfillment by such Selling
Shareholder of the terms hereof will not result in a violation or breach of
any terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, note, loan agreement, sale and leaseback
arrangement
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<PAGE> 10
or other agreement or instrument to which such Selling Shareholder is a
party, or of any order, rule or regulation applicable to such Selling
Shareholder of any court or of any regulatory body of an administrative
agency or other governmental body having jurisdiction.
(v) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which might be reasonably
expected to cause or result in stabilization or manipulation of the price
of the Company's Common Stock, and such Selling Shareholder is not aware of
any such action taken or to be taken by affiliates of such Selling
Shareholder.
(vi) The information in the Registration Statement and Prospectus
and any amendments or supplements thereto as specifically refers to such
Selling Shareholder does not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(vii) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Shareholder hereunder have been placed in the
custody of the Company (the "Custodian") under a Custody Agreement (the
"Custody Agreement"), duly executed and delivered by such Selling
Shareholder, with the Custodian having the authority to deliver the Shares
to be sold by such Selling Shareholder hereunder, and that such Selling
Shareholder has duly executed and delivered a Power of Attorney (the "Power
of Attorney") appointing Ronald J. Sidman and Benjamin Peltz as such
Selling Shareholder's attorneys-in-fact (the "Attorneys-in-Fact") with the
Attorneys-in-Fact having authority to execute and deliver this Agreement on
behalf of such Selling Shareholder, to determine the purchase price to be
paid by the Underwriters to the Selling Shareholders as provided in Section
2, to authorize the delivery of the Shares to be sold by him or it
hereunder and otherwise to act on behalf of such Selling Shareholder in
connection with the transactions contemplated by this Agreement and such
Custody Agreement.
(viii) The Shares represented by the certificates held in custody for
such Selling Shareholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder, and the arrangements made by such
Selling Shareholder for such custody, and the appointment by such Selling
Shareholder of the Custodian under the Custody Agreement and the
Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable.
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<PAGE> 11
(ix) The obligations of such Selling Shareholders hereunder shall
not be terminated by operation of law, whether by the death or incapacity
of any individual Selling Shareholder or by the occurrence of any other
event, and if any Selling Shareholder should die or become incapacitated,
or if any other such event should occur before the delivery of the Shares
hereunder, certificates representing the Shares shall be delivered by or on
behalf of each Selling Shareholder in accordance with the terms and
conditions of this Agreement and of the Custody Agreement, and actions
taken by the Custodian pursuant to the Custody Agreement or by the
Attorneys-in-Fact pursuant to the Power of Attorney shall be as valid as if
such death, incapacity or other event had not occurred, regardless of
whether or not the Custodian or Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity of other event.
(x) Such Selling Shareholder is not prompted to sell shares of
Common Stock by any information concerning the Company which is not
included in the Registration Statement.
(c) Any certificate signed by any officer of the Company and delivered to
you or to counsel for the Underwriters shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered thereby;
and any certificate signed by or on behalf of a Selling Shareholder as such and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by such Selling Shareholder to each Underwriter as
to the matters covered thereby.
5. Additional Covenants. The Company and, where expressly indicated, the
Selling Shareholders, covenant and agree with the several Underwriters that:
(a) If the Registration Statement is not effective under the Act, the
Company will use its best efforts to cause the Registration Statement to become
effective as promptly as possible, and it will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement has
become effective. The Company (i) will prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations, if required, a
Prospectus containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Rules and Regulations or otherwise; (ii) will not file any amendment to the
Registration Statement or supplement to the Prospectus of which the Underwriters
shall not previously have been advised and furnished with a copy or to which the
Underwriters shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations; and (iii) will promptly notify you
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<PAGE> 12
after it shall have received notice thereof of the time when any amendment to
the Registration Statement becomes effective or when any supplement to the
Prospectus has been filed.
(b) The Company will advise the Underwriters promptly, after it shall
receive notice or obtain knowledge thereof, of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information, or of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution or threatening of any proceedings for that
purpose, and the Company will use its best efforts to prevent the issuance of
any such stop order preventing or suspending the use of the Prospectus and to
obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Underwriters and their counsel in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as they may have designated and will make such applications, file
such documents, and furnish such information as may be necessary for that
purpose, provided the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a consent
or to subject itself to taxation as doing business in any jurisdiction where it
is not now so taxed. The Company will, from time to time, file such statements,
reports, and other documents, as are or may be required to continue such
qualifications in effect for so long a period as the Underwriters may reasonably
request.
(d) The Company will deliver to, or upon the order of, the Underwriters,
without charge from time to time, as many copies of any Preliminary Prospectus
as they may reasonably request. The Company will deliver to, or upon the order
of, the Underwriters without charge as many copies of the Prospectus, or as it
thereafter may be amended or supplemented, as they may from time to time
reasonably request. The Company consents to the use of such Prospectus by the
Underwriters and by all dealers to whom the Shares may be sold, both in
connection with the offering or sale of the Shares and for such other purposes
and for such period of time thereafter as the Prospectus is required by law to
be delivered in connection therewith. The Company will deliver to the
Underwriters at or before the Closing Date two signed copies of the Registration
Statement and all amendments thereto including all exhibits filed therewith, and
will deliver to the Underwriters such number of copies of the Registration
Statement, without exhibits, and of all amendments thereto, as they may
reasonably request.
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<PAGE> 13
(e) If, during the period in which a prospectus is required by law to be
delivered by an Underwriter or dealer, any event shall occur as a result of
which, in the judgment of the Company or in your judgment or in the opinion of
counsel for the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with law.
(f) The Company will make generally available to its Shareholders, as soon
as it is practicable to do so, but in any event not later than 17 months after
the effective date of the Registration Statement, an earnings statement in
reasonable detail, covering a period of at least 12 consecutive months beginning
after the effective date of the Registration Statement, which earnings statement
shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the
Rules and Regulations and will advise the Underwriters in writing when such
statement has been so made available.
(g) The Company will, for a period of five years from the Closing Date,
deliver to the Underwriters at their principal executive offices a reasonable
number of copies of annual reports, quarterly reports, current reports and
copies of all other documents, reports and information furnished by the Company
to its shareholders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or the
Securities and Exchange Act of 1934, as amended. The Company will deliver to the
Underwriters similar reports with respect to any significant subsidiaries, as
that term is defined in the Rules and Regulations, which are not consolidated in
the Company's financial statements. Any report, document or other information
required to be furnished under this paragraph (g) shall be furnished as soon as
practicable after such report, document or information becomes available.
(h) The Company will apply the proceeds from the sale of the Shares as set
forth in the description under "Use of Proceeds" in the Prospectus, which
description complies in all respects with the requirements of Item 504 of
Regulation S-K.
(i) The Company will supply you with copies of all correspondence to and
from, and all documents issued to and by,
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<PAGE> 14
the Commission in connection with the registration of the Shares under the Act.
(j) Prior to the Closing Date (and, if applicable, the Option Closing
Date), the Company will furnish to you, as soon as they have been prepared,
copies of any unaudited interim financial statements of the Company for any
periods subsequent to the periods covered by the financial statements appearing
in the Registration Statement and the Prospectus.
(k) Prior to the Closing Date (and, if applicable, the Option Closing
Date), neither the Company nor any Selling Shareholder will issue any press
releases or other communications directly or indirectly and will hold no press
conferences with respect to the Company or any of its subsidiaries, the
financial condition, results or operations, business, properties, assets or
liabilities of the Company or any of its subsidiaries, or the offering of the
Shares, without your prior written consent, except as may be required by law.
(l) The Company will use its best efforts to maintain the quotation of the
shares on the Nasdaq National Market System (the "NNM") or a substantially
comparable national securities exchange or trading system.
(m) For a period of 180 days from the Effective Date, the Company will
not, and will use its best efforts to cause its directors and officers to not,
directly or indirectly sell, contract to sell or otherwise dispose of any shares
of the Company's Common Stock or rights to acquire such shares without your
prior written consent, except for the Shares sold hereunder and except for sales
of shares of Common Stock to the Company's employees pursuant to the exercise of
options described in the Prospectus under the Company's stock option plans.
(n) For a period of 180 days from the Effective Date, the Selling
Shareholders will not directly or indirectly sell, contract to sell or otherwise
dispose of any shares of the Company's Common Stock or rights to acquire such
shares without your prior written consent, except for the Shares sold hereunder.
(o) The Company will maintain and keep accurate books and records
reflecting their assets and maintain internal accounting controls which provide
reasonable assurance that (1) transactions are executed in accordance with
management's authorization, (2) transactions are recorded as necessary to permit
the preparation of the Company's financial statements and to maintain
accountability for the assets of the Company, (3) access to the assets of the
Company is permitted only in accordance with management's authorization, and (4)
the recorded accounts of the
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<PAGE> 15
assets of the Company are compared with existing assets at reasonable intervals.
6. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase and pay for the Shares, as provided herein, shall
be subject to the accuracy as of the date hereof and as of the Closing Date
(and, if applicable, the Option Closing Date), of the representations and
warranties of the Company and the Selling Shareholders contained herein, to the
performance by the Company and the Selling Shareholders of their covenants and
obligations hereunder, and to the following additional conditions:
(a) All filings required by Rule 424 and Rule 430A of the Rules and
Regulations shall have been made. No stop order suspending the effectiveness of
the Registration Statement, as amended from time to time, shall have been issued
and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened or contemplated by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of the Underwriters.
(b) On the Closing Date (and, if applicable, the Option Closing Date), you
shall have received the opinion of Ropes & Gray, counsel for the Company and
Selling Shareholders, addressed to you and dated the Closing Date (and, if
applicable, the Option Closing Date), to the effect that:
(i) The Company is a corporation duly organized, validly existing
and in good standing with the Secretary of State under the laws of the
Commonwealth of Massachusetts with corporate power to own its properties
and conduct its business as described in the Prospectus. The Company is
duly qualified to do business as a foreign corporation in each jurisdiction
in which it owns or leases property.
(ii) The authorized capital stock of the Company is as set forth in
the Capitalization table contained in the Prospectus. The Shares to be
sold by the Selling Shareholders have been duly authorized and validly
issued and are fully paid and nonassessable. The Shares to be sold by the
Company have been duly authorized and, when delivered and paid for in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable.
(iii) The Shares conform as to matters of law with the description
thereof contained in the Prospectus under "Description of Capital Stock."
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<PAGE> 16
(iv) The filing of the Registration Statement has been duly
authorized by the Company. The Underwriting Agreement has been duly
authorized, executed and delivered by the Company.
(v) The issuance and sale by the Company of the Shares to be sold
by it will not (x) violate the Articles of Organization or By-Laws of the
Company, (y) breach or result in a default under any agreement or
instrument listed as an Exhibit to the Registration Statement or (z)
violate any applicable law or regulation, or, to the knowledge of such
counsel, any order, writ, injunction or decree, of any jurisdiction, court
or governmental instrumentality binding upon the Company or any of its
properties, except that such counsel need express no opinion as to state
securities or blue sky laws and except that such counsel need express no
opinion in this paragraph (v) as to compliance with the antifraud
provisions of federal and state securities laws.
(vi) To such counsel's knowledge, after reasonable investigation,
no holder of any security of the Company has the right to require
registration of shares of Common Stock of the Company.
(vii) No authorizations or consents of any governmental entity are
required to permit the Company to issue and sell the Shares except such as
may be required under state securities or blue sky laws, as to which
counsel need express no opinion, and except for such as have been obtained
under the Act.
(viii) The Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940, as amended.
(ix) The Underwriting Agreement has been duly authorized, executed
and delivered by each of the Selling Shareholders (through their duly
authorized attorney-in-fact).
(x) A Power of Attorney and Custody Agreement has been duly
authorized, executed and delivered by each of the Selling Shareholders and,
pursuant to such Power of Attorney and Custody Agreement, each Selling
Shareholder has authorized its Attorney-in-Fact to carry out transactions
contemplated in the Underwriting Agreement on its behalf, and to deliver
the Shares being sold by him, her or it pursuant to the Underwriting
Agreement.
