<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1996
REGISTRATION NO. 33-62673
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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: / /
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.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE FIRST YEARS INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
LOCATION IN PROSPECTUS ITEM AND CAPTION
---------------------- ----------------
<C> <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 JUNE 4, 1996
1,600,000 SHARES
[COMPANY LOGO]
COMMON STOCK
------------------------
Of the 1,600,000 shares of Common Stock offered hereby, 400,000 shares are
being sold by The First Years
Inc. (the "Company" or "The First Years") and 1,200,000 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 June 3, 1996, the last reported sale price of the Common Stock was
$17.25 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 $76,700 and $183,300, respectively.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
240,000 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 , 1996.
A.G. EDWARDS & SONS, INC. ADAMS, HARKNESS & HILL, INC.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 4
[THE FIRST YEARS]
IFC [Child on parent's shoulders with Company logo superimosed.]
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),
POOH(R), DISNEY BABIES(R), and 101 DALMATIANS(R) are registered trademarks of
Disney Enterprises, Inc.
------------------------
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."
<PAGE> 5
Our products are inspired and pretested by parents for parents. They are
designed in consultation with eminent pediatrician Dr. T. Berry Brazelton, and
staff members of the Child Development Unit, Children's Hospital in Boston. The
First Years is a benefactor of The Child Development Unit.
[Montage of eight photographs depicting various company products, staff members
of the Child Development unit at Boston Children's Hospital and Company
employees with their children]
FIRSTGIFTS(TM)
Delightful -- and practical -- gift items and product ensembles for celebrating
a birth, a birthday, or any special occasion.
FEEDING & SOOTHING
Creative designs -- from bottles and breast pumps to teethers and pacifiers --
that provide convenience and quality for parents.
[Montage of eight photographs depicting various Company products, Company
employees with their children and a separate photograph of a child.]
PLAY & DISCOVER
Toys that combine fun with emotional and physical development, from the classic
Soft Ducky to our innovative Firstronics line.
CARE & SAFETY
Excellence in childcare, health, and safety -- in the nursery, around the house,
and on the road.
[THE FIRST YEARS LOGO]
<PAGE> 6
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, three-for-one, and two-for-one stock
splits effected on June 14, 1991, December 15, 1992 and December 29, 1995,
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 products
under its well-known brand name and principal trademark, THE FIRST YEARS. In the
last three years, the Company has entered into licensing agreements with The
Walt Disney Companies 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, Gifts & Sets and Winnie the Pooh.
Retail prices for the Company's products range from approximately $0.99 to
$69.99. 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, J. C. Penney, 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. The Company also 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's 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 and the development of products for children from three to
six years of age. The Company introduced 45 new products in 1994, 90 new
products in 1995 and intends to introduce over 60 new products in 1996. Among
the 1995 items were initial entries into product segments that were new to the
Company. Those entries included 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. In 1996, the Company is expanding
each of its product categories, including the introduction of 26 new 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 $75.8 million 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 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> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company............................................. 400,000 shares
The Selling Stockholders................................ 1,200,000 shares
Total.............................................. 1,600,000 shares
Common Stock to be outstanding after completion of this
Offering(1)................................................ 4,935,570 shares
Use of proceeds.............................................. Debt repayment and working
capital. See "Use of
Proceeds."
Nasdaq National Market symbol................................ KIDD
</TABLE>
- ---------------
(1) Based on shares outstanding at June 3, 1996. Does not include 453,662 shares
issuable upon the exercise of outstanding options under the Company's stock
plans.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................ $37,993 $45,267 $46,124 $53,233 $75,757 $15,802 $23,009
Cost of products sold............ 20,199 23,645 26,654 29,498 45,109 9,256 13,947
Selling, general, and
administrative expenses........ 14,776 18,430 17,857 18,916 23,961 5,158 6,926
Income before income taxes....... 3,306 3,315 1,278 4,861 6,207 1,383 1,972
Net income....................... 1,916 1,930 796 2,989 3,724 830 1,187
Earnings per share(1)............ $ 0.43 $ 0.43 $ 0.18 $ 0.66 $ 0.80 $ 0.18 $ 0.25
Weighted average number of shares
outstanding.................... 4,497 4,497 4,497 4,497 4,663 4,662 4,689
</TABLE>
SUMMARY BALANCE SHEET AT MARCH 31, 1996:
<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTED(2)
------- -----------
<S> <C> <C>
Current assets........ $37,242 $$37,242
Property, plant, and
equipment - net..... 6,708 6,708
------- -----------
$43,950 $43,950
======= =========
</TABLE>
<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTED(2)
------- -----------
<S> <C> <C>
Current liabilities... $16,272 $ 9,863
Long term
liabilities......... 715 715
Stockholders'
equity.............. 26,963 33,372
------- -----------
$43,950 $43,950
======= =========
</TABLE>
- ---------------
(1) The net proceeds from the sale of approximately 387,000 of the shares of
Common Stock offered by the Company hereby will be used to repay certain
indebtedness. Assuming these shares had been issued and the indebtedness
repaid as of January 1, 1995, pro forma earnings per share for 1995 would
have been $0.76.
(2) Adjusted to reflect the sale of the 400,000 shares of Common Stock offered
by the Company hereby at an assumed public offering price of $17.25 per
share (the last reported sale price on June 3, 1996) 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."
RISK FACTORS
There are certain risks associated with this Offering. See "Risk Factors."
4
<PAGE> 8
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. In addition, certain statements in this Prospectus, including
statements about new product introductions, the growth of international sales,
the renewal of license agreements, and the sufficiency of the Company's capital
resources to meet anticipated capital requirements, are forward looking
statements that are subject to inherent risks and uncertainties. Certain
important factors that could cause actual results to vary materially are
identified below.
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 and in the first three months of 1996 has been its licensing agreements
with The Walt Disney Companies to feature Winnie the Pooh characters on a
variety of its products in various countries. Net sales of these licensed
products were approximately 20% of the Company's net sales in 1995 and 30% of
the Company's net sales in the first three months of 1996. The U.S. licensing
agreement expires at the end of 1996 and the Company is currently negotiating
with Disney to renew such agreement. However, there can be no assurance that it
will be renewed or that, if renewed, it will result in sales increases in future
periods. See "Business -- Agreements with The Walt Disney Companies."
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 28% and 21%, respectively, of net sales during 1995. In
addition, these two customers accounted for 61% of trade receivables outstanding
at December 31, 1994 and 1995. A significant reduction of purchases by, or
difficulty in the collection of receivables from, either of these customers
could have a material adverse effect on the Company's 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 1995, the Company derived approximately 53% and 46%,
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 has attempted to impose additional
restrictions on trade with China. Enactment of legislation or the imposition of
restrictive regulations conditioning or revoking China's
5
<PAGE> 9
"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. President Clinton has
recently extended China's MFN trading status until July 3, 1997. The European
Union (the "EU") has recently enacted a quota and tariff system with respect to
the importation into the EU 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 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, the Federal Hazardous Substances Act, the Federal
Flammable Fabrics Act and the Child Safety Protection 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> 10
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the 400,000
shares of Common Stock offered by the Company hereby (at an assumed public
offering price of $17.25 per share and after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company) are
estimated to be approximately $6,409,300 ($10,300,900 if the Underwriters'
over-allotment option is exercised in full).
The Company intends to use the net proceeds to repay outstanding bank debt
($6.3 million outstanding as of May 31, 1996 bearing interest at a weighted
average rate of 7.35%) and for working capital (including the purchase of
capital equipment for tooling, predominantly molds and dies).