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<PAGE> 17
(xi) Immediately prior to the closing date, each Selling
Shareholder was the sole registered owner of the Shares to be sold by such
Selling Shareholder; each Selling Shareholder has full legal right, power
and authority, and any approval required by law (other than any approval
required by the applicable state securities and blue sky laws) to sell,
assign, transfer and deliver the Shares to be sold by him, her or it in the
manner provided in the Underwriting Agreement and the Selling Shareholder's
Power of Attorney and Custody Agreement; upon registration of the Shares in
the names of the Underwriters in the stock records of the Company, assuming
the underwriters purchased the Shares in good faith and without notice of
any adverse claim within the meaning of Section 8-302 of the Massachusetts
Uniform Commercial Code, the Underwriters will have acquired good and valid
title to the Shares being sold by such Selling Shareholder free of any
adverse claim, any lien in favor of the Company, and any restrictions on
transfer imposed by the Company; and the owner of the Shares, if other than
such Selling Shareholder, is precluded from asserting against the
Underwriters the ineffectiveness of any unauthorized endorsement.
Such counsel shall also state the date on which the Registration Statement
became effective and that such counsel does not know of the issuance of any stop
order suspending the effectiveness of the Registration Statement by the
Commission or of any proceeding for that purpose under the Act.
Such counsel may state that it has not independently verified the accuracy,
completeness or fairness of the statements made or the information contained in
the Registration Statement or the Prospectus, and, except with respect to the
description referred to in paragraph (iii) above, such counsel is not passing
upon and does not assume any responsibility therefor. Such counsel shall also
state its belief that the Registration Statement, as of its effective date, and
the Prospectus, as of its date, complied as to form in all material respects
with the requirements of the Act and the published rules and regulations of the
Commission thereunder and that such counsel does not know of any legal or
governmental proceeding to which the Company is a party or to which any of its
property is subject required to be described in the Prospectus which is not so
described, nor of any contract or other document of a character required to be
described in the Prospectus or to be filed as an exhibit to the Registration
Statement which is not so described or filed. Further, such counsel shall state
that nothing has come to its attention that has caused it to believe that as of
its effective date, the Registration Statement contained any untrue statement or
a material fact or omitted to state any material fact required to be stated
therein or necessary
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<PAGE> 18
to make the statements therein not misleading, or that as of the effective date
of the Registration Statement or as of the date hereof the Prospectus contained
or contains any untrue statement of a material fact or omitted or omits to state
any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Counsel need not
express an opinion as to the financial statements, including the notes and
schedules thereto, or any other financial or accounting information set forth or
referred to in the Registration Statement or the Prospectus.
In rendering the foregoing opinion, such counsel may rely, provided that
the opinion shall state that you and they are entitled to so rely, as to matters
involving laws of any jurisdiction other than Massachusetts or Federal law, upon
opinions addressed to the Underwriters of other counsel satisfactory to them and
Hale and Dorr, counsel to the Underwriters.
(c) On the Closing Date (and, if applicable, the Option Closing Date), you
shall have received the opinion of Fish & Richardson, intellectual property
counsel to the Company, addressed to you and dated the Closing Date (and, if
applicable, the Option Closing Date), to the effect that:
(i) To the best knowledge of such counsel, neither the
Registration Statement nor the Prospectus (A) contains any untrue
statement of a material fact with respect to trademarks, trade names,
patents, mask works, copyrights, licenses, trade secrets or other
intellectual property rights owned or used by the Company, or the
manner of its use thereof, or any allegation on the part of any person
or entity that the Company is infringing any trademarks, trade names,
patent rights, mask works, copyrights, licenses, trade secrets or
other intellectual property rights of any such person or entity or (B)
omits to state any material fact relating to trademarks, trade names,
patents, mask works, copyrights, licenses, trade secrets or other
intellectual property rights owned or used by the Company, or the
manner of its use thereof, or any allegation of which such counsel has
knowledge, that is required to be stated in the Registration Statement
or the Prospectus or is necessary to make the statements therein not
misleading;
(ii) To the best knowledge of such counsel, there are no legal
or governmental proceedings pending relating to trademarks, trade
names, patent rights, mask works, copyrights, licenses, trade secrets
or other
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<PAGE> 19
intellectual property rights of the Company other than
prosecution by the Company of its patent applications before the
United States Patent Office and appropriate foreign government
agencies, and to the best knowledge of such counsel no such
proceedings are threatened or contemplated by governmental authorities
or others;
(iii) The Company duly and properly holds the trademarks,
patents, and has duly and properly filed trademark registrations,
patent applications and patent cooperation treaty applications, listed
in the Prospectus under the caption "Business - Trademarks,
Copyrights, and Patents. [To be updated]
(iv) Such counsel does not know of any contracts or other
documents relating to the Company's trademarks, trade names, patents,
mask works, copyrights, licenses, trade secrets or other intellectual
property rights of a character required to be filed as an exhibit to
the Registration Statement or required to be described in the
Registration Statement or the Prospectus that are not filed or
described as required;
(v) To the best knowledge of such counsel, the Company is not
infringing or otherwise violating any trademarks, trade names,
patents, mask works, copyrights, licenses, trade secrets or other
intellectual property rights of others, and to the best knowledge of
such counsel, there are no infringements by others of any of the
Company's trademarks, trade names, patents, mask works, copyrights,
licenses, trade secrets or other intellectual property rights which in
the judgment of such counsel could affect materially the use thereof
by the Company or the ability of the Company to transfer any or all of
such property or rights to a third party; and
(vi) To the best knowledge of such counsel, the Company owns
or possesses sufficient licenses or other rights to use all
trademarks, trade names, patents, mask works, copyrights, licenses,
trade secrets or other intellectual property rights necessary to
conduct the business now being or proposed to be conducted by the
Company as described in the Prospectus.
In rendering the foregoing opinion, such counsel may rely, provided that
the opinion shall state that you and they are entitled to so rely, as to matters
involving laws of any jurisdiction other than Massachusetts or Federal law, upon
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<PAGE> 20
opinions adverse to the Underwriters of other counsel satisfactory to them and
Hale and Dorr, counsel to the Underwriters.
(d) You shall have received on the Closing Date (and, if applicable, the
Option Closing Date), from Hale and Dorr counsel to the Underwriters, such
opinion or opinions, dated the Closing Date (and, if applicable, the Option
Closing Date) with respect to the incorporation of the Company, the validity of
the Shares, the Registration Statement, the Prospectus and other related matters
as you may reasonably require; the Company and the Selling Shareholders shall
have furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass on such matters.
(e) You shall have received at or prior to the Closing Date a memorandum
or memoranda, in form and substance satisfactory to you, with respect to the
qualification for offering and sale by the Underwriters of the Shares under
state securities or Blue Sky laws of such jurisdictions as the Underwriters may
have designated to the Company.
(f) On the business day immediately preceding the date of this Agreement
and on the Closing Date (and, if applicable, the Option Closing Date), you shall
have received from Deloitte & Touche LLP, a letter or letters, dated the date of
this Agreement and the Closing Date (and, if applicable, the Option Closing
Date), respectively, in the form and substance satisfactory to you, confirming
that they are independent public accountants with respect to the Company within
the meaning of the Act and the published Rules and Regulations, and the answer
to Item 509 of Regulation S-K set forth in the Registration Statement is correct
insofar as it relates to them, and stating to the effect set forth in Schedule
III hereto.
(g) Except as contemplated in the Prospectus, (i) the Company shall not
have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree; and (ii)
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Company shall not have incurred
any liability or obligation, direct or contingent, or entered into transactions,
and there shall not have been any change in the capital stock or long-term debt
of the Company any change in the condition (financial or other), net worth,
business, affairs, management, prospect or results of operations of the Company,
the effect of which, in any such case described in clause (i) or (ii), is in
your judgment so material and adverse as to make it impracticable
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<PAGE> 21
or inadvisable to proceed with the public offering or the delivery of the Shares
being delivered on such Closing Date (and, if applicable, the Option Closing
Date) on the terms and in the manner contemplated in the Prospectus.
(h) There shall not have occurred any of the following: (i) a suspension
or material limitation in trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or the establishing on such exchanges by
the Commission or by such exchanges of minimum or maximum prices which are not
in force and effect on the date hereof; (ii) a general moratorium on commercial
banking activities declared by either federal or state authorities; (iii) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the effect
of any such event specified in this clause (iii) in your judgment makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares in the manner contemplated in the Prospectus; (iv) any calamity or
crisis, change in national, international or world affairs, act of God, change
in the international or domestic markets, or change in the existing financial,
political or economic conditions in the United States or elsewhere, if the
effect of any such event specified in this clause (iv) makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares in
the manner contemplated in the Prospectus; or (v) the enactment, publication,
decree, or other promulgation of any federal or state statute, regulation, rule,
or order of any court or other governmental authority, or the taking of any
action by any federal, state or local government or agency in respect of fiscal
or monetary affairs, if the effect of any such event specified in this clause
(v) in your judgment makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares in the manner contemplated in the
Prospectus.
(i) You shall have received certificates, dated the Closing Date (and, if
applicable, the Option Closing Date) and signed by the President and the Chief
Financial Officer of the Company stating that (i) they have carefully examined
the Registration Statement and the Prospectus as amended or supplemented and
nothing has come to their attention that would lead them to believe that either
the Registration Statement or the Prospectus, or any amendment or supplement
thereto as of their respective effective or issue dates, contained, and the
Prospectus as amended or supplemented at such Closing Date, contains any untrue
statement of a material fact, or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and, that (ii) all
representations and warranties made herein by the Company are true and correct
in all
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<PAGE> 22
material respects at such Closing Date, with the same effect as if made on and
as of such Closing Date, and all agreements herein to be performed by the
Company on or prior to such Closing Date have been duly performed in all
material respects.
(j) The Company and each of the Selling Shareholders shall not have
failed, refused, or been unable, at or prior to the Closing Date (and, if
applicable, the Option Closing Date) to have performed any agreement on their
part to be performed or any of the conditions herein contained and required to
be performed or satisfied by them at or prior to such Closing Date.
(k) The Company and the Selling Shareholders shall have furnished to you
at the Closing Date (and, if applicable, the Option Closing Date) such other
certificates as you may have reasonably requested as to the accuracy, on and as
of such Closing Date, of the representations and warranties of the Company and
the Selling Shareholders herein and as to the performance by the Company and the
Selling Shareholders of their obligations hereunder.
(l) The Shares shall have been approved for trading upon official notice
of issuance on the NNM.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Hale and Dorr, counsel for the several Underwriters and they
provide that Hale and Dorr may rely thereon for purposes of rendering the legal
opinion referred to in paragraph (d), above. The Company and Selling
Shareholders will furnish you with such conformed copies of such opinions,
certificates, letters and documents as you may request.
If any of the conditions specified above in this Section 6 shall have been
satisfied at or prior to the Closing Date (and, if applicable, the Option
Closing Date) or waived by you in writing, this Agreement may be terminated by
you on notice to the Company and the Selling Shareholders.
7. Indemnification. (a) The Company will indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act, against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or in any blue sky
application or
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<PAGE> 23
other document executed by the Company or based on any information furnished in
writing by the Company, filed in any jurisdiction in order to qualify any or all
of the Shares under the securities laws thereof ("Blue Sky Application"), or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of circumstances under which they were made, not
misleading; and will reimburse each Underwriter and each such controlling person
for any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
statement, such Preliminary Prospectus or the Prospectus, or such amendment or
supplement, or any Blue Sky Application in reliance upon and in conformity with
written information furnished to the Company by you or by any Underwriter
through you, specifically for use in the preparation thereof; and provided,
further, that if any Preliminary Prospectus or the Prospectus contained any
alleged untrue statement or allegedly omitted to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading and such statement or omission shall have been corrected in a revised
Preliminary Prospectus or in the Prospectus or in an amended or supplemented
Prospectus, the Company shall not be liable to any Underwriter or controlling
person under this subsection (a) with respect to such alleged untrue statement
or alleged omission to the extent that any such loss, claim, damage or liability
of such Underwriter or controlling person results from the fact that such
Underwriter sold Shares to a person to whom there was not sent or given, at or
prior to the written confirmation of such sale, such revised Preliminary
Prospectus or Prospectus or amended or supplemented Prospectus. This indemnity
agreement shall be in addition to any liabilities which the Company may
otherwise have.
(b) Each Selling Shareholder will indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or any Blue Sky Application or arise out of or
are based upon the omission or the alleged omission to state
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<PAGE> 24
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, such Preliminary
Prospectus or the Prospectus, or such amendment or supplement, or any Blue Sky
Application, in reliance upon and in conformity with written information
furnished to the Company or any Underwriter by such Selling Shareholder
specifically for use in the preparation thereof; and will reimburse any legal or
other expenses reasonably incurred by each Underwriter and each person, if any,
who controls any Underwriter within the meaning of the Act, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity contained in this subsection (b) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) in
respect of any action or claim asserted by a person who purchased any Shares
from such Underwriter, if, within the time required by the Act such person was
not sent or given a copy of the Prospectus, as then amended or supplemented.
This indemnity agreement shall be in addition to any liabilities which the
Selling Shareholders may otherwise have.
(c) Each Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the Registration Statement
and, each person, if any, who controls the Company within the meaning of the
Act, and each Selling Shareholder, against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director,
officer or controlling person or any such Selling Shareholder may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, any
amendment or supplement thereto, or any Blue Sky Application or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, in
each case to the extent, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, such
amendment or supplement, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by any such
Underwriter specifically for use in the preparation thereof; and will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person or any such Selling Shareholder in
connection
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<PAGE> 25
with investigating or defending any such loss, claim, damage, liability or
action. This indemnity agreement shall be in addition to any liabilities which
the Underwriters may otherwise have.
(d) Any party which proposes to assert the right to be indemnified under
this Section 7 shall, within ten days after receipt of notice of commencement of
any action, suit or proceeding against such party in respect of which a claim is
to be made against an indemnifying party under this Section 7, notify each such
indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served, but the omission so to notify such
indemnifying party of any such action, suit or proceeding shall not relieve such
indemnifying party from any liability which it may have to any indemnified party
otherwise than under this Section 7. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party, similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, other than
reasonable costs of investigation, subsequently incurred by such indemnified
party in connection with the defense thereof. The indemnified party shall have
the right to employ its own counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party at the expense of
the indemnifying party has been authorized by the indemnifying party, (ii) the
indemnified party shall have been advised by such counsel in a written opinion
that there is a conflict of interest between the indemnifying party and the
indemnified party in the conduct of the defense, or certain aspects of the
defense, of such action (in which case the indemnifying party shall not have the
right to direct the defense of such action with respect to those matters or
aspects of the defense on which a conflict exists or may exist on behalf of the
indemnified party) or (iii) the indemnifying party shall not in fact have
employed counsel to assume the defense of such action, in any of which events
such fees and expenses to the extent applicable shall be borne by the
indemnifying party. An indemnifying party shall not be liable for any
settlement of any action or claim effected without its consent. Each
indemnified party, as a condition of such indemnity, shall cooperate in good
faith with the indemnifying party in the defense of any such action or claim.
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(e) If the indemnification provided for in this Section 7 is for any
reason, other than pursuant to the terms thereof, juridically determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right to appeal) to be
unavailable to an indemnified party under subsections (a), (b) or (c) above in
respect of any losses, claims, damages or liabilities (or actions in respect
thereof) referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company, the Selling
Shareholders and the Underwriters from the offering of the Shares. If, however,
the allocation provided by the immediately preceding sentence is not permitted
by applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault, as
applicable, of the Company, the Selling Shareholders and the Underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as other
relevant equitable considerations. The relative benefits received by, as
applicable, the Company, the Selling Shareholders and the Underwriters shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Shareholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Shareholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (e) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (e). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (e), no
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Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter and no Selling Shareholder shall be required to contribute any
amount in excess of the net proceeds received by such Selling Shareholder in
connection with the sale of the Shares. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint. No Selling Shareholder shall be liable for
contribution under this Section 7(e) except and to the extent that such Selling
Shareholder would have been liable to indemnify under Section 7(b) if such
indemnification had been enforceable under applicable law.
8. Representations and Agreements to Survive Delivery. All
representations, warranties, and agreements of the Company and the Selling
Shareholders contained in Sections 7 and 11 herein or in certificates delivered
pursuant hereto, and the agreements of the Underwriters contained in Section 7
hereof, shall remain operative and in full force and effect regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of any Underwriter or any controlling person, the Company or any of its
officers, directors or any controlling persons, or the Selling Shareholders, and
shall survive delivery of the Shares to the Underwriters hereunder.
9. Substitution of Underwriters. (a) If any Underwriter shall default in
its obligation to purchase the Shares which it has agreed to purchase hereunder,
you may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Shareholders shall be entitled to
a further period of thirty-six hours within which to procure another party or
parties reasonably satisfactory to you to purchase such Shares on such terms. In
the event that, within the respective prescribed periods, you notify the Company
and the Selling Shareholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Shareholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Shareholders shall have the right to postpone the Closing Date for a period of
not more than seven day, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term
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"Underwriter" as used in this Agreement shall include any persons substituted
under this Section 9 with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters made by you or the Company
and the Selling Shareholders as provided in subsection (a) above, the aggregate
number of Shares which remains unpurchased does not exceed one tenth of the
total Shares to be sold on the Closing Date, then the Company and the Selling
Shareholders shall have the right to require each non-defaulting Underwriter to
purchase the Shares which such Underwriter agreed to purchase hereunder and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters made by you or the Company
and the Selling Shareholders as provided in subsection (a) above, the number of
Shares which remains unpurchased exceeds one tenth of the total Shares to be
sold on the Closing Date, or if the Company and the Selling Shareholders shall
not exercise the right described in subsection (b) above to require the
non-defaulting Underwriters to purchase Shares of the defaulting Underwriter or
Underwriters, then this Agreement shall thereupon terminate, without liability
on the part of any non-defaulting Underwriter or the Company and the Selling
Shareholders except for the expenses to be borne by the Company and the
Underwriters as provided in Section 11 hereof and the indemnity and contribution
agreements in Section 7 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
10. Effective Date and Termination. (a) This Agreement shall become
effective at 1:00 p.m., St. Louis time, on the first business day following the
effective date of the Registration Statement, or at such earlier time after the
effective date of the Registration Statement as you in your discretion shall
first release the Shares for offering to the public; provided, however, that the
provisions of Section 7 and 11 shall at all times be effective. For the
purposes of this Section 10(a), the Shares shall be deemed to have been released
to the public upon release by you of the publication of a newspaper
advertisement relating to the Shares or upon release of telegrams, facsimile
transmissions
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<PAGE> 29
or letters offering the Shares for sale to securities dealers, whichever shall
first occur.
(b) This Agreement may be terminated by you at any time before it becomes
effective in accordance with Section 10(a) by notice to the Company and the
Selling Shareholders; provided, however, that the provisions of this Section 10
and of Section 7 and Section 11 hereof shall at all times be effective. In the
event of any termination of this Agreement pursuant to Section 9 or this Section
10(b) hereof, the Company and the Selling Shareholders shall not then be under
any liability to any Underwriter except as provided in Section 7 or Section 11
hereof.
(c) This Agreement may be terminated by you at any time at or prior to the
Closing Date by notice to the Company and the Selling Shareholders if any
condition specified in Section 6 hereof shall not have been satisfied on or
prior to the Closing Date. Any such termination shall be without liability of
any party to any other party except as provided in Sections 7 and 11 hereof.
(d) This Agreement also may be terminated by you, by notice to the Company
and the Selling Shareholders, as to any obligation of the Underwriters to
purchase the Option Shares, if any condition specified in Section 6 hereof shall
not have been satisfied at or prior to the Option Closing Date or as provided in
Section 9 of this Agreement.
If you terminate this Agreement as provided in Sections 10(b), 10(c) or
10(d), you shall notify the Company and the Selling Shareholders by telephone or
telegram, confirmed by letter.
11. Costs and Expenses. The Company and the Selling Shareholders will
bear and pay the costs and expenses incident to the registration of the Shares
and public offering thereof, including, without limitation, (a) the fees and
expenses of the Company's accountants and the fees and expenses of counsel for
the Company, (b) the preparation, printing, filing, delivery and shipping of the
Registration Statement, each Preliminary Prospectus, the Prospectus and any
amendments or supplements thereto (except as otherwise expressly provided in
Section 5(d) hereof) and the printing, delivery and shipping of this Agreement,
the Agreement Among Underwriters, the Selected Dealer Agreement, Underwriters'
Questionnaires and Powers of Attorney and Blue Sky Memoranda, (c) the furnishing
of copies of such documents (except as otherwise expressly provided in Section
5(d) hereof) to the Underwriters, (d) the registration or qualification of the
Shares for offering and sale under the securities laws of the various states,
including the reasonable fees and disbursements of
-29-
<PAGE> 30
Underwriters' counsel relating to such registration or qualification, (e) the
fees payable to the NASD and the Commission in connection with their review of
the proposed offering of the Shares, (f) all printing and engraving costs
related to preparation of the certificates for the Shares, including transfer
agent and registrar fees, (g) all initial transfer taxes, if any, (h) all fees
and expenses relating to the authorization of the shares for trading on NNM, (i)
all travel expenses, including air fare and accommodation expenses, of
representatives of the Company in connection with the offering of the Shares and
(j) all of the other costs and expenses incident to the performance by the
Company of the Registration and offering of the Shares; provided, however, that
the Underwriters will bear and pay the fees and expenses of the Underwriters'
counsel (other than fees and disbursements relating to the registration or
qualification of the Shares for offering and sale under the securities laws of
the various states), the Underwriters' out-of-pocket expenses, and any
advertising costs and expenses incurred by the Underwriters incident to the
public offering of the Shares; and provided, further, that the Selling
Shareholders will bear and pay the fees and expenses of the Selling
Shareholders' counsel.
If this Agreement is terminated by you in accordance with the provisions of
Section 10(c) (other than as a result of the failure of the conditions set forth
in paragraphs (d), (e) or (h) of Section 6), the Company shall reimburse the
Underwriters for all of their out-of-pocket expenses, including the reasonable
fees and disbursements of counsel to the Underwriters.
12. Default of Selling Shareholders. Failure or refusal by any of the
Selling Shareholders to sell and deliver on the Closing Date the Shares agreed
to be sold and delivered by such Selling Shareholder shall in no manner relieve
the other Selling Shareholders or the Company of their respective obligations
under this Agreement. If any Selling Shareholder should fail or refuse to sell
and deliver his Shares, the remaining Selling Shareholders shall have the right
hereby granted to increase, pro rata or otherwise, the number of Shares to be
sold by them hereunder to the total number of Shares to be sold by all Selling
Shareholders as set forth in Schedule I. If the remaining Selling Shareholders
do not fully exercise the right to increase the number of Shares to be sold by
them, the Underwriters, at your option, will have the right to elect to purchase
or not to purchase the Shares to be sold by the Company and the remaining
Selling Shareholders. In the event the Underwriters purchase the Shares of the
Company and such other Selling Shareholders pursuant to this Section 12, the
Closing Date shall be postponed for a period of not more than seven days in
order that the Registration Statement and Prospectus or other documents may be
amended or supplemented to the extent necessary under the provisions of the Act
and Rules and
-30-
<PAGE> 31
Regulations or under the securities laws of any jurisdiction. If the
Underwriters determine not to purchase the Shares of the Company and the other
Selling Shareholders, if any, this Agreement shall terminate and neither the
Company nor the Underwriters nor any other Selling Shareholder shall be under
any obligation under this Agreement except as provided in Section 7 hereof and
except for the obligation of the Company to pay for such expenses as are set
forth in Section 11 hereof. Nothing herein shall relieve a defaulting Selling
Shareholder from liability for his default or from liability under Section 7
hereof or for expenses imposed by this Agreement upon such Selling Shareholder.
13. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to the
Underwriters shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed c/o A.G. Edwards & Sons, Inc. at One North Jefferson
Avenue, St. Louis, Missouri 63103, Attention: Syndicate, facsimile number (314)
289-7387, or if sent to the Company shall be mailed, delivered, sent by
facsimile transmission, or telegraphed and confirmed to the Company at One
Kiddie Drive, Avon, Massachusetts 02322-1171, facsimile number (508) 586-4728,
or if sent to any Selling Shareholder shall be mailed, delivered, sent by
facsimile transmission or telegraphed and confirmed to such Selling Shareholder,
c/o the Attorney-in-Fact at One Kiddie Drive, Avon, Massachusetts 02322-1171.
Notice to any Underwriter pursuant to Section 7 shall be mailed, delivered, sent
by facsimile transmission, or telegraphed and confirmed to such Underwriter's
address as it appears in the Underwriters' Questionnaire furnished in connection
with the offering of the Shares or as otherwise furnished to the Company and the
Selling Shareholder.
14. Parties. This Agreement shall inure to the benefit of and be binding
upon the Underwriters and the Selling Shareholders, and the Company and their
respective successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, corporation or
other entity, other than the parties hereto and their respective successors and
assigns and the controlling persons, officers and directors referred to in
Section 7, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision herein contained; this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns and said controlling persons and said officers and directors, and for
the benefit of no other person, corporation or other entity. No purchaser of
any of the Shares from any Underwriter shall be construed a successor or assign
by reason merely of such purchase.
-31-
<PAGE> 32
In all dealings with the Company and the Selling Shareholders under this
Agreement A. G. Edwards & Sons, Inc. shall act on behalf of each of the several
Underwriters, the Company, and the Selling Shareholders shall be entitled to act
and rely upon any statement, request, notice or agreement on behalf of the
Underwriters, made or given by A.G. Edwards & Son, Inc. on behalf of the
Underwriters, as if the same shall have been made or given in writing by the
Underwriters.
15. Counterparts. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
16. Pronouns. Whenever a pronoun of any gender or number is used herein,
it shall, where appropriate, be deemed to include any other gender and number.
17. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Massachusetts.
If the foregoing is in accordance with your understanding, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, each of the Selling
Shareholders and the Underwriters.
THE FIRST YEARS INC.
By:
Title:
Selling Shareholders Named in
Schedule I Hereto
By:
Attorney-in-Fact
-32-
<PAGE> 33
Accepted in St. Louis,
Missouri, as of the date
first above written, on
behalf of ourselves and each
of the several Underwriters
named in Schedule II hereto.
A.G. EDWARDS & SONS, INC.
By:
Title: Senior Vice President
-33-
<PAGE> 34
<TABLE>
SCHEDULE I
<CAPTION>
Number of
Selling Shareholders Firm Shares
<S> <C>
Estate of Marshall B. Sidman 400,000
Jerome M. Karp 80,000
Benjamin Peltz 80,000
Ronald J. Sidman 40,000
Total 600,000
</TABLE>
-34-
<PAGE> 35
<TABLE>
SCHEDULE II
<CAPTION>
Name Number of Firm Shares
<S> <C>
A.G. Edwards & Sons, Inc.
Adams, Harkness & Hill, Inc.
Total 1,200,000
</TABLE>
-35-
<PAGE> 36
SCHEDULE III
Pursuant to Section 6(f) of the Underwriting Agreement, Deloitte & Touche
LLP shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable Rules and Regulations thereunder.
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules audited (and, if applicable,
prospective financial statements and/or pro forma financial information
examined) by them and included in the Prospectus or the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable Rules and Regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, prospective
financial statements and/or condensed financial statements derived from
audited financial statements of the Company for the periods specified in
such letter, as indicated in their reports thereon, copies of which have
been furnished to the Representative of the Underwriters (the
"Representative").
(iii) On the basis of limited procedures, not constituting an
audit in accordance with generally accepted auditing standards, consisting
of a reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute
books of the Company and its subsidiaries since the date of the latest
audited financial statements included in the Prospectus, inquiries of
officials of the Company and its subsidiaries responsible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) the unaudited statements of income, balance sheets and
statements of cash flows included in the Prospectus do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the
-36-
<PAGE> 37
applicable Rules and Regulations thereunder, or are not in
conformity with generally accepted accounting principles applied
on a basis substantially consistent with the basis for the
audited statements of income, balance sheets and statements of
cash flows included in the Prospectus.
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited financial statements from
which such data and items were derived, and any such unaudited
data and items were not determined on a basis substantially
consistent with the basis for the corresponding amounts in the
audited financial statements included in the Prospectus.
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with the
basis for the audited financial statements included in the
Prospectus.
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements.
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
capital stock or any increase in the long-term debt of the
Company and its subsidiaries, or any decreases in working
capital, net current assets or net assets or other items
specified by the Representative, or any changes in any items
specified by the Representative, in each case as compared with
amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
decreases which the Prospectus
-37-
<PAGE> 38
discloses have occurred or may occur or which are described in
such letter.
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in Clause (E) there were any decreases in net
revenues or operating profit or the total or per share amounts of
net income or any other changes in any other items specified by
the Representative, in each case as compared with the comparable
period of the preceding year and with any other period of
corresponding length specified by the Representative, except in
each case for changes, decreases or increases which the
Prospectus discloses have occurred or may occur or which are
described in such letter.
(iv) In addition to the audit referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraph
(iii) above, they have carried out certain specified procedures, not
constituting an audit in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representative, which are derived from
the general accounting records of the Company and its subsidiaries for
the periods covered by their reports and any interim or other periods
since the latest period covered by their reports, which appear in the
Prospectus, or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representative, and have
compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
(v) In the letters delivered pursuant to Section 6(f) of the
Underwriting Agreement, Deloitte & Touche LLP shall confirm that they
have performed an interim review in accordance with SAS No. 71 of the
financial statements of the Company as of June 30, 1995 and September
30, 1995 and for the six month and nine month periods, respectively,
then ended and the Company has advised Deloitte & Touche LLP that such
financial statements are prepared on a basis consistent with the
audited financial statements contained in the Prospectus and these
financial statements indicate no decrease in
-38-
<PAGE> 39
consolidated net sales or net income from the corresponding periods in
the preceding year.
-39-
<PAGE> 1
Exhibit 4
[SHARE CERTIFICATE]
INCORPORATIED UNDER THE LAWS OF
THE COMMONWEALTH OF MASSACHUSETTS
[THE FIRST YEARS LOGO]
<TABLE>
<S> <C>
NUMBER SHARES
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR
IN BOSTON, MA AND NEW YORK, NY CERTAIN DEFINITIONS
THE FIRST YEARS INC.
THIS CERTIFIES THAT
CUSIP 337610 10 9
is the owner of
</TABLE>
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
THE PAR VALUE OF $.10 PER SHARE OF
The First Years Inc. (herein called the "Corporation") transferable on the books
of the Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this Certificate properly endorsed or assigned for transfer.
This Certificate and the shares represented hereby are issued and shall be
subject to the laws of the Commonwealth of Massachusetts and to the provisions
of the Articles of Organization and the By-Laws of the Corporation, as amended
from time to time. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated
[THE FIRST YEARS INC. SEAL]
<TABLE>
<S> <C>
/s/ Benjamin Peltz /s/ Ronald J. Sidman
TREASURER PRESIDENT
</TABLE>
<TABLE>
STATE STREET BANK AND TRUST COMPANY
<S> <C>
TRANSFER AGENT
BY AND REGISTRAR
AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 2
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - Custodian under Uniform Gifts to
---------- ----------
(Cust) (Minor)
Minors Act
------------------------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, asign and transfer unto
----------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDE ZIP CODE, OF ASSIGNEE)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Shares
-------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
---------------------------------
---------------------------------------------------------
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 5
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
30 KENNEDY PLAZA (617) 951-7000 1001 PENNSYLVANIA AVENUE, N.W.
PROVIDENCE, R.I. 02903 SUITE 1200 SOUTH
(401) 455-4400 TELECOPIER: (617) 951-7050 WASHINGTON, D.C. 20004
TELECOPIER: (401) 455-4401 (202) 626-3900
TELECOPIER: (202) 626-3961
September 15, 1995
The First Years Inc.
One Kiddie Drive
Avon, MA 02322
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-1 (the "Registration Statement'), filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended for the registration of 1,380,000 shares of Common Stock, $.10 par value
(the "Shares"), of The First Years Inc., a Massachusetts corporation (the
"Company"). Of the Shares to be sold, 600,000 shares are being offered by the
Selling Stockholders (the "Stockholder Shares") and 780,000 shares are being
offered by the Company (the "Company Shares"). The Shares are to be sold
pursuant to an underwriting agreement (the "Underwriting Agreement") to be
entered into among the Company, the Selling Shareholders listed on Schedule I
to the Underwriting Agreement and A.G. Edwards & Sons, Inc. and Adams, Harkness
& Hill, Inc., as representatives of the underwriters named in Schedule II of
the Underwriting Agreement.
We have acted as counsel for the Company in connection with the issue
and sale by the Company of the Shares. For purposes of our opinion, we have
examined and relied upon such documents, records, certificates and other
instruments as we have deemed necessary.
Based upon the foregoing, we are of the opinion that the Stockholder
Shares have been duly authorized and are validly issued, fully paid and
nonassessable. We are also of the opinion that the Company Shares have been
duly authorized and, when issued and sold by the Company in accordance with the
terms of the Underwriting Agreement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as part of the
Registration Statement and to the use of our name therein and in the related
prospectus under the caption "Legal Matters."
This opinion is to be used only in connection with the offer and sale
of the Shares while the Registration Statement is in effect.
Very truly yours,
Ropes & Gray
<PAGE> 1
THE FIRST YEARS INC.
1995 RESTATED ANNUAL INCENTIVE PLAN
PLAN DESCRIPTION
EFFECTIVE DATE: JULY 1, 1995
ADOPTED: JULY 27, 1995
<PAGE> 2
THE FIRST YEARS INC.
1995 RESTATED ANNUAL INCENTIVE PLAN
PLAN OBJECTIVES
- The objectives of the plan are to:
-- Encourage salaried employees to help improve the Company's
performance;
-- Focus the attention of Senior Management (the Company's President,
Chief Executive Officer, Chairman of the Board, Vice Chairman of the
Board, Senior Vice President, and any other senior executive officer
of the Company) on the Company's operating results; and
-- Provide annual compensation which is competitive to that of
comparable organizations.
ELIGIBILITY
- Eligibility will initially include all full-time salaried employees who are
not covered by any other incentive compensation plan (e.g., Incentive Plan
for Sales Employees).
-- Any employee joining the Company during the fiscal calendar year will
be eligible to participate in the incentive plan for that year.
- The President of The First Years Inc. will be responsible for recommending
changes in eligibility to the Compensation Committee of the Board of
Directors of the Company (the "Compensation Committee") for review and
approval.
PERFORMANCE MEASURES
- Performance under the Plan will be based on Company operating results.
- The Compensation Committee will establish performance targets based on the
Company's profitability for each fiscal year for participants in the Plan
and may, in its discretion, establish a separate set of performance targets
for senior officers of the Company.
- Company performance will be measured on a fiscal calendar year basis.
However, semi-annual performance targets will be established by the
Compensation Committee as a basis for tracking performance against the
annual performance targets.
-- Semi-annual targets will be arrived at from Company projections for
that six-month period.
- 2 -
<PAGE> 3
- Company operating results will be measured by net profits before payment of
taxes and bonuses.
-- Awards are triggered under the Plan once the Company's profitability
exceeds certain profit targets established by the Compensation
Committee for a fiscal year.
-- Any significant unusual and/or non-recurring items, as determined by
Generally Accepted Accounting Principles, will be excluded from the
profit calculation in determining the Company's actual performance.