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 1,200,000
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 and retroactively adjusted to reflect the Company's two-for-one stock
split effected on December 29, 1995.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C> <C>
1994
First Quarter......................................... 5 1/4 4 1/4
Second Quarter........................................ 7 1/2 4 1/4
Third Quarter......................................... 8 1/16 6 1/2
Fourth Quarter........................................ 9 3/4 7 1/2
1995
First Quarter......................................... 12 8 5/8
Second Quarter........................................ 10 1/8 8 3/8
Third Quarter......................................... 11 3/4 9 3/8
Fourth Quarter........................................ 11 5/8 10
1996
First Quarter......................................... 12 1/2 9 3/4
Second Quarter (through June 3, 1996)................. 18 1/4 11 3/4
</TABLE>
On June 3, 1996 the last reported sale price as reported on the Nasdaq
National Market was $17.25 per share. As of May 21, 1996, there were
approximately 116 record holders of the Common Stock.
7
<PAGE> 11
CAPITALIZATION
The following table sets forth the short-term borrowings and capitalization
of the Company as of March 31, 1996, and as adjusted to give effect to the sale
of the 400,000 shares of Common Stock offered by the Company (at an assumed
public offering price of $17.25 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>
MARCH 31, 1996
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings (including current portion of long-term debt)...... $ 8,633 $ 2,224
======= =======
Long-term debt (less current portion).................................... $ 67 $ 67
------- -------
Stockholders' equity:
Common stock, $0.10 par value, 15,000,000 shares authorized, 4,517,742
shares issued and outstanding and 4,917,742 shares issued and
outstanding as adjusted(1)............................................. 452 492
Paid-in capital.......................................................... 13 6,382
Retained earnings........................................................ 26,498 26,498
------- -------
Total stockholders' equity............................................. 26,963 33,372
------- -------
Total capitalization..................................................... $27,030 $33,439
======= =======
<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 470,587
shares at March 31, 1996.
</TABLE>
DIVIDEND POLICY
From 1991 to 1995, the Company paid a cash dividend on its Common Stock of
approximately $0.085 per share in June of each year. In 1996, the Company
increased its annual cash dividend to $0.10 per share which was paid on June 3,
1996. 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.
8
<PAGE> 12
SELECTED FINANCIAL DATA
<TABLE>
The selected financial data presented below as of and for each of the five
years ended December 31, 1995 have been derived from the Company's audited
financial statements. The selected financial data as of and for the three-month
periods ended March 31, 1995 and 1996 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 three months ended March 31, 1996 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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:(1)
Net sales....................... $37,993 $45,267 $46,124 $53,233 $75,757 $15,802 $23,009
Cost of products sold........... 20,199 23,645 26,654 29,498 45,109 9,256 13,947
------- ------- ------- ------- ------- ------- -------
Gross profit.................... 17,794 21,622 19,470 23,735 30,648 6,546 9,062
Selling, general, and
administrative expenses....... 14,776 18,430 17,857 18,916 23,961 5,158 6,926
Severance-related expenses...... -- -- 373 -- -- -- --
Offering expenses............... -- -- -- -- 310 -- --
Interest income (expense), net 288 123 38 42 (170) (5) (164)
------- ------- ------- ------- ------- ------- -------
Income before income taxes...... 3,306 3,315 1,278 4,861 6,207 1,383 1,972
Income taxes.................... 1,390 1,385 482 1,872 2,483 553 785
------- ------- ------- ------- ------- ------- -------
Net income...................... $ 1,916 $ 1,930 $ 796 $ 2,989 $ 3,724 $ 830 $ 1,187
======= ======= ======= ======= ======= ======= =======
Earnings per share(2)........... $ 0.43 $ 0.43 $ 0.18 $ 0.66 $ 0.80 $ 0.18 $ 0.25
Weighted average number of
shares outstanding............ 4,497 4,497 4,497 4,497 4,663 4,662 4,689
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $15,081 $14,634 $15,126 $17,245 $20,203 $18,096 $20,969
Total assets.................... 22,383 24,695 24,533 28,853 41,712 31,533 43,950
Short-term debt................. 133 133 133 133 6,333 1,333 8,633
Long-term debt.................. 633 500 367 233 100 200 67
Stockholders' equity............ 17,751 19,306 19,720 22,350 25,763 23,190 26,963
<FN>
- ---------------
(1) From 1991 to 1995 a cash dividend of approximately $0.085 per share of
Common Stock was paid in June of each year. On June 3, 1996, the Company
paid a cash dividend of $0.10 per share of Common Stock.
(2) The net proceeds from the sale of approximately 387,000 of the shares of
Common Stock offered by the Company hereby will be used to repay certain
indebtedness. Assuming these shares had been issued and the indebtedness
repaid as of January 1, 1995, pro forma earnings per share for 1995 would
have been $0.76.
</TABLE>
9
<PAGE> 13
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 and 1996
of products featuring Winnie the Pooh characters under licensing agreements with
The Walt Disney Companies. These licensed products accounted for approximately
20% of net sales in 1995 and approximately 30% of net sales in the first three
months of 1996. The Company plans to introduce the Winnie the Pooh characters on
additional products and in additional geographic areas in the latter part of
1996 and in 1997. 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.
International sales have had an increasingly larger impact on the Company's
financial results. In 1992, international sales represented approximately 5% of
net sales; in 1995, international sales were approximately 10% of net sales. The
Company believes that international sales as a percentage of net sales will
increase in future periods.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in
the Company's statements of income as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold............................... 57.8 55.4 59.5 58.6 60.6
Gross profit........................................ 42.2 44.6 40.5 41.4 39.4
Selling, general, and administrative expenses....... 38.7 35.5 31.6 32.6 30.1
Income before taxes................................. 2.8 9.1 8.2 8.8 8.6
Net income.......................................... 1.7 5.6 4.9 5.3 5.2
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Net sales for the first three months of 1996 were $23.0 million, an
increase of $7.2 million or 45.6% as compared to $15.8 million for the
comparable period last year. The increase was due to new product introductions
and expanded retail distribution in domestic and foreign markets.
Cost of products sold for the first three months of 1996 was $13.9 million,
an increase of $4.6 million or 50.7%, as compared to $9.3 million for the
comparable period last year. As a percentage of net sales, cost of products sold
in the first three months of 1996 increased to 60.6% from 58.6% in the
comparable period of 1995. The increase was primarily due to increased sales of
higher-priced, lower-margin products and licensing fees.
Selling, general, and administrative expenses for the first three months of
1996 were $6.9 million, an increase of $1.7 million or 34.3%, as compared to
$5.2 million for the first three months of 1995. The increase resulted primarily
from costs related to increased sales volume. As a percentage of net sales,
selling, general, and administrative expenses for the first three months of 1996
decreased to 30.1% from 32.6% for the
10
<PAGE> 14
comparable period in 1995. The decrease reflects the economies of scale provided
by a higher volume of business.
Income tax expense as a percentage of pretax income was approximately 40%
for the first three months of 1996 and 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales in 1995 were $75.8 million, an increase of $22.6 million, or
42.3%, as compared to $53.2 million 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.
Cost of products sold in 1995 was $45.1 million, an increase of $15.6
million or 52.9%, as compared to $29.5 million in 1994. As a percentage of net
sales, cost of products sold in 1995 increased to 59.5% from 55.4% in the
comparable period of 1994. The increase was due to increased sales of
higher-priced, lower margin items, licensing fees, increased cost of products
due to raw material price increases, and air freight shipments from overseas
production facilities incurred primarily in the first three months of the year.
Selling, general, and administrative expenses in 1995 were $24.0 million,
an increase of $5.1 million, or 26.7%, as compared to $18.9 million in 1994. The
increase resulted primarily from costs related to increased sales volume. As a
percentage of net sales, selling, general, and administrative expenses in 1995
decreased to 31.6% from 35.5% in 1994. The decrease reflects the economies of
scale provided by a higher volume of business.