Incentive Award Potential
- Each year, based upon the recommendations of Senior Management of the
Company, the Compensation Committee will establish the annual potential
awards for non-Senior Management employees and such awards will be based on
a percentage of base salary.
- The Compensation Committee will also establish the annual potential
incentive awards for Senior Management on a discretionary basis.
INCENTIVE AWARD OF PAYMENT
- Non-senior Management employees/participants may receive advance awards of
up to thirty percent (30%) of their potential awards ("advance awards"), if
the Compensation Committee determines in its discretion that the Company is
on track in meeting its annual performance targets based on six months of
the Company's operating results.
- Senior Management shall not be allowed to receive advance awards under this
Plan.
- The total earned award will be paid by the Company to each participant by
the end of the first quarter of the subsequent fiscal year. However, an
adjustment will be made based on any advance awards previously received by
employees.
-- In the event that the Company does not meet its minimum performance
target established by the Compensation Committee for any fiscal year
period, employees will not be required to pay back to the Company any
advance awards which have been paid for the first six-months of such
fiscal year period.
- For new employees joining the Company during the plan year, the award will
be prorated based on the number of days' service with the Company.
- Award payments to employees will be treated as ordinary income.
-- Appropriate payroll deductions for taxes, Social Security, and so
forth, will be made as required.
- Should a participant voluntarily terminate employment before the conclusion
of a measurement period, any earned award will be forfeited.
- In the event of a participant's death, permanent disability (as defined in
the Company's Pension Plan and Trust) or retirement during the plan
- 3 -
<PAGE> 4
year, any earned award will be prorated to the date of the employee's
termination of full-time service.
- For any disability other than permanent and other approved leaves of
absence, any earned award will be prorated and paid to the employee.
However, the employee will not be eligible again for plan participation
until he/she resumes full-time employment with the Company.
- If the participant is terminated for reasons other than death, disability
or retirement (i.e., involuntary termination), the participant will forfeit
the unpaid award for that period.
PLAN ADMINISTRATION
- The Effective Date of the Restated Plan is July 1, 1995.
- The Plan will be administered by the Compensation Committee of the Board of
Directors.
- The Company and the Board of Directors reserve the right to amend or
terminate the Plan.
- Nothing contained in this document constitutes a contract for payment nor
does it constitute an employment contract between the Company and the
employee. The Company reserves the right to terminate an employee at any
time.
- 4 -
<PAGE> 1
EXHIBIT 10.11
[WALT DISNEY COMPANY LOGO]
March 28, 1994
Kiddie Products, Inc.
dba The First Years
One Kiddie Drive
Avon, MA 02322-0382
Re: WINNIE THE POOH
Dear Sirs/Mesdames:
We hereby agree with you as follows:
1. MEANING OF TERMS As used in this Agreement:
A. "LICENSED MATERIAL" means the representations, movements and
personalities of the following:
WINNIE THE POOH, CHRISTOPHER ROBIN, EEYORE, KANGA, ROO,
RABBIT, PIGLET, OWL, GOPHER, AND TIGGER, ALL IN THE STYLE AS
DESIGNED BY US.
B. "TRADEMARKS" means "WALT DISNEY," "DISNEY", and the names for and
representations of Licensed Material included in Subparagraph 1.A.
above.
C. "ARTICLES" means the items set forth in Schedule A, which is attached
hereto and incorporated herein by reference, on or in connection with
which the Licensed Material and/or the Trademarks are reproduced or
used.
D. "MINIMUM PER ARTICLE ROYALTY" means for each Article identified herein
which is sold the sum indicated herein:
none.
E. "PRINCIPAL TERM" means the period commencing March 28, 1994, and ending
December 31, 1996.
<PAGE> 2
Page 2
Kiddie Products, Inc.
Winnie The Pooh
March 28, 1994
F. "TERRITORY" means the United States, United States PX's wherever
located, and United States territories and possessions, excluding
Puerto Rico. However, if sales are made to chain stores in the United
States which have stores in Puerto Rico, such chain stores may supply
Articles to such stores in Puerto Rico.
G. "ROYALTIES" means a copyright royalty in an amount equal to the greater
of:
(1)(a) Ten Percent (10%) of your Net Invoiced Billings to customers
for Articles sold F.O.B. a location in the Territory ("F.O.B.
In Sales") or, for Articles sold to a customer in the Territory
F.O.B. a location outside the Territory ("F.O.B. Out Sales"),
Fourteen Percent (14%) of your Net Invoiced Billings for
such Articles; or
(b) The Minimum Per Article Royalty, if any has been specified in
Subparagraph 1.D. above.
(2) The sums which we are paid as Royalties on any sales to
customers affiliated with you shall be no less than the sums
paid on sales to customers not affiliated with you, and if such
affiliated customer is a reseller of the Articles, the sale to
such customer shall not be counted as a sale for Royalty
calculation purposes; in such case, the relevant sale for
Royalty calculation purposes shall be that of such affiliated
customer. For the purposes of this Agreement, "affiliate"
shall mean your parent or subsidiary or any party in which a
controlling interest is held by the entity or persons who hold
a controlling interest in you.
(3) All sales of Articles shipped to a customer outside the
Territory pursuant to a distribution permission shall bear a
Royalty at the rate for F.O.B. Out Sales.
(4) Royalties payable shall be not less for each Article sold than
the Minimum per Article Royalty, if such a Royalty has been
specified in Subparagraph 1.D. No Royalties are payable on the
mere manufacture of Articles.
<PAGE> 3
Page 3
Kiddie Products, Inc.
Winnie The Pooh
March 28, 1994
(5) The full Royalty percentage shall be payable on close-out or
other deep discount sales of Articles, including sales to
employees, except that no Royalty shall be payable on Articles
sold with our written permission at or below your acquisition
cost or your cost of manufacture, excluding overheads.
H. "NET INVOICED BILLINGS" shall mean the following:
(1) actual invoiced billings (i.e., sales quantity multiplied by
your selling price) for Articles sold and all other receivables
of any kind whatsoever, related in any way to the sale or
purchase of the Articles, whether received by you or any parent,
subsidiary or affiliate of yours, except as provided in
Subparagraphs 1.G.(2) and 1.H.(2), less "Allowable Deductions"
as hereinafter defined;
(2) the following are not part of Net Invoiced Billings; invoiced
charges for transportation of Articles within the Territory
which are separately identified on the sales invoice, and taxes
on the sale.
I. "ALLOWABLE DEDUCTIONS" shall mean the following:
(1) volume discounts and other discounts separately identified on
your sales invoices as being applicable to sales of Articles
licensed hereunder or to combined sales of such Articles and
other products not licensed by us, and post-invoice credits
granted and properly documented as applicable to sales of
Articles licensed hereunder or to combined sales of such
Articles and other products not licensed by us; in the event
that a post-invoice credit is issued for combined sales of
Articles and other products not licensed by us, and you cannot
document the portion of the credit applicable to the Articles,
you may apply only a pro rata portion of the credit to the
Articles;
(2) the following are not Allowable Deductions, whether granted on
sales invoices or as post-invoice credits: cash discounts
granted as terms of payment; early payment discounts; allowances
or discounts relating to advertising; mark down
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allowances; costs incurred in manufacturing, importing, selling
or advertising Articles; freight costs incorporated in the
selling price; and uncollectible accounts.
J. "ROYALTY PAYMENT PERIOD" means each calendar quarterly period during
the Principal Term and during any other term.
K. "ADVANCE" means the following sum(s) payable by the following date(s)
as an advance on Royalties to accrue in the following period(s):
$112,500.00 payable upon your signing of this Agreement
for the period commencing March 28, 1994, and ending
December 31, 1996.
L. "GUARANTEE" means the following sums(s) which you guarantee to pay as
minimum Royalties on your cumulative sales in the following period(s):
$625,000.00 for the period commencing March 28, 1994,
and ending December 31, 1996.
M. "SAMPLES" means six (6) samples of each stock keeping unit ("SKU") of
each Article, from the first production run of each supplier of each
SKU of each Article.
N. "PROMOTION COMMITMENT" means the following sum(s) which you agree to
spend in the following way(s):
none.
O. "MARKETING DATE" means the following date(s) by which the following
Article(s) shall be available for purchase by the public at retail
outlets:
By March 1, 1995, but no earlier than January 1, 1995.
2. RIGHTS GRANTED
A. In consideration for your promise to pay and your payment of all
Royalties, Advances and Guarantees required hereunder, we grant
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you the non-exclusive right, during the Principal Term and any
extension thereof, and only within the Territory, to reproduce the
Licensed Material only on or in connection with the Articles, to use
the Trademarks, but only such Trademarks and uses thereof as may be
approved when the Articles are approved and only on or in connection
with the Articles, and to manufacture, distribute for sale and sell
(other than by direct marketing methods, including but not limited to
direct mail and door-to-door solicitation) the Articles. You will sell
the Articles only to retailers for resale to the public in the
Territory or to wholesalers for resale to such retailers; provided,
however, that the Articles listed on Schedule A as Article numbers 12,
13, 14, 15, 16, 17 and 18 must be carded, and sold only to infant
accessory departments and juvenile product departments of stores (or to
wholesalers for resale to such departments) and to such other accounts
or departments as we may from time to time approve in advance in
writing. If there is a question as to whether a particular department
is an "infant accessory department" or "juvenile product department",
our determination notified to you in writing shall be binding.
B. Unless we consent in writing, you shall not sell or otherwise provide
Articles for use as premiums (including those in purchase-with-purchase
promotions), promotions, give-aways, fund-raisers, or entries in
sweepstakes, or to customers for resale by direct mail or other direct
marketing methods, including, without limitation, home shopping
television programs, or to customers for inclusion in another product,
unless such product has been licensed by us. However, nothing
contained herein shall preclude you from soliciting orders by mail from
wholesalers or retail outlets specified in Subparagraph 2.A. above, nor
from selling to such retailers which sell predominantly at retail, but
which include the Articles in their mail order catalogs or otherwise
sell Articles by direct marketing methods as well as at retail. If you
wish to sell the Articles to other customers for resale through mail
order catalogs, you must obtain our prior written consent in each
instance.
C. Unless we consent in writing, you shall not give away or donate
Articles, except minor quantities of samples, not for onward
distribution, to your accounts or other persons for the purpose of
promoting Article sales.
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D. Nothing contained herein shall preclude you from selling Articles to
us or to any subsidiary of ours, or to your or our employees, subject
to the payment to us of Royalties on such sales.
E. We further grant you the right to reproduce the Licensed Material and
to use the Trademarks, only within the Territory, on containers,
packaging and display material for the Articles, and in advertising
for the Articles.
F. Nothing contained in the Agreement shall be deemed to imply any
restriction on your freedom and that of your customers to sell the
Articles at such prices as you or they shall determine.
G. You recognize and acknowledge the vital importance to us of the
characters and other proprietary material we own and create, and the
association of the Disney name with them. In order to prevent the
denigration of our products and the value of their association with
the Disney name, and in order to ensure the dedication of your best
efforts to preserve and maintain that value, you agree that, during
the Principal Term and any extension hereof, you will not manufacture
or distribute any merchandise embodying or bearing any artwork or
other representation which we determine, in our sole discretion, is
confusingly similar to our Disney characters or other proprietary
material.
3. ADVANCE
A. You agree to pay the Advance, which shall be on account of Royalties
to accrue during the Principal Term only, and only with respect to
sales in the Territory; provided, however, that if any part of the
Advance is specified hereinabove as applying to any period less than
the Principal Term, such part shall be on account of Royalties to
accrue during such lesser period only. If said Royalties should be
less than the Advance, no part of the Advance shall be repayable.
B. Royalties accruing during any sell-off period or extension of the
Principal Term shall not be offset against the Advance unless
otherwise agreed in writing. Royalties accruing during any extension
of the Principal Term or any other term shall be offset only against
an advance paid with respect to such extended term.
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C. In no event shall Royalties accruing by reason of any sales to us or a
subsidiary of ours or by reason of sales outside the Territory
pursuant to a distribution permission be offset against the Advance or
any subsequent advance.