During the fourth quarter of 1995, the Company sought to issue additional
shares of Common Stock in order to increase its working capital and improve the
liquidity of its stock. Due to uncertain market conditions affecting the retail
sector and the price of the Company's stock, the Company decided to postpone the
public offering. As a result, the Company incurred offering expenses that
resulted in a pretax charge of approximately $310,000 ($186,000 net of tax
benefit).
Income tax expense as a percentage of pretax income increased to 40.0% in
1995 from 38.5% in 1994, principally as a result of an increased provision for
state taxes.
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 initiated 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.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital increased by approximately $800,000 from $20.2 million
at December 31, 1995 to $21 million at March 31, 1996 primarily due to
profitable operations. Accounts receivable increased by $2.1
11
<PAGE> 15
million primarily as a result of increased sales, and inventories increased by
approximately $600,000 to meet continued demand for the Company's products. Cash
decreased by approximately $500,000 primarily resulting from increases in
accounts receivable and a decrease in accounts payable which were partially
offset by an increase in short-term borrowings.
Unsecured lines of credit of $18 million, which are subject to annual
renewal, are available from banks. Amounts outstanding under these lines are
payable upon demand by the banks. During the first three months of 1996, the
Company has borrowed various amounts from time to time up to $9.9 million, of
which $8.5 million at a weighted average interest rate of 7.55% was outstanding
as of March 31, 1996.
From 1991 to 1995, the Company paid a cash dividend of approximately $0.085
per share of Common Stock in June of each year. On June 3, 1996, the Company
paid a cash dividend of $0.10 per share of Common Stock.
The Company made capital expenditures of approximately $700,000 in the
first three months of 1996 and expects to spend approximately $1.3 million more
on capital expenditures in the remaining months of 1996. 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 1995, 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 $3.9 million
as of March 31, 1996. At March 31, 1996, 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 1, 1996, management
believes that the Company had no significant exposure to credit risk relative to
such contracts.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"), was issued. This statement, which will be required
in 1996, establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company does not expect that the adoption of SFAS 121
will have a material impact on the financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," became effective for the Company beginning January 1, 1996. SFAS
No. 123 requires expanded disclosures of stock-based compensation arrangements
with employees and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded. Companies are
permitted, however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument awarded.
The Company will continue to apply APB Opinion No. 25 to its stock-based
compensation awards to employees and will disclose the required pro forma effect
on net income and earnings per share, as required by SFAS No. 123.
12
<PAGE> 16
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 the
last three years, the Company has entered into licensing agreements with The
Walt Disney Companies 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, Gifts & Sets and Winnie the Pooh.
Retail prices for the Company's products range from approximately $0.99 to
$69.99. 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, J. C. Penney, Kroger and
Baby Superstore.
JUVENILE PRODUCTS MARKETS
According to the Juvenile Products Manufacturers Association ("JPMA"), the
United States market for juvenile products has shown continuous growth for the
past 15 years. According to JPMA, factory shipments by member companies
increased approximately 6.6% in 1994 and were 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 1995, for products produced by member
companies, was about $2.1 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> 17
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. In 1996, the Company has begun to introduce new products
on a quarterly basis for the first time. The Company intends to continue
emphasizing product innovation and development and to devote substantial
resources to its product development process.
- 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 the last three years, the Company entered into
licensing agreements with The Walt Disney Companies 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 has introduced several new 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, the Step-by-Step line of multi-function furnishings, and
the PackMates line of bags, child carriers and travel accessories, 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 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 and 1996, 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> 18
Company's product line, which contains approximately 300 items that range in
retail price from approximately $0.99 to $69.99, 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, flatware and breast-feeding accessories. 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 introduced a spill-proof cup with a lid that fits all
cups in the TumbleMates line, new products that relieve teething discomfort such
as the new Massaging Action Teether and plans to introduce an innovative,
electric/battery breast pump kit.
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. In 1996, the
Company plans to introduce numerous new Play & Discover toys including
motion-activated electronic toys, a color-change bath toy; the Jukebox Musical
Crib Mirror with twinkling lights, and a waterproof electronic "quacking" tub
toy, the Shake & Quack Ducky.
In 1995, the Company launched the First Animal Game featuring five
different games in one with graduated levels of difficulty that help a child
learn to identify different animals. This game was named one of Dr. Toy's 100
Best Children's Products of 1995 and was a 1995 North American Parenting
Publishing Association (NAPPA) Silver Award Winner.
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 the Tape Player and Crib Light and the Rechargeable Pocket
Monitor.
In 1995, the Company also added to this category a new line of rugged,
machine-washable tote bags, child carriers and harnesses, and other travel
accessories marketed under the PackMates name. This line includes the Clip'n Go
Warm & Cozy Carrier, an insulated detachable infant carrier, and the Full Day
Diaper Bag, a nylon carry 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 an adjustable bath seat, portable booster seat, baby
bather, step stool and toilet trainer that are adjustable as a child grows and
the Diaper Dispoz-all Diaper Pail, an odor-free diaper pail.
In 1996, the Company plans to introduce into this category a new innovative
concept in booties and several products in the Nurserytronics and furnishings
lines.
GIFTS & SETS. 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. Many
of the containers for such gift sets such as the Bear Bank Gift set are also
reusable as tote bags, storage containers or keepsakes. Gift sets include the
Washables gift pack, the TumbleMates gift pack,
15
<PAGE> 19
newborn gift bags and furnishings gift sets. In 1996, the Company intends to
introduce additional gift sets targeted to both retailers and wholesale clubs.
WINNIE THE POOH. With the planned addition of 26 new products in 1996, the
Winnie the Pooh category will consist of approximately 51 staple child care
products including teethers, rattles, bibs and bottles, bathing accessories and
gift sets featuring Winnie the Pooh characters. This category includes the Pooh
Goody Bags which contain an assortment of the Company's products featuring
Winnie the Pooh characters and a line of appliqued bibs featuring various Winnie
the Pooh designs. In 1996, the Company plans to introduce the Winnie the Pooh
characters on numerous additional items throughout its product line including
cups, electronic musical toys, teethers, hooded towels, bath puppets,
furnishings and a variety of Pooh gift sets.
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 15 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 approximately $1.8 million on new product development in
1995, and approximately $1.5 million in each of 1993 and 1994. 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
International Juvenile Products 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 Tokyo Toy
Fair; the Boston Baby Faire; the Koln Nursery Fair in Koln, Germany; 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 11 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
16
<PAGE> 20
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, 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, J.C. Penney,
Kroger and Baby Superstore. As testimony to the Company's commitment to
providing excellent service and merchandising to its customers, the Company was
chosen as the 1995 Vendor of the Year by Smith's Food and Drug Centers and
received a Vendor/Partner Award of Excellence from Wal*Mart for the fourth
quarter of 1995.
The Company's products are sold in the United States, and Canada, primarily
through the Company's ten-person internal sales staff and through a network of
48 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. In
Central and South America and the Pacific Rim, the Company's products are sold
by its internal sales staff which manages a network of foreign distributors and
sales representatives in such areas. 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 1995 were approximately $7.7 million.
The Company's international sales in 1993 and 1994 were approximately $3.8
million and $5.3 million, respectively.
During 1994, Wal*Mart and Toys "R" Us accounted for approximately 26% and
22% of the Company's net sales, respectively. During 1995, Wal*Mart and Toys "R"
Us accounted for approximately 28% and 21% 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 computerized planogram programs, which
divide 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. These programs are 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 these 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 COMPANIES
In the past three years the Company has entered into licensing agreements
with The Walt Disney Companies to feature Winnie the Pooh characters on a
variety of its products in the United States, Canada,
17
<PAGE> 21
Puerto Rico, Brazil and in Europe. The U.S. license agreement expires December
31, 1996 and is cancellable upon a change in control of the Company. The Company
is currently in negotiations with Disney to renew the U.S. license agreement.
Although the Company expects the agreement to be renewed, there can be no
assurance that it will be. The Company makes royalty payments on its net sales
of licensed products and is subject to a guaranteed minimum royalty payment of
approximately $714,000 in the aggregate during the terms of the agreements.
Sales of products under these license agreements accounted for approximately 20%
of the Company's total net sales in 1995 and 30% of the Company's total net
sales in the first three months of 1996.
In February 1996, the Company entered into a licensing agreement with
Disney Licensed Publishing to feature Winnie the Pooh, Disney Babies and 101
Dalmatians characters on vinyl and fabric early learning play books. The Company
plans to introduce the books for sale in 1997. The agreement expires on March
30, 1999. The Company will make royalty payments on its net sales of licensed
products and is subject to a guaranteed minimum royalty payment of approximately
$65,000 during the term of the agreement.
MANUFACTURING AND SOURCES OF SUPPLY
The Company does not own or operate its own manufacturing facilities. In
1995 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, Mexico and Thailand. Approximately 53% and 46% respectively of all of
its products sold in 1994 and in 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 1995 by suppliers in the United States and Canada.
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
approximately 21% of its net sales in 1995. In 1994 approximately 13% of the
Company's products sold were manufactured by one supplier located in China, and
approximately 11% of its products sold were manufactured by this same supplier
in 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 could 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 has attempted to
impose additional restrictions on trade with China. On May 15, 1996, the Clinton
Administration announced that certain products exported by China would be
subject to punitive sanctions (100% tariffs) on June 17, 1996, if China did not
close certain factories producing counterfeit videos, compact disks and
software. However, the Company has determined that these sanctions will not
apply to any of the Company's products. Enactment of legislation or the
imposition of restrictive regulations conditioning
18
<PAGE> 22
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 through July 3, 1997. Unless Congress takes
action to override this decision, China will continue to enjoy MFN treatment
during this period. The European Union (the "EU") has recently enacted a quota
and tariff system with respect to the importation into the EU 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.
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
The Company distributes its products in the United States from its 103,500
square foot warehouse facility in Avon, Massachusetts and from a public
warehouse in Fontana, California. 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.
19
<PAGE> 23
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 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 March 31, 1996, the Company employed 110 full-time and 3 part-time
employees, of whom 10 are executive officers, 49 are in sales, marketing and
product development, 37 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,
the Federal Flammable Fabrics Act, and the Child Safety Protection Act and the
regulations promulgated thereunder (the "Acts"). The Company's nursery monitors
are subject to regulations of the Federal Communications Commission. The
Company's medical devices and drug products are subject to the regulations of
the Food and Drug Administration. 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; and Cirencester, England.
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> 24
MANAGEMENT
OFFICERS AND DIRECTORS
<TABLE>
The Company's officers and directors are as follows:
<CAPTION>
OFFICER OR
NAME AGE POSITION DIRECTOR SINCE
- ---- --- -------- --------------
<S> <C> <C> <C>
Ronald J. Sidman................... 49 Chairman of the Board of Directors, 1975
Chief Executive Officer and
President
Jerome M. Karp..................... 68 Vice Chairman of the Board of 1969
Directors
Benjamin Peltz..................... 57 Treasurer, Senior Vice President and 1975
Director
Evelyn Sidman...................... 82 Clerk and Director 1979
Fred T. Page(1)(2)................. 49 Director 1988
Merton N. Alperin(1)(2)............ 73 Director 1988
Joseph M. Connolly................. 55 Vice President -- Operations 1979
John N. Colantuone................. 58 Vice President -- Materials and 1982
Engineering
Mark H. Dall....................... 52 Vice President -- Information 1985
Services
Adrian E. Roche.................... 40 Vice President -- Worldwide 1992
Marketing
Wayne Shea......................... 41 Vice President -- Worldwide Sales & 1991
Merchandising
Keith Ciampa....................... 31 Vice President -- Executive Account 1996
Sales
John R. Beals...................... 41 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 -- Operations of the Company for over
five years.
Mr. Colantuone has been Vice President -- 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.
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<PAGE> 25
Mr. Dall has been Vice President -- Information Services of the Company for
over five years.
Mr. Roche has been Vice President -- Worldwide Marketing of the Company
since January 1995. From January 1992 to December 1994, Mr. Roche was Vice
President -- European Sales of the Company. From 1989 to 1991, Mr. Roche held
several managerial positions for Fisher-Price Kiddie Craft in the United
Kingdom, the last of which was Managing Director.
Mr. Shea has been Vice President -- Worldwide Sales & Merchandising of the
Company since January 1995. From July 1991 to December 1994, Mr. Shea was Vice
President -- Service and Merchandising of the Company, and from January 1985 to
June 1991, Mr. Shea was Director of Merchandising of the Company.
Mr. Ciampa has been the Vice President -- Executive Account Sales since
June 1996. From July 1993 to May 1996, Mr. Ciampa was Director of Sales --
Americas and from January 1992 to June 1993 he was Export Sales Manager 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
1999, 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 3,000 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 10,000 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 16, 1996, each of Messrs. Alperin and Page was granted an option to
purchase 3,000 shares of Common Stock at an exercise price of $17.125 per share.
22
<PAGE> 26
EXECUTIVE COMPENSATION
<TABLE>
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, 1993, 1994 and 1995 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 1995
(collectively the "named officers").
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>
Ronald J. Sidman*.................. 1995 $214,384 $276,667 20,000 $30,642
Chairman of the Board of 1994
Directors,....................... 193,539 159,291 10,000 29,319
Chief Executive Officer and 1993
President........................ 220,954 0 53,000 43,770
Marshall B. Sidman**............... 1995 44,165 0 0 51,000
Chairman of the Board of 1994
Directors........................ 172,562 57,323 0 51,096
and Chief Executive Officer........ 1993 197,830 0 0 61,500
Benjamin Peltz..................... 1995 177,363 140,333 10,000 35,817
Senior Vice President,............. 1994 159,645 88,646 8,000 34,523
Treasurer and Director............. 1993 182,803 0 39,000 47,945
John N. Colantuone................. 1995 112,671 38,442 3,000 17,228
Vice President --.................. 1994 105,974 34,929 5,000 11,952
Materials and Engineering.......... 1993 101,342 0 10,000 17,544
Wayne Shea......................... 1995 116,162 39,760 4,000 17,444
Vice President --.................. 1994 101,024 33,323 5,000 11,270
World Wide Sales & Merchandising... 1993 98,420 0 10,000 16,944
Adrian R. Roche.................... 1995 111,822 37,359 2,000 10,865
Vice President --.................. 1994 92,853 29,821 5,000 8,709
World Wide Marketing............... 1993 85,118 0 10,000 8,218
<FN>
- ---------------
(1) The bonus amounts were earned by these individuals in 1995 and 1994 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 and have
been adjusted to reflect the Company's 2-for-1 stock split effected in
December 1995. See "Options/SAR Grants in Last Fiscal Year" for more
information on the options granted in 1995.
(3) The amounts shown in this column reflect (i) insurance premium payments made
on behalf of the following named officers by the Company during 1995 for
life insurance policies: Marshall B. Sidman -- $51,000; 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: Ronald J.
Sidman -- $17,872; Benjamin Peltz -- $17,872; John N. Colantuone -- $17,228;
Wayne Shea -- $17,444; and Adrian E. Roche -- $10,865.
* Ronald J. Sidman became Chairman and Chief Executive Officer on March 28,
1995.