4. GUARANTEE
A. You shall, with your statement for each Royalty Payment Period ending
on a date indicated in Subparagraph 1.L. hereof defining "Guarantee,"
pay us the amount, if any, by which cumulative Royalties paid with
respect to sales in the Territory during any period or periods covered
by the Guarantee provision, or any Guarantee provision contained in
any agreement extending the term hereof, fall short of the amount of
the Guarantee for such period.
B. Advances applicable to Royalties due on sales in the period to which
the Guarantee relates apply towards meeting the Guarantee.
C. In no event shall Royalties paid with respect to sales to us or to any
subsidiary or affiliate of ours, or with respect to sales outside the
Territory pursuant to a distribution permission, apply towards the
meeting of the Guarantee or any subsequent guarantee.
5. PRE-PRODUCTION APPROVALS
A. As early as possible, and in any case before commercial production
of any Article, you shall submit to us for our review and written
approval (to utilize such materials in preparing a pre-production
sample) all preliminary and proposed final artwork and
three-dimensional models which are to appear on or in the Article.
Thereafter, you shall submit to us for our written approval a
pre-production sample of each Article. We shall endeavor to respond
to such requests within a reasonable time, but such approvals should
be sought as early as possible in case of delays. In addition to
the foregoing, as early as possible, and in any case no later than
sixty (60) days following written conceptual approval, you shall
supply to us for our use for internal purposes, a mock-up, prototype
or pre-production sample of each style of each Article on or in
connection with which the Licensed Material is used.
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B. Approval or disapproval shall lie solely in our discretion, and any
Article not so approved in writing shall be deemed unlicensed and
shall not be manufactured or sold. If any unapproved Article is being
sold, we may, together with other remedies available to us, including
but not limited to, immediate termination of this Agreement, by
written notice require such Article to be immediately withdrawn from
the market. Any modification of an Article, including, but not
limited to, change of materials, color, design or size of the
representation of Licensed Material must be submitted in advance for
our written approval as if it were a new Article. Approval of an
Article which uses particular artwork does not imply approval of such
artwork for use with a different Article. The fact that artwork has
been taken from a Disney publication or a previously approved Article
does not mean that its use will necessarily be approved in connection
with an Article licensed hereunder.
C. If you submit for approval artwork from an article or book
manufactured or published by another licensee of ours or of any
subsidiary of ours, you must advise us in writing of the source of
such artwork. If you fail to do so, any approval which we may give
for use by you of such artwork may be withdrawn by giving you written
notice thereof, and you may be required by us not to sell Articles
using such artwork.
D. Notwithstanding the above, as we rely primarily on you for the
consistent quality and safety of the Articles and their compliance
with applicable laws and standards, we will not unreasonably object to
any change in the design of an Article or in the materials used in the
manufacture of the Article or in the process of manufacturing the
Articles which you advise us in writing is intended to make the
Article safer or more durable.
E. If we have supplied you with forms for use in applying for approval of
artwork, models, pre-production and production samples of Articles,
you shall use such forms when submitting anything for our approval.
6. APPROVAL OF PRODUCTION SAMPLES
A. Before shipping an Article to any customer, you agree to furnish to
us, from the first production run of each supplier of each of the
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Articles, for our approval of all aspects of the Article in question,
the number of Samples with packaging which is hereinabove set forth,
which shall conform to the approved artwork, three-dimensional models
and pre-production sample. Approval or disapproval of the artwork as
it appears on the Article, as well as of the quality of the Article,
shall lie in our sole discretion and may, among other things, be based
on unacceptable quality of the artwork or of the Article as
manufactured. Any Article not so approved shall be deemed unlicensed,
shall not be sold and, unless otherwise agreed by us in writing,
shall be destroyed. Such destruction shall be attested to in a
certificate signed by one of your officers. Production samples of
Articles for which we have approved a pre-production sample shall be
deemed approved, unless within 20 days of our receipt of such
production sample we notify you to the contrary.
B. You agree to make available at no charge such additional samples of
each Article as we may from time to time reasonably request for the
purpose of comparison with earlier samples, or to test for compliance
with applicable laws, regulations and standards, and to permit us upon
reasonable request to inspect your manufacturing operations and
testing records (and those of your suppliers) for the Articles.
C. It is specifically understood that we may disapprove an Article or a
production run of an Article because the quality is unacceptable to
us, and accordingly, we recommend that you submit production samples
to us for approval before committing to a large original production
run or to purchase a large shipment from a new supplier.
D. No modification of an approved production sample shall be made without
our further prior written approval. Articles being sold must conform
in all respects to the approved production sample. It is understood
that if in our reasonable judgement the quality of an Article
originally approved has deteriorated in later production runs, or if
the Article has otherwise been altered, we may, in addition to other
remedies available to us, by written notice require such Article to be
immediately withdrawn from the market.
E. The rights granted hereunder do no permit the sale of "seconds" or
"irregulars". All Articles not meeting the standard of approved
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samples shall be destroyed or all Licensed Material, New Materials and
Trademarks shall be removed or obliterated therefrom.
F. Notwithstanding the above, as we rely primarily on you for the
consistent quality and safety of the Articles and their compliance
with applicable laws and standards, we will not unreasonably object to
any change in the design of an Article or in the materials used in the
manufacture of the Article or in the process of manufacturing the
Articles which you advise us in writing is intended to make the
Article safer or more durable.
G. We shall have the right, by written notice to you, to require
modification of any Article approved by us under any previous
agreement between us. Likewise, if the Principal Term of this
Agreement is extended by mutual agreement, we shall have the right, by
written notice to you, to require modification of any Article approved
by us under this Agreement. It is understood that there is no
obligation upon either party to extend the Agreement.
H. If we notify you of a required modification under Subparagraph 6.G.
with respect to a particular Article, such notification shall advise
you of the nature of the changes required, and you shall not accept
any order for any such Article until the Article has been resubmitted
to us with such changes and you have received our written approval of
the Article as modified.
7. APPROVAL OF PACKAGING, PROMOTIONAL MATERIAL, AND ADVERTISING
A. All containers, packaging, display material, promotional material,
catalogs, and all advertising, including but not limited to,
television advertising and press releases, for Articles must be
submitted to us and receive our written approval before use. To avoid
unnecessary expense if changes are required, our approval thereof
should be procured when such is still in rough or storyboard format.
We shall endeavor to respond to requests for approval within a
reasonable time. Approval or disapproval shall lie in our sole
discretion, and the use of unapproved containers, packaging, display
material, promotional material, catalogs or advertising is
prohibited. Whenever you shall prepare catalog sheets or other
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printed matter containing illustrations of Articles, you will furnish
to us five (5) copies thereof when they are published.
B. If we have supplied you with forms for use in applying for approval of
artwork, models, pre-production and production samples of Articles,
you shall use such forms when submitting anything for our approval.
8. ARTWORK
You shall pay us, within 30 days of receiving an invoice therefor, for
artwork done at your request by us or third parties under contract to us in
the development and creation of Articles, display, packaging or promotional
material (including any artwork which in our opinion is necessary to modify
artwork initially prepared by you and submitted to us for approval) at our
then prevailing commercial art rates. Estimates of artwork charges are
available upon request. While you are not obligated to utilize the
services of our Art Department, you are encouraged to do so in order to
minimize delays which may occur if outside artists do renditions of
Licensed Material which we cannot approve and to maximize the
attractiveness of the Articles.
9. PRINT, RADIO OR TV ADVERTISING
You will obtain all approvals necessary in connection with print, radio or
television advertising, if any, which we may authorize. You represent and
warrant that all advertising and promotional materials shall comply with
all applicable laws and regulations. Our approval of copy or storyboards
for such advertising will not imply a representation or belief by us that
such copy or storyboards are sufficient to meet any applicable code,
standard, or other obligation. In the event we approve the use of film
clips of the motion picture from which the Licensed Material comes, for use
in a television commercial, you shall be responsible for any re-use fees
which may be applicable, including SAG payments for talent. No
reproduction of the film clip footage shall be made except for inclusion,
as approved by us, in such commercial and there shall be no modifications
of the film clip footage. All film clip footage shall be returned to us
immediately after its inclusion in such commercial. We shall have the
right to prohibit you from advertising the Articles by means of television
and/or billboards. Such right shall be exercised within our sole
discretion, including without limitation for reasons of overexposure of
the Licensed Material.
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10. LICENSEE NAME AND ADDRESS ON ARTICLES
A. Your name, trade name (or a trademark of yours which you have advised
us in writing that you are using) and your address (at least city and
state) will appear on permanently affixed labeling on each Article or,
if the Article is sold to the public in packaging or a container,
printed on such packaging or a container so that the public can
identify the supplier of the Article. On soft goods "permanently
affixed" shall mean sewn on. RN numbers do not constitute a
sufficient label under this paragraph.
B. You shall advise us in writing of all trade names or trademarks you
wish to use on Articles being sold under this license. You may sell
the Articles only under mutually agreed upon trade names or
trademarks.
11. COMPLIANCE WITH APPROVED SAMPLES AND APPLICABLE LAWS AND STANDARDS
Each Article and component thereof distributed hereunder shall be of good
quality and free of defect in design, materials and workmanship, and shall
comply with all applicable laws, regulations and voluntary industry
standards and such specifications, if any, as may have been specified in
this Agreement, and shall conform to the Sample thereof approved by us.
Both before and after you put Articles on the market, you shall follow
reasonable and proper procedures for testing that Articles comply with such
laws, regulations, and standards, and shall, upon reasonable notice, permit
our designees to inspect testing, manufacturing and quality control records
and procedures and to test the Articles for compliance. You shall also
give due consideration to any recommendations of ours that Articles exceed
the requirements of applicable laws, regulations and standards. Articles
not complying with applicable laws, regulations and voluntary standards
shall be deemed unapproved, even if previously approved by us, and shall
not be shipped unless and until they have been brought into full compliance
therewith.
12. DISNEY OWNERSHIP OF ALL RIGHTS IN LICENSED MATERIAL
You acknowledge that the copyrights and all other proprietary rights in and
to Licensed Material are exclusively owned by and reserved to us.
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You shall neither acquire nor assert copyright ownership or any other
proprietary rights in Licensed Material or in any derivation, adaptation,
variation or name thereof. Without limiting the foregoing, you hereby
assign to us all your worldwide right, title and interest in the Licensed
Material and in any material objects (excluding the Articles themselves and
displays, catalogs and promotional material) consisting of or incorporating
drawings, paintings, animation cels, or sculptures, or other derivations,
adaptations, compilations, collective works, variations or names of
Licensed Material (herein called "New Materials") heretofore or hereafter
created by or for you or any parent, subsidiary or affiliate of yours,
which embody Licensed Material. If any third party makes or has made any
contribution to the creation of New Materials, you agree to obtain from
such a party a full assignment of rights so that the foregoing assignment
by you shall vest full rights to New Materials in us.
13. COPYRIGHT NOTICE
As a condition to the grant of rights hereunder, each Article and any other
matter containing Licensed Material or New Materials shall bear a properly
located permanently affixed copyright notice in our name (e.g.
"(C)Disney"), or such other notice as we may notify to you in writing.
You will comply with such instructions as to form, location and content
of the notice as we may give from time to time. You will not, without
our prior written consent, affix to any Article or any other matter
containing Licensed Material or New Materials a copyright notice in
any other name. If through inadvertence or otherwise a copyright notice
on any Article or other such matter should appear in your name or the
name of a third party, you hereby agree to assign to us the copyright
represented by any such copyright notice in your name and, upon request,
cause the execution and delivery to us of whatever documents are
necessary to convey to us that copyright represented by any such
copyright notice. If by inadvertence a proper copyright notice is
omitted from any Article or other matter containing Licensed Material
or New Materials, you agree at your expense to use all reasonable
efforts to correct the omission on all such Articles or other matter
in process of manufacture or in distribution. You agree to advise
us promptly and in writing of the steps being taken to correct any such
omission and to make the corrections on existing Articles which can be
located.