** Marshall B. Sidman died on March 24, 1995.
</TABLE>
23
<PAGE> 27
<TABLE>
Option Grants. The following table sets forth grants of stock options
pursuant to the Company's 1993 Equity Incentive Plan during 1995 to the named
officers reflected in the Summary Compensation Table above:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR SHARE(1) DATE 5% 10%
---- ------------ ------------------ --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Marshall B. Sidman..... 0
Ronald J. Sidman....... 20,000 19.4% $ 9.831 3/23/00 $31,510 $91,254
Benjamin Peltz......... 10,000 9.7 8.938 3/23/00 24,693 54,564
John N. Colantuone..... 3,000 2.9 8.938 3/23/00 7,408 16,369
Wayne Shea............. 4,000 3.9 8.938 3/23/00 9,877 21,826
Adrian E. Roche........ 2,000 1.9 8.938 3/23/00 4,939 10,913
<FN>
- ---------------
(1) Incentive stock options were granted in 1995 pursuant to the Company's 1993
Equity Incentive Plan. The exercise price of the options granted to all the
named officers other than Ronald J. Sidman, was equal to the fair market
value (the closing sale price) of the Company's Common Stock on the date of
grant, March 23, 1995. 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, 1996.
(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.
</TABLE>
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, 1995 and the value of such
unexercised options on December 31, 1995.
<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
SHARES OPTIONS/SARS IN-THE-MONEY OPTIONS
ACQUIRED AT FISCAL YEAR END AT FISCAL YEAR END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marshall B. Sidman............ -- -- 0 0 0 0
Ronald J. Sidman.............. -- -- 38,670 44,330 $197,300 $148,800
Benjamin Peltz................ -- -- 28,668 28,332 161,400 125,400
John N. Colantuone............ -- -- 8,336 9,664 47,600 45,300
Wayne Shea.................... -- -- 8,336 10,664 47,600 47,300
Adrian E. Roche............... 5,002 $25,322 4,998 7,000 29,000 32,900
<FN>
- ---------------
(1) Value is based on the difference between the option exercise price and the
fair market value at December 31, 1995 ($10.875 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>
24
<PAGE> 28
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").
The initial base salaries under the Agreement are $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
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> 29
PRINCIPAL AND SELLING STOCKHOLDERS
<TABLE>
The following table sets forth, to the knowledge of the Company, the
beneficial ownership of the Common Stock of the Company as of June 3, 1996
(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 1995,
(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 OWNED BENEFICIALLY 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).......................... 1,163,400 25.7% 800,000 363,400 7.4%
Ronald J. Sidman(2)....................... 552,670 12.1 80,000 472,670 9.5
Benjamin Peltz(3)......................... 354,468 7.8 160,000 194,468 3.9
Jerome M. Karp(4)......................... 160,520 3.5 160,000 520 *
Fred T. Page(5)........................... 22,600 * 0 22,600 *
John N. Colantuone(6)..................... 11,002 * 0 11,002 *
Merton N. Alperin(7)...................... 19,000 * 0 19,000 *
Wayne Shea(8)............................. 12,336 * 0 12,336 *
Adrian E. Roche(9)........................ 5,664 * 0 5,664 *
5% STOCKHOLDERS
Estate of Marshall B. Sidman.............. 811,080 17.9 800,000 11,080 *
One Kiddie Drive
Avon, MA 02322
Santa Monica Partners, L.P.(10)........... 346,000 7.6 0 346,000 7.0
Two Madison Avenue
Larchmont, NY
Quest Advisory Corp.(11).................. 347,672 7.7 0 347,672 7.0
Quest Management Company
Charles M. Royce
1414 Avenue of the Americas
New York, NY
SELLING STOCKHOLDERS
Eleanor J. Karp........................... 114,000 2.5 114,000 0 *
All directors and executive officers as a
group(12) (13 persons).................. 2,327,827 49.4 1,200,000 1,127,827 22.1
<FN>
- ---------------
* Less than 1% of outstanding shares of Common Stock.
(1) Includes 811,080 shares owned beneficially by Mrs. Sidman as the personal
representative of the estate of her late husband, Marshall B. Sidman,
800,000 of which are being sold in this Offering. Mrs. Sidman has sole
voting and investment power over such shares.
(2) Includes 48,670 shares issuable to Mr. Sidman pursuant to currently
exercisable stock options. Mr. Sidman is the son of Evelyn Sidman.
(3) Includes 34,668 shares issuable to Mr. Peltz pursuant to currently
exercisable stock options. 4,800 shares are owned jointly by Mr. and Mrs.
Peltz.
</TABLE>
26
<PAGE> 30
(4) Includes 114,000 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 19,000 shares issuable to Mr. Page pursuant to currently
exercisable options.
(6) Includes 11,002 shares issuable to Mr. Colantuone pursuant to currently
exercisable options.
(7) Includes 19,000 shares issuable to Mr. Alperin pursuant to currently
exercisable options.
(8) Includes 11,336 shares issuable to Mr. Shea pursuant to currently
exercisable stock options.
(9) Includes 5,664 shares issuable to Mr. Roche pursuant to currently
exercisable stock options.
(10) 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 346,000 shares of
the Company's outstanding Common Stock and shares voting and dispositive
power with Santa Monica Partners, L.P. over such shares.
(11) As reported on Schedule 13G filed with the Securities and Exchange
Commission in February 1996, 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 304,072 shares; Quest Management Company
has sole voting and dispositive power over 43,600 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.
(12) The total for all directors and executive officers as a group includes
175,507 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 June 1, 1996, there were 4,535,570 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
27
<PAGE> 31
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 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
28
<PAGE> 32
any time within the prior three years did own) 5% or more of the outstanding
voting stock of the corporation. 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> 33
UNDERWRITING
<TABLE>
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................................................................. 1,600,000
=========
</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 240,000 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 1,600,000 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, Inc.
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> 34
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, 1995 and 1994 and for each of
the three years in the period ended December 31, 1995 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> 35
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT.......................................................... F-2
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited)... F-3
Statements of Income for the Years Ended December 31, 1993, 1994, and 1995 and
for the Three Months Ended March 31, 1995 and 1996 (unaudited).................. F-4
Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994
and 1995 and for the Three Months Ended March 31, 1996 (unaudited).............. F-5
Statements of Cash Flows for the Years Ended December 31, 1993, 1994, and 1995
and for the Three Months Ended March 31, 1995 and 1996 (unaudited).............. F-6
Notes to Financial Statements.................................................... F-7
</TABLE>
F-1
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The First Years Inc.
Avon, Massachusetts
We have audited the accompanying balance sheets of The First Years Inc.
(formerly Kiddie Products, Inc.) as of December 31, 1995 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, 1995. 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, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 7, 1996
F-2
<PAGE> 37
THE FIRST YEARS INC.
<TABLE>
BALANCE SHEETS
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- -----------
NOTES 1994 1995 1996
----- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................... 1,8 $ 2,329,041 $ 552,568 $ 59,306
Accounts receivable (less allowance for
doubtful accounts, $185,000 in 1994,
1995 and 1996)............................... 8 9,266,235 14,191,630 16,243,208
Inventories..................................... 1 10,413,835 19,009,784 19,637,900
Prepaid expenses and other assets............... 295,921 778,074 429,148
Deferred tax asset.............................. 1,3 624,500 872,300 872,300
----------- ----------- -----------
Total current assets......................... 22,929,532 35,404,356 37,241,862
----------- ----------- -----------
PROPERTY, PLANT, AND EQUIPMENT.................... 1
Land............................................ 167,266 167,266 167,266
Building........................................ 3,737,861 3,737,861 3,741,291
Machinery and molds............................. 5,413,075 6,481,504 7,002,819
Furniture and equipment......................... 2,986,905 3,183,379 3,350,811
----------- ----------- -----------
Total........................................ 12,305,107 13,570,010 14,262,187
Less accumulated depreciation................... 6,381,854 7,262,286 7,554,413
----------- ----------- -----------
Property, plant, and equipment -- net........ 5,923,253 6,307,724 6,707,774
----------- ----------- -----------
TOTAL ASSETS............................ $28,852,785 $41,712,080 $43,949,636
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt............... 2 $ 133,333 $ 133,333 $ 133,333
Short-term borrowings........................... 2 -- 6,200,000 8,500,000
Accounts payable................................ 4,034,263 6,903,478 6,000,755
Accrued benefit plans expense................... 7 259,557 255,271 117,542
Accrued payroll expenses........................ 782,890 1,105,004 678,484
Accrued selling expenses........................ 256,161 604,434 558,761
Federal and state income taxes payable.......... 1,3 218,500 -- 283,600
----------- ----------- -----------
Total current liabilities.................... 5,684,704 15,201,520 16,272,475
----------- ----------- -----------
LONG-TERM DEBT -- Less portion due currently...... 2 233,334 100,001 66,667
----------- ----------- -----------
DEFERRED TAX LIABILITY............................ 1,3 584,800 647,300 647,300
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES..................... 5,6,8
STOCKHOLDERS' EQUITY.............................. 4,7
Common Stock authorized 15,000,000 shares as of
March 31, 1996 and December 31, 1995 and
7,500,000 shares as of December 31, 1994 at
$.10 par value............................... 225,043 451,514 451,774
Paid-in capital................................. 98,194 -- 13,102
Retained earnings............................... 22,026,710 25,311,745 26,498,318
----------- ----------- -----------
Total stockholders' equity...................... 22,349,947 25,763,259 26,963,194
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $28,852,785 $41,712,080 $43,949,636
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 38
THE FIRST YEARS INC.
<TABLE>
STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
NOTES 1993 1994 1995 1995 1996
----- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET SALES................. 1,6,8 $46,124,088 $53,233,109 $75,757,322 $15,801,777 $23,009,281
COST OF PRODUCTS SOLD..... 1 26,653,704 29,498,457 45,108,546 9,256,243 13,947,171
----------- ----------- ----------- ----------- -----------
GROSS PROFIT.............. 19,470,384 23,734,652 30,648,776 6,545,534 9,062,110
SELLING, GENERAL, AND
ADMINISTRATIVE
EXPENSES................ 1,7 17,857,049 18,915,908 23,961,206 5,157,790 6,925,847
SEVERANCE-RELATED
EXPENSES................ 9 373,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
OPERATING INCOME.......... 1,240,335 4,818,744 6,687,570 1,387,744 2,136,263
OTHER INCOME (EXPENSES):
Interest expense........ (28,912) (24,575) (186,338) (13,433) (165,373)
Interest income......... 66,204 66,605 16,718 8,697 1,183
Offering expenses....... 10 -- -- (310,457) -- --
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES................... 1,277,627 4,860,774 6,207,493 1,383,008 1,972,073
PROVISION FOR INCOME
TAXES................... 1,3 481,500 1,871,400 2,483,000 553,200 785,500
----------- ----------- ----------- ----------- -----------
NET INCOME................ $ 796,127 $ 2,989,374 $ 3,724,493 $ 829,808 $ 1,186,573
=========== =========== =========== =========== ===========
EARNINGS PER SHARE........ 1 $0.18 $0.66 $0.80 $0.18 $0.25
=========== =========== =========== =========== ===========
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING...... 4,496,520 4,497,244 4,663,491 4,661,846 4,689,426
=========== =========== =========== =========== ===========
DIVIDENDS PAID PER
SHARE................... $0.085 $0.085 $0.085 $0.000 $0.000
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 39
THE FIRST YEARS INC.
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995 AND THREE MONTHS ENDED MARCH 31,
1996
<CAPTION>
COMMON STOCK
----------------------
PAR PAID-IN RETAINED
NOTES SHARES VALUE CAPITAL EARNINGS
----- --------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993..................... 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...... 7 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...... 7 7,141 714 70,957 --
Dividends paid............................. -- -- -- (382,852)
Stock split, two-for-one................... 4 2,257,571 225,757 (169,151) (56,606)
Net income................................. -- -- -- 3,724,493
--------- -------- --------- -----------
BALANCE, DECEMBER 31, 1995................... 4,515,142 451,514 0 25,311,745
Stock issued under stock option plans
(unaudited)............................. 2,600 260 13,102 --
Net income (unaudited)..................... -- -- -- 1,186,573
--------- -------- --------- -----------
BALANCE, MARCH 31, 1996 (unaudited).......... 4,517,742 $451,774 $ 13,102 $26,498,318
========= ======== ========= ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 40
THE FIRST YEARS INC.
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ---------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 796,127 $ 2,989,374 $ 3,724,493 $ 829,808 $ 1,186,573
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation.................................. 778,652 878,250 992,291 253,750 292,127
Provision for doubtful accounts............... 17,177 23,673 86,227 25,147 53,746
Loss on disposal of equipment................. 105,170 47,877 70,258 0 0
Increase (decrease) arising from working
capital items:
Accounts receivable......................... (994,400) (2,077,176) (5,011,624) (2,264,138) (2,105,324)
Inventories................................. (931,295) (2,184,385) (8,595,949) (2,098,165) (628,116)
Prepaid expenses and other assets........... (42,222) (53,315) (482,153) (40,978) 348,926
Accounts payable............................ 20,979 1,549,774 2,869,215 914,073 (902,723)
Accrued benefit plans expense............... (51,060) (376,128) (4,286) 82,004 (137,729)
Accrued payroll expenses.................... (366,866) 730,508 322,114 (628,210) (426,520)
Accrued selling expenses.................... (95,394) (142,477) 348,273 (125,214) (45,673)
Federal and state income taxes payable...... (72,100) (9,200) (218,500) 430,100 283,600
Change in deferred income taxes............. 51,800 107,200 (185,300) 0 0
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
operating activities................ (783,432) 1,483,975 (6,084,941) (2,621,823) (2,081,113)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and
equipment................................. (794,222) (1,374,721) (1,447,018) (209,992) (692,177)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of industrial revenue bonds....... (133,333) (133,333) (133,333) (33,333) (33,334)
Dividends paid.............................. (382,204) (382,204) (382,852) -- --
Common stock issued under stock option
plans..................................... -- 23,057 71,671 10,667 13,362
Net proceeds from short-term borrowings..... -- -- 6,200,000 1,200,000 2,300,000
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
financing activities................ (515,537) (492,480) 5,755,486 1,177,334 2,280,028
----------- ----------- ----------- ----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS......... (2,093,191) (383,226) (1,776,473) (1,654,481) (493,262)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD...................................... 4,805,458 2,712,267 2,329,041 2,329,041 552,568
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD...... $ 2,712,267 $ 2,329,041 $ 552,568 $ 674,560 $ 59,306
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION --
Cash paid during the year for:
Interest.................................. $ 28,912 $ 24,575 $ 186,338 $ 13,433 $ 165,373
=========== =========== =========== =========== ===========
Income taxes.............................. $ 501,800 $ 1,773,400 $ 3,269,100 $ 123,100 $ 119,600
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 41
THE FIRST YEARS INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- The First Years 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 March 31, 1996,
the Statements of Income for the three months ended March 31, 1995 and 1996, the
Statement of Stockholders' Equity for the three months ended March 31, 1996 and
the Statements of Cash Flows for the three months ended March 31, 1995 and 1996
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 three months ended March
31, 1996 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.
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of -- In March 1995, Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"), was issued. This statement,
which will be required in 1996, establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. The Company does not expect
that the adoption of SFAS 121 will have a material impact on the financial
statements.
Income Taxes -- Deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates.
Stock-Based Compensation -- In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," which will be effective for the
Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded (see Note 7). The Company will
continue to apply APB Opinion No. 25 to its stock-based compensation awards to
employees and will disclose the required pro forma effect on net income and
earnings per share, as required by SFAS No. 123.