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14. NON-ASSOCIATION OF OTHER FANCIFUL CHARACTERS WITH LICENSED MATERIAL
To preserve our identification with our characters and to avoid confusion
of the public, you agree not to associate other characters (other than such
as constitute a trademark of yours) or licensed properties with the
Licensed Material, New Materials or the Trademarks either on the Articles
or in their packaging, or, without our written permission, on advertising,
promotional or display materials.
15. ACTIVE MARKETING OF ARTICLES
You agree to manufacture (or have manufactured for you) and offer for sale
all the Articles and to exercise the rights granted herein. You agree that
by the Marketing Date applicable to a particular Article or, in the absence
of such a date being specified in Subparagraph 1.O., by six (6) months from
the commencement of the Principal Term, shipments to customers of such
Article will have taken place in sufficient time that such Article shall be
available for purchase by the public at the retail outlets authorized
pursuant to Subparagraph 2.A. Any Article as to which such sales have not
the public or which are not then and thereafter available for purchase by
the public may be withdrawn from the list of Articles licensed in this
Agreement without obligation to you other than to give you written notice
thereof.
16. PROMOTION COMMITMENT
You agree to carry out the Promotion Commitment, if any, as defined in
Subparagraph 1.N.
17. TRADEMARK RIGHTS AND OBLIGATIONS
A. All uses of the Trademarks by you hereunder shall inure to our
benefit. You acknowledge that we are the exclusive owner of all the
Trademarks, and of any trademark incorporating all or any part of a
Trademark or any Licensed Material, and the trademark rights created
by such uses. Without limiting the foregoing, you hereby assign to us
all the Trademarks, and any trademark incorporating all or any part of
a Trademark or any Licensed Material, and the trademark rights created
by such uses, together with the goodwill attaching to that part of the
business in connection with which such
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Trademarks or trademarks are used. You agree to execute and deliver
to us such documents as we require to register you as a Registered
User or Permitted User of the Trademarks or such trademarks and to
follow our instructions for proper use thereof in order that
protection and/or registrations for the Trademarks and such trademarks
may be obtained or maintained.
B. You agree not to use any Licensed Material, New Materials or
Trademarks, or any trademark incorporating all or any part of a
Trademark or of any Licensed Material, on any business sign, business
cards, stationery or forms (except as licensed herein), or to use any
Licensed Material, New Materials or Trademark as the name of your
business or any division thereof, unless otherwise agreed by us in
writing.
18. REGISTRATIONS
Except with our written consent, neither you, your parent, nor any
subsidiary or affiliate of yours will register or attempt in any country to
register copyrights in, or to register as a trademark, service mark, design
patent or industrial design, or business designation, any of the Licensed
Material, New Materials, Trademarks or derivations or adaptations thereof,
or any word, symbol or design which is so similar thereto as to suggest
association with or sponsorship by us or any subsidiary of ours. In the
event of breach of the foregoing, you agree, at your expense and at our
request, immediately to terminate the unauthorized registration activity
and promptly to execute and deliver, or cause to be delivered, to us such
assignments and other documents as we may require to transfer to us all
rights to the registrations, patents or applications involved.
19. UNLICENSED USE OF LICENSED MATERIALS
A. You agree that you will not use the Licensed Material, New Materials,
or the Trademarks, or any other material the copyright to which is
owned by us in any way other than as herein authorized (or as is
authorized in any other written contract in effect between us). In
addition to any other remedy we may have, you agree that the profits
from any use thereof on products other than the Articles (unless
authorized by us in writing), and all profits from the use of any
other copyrighted material of ours without written authorization,
shall be payable to us.
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B. You agree to give us prompt written notice of any unlicensed use by
third parties of Licensed Material, New Materials or Trademarks, and
that you will not, without our written consent, bring or cause to be
brought any criminal prosecution, lawsuit or administrative action for
infringement, interference with or violation of any rights to Licensed
Material, New Materials or Trademarks. Because of the need for and
the high costs of an effective anti-piracy enforcement program, you
agree to cooperate with us, and, if necessary, to be named by us as a
sole complainant or co-complainant in any action against an infringer
of the Licensed Material, New Materials or Trademarks and,
notwithstanding any right of yours to recover same, legal or
otherwise, you agree to pay to us, and hereby waive all claims to, all
damages or other monetary relief recovered in such action by reason of
a judgment or settlement (other than for reasonable expenses incurred
at our request, including reasonable attorney's fees if we have
requested you to retain separate counsel), whether or not such
damages or other monetary relief, or any part thereof, represent or
are intended to represent injury sustained by you as a licensee
hereunder.
20. STATEMENTS AND PAYMENTS OF ROYALTIES
A. You agree to furnish to us by the 30th day after each Royalty Payment
Period a full and accurate statement showing by Article, with stock
number and item description, the quantities, Net Invoiced Billings and
applicable Royalty rate(s) of Articles invoiced during the preceding
Royalty Payment Period, and the quantities and invoice value of
Articles returned for credit or refund in such period. At the same
time you will pay us all Royalties due on billings shown by such
statement. To the extent that any Royalties are not paid, you
authorize us to offset Royalties due against any sums which we or any
subsidiary of ours may owe to you or any parent or subsidiary or
affiliate of yours. No deduction or withholding from Royalties
payable to us shall be made by reason of any tax. Any applicable tax
on the manufacture, distribution and sale of the Articles shall be
borne by you.
B. If we at any time so request, your statements shall be made on
statement forms which we shall provide, and you will fully comply with
the instructions supplied by us for completing such forms. Except
as otherwise agreed in writing, such statements shall
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separately reflect the sales and applicable Royalties for each
individual Article. Apparel Articles shall be reported separately by
size range (e.g., "boys'", "girls'", "men's", etc.). Your statements
shall identify for each Article the character or other Licensed
Material used on each such Article or the motion picture or television
series from which such character derived. However, Articles which
differ only in that different characters or scenes appear on them may
be reported as a single Article if the characters or scenes used on
such Articles are from the same motion picture or television series.
C. Your statement shall with respect to all Articles report separately:
(1) F.O.B. In Sales;
(2) F.O.B. Out Sales;
(3) sales of Articles outside the Territory pursuant to a
distribution permission (indicating the country involved);
(4) sales of Articles to any licensee of ours for the Articles;
(5) sales of Articles to us or any subsidiary of ours;
(6) sales of Articles to your or our employees;
(7) sales of Articles under any brand or program identified in
Subparagraph 1.B. hereinabove.
D. Sales of items licensed under contracts with us other than this
Agreement shall not be reported on the same statement as sales of
Articles under this Agreement.
E. Your statements and payments shall be delivered to The Walt Disney
Company, P.O. Box 101947, Atlanta, Georgia 30392. However, Advances
should be mailed directly to the Contract Administrator at 500 South
Buena Vista Street, Burbank, California 91521-6880. A copy of each
statement must be sent to us at 500 South Buena Vista Street, Burbank,
California 91521-6880, to the attention of the Contract Administrator,
Consumer Products Division.
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21. ARTICLES RETURNED FOR CREDIT OR REFUND
Royalties reported on sales of Articles which have been returned to you for
credit or refund and on which a refund has been made or credit memo issued
may be credited against Royalties due. The credit shall be taken in the
Royalty Payment Period in which the refund is given or credit memo issued.
Unused credits may be carried forward, but in no event shall you be
entitled to a refund of Royalties.
22. INTEREST
Royalties or any other payments due to us hereunder which are received
after the due date shall bear interest at the rate of 10% per annum from
the due date (or the maximum permissible by law if less than 10%).
23. AUDITS AND MAINTAINING RECORDS
You agree to keep accurate records of all transactions relating to this
Agreement and any prior agreement with us, including, without limitation,
shipments to you of Articles and components thereof, inventory records,
records of sales and shipments by you, and records of returns, and to
preserve such records for the lesser of seven (7) years or two (2) years
after the expiration or termination of this Agreement. We, or our
representatives, shall have the right from time to time, during your normal
business hours, but only for the purpose of confirming your performance
hereunder, to examine and make extracts from all such records, including
the general ledger, invoices and any other records which we reasonably deem
appropriate to verify the accuracy of your statements or your performance
hereunder, including records of your parent, subsidiary and affiliated
companies, if they are involved in activities which are the subject of the
Agreement. In particular, your invoices shall identify the Articles
separately from goods which are not licensed hereunder. If in an audit of
your records it is determined that there is a short fall of five percent
(5%) or more in Royalties reported for any Royalty Payment Period, you
shall upon request from us reimburse us for the full out-of-pocket costs of
the audit, including the costs of employee auditors calculated at $60 per
hour per person for travel time during normal working hours and actual
working time.
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24. MANUFACTURE OF ARTICLES BY THIRD PARTY MANUFACTURERS
A. If you at any time desire to have Articles or components thereof
containing Licensed Material manufactured by a third party, you must,
as a condition to the continuation of this Agreement, notify us of the
name and address of such manufacturer and the Articles or components
involved and obtain our prior written permission to do so. The
granting of said permission, if we are prepared to grant the same,
will be conditioned upon:
(1) In the case of Manufacture outside the Territory
(a) your signing a consent agreement in a form which we will
furnish to you;
(b) your causing each such manufacturer and any
sub-manufacturer to sign an agreement in a form which we
will also furnish to you; and
(c) our receipt of such agreements properly signed; and
(2) In the case of Manufacture in the Territory
(a) if we so request, your causing each such manufacturer to
sign an agreement in a form which we will furnish to
you; and
(b) our receipt of such agreement properly signed.
(SAMPLES OF SAID AGREEMENT FORMS ARE AVAILABLE ON REQUEST)
B. We will not normally require agreements from suppliers of yours who
are manufacturing in the Territory, but your purchase of Articles
from a third party manufacturer without such agreements as are
required hereunder being signed and delivered to us shall be a
violation of this Agreement. It is not our policy to reveal the
names of your suppliers to third parties or to any division of ours
involved with buying products, except as may be necessary to enforce
our contract rights or protect our trademarks and copyrights.
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C. If any such manufacturer utilizes Licensed Material or Trademarks for
any unauthorized purpose, you shall cooperate fully in bringing such
utilization to an immediate halt. If, by reason of your not having
supplied the above mentioned agreements to us or not having given us
the name of any supplier, we make any representation or take any
action and are thereby subjected to any penalty or expense, you will
fully compensate us for any cost or loss we sustain.
25. INDEMNITY
A. You shall indemnify us during and after the term hereof against all
claims, liabilities (including settlements entered into in good faith
with your consent, not to be unreasonably withheld) and expenses
(including reasonable attorneys' fees) arising out of your activities
hereunder, or out of any defect (whether obvious or hidden and whether
or not present in any sample approved by us) in an Article, or arising
from personal injury or any infringement of any rights of any other
person by the manufacture, sale, possession or use of Articles, or
their failure to comply with applicable laws, regulations and
standards. The parties indemnified hereunder shall include The Walt
Disney Company and its subsidiaries, and their officers, directors,
employees and agents. The indemnity shall not apply to any claim or
liability relating to any infringement of the copyright of a third
party caused by your utilization of the Licensed Material and the
Trademarks in accordance with the provisions hereof.
B. We shall indemnify you during and after the term hereof against all
claims, liabilities (including settlements entered into in good faith
with our consent, not to be unreasonably withheld) and expenses
(including reasonable attorneys' fees) arising out of any claim that
your use of any representation of the Licensed Material or the
Trademarks approved in accordance with the provisions of this
Agreement infringes the copyright of any third party or infringes any
right granted by us to such third party. You shall not, however, be
entitled to recover for lost profits.
C. Additionally, if by reason of any claims referred to in Subparagraph
25.B., you are precluded from selling any stock of Articles or
utilizing any materials in your possession or which come into your
possession by reason of any required recall, we shall be obligated
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to purchase such Articles and materials from you at their
out-of-pocket cost to you, excluding overheads, but we shall have no
other responsibility or liability with respect to such Articles or
materials.