Earnings Per Share -- Earnings per share are based on the weighted average
number of shares outstanding during each year (retroactively adjusted to reflect
the two-for-one stock split effected on December 29, 1995 and 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 (4,663,491,
4,497,244 and 4,496,520
F-7
<PAGE> 42
THE FIRST YEARS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
shares in 1995, 1994 and 1993, respectively) (see Note 7). Earnings per share
assuming full dilution have not been presented because the dilutive effect is
immaterial.
Risk and Uncertainties -- The Company has adopted Accounting Standards
Executive Committee Statement of Position 94-6, "Disclosure of Certain
Significant Risks and Uncertainties." The disclosures required by this SOP focus
primarily on the nature of an entity's operations, the use of estimates in
preparation of financial statements and on risks and uncertainties that could
significantly affect the amounts reported in the financial statements (see Note
8).
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Research and Development Costs -- Research and development costs are
expensed as incurred. During 1995, 1994, and 1993, research and development
costs approximated $1,834,000, $1,466,000, and $1,493,000, 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.
Fair Value of Financial Instruments -- The fair value of the Company's
assets and liabilities which constitute financial instruments as defined in
Statement of Financial Accounting Standards No. 107 approximate their recorded
value.
2. DEBT
Long-term debt consists of unsecured industrial revenue bonds ("IRB"), with
interest payable quarterly at 65% of the prime rate (5.5% at December 31, 1995
and 1994) 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 $15,000,000
with two banks. Both lines are subject to annual renewal and require no
compensating balances. One line bears interest at the prime rate or the LIBOR
rate plus 2.0% and the other line at the prime rate less 0.25% or the LIBOR rate
plus 1.75%. During 1995, the Company borrowed various amounts up to $6,500,000
under the lines. As of December 31,
F-8
<PAGE> 43
THE FIRST YEARS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. DEBT (CONTINUED)
1995, a balance of $6,200,000, which bears interest at 7.9%, remains
outstanding. No other short-term borrowings were incurred by the Company during
1995 or 1994. During the first three months of 1996, the Company borrowed
various amounts up to $9,900,000 (unaudited). As of March 31, 1996, a balance of
$8,500,000 (unaudited) remains outstanding which bears a weighted average
interest rate of 7.55% (unaudited). During May 1996, the Company increased its
unsecured lines of credit to $18,000,000. The terms of the lines remain
unchanged from those specified above.
3. INCOME TAXES
Components of the Company's net deferred tax asset at December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible.......................... $ 79,000 $ 62,900
Capitalized packaging costs not currently deductible....... 442,000 360,200
Capitalized inventory costs not currently deductible....... 261,100 116,900
Other...................................................... 90,200 84,500
-------- --------
872,300 624,500
-------- --------
Deferred tax liabilities:
Excess tax depreciation over financial reporting
depreciation............................................ 642,800 580,300
Other...................................................... 4,500 4,500
-------- --------
647,300 584,800
-------- --------
Net deferred tax asset....................................... $225,000 $ 39,700
======== ========
</TABLE>
There was no valuation allowance for the years ended December 31, 1995 and
1994.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Federal:
Current......................................... $2,104,000 $1,432,700 $352,300
Deferred........................................ (185,300) 107,200 51,800
---------- ---------- --------
Total federal..................................... 1,918,700 1,539,900 404,100
State............................................. 564,300 331,500 77,400
---------- ---------- --------
Provision for income taxes........................ $2,483,000 $1,871,400 $481,500
========== ========== ========
</TABLE>
A reconciliation of the statutory federal income tax rate and the effective
tax rate as a percentage of pretax income is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory rate........................................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit.... 6.0 4.5 4.0
Other.................................................... -- -- (0.3)
---- ---- ----
- - -
Effective rate........................................... 40.0% 38.5% 37.7%
===== ===== =====
</TABLE>
F-9
<PAGE> 44
THE FIRST YEARS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMON STOCK
In December 1995, the Company's Board of Directors (the "Board") declared a
two-for-one split of the Company's common stock. The stock split, effected in
the form of a stock dividend, was distributed on December 29, 1995 to
stockholders of record in 1995. Earnings per share amounts shown in the
accompanying financial statements have been adjusted to reflect the 1995 stock
split.
5. COMMITMENTS AND CONTINGENCIES
Foreign Exchange Contracts -- During 1995 and 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
$4,500,000 and $3,100,000 as of December 31, 1995 and 1994, respectively. At
December 31, 1995 and 1994, the exchange rates for such currencies covered by
the contracts approximated the predetermined rates included therein.
Other Commitments -- At December 31, 1995 and 1994, letters of credit
outstanding aggregated approximately $1,925,000 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.
6. ROYALTIES
During 1995 and 1994, the Company entered into various agreements which
provide for the payment of royalties on sales of certain licensed products. The
agreements have terms ranging from one to fifteen years and require minimum
royalty payments of $729,000 during the terms of the agreements. Outstanding
minimum royalty payments under these agreements amounted to $92,800 at December
31, 1995.
7. 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
$259,000, $267,000, and $661,000 in 1995, 1994, and 1993, respectively.
Stock Option Plans -- In May 1993, the Company's stockholders approved the
adoption of The First Years Inc. 1993 Equity Incentive Plan and The First Years
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 670,000 shares (adjusted to reflect the two-for-one stock split
effected on December 29, 1995) for issuance under the plans and 20,000 shares
for a stock option agreement granted outside of 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-10
<PAGE> 45
THE FIRST YEARS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of activity (all years adjusted to reflect the two-for-one stock
split effected on December 29, 1995) of stock options granted under the plan is
as follows:
<TABLE>
<CAPTION>
NUMBER
OF
OPTIONS
NUMBER OF AVAILABLE
EXERCISE PRICE OPTIONS FOR
PER SHARE OUTSTANDING GRANT
--------------- ----------- --------
<S> <C> <C> <C>
January 1, 1993
Authorized.................................. -- -- 440,000
Granted..................................... $5.31 to $5.84 206,000 (206,000)
Canceled.................................... $5.31 (2,000) 2,000
------- --------
December 31, 1993............................. 204,000 236,000
Authorized.................................. -- -- 20,000
Granted..................................... $4.56 to $5.63 126,300 (126,300)
Canceled.................................... $4.56 to $5.31 (20,828) 20,828
Exercised................................... $5.31 (4,340) --
------- --------
December 31, 1994............................. 305,132 150,528
Authorized.................................. -- -- 230,000
Granted..................................... $8.94 to $9.83 128,920 (128,920)
Canceled.................................... $4.56 to $5.31 (8,192) 8,192
Exercised................................... $4.56 to $5.31 (14,282) --
------- --------
December 31, 1995............................. 411,578 259,800
======= ========
</TABLE>
At December 31, 1995, 166,999 options were exercisable at $4.56 to $5.84
per share.
8. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
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 5). 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 61% of the trade receivables outstanding at December 31,
1995 and 1994. 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, 1995, management believes it had no significant
exposure to credit risks.
Major Customer and Export Sales -- The Company derived 10% or more of its
sales from its largest customer. Such amounts aggregated $21,966,000,
$14,256,000, and $12,920,000 in 1995, 1994, and 1993, respectively. The
Company's second largest customer accounted for sales of $16,500,000,
$12,118,000, and $8,814,000 in 1995, 1994, and 1993, respectively. No other
customer accounted for 10% or more of the Company's sales. Export sales,
primarily to Europe, Canada, South America and the Pacific Rim were
approximately $7,745,000 in 1995.
Reliance on Licensed Products -- A licensing agreement (see Note 6) with a
major entertainment company will expire at the end of 1996. Sales of products
licensed under the agreement amounted to 20% of
F-11
<PAGE> 46
THE FIRST YEARS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS (CONTINUED)
the Company's total net sales for year ended December 31, 1995. Management is in
the process of renegotiating continuance of this agreement.
Reliance on Foreign Manufacturers -- The Company does not own or operate
its own manufacturing facilities. In each of 1995 and 1994, the Company derived
approximately 46% and 53%, respectively, of its net sales from products
manufactured by others in the Far East, mainly in the Peoples' Republic of
China. A change in suppliers could cause a delay in manufacturing and a possible
loss of sales which would affect operating results adversely, depending on the
particular product.
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.
10. OFFERING EXPENSES
During 1995, the Company initiated a public offering of shares of its
common stock to increase its working capital and improve liquidity of its common
stock. Due to uncertain market conditions affecting the retail sector and the
price of its stock, the Company decided to postpone indefinitely the public
offering. As a result, the Company wrote off offering expenses amounting to
$310,000 in December 1995.
* * * * * *
F-12
<PAGE> 47
[THE FIRST YEARS]
IBC [Child on parent's shoulders with Company logo superimosed.]
<PAGE> 48
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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....................... 7
Price Range of Common Stock........... 7
Capitalization........................ 8
Dividend Policy....................... 8
Selected Financial Data............... 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 10
Business.............................. 13
Management............................ 21
Principal and Selling Stockholders.... 26
Description of Capital Stock.......... 27
Underwriting.......................... 30
Legal Matters......................... 31
Experts............................... 31
Additional Information................ 31
Index to Financial Statements......... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,600,000 SHARES
THE FIRST YEARS INC.
[LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
A.G. EDWARDS & SONS, INC.
ADAMS, HARKNESS & HILL, INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 49
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
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 $ 2,394 $ 7,183
NASD Filing Fee................................ 3,191 798 2,393
Nasdaq National Market Listing Fee............. 15,600 15,600 --
Blue Sky Fees and Expenses..................... 12,000 3,000 9,000
Transfer Agent and Registrar Fees.............. 3,500 875 2,625
Accounting Fees and Expenses................... 50,000 12,500 37,500
Legal Fees and Expenses........................ 100,000 25,000 75,000
Printing Expenses.............................. 50,000 12,500 37,500
Miscellaneous.................................. 16,132 4,033 12,099
-------- ------- --------
Total................................ $260,000 $76,700 $183,300
======== ======= ========
</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> 50
<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>
- ---------------
* Previously filed.
** Filed herewith.
</TABLE>
(b) Financial Statement Schedule -- Schedule II, Valuation and Qualifying
Accounts
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> 51
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> 52
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Avon, Commonwealth of
Massachusetts, on this 4th day of June, 1996.
THE FIRST YEARS INC.
By: /S/ BENJAMIN PELTZ
------------------------------------
Benjamin Peltz
Senior Vice President and Treasurer
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 has been signed below by the following persons in the capacities and on
the dates indicated.
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
RONALD J. SIDMAN* Chief Executive Officer, June 4, 1996
- --------------------------------------- Chairman of the Board of
Ronald Sidman Directors and President
(Chief Executive Officer)
JEROME M. KARP* Vice Chairman of the Board of June 4, 1996
--------------------------------------- Directors
Jerome M. Karp
/S/ BENJAMIN PELTZ Treasurer, Senior Vice June 4, 1996
- ---------------------------------------- President and Director (Chief
Benjamin Peltz Financial and Accounting
Officer)
EVELYN SIDMAN* Director June 4, 1996
- ---------------------------------------
Evelyn Sidman
FRED T. PAGE* Director June 4, 1996
- ---------------------------------------
Fred T. Page
MERTON N. ALPERIN* Director June 4, 1996
- ---------------------------------------
Merton N. Alperin
*By /S/ BENJAMIN PELTZ
----------------------------------
Benjamin Peltz
Attorney-in-fact
</TABLE>
II-4
<PAGE> 53
SCHEDULE II
THE FIRST YEARS INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
<TABLE>
<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:
1993......................................... $ 270,000 $ 17,177 $102,177 $185,000
======== ======== ======== ========
1994......................................... $ 185,000 $ 23,673 $ 23,673 $185,000
======== ======== ======== ========
1995......................................... $ 185,000 $ 86,227 $ 86,227 $185,000
======== ======== ======== ========
</TABLE>
(1) Net accounts written off.
S-1
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
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.*
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).*
</TABLE>
<PAGE> 55
<TABLE>
<C> <S>
23.2 Deloitte & Touche LLP consent and report on Schedule.**
24 Power of Attorney (included in the signature page of this Registration Statement)*.
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
<PAGE> 1
Draft of June 3, 1996
Subject to Change
THE FIRST YEARS INC.
1,600,000 SHARES
COMMON STOCK
($.01 PAR VALUE)
UNDERWRITING AGREEMENT
June __, 1996
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 400,000 shares of its Common Stock, par value $.10 per share, and
the Selling Shareholders severally propose to sell to the Underwriters a total
of 1,200,000 shares of the Company's Common Stock, par value $.10 per share, as
set forth on Schedule I hereto (such 1,600,000 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 240,000
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 ____________, 1996, 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 240,000 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. 33-62673) 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
-3-
<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
-4-
<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
-5-
<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.
-6-
<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
-7-
<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
-8-
<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 ss.
9601 of the Comprehensive, Response Compensation and Liability Act of 1980,
42 U.S.C. ss. 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
-9-
<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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(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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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 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, Patents and Copyrights". [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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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 material respects at such Closing Date, with the same effect as if
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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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<PAGE> 26
(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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<PAGE> 27
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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<PAGE> 28
"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
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<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
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<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.
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<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
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<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
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<PAGE> 34
SCHEDULE I
Number of
Selling Shareholders Firm Shares
- -------------------- -----------
Estate of Marshall B. Sidman 800,000
Jerome M. Karp 160,000
Benjamin Peltz 160,000
Ronald J. Sidman 80,000
-------
Total 1,200,000
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<PAGE> 35
SCHEDULE II
Name Number of Firm Shares
- ---- ---------------------
A.G. Edwards & Sons, Inc.
Adams, Harkness & Hill, Inc. _________
Total 1,600,000
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<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
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<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
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<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 March 31, 1996 and for the three month
period 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 consolidated net sales or net
income from the corresponding period in the preceding year.
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EXHIBIT 11
THE FIRST YEARS INC.
PRIMARY NET INCOME PER SHARE AND FULLY DILUTED NET INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED
DECEMBER 31, MARCH 31,
------------------------ ------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER SHARE:
Net income available for common shares and
common stock equivalent shares............... $2,989,374 $3,724,493 $ 829,808 $1,186,573
========== ========== ========== ==========
Primary net income per share.............. $0.66 $0.80 $0.18 $0.25
SHARES USED IN COMPUTATION:
Weighted average common shares outstanding..... 4,497,244 4,507,058 4,500,978 4,515,487
Common stock equivalents - options............. 53,450 156,433 160,868 173,939
---------- ---------- ---------- ----------
Total common stock and common stock
equivalent dilutive shares......... 4,550,694 4,663,491 4,661,846 4,689,426
========== ========== ========== ==========
FULLY DILUTED NET INCOME PER SHARE:
Net income available for common shares and
common stock equivalent shares............... $2,989,374 $3,724,493 $ 829,808 $1,186,573
========== ========== ========== ==========
Fully diluted net income per share........ $0.65 $0.80 $0.18 $0.25
SHARES USED IN COMPUTATION:
Weighted average common shares outstanding..... 4,497,244 4,507,058 4,500,978 4,515,487
Common stock equivalents - options............. 71,726 166,595 160,868 202,600
---------- ---------- ---------- ----------
Total common stock and common stock
equivalent dilutive shares......... 4,568,970 4,673,653 4,661,846 4,718,087
========== ========== ========== ==========
</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 Amendment No. 2 to Registration Statement No.
33-62673 (the "Registration Statement") of The First Years Inc. (formerly Kiddie
Products, Inc.) on Form S-1 of our report dated March 7, 1996, appearing in the
Prospectus, which is part of the Registration Statement, and to the reference to
us under the heading "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
June 4, 1996