D. No warranty or indemnity is given with respect to any liability or
expense arising from any claim that use of the Licensed Material or
the Trademarks on or in connection with the Articles hereunder or any
packaging, advertising or promotional material infringes on any
trademark right of any third party or otherwise constitutes unfair
competition by reason of any prior rights acquired by such third party
other than rights acquired from us. It is expressly agreed that it is
your responsibility to carry out such investigations as you may deem
appropriate to establish that Articles, packaging, promotional and
advertising material which are manufactured or created hereunder,
including any use made of the Licensed Material and the Trademarks
therewith, do not infringe such right of any third party, and we shall
not be liable to you if such infringement occurs.
26. INSURANCE
You shall maintain in full force and effect at all times while this
Agreement is in effect and for three years thereafter comprehensive general
and commercial liability insurance, including broad form contractual and
products liability coverage waiving subrogation with combined single limits
of no less than two million dollars (US $2,000,000.00) and naming as
additional insured those indemnified in Paragraph 25 hereof. You shall
deliver to us a certificate or certificates of insurance evidencing
satisfactory coverage and indicating that we shall receive written notice
of cancellation, non-renewal or of any material change in coverage at
least 30 days prior to the effective date thereof. Your insurance shall be
carried by an insurer with a BEST rating of B + V or above. Compliance
herewith in no way limits your indemnity obligations, except to the extent
that your insurance company actually pays us amounts which you would
otherwise pay us.
27. WITHDRAWAL OF LICENSED MATERIAL
You agree that we may, without obligation to you other than to give you
written notice thereof, withdraw from the scope of this Agreement any
Licensed Material which by the Marketing Date or, in the absence of such
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a date being specified in Subparagraph 1.O., by six (6) months from the
commencement of the Principal Term, is not being used on or in connection
with the Articles. We may also withdraw any Licensed Material or Articles
the use or sale of which under this Agreement would infringe or reasonably
be claimed to infringe the rights of a third party, other than rights
granted by us, in which case our obligations to you shall be limited to the
purchase at cost of Articles and other materials utilizing such withdrawn
Licensed Material which cannot be sold or used.
28. TERMINATION
Without prejudice to any other right or remedy available to us:
A. If you fail to manufacture, sell and distribute the Articles, or to
furnish statements and pay Royalties as herein provided, or if you
otherwise breach the terms of this Agreement, and if any such failure
is not corrected within fifteen (15) days after we send you written
notice thereof, we shall have the right at any time to terminate this
Agreement by giving you written notice thereof.
B. We shall have the right at any time to terminate this Agreement by
giving you written notice thereof:
(1) If you deliver to any customer without our written
authorization merchandise containing representations of
Licensed Material or other material the copyright or other
proprietary rights to which are owned by us other than Articles
listed herein and approved in accordance with the provisions
hereof;
(2) If you deliver Articles outside the Territory or knowingly sell
Articles to a third party for delivery outside the Territory,
unless pursuant to a written distribution permission or
separate written license agreement with us or any subsidiary
of ours;
(3) If a breach occurs which is of the same nature, and which
violates the same provision of this Agreement, as a breach of
which we have previously given you written notice;
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(4) If you breach any material term of any other license agreement
between us, and we terminate such agreement for cause;
(5) If you shall make any assignment for the benefit of creditors,
or file a petition in bankruptcy, or are adjudged bankrupt, or
become insolvent, or are placed in the hands of a receiver, or
if the equivalent of any such proceedings or acts occurs,
though known by some other name or term; and/or
(6) If you are not permitted or are unable to operate your business
in the usual manner, or are not permitted or are unable to
provide us with assurance satisfactory to us that you will so
operate your business, as debtor in possession or its
equivalent, or are not permitted, or are unable to otherwise
meet your obligations under this Agreement or to provide us
with assurance satisfactory to us that you will meet such
obligations.
29. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION
Upon the expiration or termination of this Agreement, all rights herein
granted to you shall revert to us, and we shall be entitled to retain all
Royalties and other things of value paid or delivered to us. You agree
that from the expiration or termination of this Agreement you shall neither
manufacture nor have manufactured for you any Articles, that you will
deliver to us any and all artwork (including animation cels and drawings)
which may have been used or created by you in connection with this
Agreement, that you will at our option either sell to us at cost or
destroy or efface any molds, plates and other items used to reproduce
Licensed Material, New Materials, or Trademarks, and that, subject as
hereinafter provided, you will cease selling Articles. If you have any
unsold Articles in inventory on the expiration or termination date, you
shall provide us with a full statement of the kinds and numbers of such
unsold Articles and shall thereupon, but only if such statement has been
provided to us and if you have fully complied with the terms of this
Agreement including the payment of all Royalties due and the Guarantee,
have the right for a limited period of 90 days from such expiration or
earlier termination date to sell off and deliver such Articles. You shall
furnish us statements covering such sales and pay us Royalties in respect
of such sales. Such Royalties shall not be applied against the Advance or
towards meeting
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the Guarantee. Except as otherwise agreed by us in writing, any inventory
of Articles in your possession or control after the expiration or
termination hereof and of any sell-off period granted hereunder shall be
destroyed, or all Licensed Material, New Materials and Trademarks removed
or obliterated therefrom.
30. WAIVERS
A waiver by either of us at any time of a breach of any provision of this
Agreement shall not apply to any breach of any other provision of this
Agreement, or imply that a breach of the same provision at any other time
has been or will be waived, or that this Agreement has been in any way
amended, nor shall any failure by either party to object to conduct of the
other be deemed to waive such party's right to claim that a repetition of
such conduct is a breach hereof.
31. PURCHASE OF ARTICLES BY US
If we wish to purchase Articles, you agree to sell such Articles to us or
any subsidiary of ours at as low a price as you charge for similar
quantities sold to your regular customers and to pay us Royalties on any
such sales.
32. NON-ASSIGNABILITY
A. You shall not voluntarily or by operation of law assign, sub-license,
transfer, encumber or otherwise dispose of all or any part of your
interest in this Agreement without our prior written consent. Any
attempted assignment, sub-license, transfer, encumbrance or other
disposal without such consent shall be void and shall constitute a
material default and breach of this Agreement. "Transfer" within the
meaning of this Paragraph 32 shall include any merger or consolidation
involving your company; any sale or transfer of all or substantially
all of your company's assets; any transfer of your rights hereunder to
a division, business segment or other entity of yours other than the
one specifically referenced on page 1 hereof (or any sale or attempted
sale of Articles under a trademark or trade name of such division,
business segment or other entity); and any transaction or series of
related transactions resulting in the transfer of thirty-three and
one-third percent (33-1/3%) or more of the voting stock of your
company (or, if your company is a
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partnership, thirty-three and one-third percent (33-1/3%) or more of
the profit and loss participation in your company and the occurrence of
any of the foregoing with respect to any general partner of your
company).
B. However, you may, upon written notice to us, unless we have objected
within 30 days of receipt of such notice, sublicense your rights
hereunder to your parent, subsidiary and affiliated companies. You
hereby irrevocably and unconditionally guarantee that they will observe
and perform all of your obligations hereunder, including, without
limitation, the provisions governing approvals, and compliance with
approved samples, applicable laws and standards, and all other
provisions hereof, and that they will otherwise adhere strictly to all
of the terms hereof and act in accordance with your obligations
hereunder. Any involvement of a parent, subsidiary or affiliate in the
activities which are the subject of this Agreement shall be deemed
carried on pursuant to such a sublicense and thus covered by such
guarantee, but, unless notified to us and not timely objected to, such
involvement may be treated by us as a breach of this Agreement.
33. RELATIONSHIP
This Agreement does not provide for a joint venture, partnership, agency or
employment relationship between us.
34. HEADINGS
Headings of paragraphs herein are for convenience of reference only and are
without substantive significance.
35. MODIFICATIONS OR EXTENSIONS OF THIS AGREEMENT
Except as otherwise provided herein, this Agreement can only be extended or
modified by a writing signed by both parties.
36. NOTICES
All notices which either party is required or may desire to serve upon the
other party shall be in writing, addressed to the party to be served at the
address set forth on page 1 of this Agreement and may be served
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Kiddie Products, Inc.
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personally or by depositing the same addressed as herein provided (unless
and until otherwise notified), postage prepaid, in the United States mail,
or by facsimile transmission confirmed by a transmission report. Such
notice shall be deemed served upon personal delivery, upon the date of
mailing, or upon the date shown on the facsimile transmission report;
provided, however, that we shall be deemed to have been served with a
notice of a request for approval of materials under this Agreement only
upon our actual receipt of the request and of any required accompanying
materials. Any notice sent to us hereunder shall be sent to the attention
of "Vice President, Licensing," unless we advise you in writing otherwise.
37. MUSIC
Music is not licensed hereunder. Any charges, fees or royalties payable
for music rights or any other rights not covered by this Agreement shall be
additional to the Royalties and covered by separate agreement.
38. PREVIOUS AGREEMENTS
This Agreement and any confidentiality agreement you may have signed
pertaining to any of the Licensed Material, contains the entire agreement
between us concerning the subject matter hereof and supersedes any
pre-existing agreement and any oral or written communications between us.
However, if pursuant to any such pre-existing agreement there was any
agreement(s) in effect permitting you to sell or distribute Articles
outside the Territory or to cause to be manufactured any Articles outside
the Territory, such agreement(s) shall be deemed to remain in effect to the
extent that they relate to Licensed Material and Articles licensed
hereunder.
39. CHOICE OF LAW AND FORUM
This Agreement shall be deemed to be entered into in California and shall
be governed and interpreted according to the laws of the State of
California. Any legal actions pertaining to this Agreement shall be
commenced within the State of California and within either Los Angeles or
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Orange Counties. The prevailing party shall be entitled to recover
reasonable attorney's fees and costs incurred therein.
Please sign below under the word "Agreed". When signed by both parties this
shall constitute an agreement between us.
THE WALT DISNEY COMPANY
By: /s/ ANNE OSBERG
------------------------
Title: SENIOR VICE PRESIDENT
LICENSING
---------------------
Date: 4/28/94
---------------------
AGREED:
KIDDIE PRODUCTS, INC.
dba THE FIRST YEARS
By: /s/ RONALD J. SIDMAN
---------------------
Title: PRESIDENT
------------------
jaw
<PAGE> 1
<TABLE>
EXHIBIT 11
THE FIRST YEARS INC.
PRIMARY NET INCOME PER SHARE AND FULLY DILUTED NET INCOME PER SHARE
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
--------------------- JUNE 30,
1993 1994 1995
--------- --------- ----------------
<S> <C> <C> <C>
PRIMARY NET INCOME PER SHARE
Net income available for common shares and common
stock equivalent shares.......................... $ 796,127 $2,989,374 $2,119,508
========= ========= ==========
Primary net income per share.................. $0.35 $1.31 $0.91
========= ========= ==========
SHARES USED IN COMPUTATION
Weighted average common shares outstanding......... 2,248,260 2,248,622 2,251,170
Common stock equivalents - options................. -- 26,725 73,510
--------- --------- ----------
Total common stock and common stock
equivalent dilutive shares............. 2,248,260 2,275,347 2,324,680
========= ========= ==========
FULLY DILUTED NET INCOME PER SHARE
Net income available for common shares and common
stock equivalent shares.......................... $ 796,127 $2,989,374 $2,119,508
========= ========= ==========
Fully diluted net income per share............ $0.35 $1.31 $0.91
========= ========= ==========
SHARES USED IN COMPUTATION
Weighted average common shares outstanding......... 2,248,260 2,248,622 2,251,170
Common stock equivalents - options................. -- 35,863 79,486
--------- --------- ----------
Total common stock and common stock
equivalent dilutive shares............. 2,248,260 2,284,485 2,330,656
========= ========= ==========
</TABLE>
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
The First Years Inc.
Avon, Massachusetts
We consent to the use in this Registration Statement of The First Years
Inc. (formerly Kiddie Products, Inc.) on Form S-1 of our report dated March 8,
1995 (March 23, 1995 as to the third paragraph of Note 4), appearing in the
Prospectus, which is part of this Registration Statement, and to the references
to us under the headings "Selected Financial Data" and "Experts" in such
Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of The First Years Inc.,
listed in Item 16(b). This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
September 14, 1995
